UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) May 1, 2018
Juniper Networks, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 001-34501 | 770422528 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
1133 Innovation Way, Sunnyvale, California |
94089 | |||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (408) 745-2000
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On May 1, 2018, Juniper Networks, Inc. (we, our or the Company) issued a press release in which we announced preliminary financial results for the quarter ended March 31, 2018. The Company also posted on the Investor Relations section of its website (www.juniper.net) prepared remarks with respect to the quarter ended March 31, 2018. Copies of the press release and prepared remarks by the Company are furnished as Exhibits 99.1 and 99.2, respectively, to this report. Information on our website is not, and will not be deemed, a part of this report or incorporated into any other filings the Company makes with the Securities and Exchange Commission.
The information furnished pursuant to this Item 2.02, including Exhibits 99.1 and 99.2, shall not be deemed as filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. |
Description | |
99.1 | Press release issued by Juniper Networks, Inc. on May 1, 2018 | |
99.2 | Prepared remarks by Juniper Networks, Inc. dated as of May 1, 2018 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Juniper Networks, Inc. | ||||||
May 1, 2018 | By: | /s/ Brian M. Martin | ||||
Name: Brian M. Martin | ||||||
Title: Senior Vice President and General Counsel |
Exhibit 99.1
Investor Relations:
Jess Lubert
Juniper Networks
(408) 936-3734
jlubert@juniper.net
Media Relations:
Leslie Moore
Juniper Networks
(408) 936-5767
llmoore@juniper.net
JUNIPER NETWORKS REPORTS PRELIMINARY FIRST QUARTER 2018 FINANCIAL RESULTS
SUNNYVALE, Calif., May 1, 2018 - Juniper Networks (NYSE: JNPR), an industry leader in automated, scalable and secure networks, today reported preliminary financial results for the three months ended March 31, 2018 and provided its outlook for the three months ending June 30, 2018.
First Quarter 2018 Financial Performance
Net revenues were $1,082.6 million, a decrease of 11% year-over-year and 13% sequentially.
GAAP operating margin was 5.1%, a decrease from 12.8% in the first quarter of 2017, and a decrease from 16.4% in the fourth quarter of 2017.
Non-GAAP operating margin was 12.3%, a decrease from 20.8% in the first quarter of 2017, and a decrease from 22.7% in the fourth quarter of 2017.
GAAP net income was $34.4 million, a decrease of 68% year-over-year, resulting in diluted net income per share of $0.10.
Non-GAAP net income was $99.5 million, a decrease of 44% year-over-year and 50% sequentially, resulting in diluted earnings per share of $0.28.
The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Preliminary Net Revenues by Geographic Region table below.
We hit the high-end of our guidance during the March quarter due to better than expected results from our cloud vertical and another quarter of growth in our enterprise business, said Rami Rahim, chief executive officer, Juniper Networks. We are encouraged by the trends we are seeing in several areas of our business and remain confident in our expectation to deliver sequential growth through 2018 and a return to year-over-year growth by the December quarter.
While our margins came in below historical levels during the March quarter, we met the profitability targets we set for the period, which enabled earnings to come in at the high-end of guidance, said Ken Miller, chief financial officer, Juniper Networks. We remain focused on capturing efficiencies and expect profitability levels to improve sequentially through the course of 2018.
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Balance Sheet and Other Financial Results
Total cash, cash equivalents, and investments as of March 31, 2018 were $3,448.4 million, compared to $4,043.7 million as of March 31, 2017, and $4,021.0 million as of December 31, 2017.
Net cash flows provided by operations for the first quarter of 2018 was $271.1 million, compared to $546.6 million in the first quarter of 2017, and $211.6 million in the fourth quarter of 2017.
Days sales outstanding in accounts receivable, or DSO, was 57 days in the first quarter of 2018, compared to 49 days in the first quarter of 2017, and 62 days in the fourth quarter of 2017.
Capital expenditures were $42.2 million and depreciation and amortization expense was $55.0 million during the first quarter of 2018.
During the quarter, the company initiated a $750 million accelerated share repurchase agreement and paid a $62 million quarterly dividend, or $0.18 per share.
Outlook
These metrics are provided on a non-GAAP basis, except for revenue and share count. Earnings per share is on a fully diluted basis. The outlook assumes that the exchange rate of the U.S. dollar to other currencies will remain relatively stable at current levels.
Our Q2 revenue outlook reflects a return to normal seasonality. While customer spending patterns remain dynamic and difficult to predict, we continue to expect sequential growth through the remainder of the year, with a return to year-over year growth during the December quarter.
The company expects gross margin to improve sequentially during the June quarter due to higher volumes and improvements in our cost structure. While better volumes and cost structure efficiencies should drive further gross margin improvement during the second half of 2018, the pace of improvement could be offset by mix and other factors.
Based on our expected spending through the first half of the year, we now expect our annual operating expenditures to be approximately flat for the full year 2018 versus full year 2017.
Junipers guidance for the quarter ending June 30, 2018 is as follows:
| Revenues will be approximately $1,175 million, plus or minus $30 million. |
| Non-GAAP gross margin will be approximately 59.0%, plus or minus 1.0%. |
| Non-GAAP operating expenses will be approximately $490 million, plus or minus $5 million. |
| Non-GAAP operating margin will be approximately 17.5% at the midpoint of revenue guidance. |
| Non-GAAP tax rate will be approximately 21.0%. |
| Non-GAAP net income per share will be approximately $0.44, plus or minus $0.03. This assumes a share count of approximately 351 million. |
The guidance above is provided under ASC 606.
All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuring benefits or charges, impairment charges, litigation
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settlement benefits or charges and resolution charges, supplier component remediation charges and recoveries, gain or loss on equity investments, retroactive impact of certain tax settlements, significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the period. Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding U.S. generally accepted accounting principles or GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. For example, share-based compensation expense is impacted by the Companys future hiring needs, the type and volume of equity awards necessary for such future hiring, and the price at which the Companys stock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.
First Quarter 2018 Financial Commentary Available Online
A CFO Commentary reviewing the Companys first quarter 2018 financial results, as well as second quarter 2018 financial outlook will be furnished to the SEC on Form 8-K and published on the Companys website at http://investor.juniper.net. Analysts and investors are encouraged to review this commentary prior to participating in the conference call webcast.
Conference Call Webcast
Juniper Networks will host a conference call webcast today, May 1, 2018, at 2:00 pm PT, to be broadcast live over the Internet at http://investor.juniper.net. To participate via telephone in the US, the toll free dial-in number is 1-877-407-8033. Outside the US, dial +1-201-689-8033. Please call 10 minutes prior to the scheduled conference call time. The webcast replay will be archived on the Juniper Networks website.
About Juniper Networks
Juniper Networks simplifies the complexities of networking with products, solutions and services in the cloud era to transform the way we connect, work and live. We remove the traditional constraints of networking to enable our customers and partners to deliver automated, scalable and secure networks that connect the world. Additional information can be found at Juniper Networks (www.juniper.net).
Investors and others should note that the Company announces material financial and operational information to its investors using its Investor Relations website, press releases, SEC filings and public conference calls and webcasts. The Company also intends to use the Twitter account @JuniperNetworks and the Companys blogs as a means of disclosing information about the Company and for complying with its disclosure obligations under Regulation FD. The social media channels that the Company intends to use as a means of disclosing information described above may be updated from time to time as listed on the Companys Investor Relations website.
