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) July 26, 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 July 26, 2018, Juniper Networks, Inc. (we, our or the Company) issued a press release in which we announced preliminary financial results for the quarter ended June 30, 2018. The Company also posted on the Investor Relations section of its website (www.juniper.net) prepared remarks with respect to the quarter ended June 30, 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 July 26, 2018 | |
99.2 | Prepared remarks by Juniper Networks, Inc. dated as of July 26, 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. | ||||||
July 26, 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 SECOND QUARTER 2018 FINANCIAL RESULTS
SUNNYVALE, Calif., July 26, 2018 - Juniper Networks (NYSE: JNPR), an industry leader in automated, scalable and secure networks, today reported preliminary financial results for the three months ended June 30, 2018 and provided its outlook for the three months ending September 30, 2018.
Second Quarter 2018 Financial Performance
Net revenues were $1,204.1 million, a decrease of 8.0% year-over-year and an increase of 11.0% sequentially.
GAAP operating margin was 13.3%, a decrease from 19.7% in the second quarter of 2017, and an increase from 5.1% in the first quarter of 2018.
Non-GAAP operating margin was 18.5%, a decrease from 24.2% in the second quarter of 2017, and an increase from 12.3% in the first quarter of 2018.
GAAP net income was $116.5 million, a decrease of 35.0% year-over-year and an increase of 239.0% sequentially, resulting in diluted earnings per share of $0.33.
Non-GAAP net income was $170.2 million, a decrease of 23.0% year-over-year and an increase of 71.0% sequentially, resulting in diluted earnings per share of $0.48.
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 exceeded our Q2 expectations, with strong execution and enterprise strength complementing seasonal trends in other areas of the business, said Rami Rahim, chief executive officer, Juniper Networks. While the timing of deployments is impacting our Q3 outlook, we remain confident the business will return to year-over-year growth during Q4 and that we have the right solution portfolio and strategy to drive sustained longer-term success.
We demonstrated financial progress during the second quarter, as both non-GAAP gross and operating margins were above the mid-point of our guidance, and non-GAAP EPS exceeded the high-end of our forecast, said Ken Miller, chief financial officer, Juniper Networks. While we believe we are making the investments we need to win in the market, we remain focused on improving profitability as we look to create shareholder value.
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Balance Sheet and Other Financial Results
Total cash, cash equivalents, and investments as of June 30, 2018 were $3,530.5 million, compared to $4,214.6 million as of June 30, 2017, and $3,448.4 million as of March 31, 2018.
Net cash flows provided by operations for the second quarter of 2018 was $170.3 million, compared to $298.7 million in the second quarter of 2017, and $271.1 million in the first quarter of 2018.
Days sales outstanding in accounts receivable, or DSO, was 52 days in the second quarter of 2018, compared to 52 days in the second quarter of 2017, and 57 days in the first quarter of 2018.
Capital expenditures were $37.1 million and depreciation and amortization expense was $54.6 million during the second quarter of 2018.
Junipers Board of Directors has declared a quarterly cash dividend of $0.18 per share to be paid on September 25, 2018 to shareholders of record as of the close of business on September 4, 2018.
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 Q3 revenue guidance reflects stronger than expected Q2 business, particularly in Enterprise and the timing of certain Cloud and Service Provider deployments which are taking longer to materialize. While customer spending remains dynamic and difficult to predict, we continue to expect a return to year-over year growth during the fourth quarter.
We expect gross margins to remain stable in Q3, and improve with volume over time; however, the pace of this improvement could be impacted by mix as well as other factors.
We expect annual operating expenses to be approximately flat on a year-over-year basis.
Junipers guidance for the quarter ending September 30, 2018 is as follows:
| Revenues will be approximately $1,170 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 17.1% at the midpoint of revenue guidance. |
| Non-GAAP tax rate will be approximately 20.0%. |
| Non-GAAP net income per share will be approximately $0.44, plus or minus $0.03. This assumes a share count of approximately 350 million. |
The guidance above is provided under ASC 606.
Page 2 of 11
We plan to host an Investor Day in New York City on Friday, November 9, 2018. Additional information will be provided at a later date.
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 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.
Second Quarter 2018 Financial Commentary Available Online
A CFO Commentary reviewing the Companys second quarter 2018 financial results, as well as third 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, July 26, 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.