Juniper Networks, the Juniper Networks logo, Juniper, and Junos are registered trademarks of Juniper Networks, Inc. and/or its affiliates in the United States and other countries. Other names may be trademarks of their respective owners.
Safe Harbor
Statements in this release concerning Juniper Networks business outlook, economic and market outlook; our future financial and operating results; expectations with respect to our market trends; the impact of the Tax Cuts and Jobs Act on our business; execution of our capital return program; our future strategy; the strength of our product portfolio; our ability to expand business opportunities; our expectations around obtaining revenue and margin growth; our cost management and operating expense discipline; and our overall future prospects are forward-looking statements within
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the meaning of the Private Securities Litigation Reform Act that involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of several factors, including: general economic and political conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending by our customers and spending by communication service providers and major customers, including Cloud providers; the network capacity requirements of our customers and, in particular, cloud and communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the Tax Cuts and Jobs Act; currency fluctuations; litigation settlements and resolutions; the potential impact of activities related to the execution of capital return, restructurings and product rationalization; and other factors listed in Juniper Networks most recent report on Form 10-Q or 10-K filed with the Securities and Exchange Commission. Note that our estimates as to tax rate and the impact of the Tax Cuts and Jobs Act on our business are based on current tax law, including current interpretations of the Tax Cuts and Jobs Act, and could be affected by changing interpretations of the Act, as well as additional legislation and guidance around the Act. All statements made in this press release are made only as of the date set forth at the beginning of this release. Juniper Networks undertakes no obligation to update the information made in this release in the event facts or circumstances subsequently change after the date of this press release.
Use of Non-GAAP Financial Information
Juniper Networks believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the companys financial condition and results of operations. For further information regarding why Juniper Networks believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Discussion of Non-GAAP Financial Measures section of this press release. The following tables and reconciliations can also be found on our Investor Relations website at http://investor.juniper.net.
Page 4 of 11
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Operations
(in millions, except per share amounts)
(unaudited)
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Net revenues: |
||||||||
Product |
$ | 710.8 | $ | 828.9 | ||||
Service |
371.8 | 392.1 | ||||||
|
|
|
|
|||||
Total net revenues |
1,082.6 | 1,221.0 | ||||||
Cost of revenues: |
||||||||
Product |
306.4 | 330.2 | ||||||
Service |
157.8 | 144.2 | ||||||
|
|
|
|
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Total cost of revenues |
464.2 | 474.4 | ||||||
|
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|
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Gross margin |
618.4 | 746.6 | ||||||
Operating expenses: |
||||||||
Research and development |
269.4 | 276.2 | ||||||
Sales and marketing |
239.4 | 244.2 | ||||||
General and administrative |
56.0 | 50.5 | ||||||
Restructuring (benefits) charges |
(1.9 | ) | 19.4 | |||||
|
|
|
|
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Total operating expenses |
562.9 | 590.3 | ||||||
|
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|
|
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Operating income |
55.5 | 156.3 | ||||||
Other expense, net |
(14.1 | ) | (15.7 | ) | ||||
|
|
|
|
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Income before income taxes |
41.4 | 140.6 | ||||||
Income tax provision |
7.0 | 31.8 | ||||||
|
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|
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Net income |
$ | 34.4 | $ | 108.8 | ||||
|
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|
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Net income per share: |
||||||||
Basic |
$ | 0.10 | $ | 0.29 | ||||
|
|
|
|
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Diluted |
$ | 0.10 | $ | 0.28 | ||||
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Shares used in computing net income per share: |
||||||||
Basic |
355.3 | 380.9 | ||||||
|
|
|
|
|||||
Diluted |
360.6 | 388.0 | ||||||
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|
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Cash dividends declared per common stock |
$ | 0.18 | $ | 0.10 | ||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Product and Service
(in millions)
(unaudited)
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Routing |
$ | 408.1 | $ | 521.6 | ||||
Switching |
230.0 | 241.6 | ||||||
Security |
72.7 | 65.7 | ||||||
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Total product |
710.8 | 828.9 | ||||||
Total service |
371.8 | 392.1 | ||||||
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|
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Total |
$ | 1,082.6 | $ | 1,221.0 | ||||
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|
Juniper Networks, Inc.
Preliminary Net Revenues by Vertical
(in millions)
(unaudited)
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Cloud |
$ | 268.3 | $ | 331.6 | ||||
Service Provider |
479.9 | 568.5 | ||||||
Enterprise |
334.4 | 320.9 | ||||||
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Total |
$ | 1,082.6 | $ | 1,221.0 | ||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in millions)
(unaudited)
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Americas |
$ | 587.6 | $ | 711.6 | ||||
Europe, Middle East, and Africa |
308.0 | 284.5 | ||||||
Asia Pacific |
187.0 | 224.9 | ||||||
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Total |
$ | 1,082.6 | $ | 1,221.0 | ||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
Three Months Ended | ||||||||||||||||
March 31, 2018 | December 31, 2017 |
March 31, 2017 | ||||||||||||||
GAAP operating income |
$ | 55.5 | $ | 202.7 | $ | 156.3 | ||||||||||
GAAP operating margin |
5.1 | % | 16.4 | % | 12.8 | % | ||||||||||
Share-based compensation expense |
C | 70.4 | 36.4 | 62.0 | ||||||||||||
Share-based payroll tax expense |
C | 5.6 | 0.2 | 4.4 | ||||||||||||
Amortization of purchased intangible assets |
A | 4.4 | 4.9 | 4.3 | ||||||||||||
Restructuring (benefits) charges |
B | (1.9 | ) | 36.2 | 19.4 | |||||||||||
Acquisition-related and other charges |
A | 0.1 | 0.4 | 0.3 | ||||||||||||
Litigation settlement benefits |
B | (0.6 | ) | | | |||||||||||
Supplier component remediation charges |
B | | | 7.1 | ||||||||||||
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Non-GAAP operating income |
$ | 133.5 | $ | 280.8 | $ | 253.8 | ||||||||||
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Non-GAAP operating margin |
12.3 | % | 22.7 | % | 20.8 | % | ||||||||||
GAAP net income (loss) |
$ | 34.4 | $ | (148.1 | ) | $ | 108.8 | |||||||||
Share-based compensation expense |
C | 70.4 | 36.4 | 62.0 | ||||||||||||
Share-based payroll tax expense |
C | 5.6 | 0.2 | 4.4 | ||||||||||||
Amortization of purchased intangible assets |
A | 4.4 | 4.9 | 4.3 | ||||||||||||
Restructuring (benefits) charges |
B | (1.9 | ) | 36.2 | 19.4 | |||||||||||
Acquisition-related and other charges |
A | 0.1 | 0.4 | 0.3 | ||||||||||||
Litigation settlement benefits |
B | (0.6 | ) | | | |||||||||||
Supplier component remediation charges |
B | | | 7.1 | ||||||||||||
Gain on equity investments |
B | | (7.8 | ) | | |||||||||||
Estimated tax expense from income tax reform |
B | | 289.5 | | ||||||||||||
Income tax effect of non-GAAP exclusions |
B | (12.9 | ) | (12.3 | ) | (28.3 | ) | |||||||||
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Non-GAAP net income |
$ | 99.5 | $ | 199.4 | $ | 178.0 | ||||||||||
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GAAP diluted net income (loss) per share |
$ | 0.10 | $ | (0.40 | ) | $ | 0.28 | |||||||||
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Non-GAAP diluted net income per share |
D | $ | 0.28 | $ | 0.53 | $ | 0.46 | |||||||||
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Shares used in computing GAAP diluted net income (loss) per share |
360.6 | 371.5 | 388.0 | |||||||||||||
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Shares used in computing Non-GAAP diluted net income per share |
360.6 | 376.6 | 388.0 | |||||||||||||
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Discussion of Non-GAAP Financial Measures
This press release, including the tables above, includes the following non-GAAP financial measures derived from our Preliminary Condensed Consolidated Statements of Operations: operating income; operating margin; net income; and diluted net income per share. These measures are not presented in accordance with, nor are they a substitute for GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in the table above should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, certain of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.
We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures presented above to be helpful in assessing the performance of the continuing operation of our business. By continuing operation, we mean the ongoing revenue and expenses of the business, excluding certain items that render comparisons with prior periods or analysis of on-going operating trends more difficult, such as expenses not directly related to the actual cash costs of development, sale, delivery or support of our products and services, or expenses that are reflected in periods unrelated to when the actual amounts were incurred or paid. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. In addition, we have historically reported non-GAAP results to the investment community and believe that continuing to provide non-GAAP measures provides investors with a tool for comparing results over time. In assessing the overall health of our business for the periods covered by the table above and, in particular, in evaluating the financial line items presented in the table above, we have excluded items in the following three general categories, each of which are described below: Acquisition-Related Charges, Other Items, and Share-Based Compensation Related Items. We also provide additional detail below regarding the shares used to calculate our non-GAAP net income per share. Notes identified for line items in the table above correspond to the appropriate note description below. With respect to the items excluded from our forward-looking non-GAAP measures and reconciliation of such measures, please see the Outlook section above.
Note A: Acquisition-Related Charges. We exclude certain expense items resulting from acquisitions including amortization of purchased intangible assets associated with our acquisitions. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.
Note B: Other Items. We exclude certain other items that are the result of either unique or unplanned events, including the following, when applicable: (i) restructuring benefits or charges; (ii) litigation settlement benefits or charges; (iii) supplier component remediation recovery or charges; (iv) gain or loss on equity investments; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform; (vi) the income tax effect on our financial statements of excluding items related to our non-GAAP financial measures. It is difficult to estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. Restructuring benefits or charges result from events that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. These expenses do not accurately reflect the
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underlying performance of our continuing business operations for the period in which they are incurred. In the case of legal settlements, these gains or losses are recorded in the period in which the matter is concluded or resolved even though the subject matter of the underlying dispute may relate to multiple or different periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. Additionally, supplier component remediation recovery and charges are directly related to an event that is distinct and does not reflect normal business operations. Whether we realize gains or losses on equity investments is based primarily on the performance and market value of those independent companies. Accordingly, we believe that these gains and losses do not reflect the underlying performance of our continuing operations. Additionally, the impact of certain income tax reform, including the revaluation of our deferred tax assets and liabilities and the deemed repatriation of accumulated foreign earnings, are unique events that occur in periods that are generally unrelated to the level of business activity to which such tax reform or legislation applies. We believe this limits comparability with prior periods and that these expenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. We also believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the on-going performance and future liquidity of our business. Because of these factors, we assess our operating performance with these amounts both included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.
Note C: Share-Based Compensation Related Items. We provide non-GAAP information relative to our expense for share-based compensation and related payroll tax. Due to the varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of share-based compensation, we believe that the exclusion of share-based compensation and related payroll tax allows for more accurate comparisons of our operating results to our peer companies and is useful to investors to understand the impact of share-based compensation to our results of operations. Further, expense associated with granting share-based awards does not reflect any cash expenditures by the company as no cash is expended.
Note D: Non-GAAP Net Income Per Share Items. We provide diluted non-GAAP net income per share. The diluted non-GAAP net income per share includes additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive.
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Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
March 31, 2018 |
December 31, 2017 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,614.2 | $ | 2,006.5 | ||||
Short-term investments |
317.7 | 1,026.1 | ||||||
Accounts receivable, net of allowances |
679.9 | 852.0 | ||||||
Prepaid expenses and other current assets |
308.9 | 299.9 | ||||||
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Total current assets |
3,920.7 | 4,184.5 | ||||||
Property and equipment, net |
1,013.8 | 1,021.1 | ||||||
Long-term investments |
516.5 | 988.4 | ||||||
Purchased intangible assets, net |
123.8 | 128.1 | ||||||
Goodwill |
3,096.2 | 3,096.2 | ||||||
Other long-term assets |
407.5 | 415.5 | ||||||
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|||||
Total assets |
$ | 9,078.5 | $ | 9,833.8 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 189.2 | $ | 217.6 | ||||
Accrued compensation |
172.8 | 186.0 | ||||||
Deferred revenue |
888.2 | 1,030.3 | ||||||
Short-term debt |
349.3 | | ||||||
Other accrued liabilities |
230.5 | 304.3 | ||||||
|
|
|
|
|||||
Total current liabilities |
1,830.0 | 1,738.2 | ||||||
Long-term debt |
1,787.7 | 2,136.3 | ||||||
Long-term deferred revenue |
368.7 | 509.0 | ||||||
Long-term income taxes payable |
649.5 | 650.6 | ||||||
Other long-term liabilities |
117.9 | 118.8 | ||||||
|
|
|
|
|||||
Total liabilities |
4,753.8 | 5,152.9 | ||||||
Total stockholders equity |
4,324.7 | 4,680.9 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 9,078.5 | $ | 9,833.8 | ||||
|
|
|
|
Page 10 of 11
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Three Months Ended March 31, | ||||||||
2018 | 2017(*) | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 34.4 | $ | 108.8 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Share-based compensation expense |
70.4 | 62.0 | ||||||
Depreciation, amortization, and accretion |
55.7 | 55.8 | ||||||
Other |
1.7 | (1.0 | ) | |||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
Accounts receivable, net |
170.8 | 383.0 | ||||||
Prepaid expenses and other assets |
(11.7 | ) | (3.5 | ) | ||||
Accounts payable |
(31.2 | ) | (18.4 | ) | ||||
Accrued compensation |
(14.1 | ) | (47.2 | ) | ||||
Income taxes payable |
(7.6 | ) | 4.1 | |||||
Other accrued liabilities |
(51.1 | ) | (8.9 | ) | ||||
Deferred revenue |
53.8 | 11.9 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
271.1 | 546.6 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(42.2 | ) | (32.1 | ) | ||||
Purchases of available-for-sale debt investments |
(8.1 | ) | (378.9 | ) | ||||
Proceeds from sales of available-for-sale debt investments |
968.0 | 218.8 | ||||||
Proceeds from maturities and redemptions of available-for-sale debt investments |
215.4 | 184.3 | ||||||
Purchases of trading investments |
| (1.8 | ) | |||||
Purchases of equity investments |
(2.0 | ) | | |||||
Proceeds from sales of equity investments |
3.3 | | ||||||
Payment of escrow balance related to prior year acquisition |
(22.2 | ) | | |||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
1,112.2 | (9.7 | ) | |||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Repurchase and retirement of common stock, including prepayment under accelerated share repurchases program |
(754.2 | ) | (129.7 | ) | ||||
Proceeds from issuance of common stock |
29.3 | 33.7 | ||||||
Payment of dividends |
(62.1 | ) | (38.0 | ) | ||||
Change in customer financing arrangement |
(16.6 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(803.6 | ) | (134.0 | ) | ||||
|
|
|
|
|||||
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
6.2 | 7.2 | ||||||
|
|
|
|
|||||
Net increase in cash, cash equivalents and restricted cash |
585.9 | 410.1 | ||||||
Cash, cash equivalents and restricted cash at beginning of period |
2,059.1 | 1,880.6 | ||||||
|
|
|
|
|||||
Cash, cash equivalents and restricted cash at end of period |
$ | 2,645.0 | $ | 2,290.7 | ||||
|
|
|
|
(*) | During the first quarter of fiscal 2018, the Company adopted the new accounting pronouncement requiring classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The adoption of this standard resulted in $47.4 million and $48.7 million increase in cash, cash equivalents and restricted cash in the beginning and ending balances, respectively for the quarter ended March 31, 2017. The adoption did not have a material impact on the cash flow activity presented on the Companys Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017. The Company applied this provision on a retrospective basis. |
Page 11 of 11
Exhibit 99.2
Juniper Networks, Inc.