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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; expectations as to the timing of deployments; the strength of our solution portfolio and strategy; our ability to expand business opportunities, improve profitability and make necessary investments; our expectations around obtaining revenue and margin growth; 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; 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; the timing of orders and their fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; delays in scheduled product availability; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; product defects, returns or vulnerabilities; significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the Tax Cuts and Jobs Act; litigation settlements and resolutions; the potential impact of activities related to the execution of capital return, restructurings and product rationalization; the impact of potential import tariffs, depending on their scope and how they are implemented; 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 June 30, |
Six Months Ended June 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Net revenues: |
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Product |
$ | 824.9 | $ | 917.2 | $ | 1,535.7 | $ | 1,746.1 | ||||||||
Service |
379.2 | 391.7 | 751.0 | 783.8 | ||||||||||||
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Total net revenues |
1,204.1 | 1,308.9 | 2,286.7 | 2,529.9 | ||||||||||||
Cost of revenues: |
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Product |
336.6 | 360.2 | 643.0 | 690.4 | ||||||||||||
Service |
166.6 | 146.8 | 324.4 | 291.0 | ||||||||||||
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Total cost of revenues |
503.2 | 507.0 | 967.4 | 981.4 | ||||||||||||
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Gross margin |
700.9 | 801.9 | 1,319.3 | 1,548.5 | ||||||||||||
Operating expenses: |
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Research and development |
248.8 | 240.2 | 518.2 | 516.4 | ||||||||||||
Sales and marketing |
238.3 | 239.9 | 477.7 | 484.1 | ||||||||||||
General and administrative |
54.2 | 55.6 | 110.2 | 106.1 | ||||||||||||
Restructuring (benefits) charges |
(0.2 | ) | 8.0 | (2.1 | ) | 27.4 | ||||||||||
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Total operating expenses |
541.1 | 543.7 | 1,104.0 | 1,134.0 | ||||||||||||
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Operating income |
159.8 | 258.2 | 215.3 | 414.5 | ||||||||||||
Other expense, net |
(8.9 | ) | (13.0 | ) | (23.0 | ) | (28.7 | ) | ||||||||
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Income before income taxes |
150.9 | 245.2 | 192.3 | 385.8 | ||||||||||||
Income tax provision |
34.4 | 65.4 | 41.4 | 97.2 | ||||||||||||
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Net income |
$ | 116.5 | $ | 179.8 | $ | 150.9 | $ | 288.6 | ||||||||
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Net income per share: |
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Basic |
$ | 0.33 | $ | 0.47 | $ | 0.43 | $ | 0.76 | ||||||||
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Diluted |
$ | 0.33 | $ | 0.47 | $ | 0.42 | $ | 0.74 | ||||||||
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Shares used in computing net income per share: |
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Basic |
349.0 | 380.4 | 352.2 | 380.6 | ||||||||||||
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Diluted |
351.3 | 385.6 | 356.8 | 387.6 | ||||||||||||
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Cash dividends declared per common stock |
$ | 0.18 | $ | 0.10 | $ | 0.36 | $ | 0.20 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Product and Service
(in millions)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Routing |
$ | 490.6 | $ | 572.5 | $ | 898.7 | $ | 1,094.1 | ||||||||
Switching |
254.8 | 276.0 | 484.8 | 517.6 | ||||||||||||
Security |
79.5 | 68.7 | 152.2 | 134.4 | ||||||||||||
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Total Product |
824.9 | 917.2 | 1,535.7 | 1,746.1 | ||||||||||||
Total Service |
379.2 | 391.7 | 751.0 | 783.8 | ||||||||||||
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Total |
$ | 1,204.1 | $ | 1,308.9 | $ | 2,286.7 | $ | 2,529.9 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Vertical
(in millions)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Cloud |
$ | 279.8 | $ | 379.6 | $ | 548.1 | $ | 711.2 | ||||||||
Service Provider |
523.3 | 562.4 | 1,003.2 | 1,130.9 | ||||||||||||
Enterprise |
401.0 | 366.9 | 735.4 | 687.8 | ||||||||||||
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Total |
$ | 1,204.1 | $ | 1,308.9 | $ | 2,286.7 | $ | 2,529.9 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in millions)
(unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Americas |
$ | 675.7 | $ | 800.8 | $ | 1,263.3 | $ | 1,512.4 | ||||||||
Europe, Middle East, and Africa |
308.9 | 288.2 | 616.9 | 572.7 | ||||||||||||
Asia Pacific |
219.5 | 219.9 | 406.5 | 444.8 | ||||||||||||
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Total |
$ | 1,204.1 | $ | 1,308.9 | $ | 2,286.7 | $ | 2,529.9 | ||||||||
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Page 6 of 11
Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
Three Months Ended | ||||||||||||||||
June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||||||
GAAP operating income |
$ | 159.8 | $ | 55.5 | $ | 258.2 | ||||||||||
GAAP operating margin |
13.3 | % | 5.1 | % | 19.7 | % | ||||||||||
Share-based compensation expense |
C | 56.6 | 70.4 | 44.1 | ||||||||||||
Share-based payroll tax expense |
C | 0.6 | 5.6 | 1.7 | ||||||||||||
Amortization of purchased intangible assets |
A | 4.3 | 4.4 | 4.2 | ||||||||||||
Restructuring (benefits) charges |
B | (0.2 | ) | (1.9 | ) | 8.0 | ||||||||||
Acquisition-related and other charges |
A | | 0.1 | | ||||||||||||
Strategic partnership-related charges |
B | 1.2 | | | ||||||||||||
Litigation settlement benefits |
B | | (0.6 | ) | | |||||||||||
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Non-GAAP operating income |
$ | 222.3 | $ | 133.5 | $ | 316.2 | ||||||||||
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Non-GAAP operating margin |
18.5 | % | 12.3 | % | 24.2 | % | ||||||||||
GAAP net income |
$ | 116.5 | $ | 34.4 | $ | 179.8 | ||||||||||
Share-based compensation expense |
C | 56.6 | 70.4 | 44.1 | ||||||||||||
Share-based payroll tax expense |
C | 0.6 | 5.6 | 1.7 | ||||||||||||
Amortization of purchased intangible assets |
A | 4.3 | 4.4 | 4.2 | ||||||||||||
Restructuring (benefits) charges |
B | (0.2 | ) | (1.9 | ) | 8.0 | ||||||||||
Acquisition-related and other charges |
A | | 0.1 | | ||||||||||||
Strategic partnership-related charges |
B | 1.2 | | | ||||||||||||
Litigation settlement benefits |
B | | (0.6 | ) | | |||||||||||
Income tax effect of non-GAAP exclusions |
B | (8.8 | ) | (12.9 | ) | (17.3 | ) | |||||||||
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Non-GAAP net income |
$ | 170.2 | $ | 99.5 | $ | 220.5 | ||||||||||
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GAAP diluted net income per share |
$ | 0.33 | $ | 0.10 | $ | 0.47 | ||||||||||
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Non-GAAP diluted net income per share |
D | $ | 0.48 | $ | 0.28 | $ | 0.57 | |||||||||
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Shares used in computing diluted net income per share |
351.3 | 360.6 | 385.6 | |||||||||||||
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Page 7 of 11
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.
Page 8 of 11
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) strategic partnership-related charges (iii) litigation settlement benefits 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 or unplanned 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 underlying performance of our continuing business operations for the period in which they are incurred. We also exclude certain expenses incurred for the formation of a strategic partnership, as they are directly related an event that is distinct and does not reflect current ongoing business operations. 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, 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.