1133 Innovation Way
Sunnyvale, CA 94089
May 1, 2018
CFO Commentary on First Quarter Preliminary Financial Results
Related Information
The following commentary is provided by management and should be referenced in conjunction with Juniper Networks first quarter 2018 preliminary financial results press release available on its Investor Relations website at http://investor.juniper.net. These remarks represent managements current views of the Companys financial and operational performance and outlook and are provided to give investors and analysts further insight into the Companys performance in advance of the earnings call webcast.
In the first quarter of 2018, we revised the naming convention of our key customer verticals as follows:
| Telecom / Cable will now be referred to as Service Provider |
| Strategic Enterprise will now be referred to as Enterprise |
| Cloud will remain unchanged |
The customers included in each of these verticals remain unchanged.
Q1 2018 Preliminary Financial Results
GAAP
(in millions, except per share amounts and percentages) | Q118 | Q417 | Q117 | Q/Q Change |
Y/Y Change | |||||||||||||||
Revenue |
$ | 1,082.6 | $ | 1,239.5 | $ | 1,221.0 | (13) | % | (11) | % | ||||||||||
Product |
710.8 | 830.4 | 828.9 | (14) | % | (14) | % | |||||||||||||
Service |
371.8 | 409.1 | 392.1 | (9) | % | (5) | % | |||||||||||||
Gross margin % |
57.1 | % | 60.6 | % | 61.1 | % | (3.5) | pts | (4.0) | pts | ||||||||||
Research and development |
269.4 | 227.9 | 276.2 | 18 | % | (2) | % | |||||||||||||
Sales and marketing |
239.4 | 233.6 | 244.2 | 2 | % | (2) | % | |||||||||||||
General and administrative |
56.0 | 50.8 | 50.5 | 10 | % | 11 | % | |||||||||||||
Restructuring (benefits) charges |
(1.9) | 36.2 | 19.4 | N/M | N/M | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
$ | 562.9 | $ | 548.5 | $ | 590.3 | 3 | % | (5) | % | ||||||||||
|
|
|
|
|
|
|||||||||||||||
Operating margin % |
5.1 | % | 16.4 | % | 12.8 | % | (11.3) | pts | (7.7 | )pts | ||||||||||
|
|
|
|
|
|
|||||||||||||||
Net income (loss) |
$ | 34.4 | $ | (148.1) | $ | 108.8 | N/M | (68) | % | |||||||||||
|
|
|
|
|
|
|||||||||||||||
Diluted net income (loss) per share |
$ | 0.10 | $ | (0.40) | $ | 0.28 | N/M | (64) | % | |||||||||||
|
|
|
|
|
|
N/MNot meaningful
Non-GAAP
(in millions, except per share amounts and percentages) | Q218 Guidance | Q118 | Q417 | Q117 | Q/Q Change |
Y/Y Change | ||||||||||||||||||
Revenue(1) |
$ | 1,175 +/- $30 | $ | 1,082.6 | $ | 1,239.5 | $ | 1,221.0 | (13 | )% | (11 | )% | ||||||||||||
Product(1) |
710.8 | 830.4 | 828.9 | (14 | )% | (14 | )% | |||||||||||||||||
Service(1) |
371.8 | 409.1 | 392.1 | (9 | )% | (5 | )% | |||||||||||||||||
Gross margin % |
59.0% +/- 1 | % | 58.2 | % | 61.3 | % | 62.5 | % | (3.1 | )pts | (4.3 | )pts | ||||||||||||
Research and development |
222.9 | 208.6 | 239.6 | 7 | % | (7 | )% | |||||||||||||||||
Sales and marketing |
223.9 | 222.3 | 226.5 | 1 | % | (1 | )% | |||||||||||||||||
General and administrative |
49.8 | 48.1 | 43.0 | 4 | % | 16 | % | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total operating expenses |
$ | 490 +/- $5 | $ | 496.6 | $ | 479.0 | $ | 509.1 | 4 | % | (2 | )% | ||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating margin % |
|
~ 17.5% at the midpoint |
|
12.3 | % | 22.7 | % | 20.8 | % | (10.4 | )pts | (8.5 | )pts | |||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net income |
$ | 99.5 | $ | 199.4 | $ | 178.0 | (50 | )% | (44 | )% | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Diluted net income per share |
$ | 0.44 +/- $0.03 | $ | 0.28 | $ | 0.53 | $ | 0.46 | (47 | )% | (39 | )% | ||||||||||||
|
|
|
|
|
|
(1) | Revenue numbers are GAAP and Q118 actual and Q218 guidance are provided under revenue recognition requirements under ASC 606. |
Overview of the Accounting Impact for the Adoption of ASC 606
The Company adopted the new revenue accounting standard (ASC 606) on January 1, 2018, using the modified retrospective approach. The adoption primarily impacted the following areas:
1) | Allocation of revenue between product and services |
2) | Recognition of revenue from sales to distributors upon delivery of the product to the distributor rather than delivery of the product to the end customer |
3) | Estimating variable consideration of revenue for certain contractual clauses that previously precluded revenue recognition |
4) | Recognition of revenue from certain software licenses, which were previously deferred and recognized over time, are now recognized at the time of delivery |
For the three months ended March 31, 2018, the accounting impact of the adoption was an increase in revenue recognition by approximately $2 million and operating expense of approximately $1 million. Product revenue was approximately $29 million higher, primarily due to the impact of allocation of revenue between products and services, and variable consideration; partially offset by timing of recognition of revenue from sales to distributors. Product revenue increase from ASC 606 was primarily allocated between Routing and Switching. Service revenue was approximately $27 million lower, primarily due to the impact of allocation of revenue between products and services. Operating expense increased by approximately $1 million due to the timing of commissions. On a go forward basis, we dont expect a material difference in total annual revenue; however, we believe the adoption of ASC 606 will impact the allocation of revenue between product and service.
GAAP Q118 606 vs. 605
(in millions, except per share amounts and percentages) | 606 | 605 | Delta | |||||||||
Revenue |
$ | 1,082.6 | $ | 1,080.7 | | % | ||||||
Product |
710.8 | 682.1 | 4 | % | ||||||||
Service |
371.8 | 398.6 | (7 | )% | ||||||||
Gross margin % |
57.1 | % | 57.1 | % | | pts | ||||||
|
|
|
|
|||||||||
Total operating expenses |
$ | 562.9 | $ | 562.0 | | % | ||||||
|
|
|
|
|||||||||
Operating margin % |
5.1 | % | 5.1 | % | | pts | ||||||
|
|
|
|
|||||||||
Net income |
$ | 34.4 | $ | 35.3 | (3 | )% | ||||||
|
|
|
|
|||||||||
Diluted net income per share |
$ | 0.10 | $ | 0.10 | | % | ||||||
|
|
|
|
Non-GAAP Q118 606 vs. 605
(in millions, except per share amounts and percentages) | 606 | 605 | Delta | |||||||||
Revenue |
$ | 1,082.6 | $ | 1,080.7 | | % | ||||||
Product |
710.8 | 682.1 | 4 | % | ||||||||
Service |
371.8 | 398.6 | (7 | )% | ||||||||
Gross margin % |
58.2 | % | 58.2 | % | | pts | ||||||
|
|
|
|
|||||||||
Total operating expenses |
$ | 496.6 | $ | 495.6 | | % | ||||||
|
|
|
|
|||||||||
Operating margin % |
12.3 | % | 12.3 | % | | pts | ||||||
|
|
|
|
|||||||||
Net income |
$ | 99.5 | $ | 99.6 | | % | ||||||
|
|
|
|
|||||||||
Diluted net income per share |
$ | 0.28 | $ | 0.28 | | % | ||||||
|
|
|
|
This CFO Commentary contains non-GAAP financial measures, and the reconciliation between GAAP and non-GAAP financial measures can be found at the end of this document. We are unable to provide a reconciliation of forward-looking non-GAAP guidance measures to corresponding GAAP measures without unreasonable effort due to the overall high variability and low visibility of most of the items that are excluded from our non-GAAP guidance measures. More information on these exclusions can be found under Q2 2018 Outlook below.
Q1 2018 Overview
We reported first quarter revenue of $1,083 million, non-GAAP gross margin of 58.2% and non-GAAP earnings per share of $0.28, above the mid-point of our guidance, which was provided under ASC 605. The change to ASC 606 did not materially impact the overall Q118 financial results. The discussion of Q118 results below reflects the adoption of ASC 606.
As we expected, the architectural shifts in the Cloud vertical continued; however, Cloud revenues were up slightly sequentially and ahead of our expectations. The Service Provider vertical was challenged due to the timing of customer deployments, resulting in decreases both year-over-year and sequentially. Enterprise increased 4% year-over-year due to strength from all technologies. Routing and Switching both declined year-over-year; however, we continue to see positive momentum in Security where we saw a second consecutive quarter of year-over-year growth.
In reviewing our top 10 customers for the quarter, four were Cloud, four were Service Provider, and two were Enterprise. Of these customers, four were located outside of the U.S.
Product deferred revenue was $159 million, down $123 million and 44% year-over-year and down $175 million or 52% sequentially, primarily driven by the adoption of ASC 606. Without the impact of ASC 606, deferred product revenue would have been up approximately 19% year-over-year and flat sequentially.
Non-GAAP operating expense declined 2% year-over-year, but increased 4% sequentially, reflecting the annual reset of variable compensation. The sequential increase reflects the annual reset of variable compensation as well as targeted investments in R&D and sales and marketing designed to strengthen products and market opportunities that we believe will drive differentiation and create future shareholder value.
Cash flow from operations was $271 million for the quarter. During the quarter, we initiated a $750 million accelerated share repurchase program (ASR) and paid $62 million in dividends, reflecting a quarterly dividend of $0.18 per share. The total cash, cash equivalents, and investments ending Q118 was $3.4 billion, and we repatriated $2.5 billion during the quarter.
Revenue
Product & Service
| Routing product revenue: $408 million, down 22% year-over-year and down 20% sequentially. The year-over-year decrease was primarily due to Service Provider and Cloud. The sequential decrease was primarily driven by Service Provider. The MX product family declined year-over-year and sequentially. The PTX product family grew year-over-year and declined sequentially. |
| Switching product revenue: $230 million, down 5% year-over-year and down 1% sequentially. The year-over-year decrease was driven by Cloud, partially offset by the impact of the adoption of ASC 606 and Enterprise. Sequentially, the decrease was driven by all verticals partially offset by the impact of the adoption of ASC 606. |
| Security product revenue: $73 million, up 11% year-over-year and down 17% sequentially. Year-over-year, the increase was driven by all verticals. The sequential decrease was driven by Enterprise and Service Provider. |
| Service revenue: $372 million, down 5% year-over-year and down 9% sequentially. Year-over-year, the decrease was driven by the impact of the adoption of ASC 606. Excluding the impact of the adoption of ASC 606, our service net revenues increased 2% year-over-year primarily driven by strong renewal and attach rates of support contracts. Sequentially, the decrease was primarily driven by the impact of the adoption of ASC 606. |
Vertical
Cloud: $268 million, down 19% year-over-year and up 4% sequentially. Year-over-year, the decrease was primarily due to Switching and Routing, partially offset by Services. The sequential increase was primarily due to Routing, partially offset by Switching.
| Service Provider: $480 million, down 16% year-over-year and down 21% sequentially. Year-over-year, the decrease was primarily due to Routing, partially offset by the impact of the adoption of ASC 606. Sequentially, the decrease was driven by Routing, partially offset by the impact of the adoption of ASC 606. |
| Enterprise: $334 million, up 4% year-over-year and down 10% sequentially. Year-over-year, the increase was driven by all technologies and services, partially offset by the impact of the adoption of ASC 606. Sequentially, the decrease reflects typical seasonality across all technologies as well as the impact of the adoption of ASC 606. |
Geography
| Americas: $588 million, down 17% year-over-year and down 17% sequentially. Year-over-year, the decrease was due to Service Provider and Cloud, partially offset by Enterprise. Sequentially, the decrease was due to all verticals. |
| EMEA: $308 million, up 8% year-over-year and down 5% sequentially. Year-over-year, the increase was primarily due to the impact of the adoption of ASC 606 and Enterprise, partially offset by Service Provider. Sequentially, the decrease was driven by Service Provider, partially offset by the impact of the adoption of ASC 606 and Cloud. |
| APAC: $187 million, down 17% year-over-year and down 11% sequentially. Year-over-year, the decrease was driven by Service Provider. The sequential decrease was primarily driven by Service Provider and Enterprise. |
Gross Margin
| GAAP gross margin: 57.1%, compared to 61.1% from the prior year and 60.6% from last quarter. |
| Non-GAAP gross margin: 58.2%, compared to 62.5% from the prior year and 61.3% from last quarter. |
| GAAP product gross margin: 56.9%, down 3.3 points from the prior year and down 2.8 points from last quarter. |
| Non-GAAP product gross margin: 57.7%, down 3.8 points from the prior year and down 2.6 points from last quarter. |
Year-over-year, the decrease in product gross margin, on a GAAP and non-GAAP basis, was primarily due to lower revenue, customer and product mix and higher costs of certain memory components, partially offset by the adoption of ASC 606 and improvements in our cost structure.