Page 9 of 11
Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
June 30, 2018 |
December 31, 2017 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,690.4 | $ | 2,006.5 | ||||
Short-term investments |
432.3 | 1,026.1 | ||||||
Accounts receivable, net of allowances |
702.2 | 852.0 | ||||||
Prepaid expenses and other current assets |
279.7 | 299.9 | ||||||
|
|
|
|
|||||
Total current assets |
4,104.6 | 4,184.5 | ||||||
Property and equipment, net |
987.1 | 1,021.1 | ||||||
Long-term investments |
407.8 | 988.4 | ||||||
Purchased intangible assets, net |
119.4 | 128.1 | ||||||
Goodwill |
3,096.1 | 3,096.2 | ||||||
Other long-term assets |
406.0 | 415.5 | ||||||
|
|
|
|
|||||
Total assets |
$ | 9,121.0 | $ | 9,833.8 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 183.2 | $ | 217.6 | ||||
Accrued compensation |
199.6 | 186.0 | ||||||
Deferred revenue |
872.1 | 1,030.3 | ||||||
Short-term debt |
349.5 | | ||||||
Other accrued liabilities |
204.1 | 304.3 | ||||||
|
|
|
|
|||||
Total current liabilities |
1,808.5 | 1,738.2 | ||||||
Long-term debt |
1,788.2 | 2,136.3 | ||||||
Long-term deferred revenue |
365.1 | 509.0 | ||||||
Long-term income taxes payable |
615.6 | 650.6 | ||||||
Other long-term liabilities |
125.9 | 118.8 | ||||||
|
|
|
|
|||||
Total liabilities |
4,703.3 | 5,152.9 | ||||||
Total stockholders equity |
4,417.7 | 4,680.9 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 9,121.0 | $ | 9,833.8 | ||||
|
|
|
|
Page 10 of 11
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Six Months Ended June 30, |
||||||||
2018 | 2017(*) | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 150.9 | $ | 288.6 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Share-based compensation expense |
127.0 | 106.1 | ||||||
Depreciation, amortization, and accretion |
110.9 | 112.1 | ||||||
Other |
1.5 | (1.8 | ) | |||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
Accounts receivable, net |
147.5 | 304.8 | ||||||
Prepaid expenses and other assets |
(26.5 | ) | 46.4 | |||||
Accounts payable |
(28.8 | ) | (5.1 | ) | ||||
Accrued compensation |
15.8 | (20.6 | ) | |||||
Income taxes payable |
(77.7 | ) | 27.9 | |||||
Other accrued liabilities |
(27.5 | ) | (32.4 | ) | ||||
Deferred revenue |
48.3 | 19.3 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
441.4 | 845.3 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(79.3 | ) | (64.3 | ) | ||||
Purchases of available-for-sale debt investments |
(114.4 | ) | (776.4 | ) | ||||
Proceeds from sales of available-for-sale debt investments |
995.4 | 429.1 | ||||||
Proceeds from maturities and redemptions of available-for-sale debt investments |
289.9 | 350.4 | ||||||
Purchases of equity investments |
(6.3 | ) | (12.3 | ) | ||||
Proceeds from sales of equity investments |
29.5 | | ||||||
Proceeds from Pulse note receivable |
| 75.0 | ||||||
Payment of escrow balance related to prior year acquisition |
(31.5 | ) | | |||||
|
|
|
|
|||||
Net cash provided by investing activities |
1,083.3 | 1.5 | ||||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Repurchase and retirement of common stock, including prepayment under an accelerated share repurchase program |
(754.2 | ) | (255.3 | ) | ||||
Proceeds from issuance of common stock |
29.5 | 35.5 | ||||||
Payment of dividends |
(124.9 | ) | (75.8 | ) | ||||
Change in customer financing arrangement |
(16.3 | ) | | |||||
Other |
(0.5 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(866.4 | ) | (295.6 | ) | ||||
|
|
|
|
|||||
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
(5.4 | ) | 9.4 | |||||
|
|
|
|
|||||
Net increase in cash, cash equivalents and restricted cash |
652.9 | 560.6 | ||||||
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 |
$ | 2,712.0 | $ | 2,441.2 | ||||
|
|
|
|
(*) | 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 six months ended June 30, 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 six months ended June 30, 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
July 26, 2018
CFO Commentary on Second Quarter Preliminary Financial Results
Related Information
The following commentary is provided by management and should be referenced in conjunction with Juniper Networks second 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.