The sequential decrease, on a GAAP and non-GAAP basis, was primarily driven by lower revenue, customer and product mix partially offset by the adoption of ASC 606.
| GAAP service gross margin: 57.6%, down 5.6 points from the prior year and down 4.8 points from last quarter. |
| Non-GAAP service gross margin: 59.1%, down 5.4 points from the prior year and down 4.3 points from last quarter. |
Year-over-year and sequentially, the decrease in service gross margin, on a GAAP and non-GAAP basis, was primarily due to lower revenue as a result of the adoption of ASC 606 and higher delivery costs.
Operating Expenses
| GAAP operating expenses: $563 million, a decrease of $27 million, or 5% year-over-year, and an increase of $14 million, or 3% sequentially. |
The year-over-year decrease in operating expenses was primarily due to lower restructuring costs and lower headcount. The sequential increase was primarily due to stock based compensation, higher variable compensation and the seasonal increase in fringe costs partially offset by lower restructuring charges.
GAAP operating expenses were 52.0% of revenue, up 3.7 points year-over-year and up 7.7 points quarter-over-quarter.
| Non-GAAP operating expenses: $497 million, a decrease of $13 million, or 2% year-over-year, and an increase of $18 million or 4% sequentially. |
The year-over-year decrease in operating expenses was primarily due to lower headcount related costs.
The sequential increase reflects the annual reset of variable compensation, the seasonal increase in fringe costs as well as targeted investments in R&D and sales and marketing designed to strengthen products and market opportunities that we believe will drive differentiation and create future shareholder value.
Non-GAAP operating expenses were 45.9% of revenue, up 4.2 points year-over-year and up 7.3 points quarter-over-quarter, primarily due to lower revenue.
Operating Margin
| GAAP operating margin: 5.1%, a decrease of 7.7 points year-over-year and 11.3 points sequentially. |
| Non-GAAP operating margin: 12.3%, a decrease of 8.5 points year-over-year and 10.4 points sequentially. |
Tax Rate
| GAAP tax rate: 16.9%, a decrease compared to 174.0% last quarter and 22.6% in Q117. |
The year-over-year and sequential decrease in the effective tax rate, on a GAAP basis, was primarily due to a lower tax rate as a result of the US Tax Cuts and Jobs Act (the Tax Act) enacted in Q417, partially offset by an unfavorable change in the forecasted geographic mix of earnings.
| Non-GAAP tax rate: 16.7%, a decrease compared to 26.3% last quarter and 25.2% in Q117. |
The year-over-year decrease in the effective tax rate was primarily due to the lower tax rate as a result of the Tax Act enacted in Q417, partially offset by an unfavorable change in the forecasted geographic mix of earnings.
The sequential decrease in the effective tax rate was primarily due to a lower tax rate as a result of the Tax Act enacted in Q417, and a reduction of income tax reserves, partially offset by an unfavorable change in the forecasted geographic mix of earnings.
Diluted Earnings Per Share
| GAAP diluted earnings per share: $0.10, a decrease of $0.18 year-over-year and an increase of $0.50 sequentially. |
The year-over-year decrease was due to lower revenue and lower gross margin, partially offset by lower operating expenses. The sequential increase was primarily due to a lower tax rate as a result of the Tax Act, partially offset by lower revenue and gross margin.
| Non-GAAP diluted earnings per share: $0.28, a decrease of $0.18 year-over-year and a decrease of $0.25 sequentially. |
The year-over-year and sequential decreases were primarily due to lower revenue and lower gross margin.
Balance Sheet, Cash Flow, Capital Return, and Other Financial Metrics
(in millions, except days sales outstanding (DSO), and headcount) |
Q118 | Q417 | Q317 | Q217 | Q117 | |||||||||||||||
Cash(1, 2) |
$ | 3,448.4 | $ | 4,021.0 | $ | 4,199.3 | $ | 4,214.6 | $ | 4,043.7 | ||||||||||
Debt |
2,137.0 | 2,136.3 | 2,135.7 | 2,135.0 | 2,134.4 | |||||||||||||||
Net cash and investments(3) |
1,311.4 | 1,884.7 | 2,063.6 | 2,079.6 | 1,909.3 | |||||||||||||||
Operating cash flow(4) |
271.1 | 211.6 | 201.3 | 298.8 | 546.6 | |||||||||||||||
Capital expenditures |
42.2 | 53.6 | 33.3 | 32.2 | 32.1 | |||||||||||||||
Depreciation and amortization |
55.0 | 55.0 | 56.3 | 54.8 | 54.2 | |||||||||||||||
Share repurchases(7) |
750.0 | 329.7 | 140.0 | 125.0 | 125.0 | |||||||||||||||
Dividends |
$ | 62.1 | $ | 36.9 | $ | 37.7 | $ | 37.8 | $ | 38.0 | ||||||||||
Diluted shares(5) |
360.6 | 371.5 | 382.7 | 385.6 | 388.0 | |||||||||||||||
DSO |
57 | 62 | 52 | 52 | 49 | |||||||||||||||
Headcount(6) |
9,363 | 9,381 | 9,694 | 9,661 | 9,694 |
(1) | Includes cash, cash equivalents, and investments. |
(2) | 65% held onshore as of the end of Q118. |
(3) | Net cash and investments includes, cash, cash equivalents, and investments, net of debt. |
(4) | In Q118, we adopted the new accounting pronouncement requiring classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. We applied this on a retrospective basis. |
(5) | Non-GAAP diluted shares for Q417 was 376.6. |
(6) | Q117 and Q217 excludes headcount impacted by restructuring activities. |
(7) | For Q118, $750 million represents the full amount of the ASR. 23.3 million shares were received initially for an aggregate price of $600 million. The ASR has not concluded. |
Cash Flow
| Cash flow from operations: $271 million, down $276 million year-over-year and up $60 million sequentially. The year-over-year decrease was due to historically high Q117 cash collections from service renewals. The sequential increase was primarily due to timing differences in working capital related to accounts receivable, partially offset by higher payments related to variable compensation. |
Days Sales Outstanding (DSO)
| DSO: 57 days, compared to 62 days, a decrease of 5 days from the prior quarter, due primarily to better linearity and higher collectability of in-quarter invoicing, as well as a decrease in overall invoicing volume. |
Capital Return
| In the quarter, we entered into an ASR program to repurchase an aggregate of $750 million in shares. Under the ASR, we made an upfront payment of $750 million and received an initial delivery of 23.3 million shares for an aggregate price of $600 million. The ASR is still underway and is expected to settle no later than August 6, 2018. |
| In the quarter, we also paid a dividend of $0.18 per share for a total of $62 million. |
Demand metrics
| Total deferred revenue was $1,257 million, down $236 million year-over-year and down $282 million sequentially. |
| Product deferred revenue was $159 million, a decrease of $123 million year-over-year and down $175 million quarter-over-quarter. |
The lower product deferred revenue was primarily driven by the adoption of ASC 606. Without the impact of ASC 606, deferred product revenue would have been up approximately 19% year-over-year and flat sequentially. The lower service deferred revenue was primarily driven by the adoption of ASC 606. Without the impact of ASC 606, deferred service revenue would have been up 4% year-over-year and sequentially.
Headcount
| Ending headcount was 9,363, a decrease of 331 employees year-over-year and approximately flat sequentially. The year-over-year decrease was primarily related to restructuring in 2017. |
Outlook
These metrics are provided on a non-GAAP basis, except for revenue and share count. Earnings per share is on a fully diluted basis. The outlook assumes that the exchange rate of the U.S. dollar to other currencies will remain relatively stable at current levels.
Our Q2 revenue outlook reflects a return to normal seasonality. While customer spending remains dynamic and difficult to predict, we continue to expect sequential growth through the remainder of the year, with a return to year-over year growth during the December quarter.
We expect gross margins for the quarter to improve sequentially, due to increased volume and improvements in our cost structure. For the remainder of the year, we expect gross margin to improve with volume; however, the pace of this improvement could be impacted by mix as well as other factors.
We continue to undertake specific efforts to address the pressure on our gross margins. These efforts include value engineering, optimizing our supply chain, pricing management and increasing software and solution sales.
We expect annual operating expenses to be approximately flat on a year-over-year basis.
Our guidance for the quarter ending June 30, 2018 is as follows:
| Revenues will be approximately $1,175 million, plus or minus $30 million. |
| Non-GAAP gross margin will be approximately 59.0%, plus or minus 1%. |
| Non-GAAP operating expenses will be approximately $490 million, plus or minus $5 million. |
| Non-GAAP operating margin will be approximately 17.5% at the midpoint of revenue guidance. |
| Non-GAAP tax rate will be approximately 21%. |
| Non-GAAP net income per share will be approximately $0.44, plus or minus $0.03. This assumes a share count of approximately 351 million. |
The guidance above is provided under ASC 606.
Forward-Looking Statements
Statements in this CFO Commentary and related conference call concerning Juniper Networks business, economic and market outlook, including pricing pressure and product mix; factors that impact our gross margin; our long-term financial model and strategy; the architectural transition and timing of deployments with large customers; the expected impact of the adoption of ASC 606 on our future financial results; our product portfolio and success of particular products and product families; our expectations around revenue and earnings, including growing revenue on a sequential basis and returning to year-on-year growth by Q42018; our expectations around margin growth, including growing margin sequentially, and our ability to realize benefits from our gross margin optimization programs; trends in seasonality; our future financial and operating results, including our financial guidance; our areas of focus and our ability to deliver on growth, operational expense discipline, and shareholder returns; improvements to our cost structure and expense reductions and management; strength of certain of our customer segments; our capital return program, and our overall future prospects are forward looking statements within the meaning of the Private Securities Litigation Reform Act that involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of several factors, including: general economic and political conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending by our customers and spending by communication service providers and major customers, including Cloud providers; the network capacity requirements of our customers and, in particular, cloud and telecommunication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation, including the Tax Act, and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation settlements and resolutions; the potential impact of activities related to the execution of capital return, restructurings and product rationalization; and other factors listed in Juniper Networks most recent report on Form 10-K or 10-Q filed with the Securities and Exchange Commission (SEC). Note that our estimates as to tax rate and the impact of the Tax Act on our business are based on current tax law, including current interpretations of the Tax Act, and could be materially affected by changing interpretations of and additional legislation and guidance around the Tax Act. All statements made in this CFO Commentary and related conference call are made only as of the date set forth at the beginning of this document. Juniper Networks undertakes no obligation to update the information made in this document or the related conference call in the event facts or circumstances subsequently change after the date of this document.
Use of Non-GAAP Financial Measures
This CFO Commentary contains references to the following non-GAAP financial measures: gross margin; product gross margin; service gross margin; product gross margin as a percentage of product revenue; service gross margin as a percentage of service revenue; gross margin as a percentage of revenue; research and development expense; sales and marketing expense; general and administrative expense; operating expense; operating expense as a percentage of revenue; operating income; operating margin; provision for income tax; income tax rate; net income; and diluted
earnings per share. For important commentary on why Juniper Networks considers non-GAAP information a useful view of the companys financial results, please see the press release furnished with our Form 8-K filed today with the SEC. With respect to future financial guidance provided on a non-GAAP basis, we have excluded estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuring benefits or charges, impairment charges, litigation settlement benefits or charges and resolution charges, gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter. These measures are not presented in accordance with, nor are they a substitute for U.S. generally accepted accounting principles or GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in this CFO Commentary should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.
A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. For example, share-based compensation expense is impacted by the Companys future hiring needs, and restructuring actions, the type and volume of equity awards necessary for such future hiring, and the price at which the Companys stock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.
Juniper Networks, Inc.
Preliminary Supplemental Data
(in millions, except percentages)
(unaudited)
Deferred Revenue
As of | ||||||||
March 31, 2018 |
December 31, 2017 |
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Deferred product revenue: |
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Undelivered product commitments and other product deferrals |
$ | 166.4 | $ | 312.6 | ||||
Distributor inventory and other sell-through items |
| 68.1 | ||||||
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Deferred gross product revenue |
166.4 | 380.7 | ||||||
Deferred cost of product revenue |
(7.6 | ) | (46.5 | ) | ||||
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Deferred product revenue, net |
158.8 | 334.2 | ||||||
Deferred service revenue |
1,098.1 | 1,205.1 | ||||||
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Total |
$ | 1,256.9 | $ | 1,539.3 | ||||
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Reported as: |
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Current |
$ | 888.2 | $ | 1,030.3 | ||||
Long-term |
368.7 | 509.0 | ||||||
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Total |
$ | 1,256.9 | $ | 1,539.3 | ||||
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Vertical Reporting: Revenue Trend
2016 | 2017 | Q117 | Q217 | Q317 | Q417 | Q118 | Q/Q Change | Y/Y Change | ||||||||||||||||||||||||||||||||||||
Cloud |
$ | 1,322.3 | $ | 1,314.9 | $ | 331.6 | $ | 379.6 | $ | 344.9 | $ | 258.8 | $ | 268.3 | $ | 9.5 | 3.7 | % | $ | (63.3 | ) | (19.1 | )% | |||||||||||||||||||||
Service Provider |
2,324.7 | 2,315.7 | 568.5 | 562.4 | 576.9 | 607.9 | 479.9 | (128.0 | ) | (21.1 | )% | (88.6 | ) | (15.6 | )% | |||||||||||||||||||||||||||||
Enterprise |
1,343.1 | 1,396.6 | 320.9 | 366.9 | 336.0 | 372.8 | 334.4 | (38.4 | ) | (10.3 | )% | 13.5 | 4.2 | % | ||||||||||||||||||||||||||||||
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Total revenue |
$ | 4,990.1 | $ | 5,027.2 | $ | 1,221.0 | $ | 1,308.9 | $ | 1,257.8 | $ | 1,239.5 | $ | 1,082.6 | $ | (156.9 | ) | (12.7 | )% | $ | (138.4 | ) | (11.3 | )% | ||||||||||||||||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||
GAAP gross marginProduct |
$ | 404.4 | $ | 495.9 | $ | 498.7 | ||||||
GAAP product gross margin % of product revenue |
56.9 | % | 59.7 | % | 60.2 | % | ||||||
Share-based compensation expense |
1.9 | 0.8 | 0.9 | |||||||||
Share-based payroll tax expense |
0.2 | | 0.2 | |||||||||
Amortization of purchased intangible assets |
3.8 | 3.8 | 3.1 | |||||||||
Supplier component remediation charges |
| | 7.1 | |||||||||
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Non-GAAP gross marginProduct |
$ | 410.3 | $ | 500.5 | $ | 510.0 | ||||||
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Non-GAAP product gross margin % of product revenue |
57.7 | % | 60.3 | % | 61.5 | % | ||||||
GAAP gross marginService |
$ | 214.0 | $ | 255.3 | $ | 247.9 | ||||||
GAAP service gross margin % of service revenue |
57.6 | % | 62.4 | % | 63.2 | % | ||||||
Share-based compensation expense |
4.8 | 4.0 | 4.3 | |||||||||
Share-based payroll tax expense |
1.0 | | 0.7 | |||||||||
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Non-GAAP gross marginService |
$ | 219.8 | $ | 259.3 | $ | 252.9 | ||||||
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Non-GAAP service gross margin % of service revenue |
59.1 | % | 63.4 | % | 64.5 | % | ||||||
GAAP gross margin |
$ | 618.4 | $ | 751.2 | $ | 746.6 | ||||||
GAAP gross margin % of revenue |
57.1 | % | 60.6 | % | 61.1 | % | ||||||
Share-based compensation expense |
6.7 | 4.8 | 5.2 | |||||||||
Share-based payroll tax expense |
1.2 | | 0.9 | |||||||||
Amortization of purchased intangible assets |
3.8 | 3.8 | 3.1 | |||||||||
Supplier component remediation charges |
| | 7.1 | |||||||||
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Non-GAAP gross margin |
$ | 630.1 | $ | 759.8 | $ | 762.9 | ||||||
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Non-GAAP gross margin % of revenue |
58.2 | % | 61.3 | % | 62.5 | % | ||||||
GAAP research and development expense |
$ | 269.4 | $ | 227.9 | $ | 276.2 | ||||||
Share-based compensation expense |
(44.1 | ) | (19.2 | ) | (34.8 | ) | ||||||
Share-based payroll tax expense |
(2.4 | ) | (0.1 | ) | (1.8 | ) | ||||||
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Non-GAAP research and development expense |
$ | 222.9 | $ | 208.6 | $ | 239.6 | ||||||
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GAAP sales and marketing expense |
$ | 239.4 | $ | 233.6 | $ | 244.2 | ||||||
Share-based compensation expense |
(13.5 | ) | (10.3 | ) | (15.3 | ) | ||||||
Share-based payroll tax expense |
(1.6 | ) | (0.1 | ) | (1.4 | ) | ||||||
Amortization of purchased intangible assets |
(0.4 | ) | (0.9 | ) | (1.0 | ) | ||||||
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Non-GAAP sales and marketing expense |
$ | 223.9 | $ | 222.3 | $ | 226.5 | ||||||
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GAAP general and administrative expense |
$ | 56.0 | $ | 50.8 | $ | 50.5 | ||||||
Share-based compensation expense |
(6.1 | ) | (2.1 | ) | (6.7 | ) | ||||||
Share-based payroll tax expense |
(0.4 | ) | | (0.3 | ) | |||||||
Amortization of purchased intangible assets |
(0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||
Acquisition-related and other charges |
(0.1 | ) | (0.4 | ) | (0.3 | ) | ||||||
Litigation settlement benefits |
0.6 | | | |||||||||
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Non-GAAP general and administrative expense |
$ | 49.8 | $ | 48.1 | $ | 43.0 | ||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||
GAAP operating expenses |
$ | 562.9 | $ | 548.5 | $ | 590.3 | ||||||
GAAP operating expenses % of revenue |
52.0 | % | 44.3 | % | 48.3 | % | ||||||
Share-based compensation expense |
(63.7 | ) | (31.6 | ) | (56.8 | ) | ||||||
Share-based payroll tax expense |
(4.4 | ) | (0.2 | ) | (3.5 | ) | ||||||
Amortization of purchased intangible assets |
(0.6 | ) | (1.1 | ) | (1.2 | ) | ||||||
Restructuring benefits (charges) |
1.9 | (36.2 | ) | (19.4 | ) | |||||||
Acquisition-related and other charges |
(0.1 | ) | (0.4 | ) | (0.3 | ) | ||||||
Litigation settlement benefits |
0.6 | | | |||||||||
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Non-GAAP operating expenses |
$ | 496.6 | $ | 479.0 | $ | 509.1 | ||||||
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Non-GAAP operating expenses % of revenue |
45.9 | % | 38.6 | % | 41.7 | % | ||||||
GAAP operating income |
$ | 55.5 | $ | 202.7 | $ | 156.3 | ||||||
GAAP operating margin |
5.1 | % | 16.4 | % | 12.8 | % | ||||||
Share-based compensation expense |
70.4 | 36.4 | 62.0 | |||||||||
Share-based payroll tax expense |
5.6 | 0.2 | 4.4 | |||||||||
Amortization of purchased intangible assets |
4.4 | 4.9 | 4.3 | |||||||||
Restructuring (benefits) charges |
(1.9 | ) | 36.2 | 19.4 | ||||||||
Acquisition-related and other charges |
0.1 | 0.4 | 0.3 | |||||||||
Litigation settlement benefits |
(0.6 | ) | | | ||||||||
Supplier component remediation charges |
| | 7.1 | |||||||||
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Non-GAAP operating income |
$ | 133.5 | $ | 280.8 | $ | 253.8 | ||||||
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Non-GAAP operating margin |
12.3 | % | 22.7 | % | 20.8 | % | ||||||
GAAP income tax provision |
$ | 7.0 | $ | 348.3 | $ | 31.8 | ||||||
GAAP income tax rate |
16.9 | % | 174.0 | % | 22.6 | % | ||||||
Estimated tax expense from income tax reform |
| (289.5 | ) | | ||||||||
Income tax effect of non-GAAP exclusions |
12.9 | 12.3 | 28.3 | |||||||||
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Non-GAAP provision for income tax |
$ | 19.9 | $ | 71.1 | $ | 60.1 | ||||||
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Non-GAAP income tax rate |
16.7 | % | 26.3 | % | 25.2 | % | ||||||
GAAP net income (loss) |
$ | 34.4 | $ | (148.1 | ) | $ | 108.8 | |||||
Share-based compensation expense |
70.4 | 36.4 | 62.0 | |||||||||
Share-based payroll tax expense |
5.6 | 0.2 | 4.4 | |||||||||
Amortization of purchased intangible assets |
4.4 | 4.9 | 4.3 | |||||||||
Restructuring (benefits) charges |
(1.9 | ) | 36.2 | 19.4 | ||||||||
Acquisition-related and other charges |
0.1 | 0.4 | 0.3 | |||||||||
Litigation settlement benefits |
(0.6 | ) | | | ||||||||
Supplier component remediation charges |
| | 7.1 | |||||||||
Gain on equity investments |
| (7.8 | ) | | ||||||||
Estimated tax expense from income tax reform |
| 289.5 | | |||||||||
Income tax effect of non-GAAP exclusions |
(12.9 | ) | (12.3 | ) | (28.3 | ) | ||||||
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Non-GAAP net income |
$ | 99.5 | $ | 199.4 | $ | 178.0 | ||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2017 | ||||||||||
GAAP diluted net income (loss) per share |
$ | 0.10 | $ | (0.40 | ) | $ | 0.28 | |||||
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Non-GAAP diluted net income per share |
$ | 0.28 | $ | 0.53 | $ | 0.46 | ||||||
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Shares used in computing GAAP diluted net income (loss) per share |
360.6 | 371.5 | 388.0 | |||||||||
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Shares used in computing Non-GAAP diluted net income per share |
360.6 | 376.6 | 388.0 | |||||||||
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|
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