Q2 2018 Preliminary Financial Results
GAAP
(in millions, except per share amounts and percentages) | Q218 | Q118 | Q217 | Q/Q Change | Y/Y Change | |||||||||||||||
Revenue |
$ | 1,204.1 | $ | 1,082.6 | $ | 1,308.9 | 11 | % | (8 | )% | ||||||||||
Product |
824.9 | 710.8 | 917.2 | 16 | % | (10 | )% | |||||||||||||
Service |
379.2 | 371.8 | 391.7 | 2 | % | (3 | )% | |||||||||||||
Gross margin % |
58.2 | % | 57.1 | % | 61.3 | % | 1.1pts | (3.1 | )pts | |||||||||||
Research and development |
248.8 | 269.4 | 240.2 | (8 | )% | 4 | % | |||||||||||||
Sales and marketing |
238.3 | 239.4 | 239.9 | | % | (1 | )% | |||||||||||||
General and administrative |
54.2 | 56.0 | 55.6 | (3 | )% | (3 | )% | |||||||||||||
Restructuring (benefits) charges |
(0.2 | ) | (1.9 | ) | 8.0 | N/M | N/M | |||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
$ | 541.1 | $ | 562.9 | $ | 543.7 | (4 | )% | | % | ||||||||||
|
|
|
|
|
|
|||||||||||||||
Operating margin % |
13.3 | % | 5.1 | % | 19.7 | % | 8.2pts | (6.4 | )pts | |||||||||||
|
|
|
|
|
|
|||||||||||||||
Net income |
$ | 116.5 | $ | 34.4 | $ | 179.8 | 239 | % | (35 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||||||
Diluted net income per share |
$ | 0.33 | $ | 0.10 | $ | 0.47 | 230 | % | (30 | )% | ||||||||||
|
|
|
|
|
|
N/M - Not meaningful
Non-GAAP
(in millions, except per share amounts and percentages) | Q318 Guidance | Q218 | Q118 | Q217 | Q/Q Change | Y/Y Change | ||||||||||||||||||
Revenue(1) |
$1,170 +/- $30 | $ | 1,204.1 | $ | 1,082.6 | $ | 1,308.9 | 11 | % | (8 | )% | |||||||||||||
Product(1) |
824.9 | 710.8 | 917.2 | 16 | % | (10 | )% | |||||||||||||||||
Service(1) |
379.2 | 371.8 | 391.7 | 2 | % | (3 | )% | |||||||||||||||||
Gross margin % |
59.0% +/- 1% | 59.1 | % | 58.2 | % | 62.0 | % | 0.9pts | (2.9 | )pts | ||||||||||||||
Research and development |
219.0 | 222.9 | 225.6 | (2 | )% | (3 | )% | |||||||||||||||||
Sales and marketing |
223.7 | 223.9 | 222.2 | | % | 1 | % | |||||||||||||||||
General and administrative |
46.4 | 49.8 | 48.0 | (7 | )% | (3 | )% | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total operating expenses |
$490 +/- $5 | $ | 489.1 | $ | 496.6 | $ | 495.8 | (2 | )% | (1 | )% | |||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating margin % |
~ 17.1% at the midpoint | 18.5 | % | 12.3 | % | 24.2 | % | 6.2pts | (5.7 | )pts | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net income |
$ | 170.2 | $ | 99.5 | $ | 220.5 | 71 | % | (23 | )% | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Diluted net income per share |
$0.44 +/- $0.03 | $ | 0.48 | $ | 0.28 | $ | 0.57 | 71 | % | (16 | )% | |||||||||||||
|
|
|
|
|
|
(1) | Revenue numbers are GAAP and Q118 actual, Q218 actual and Q318 guidance are provided 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 June 30, 2018, the accounting impact of the adoption was a decrease in revenue recognition of approximately $17 million. Product revenue was approximately $29 million higher, primarily due to the impact of allocation of revenue between products and services, timing of recognition of revenue from sales to distributors and variable consideration. Product revenue increase from ASC 606 was allocated across all products. Service revenue was approximately $46 million lower, primarily due to the impact of allocation of revenue between products and services and the timing of revenue recognition due to certain contractual clauses. Operating expense increased by approximately $5 million due to the timing of commissions. The adoption of ASC 606 will impact the allocation of revenue between product and service, however, we continue to expect there will not be a material difference in total annual revenue.
GAAP Q218 606 vs. 605
(in millions, except per share amounts and percentages) | 606 | 605 | Delta | |||||||||
Revenue |
$ | 1,204.1 | $ | 1,220.9 | (1 | )% | ||||||
Product |
824.9 | 795.7 | 4 | % | ||||||||
Service |
379.2 | 425.2 | (11 | )% | ||||||||
Gross margin % |
58.2 | % | 58.7 | % | (0.5 | )pts | ||||||
|
|
|
|
|||||||||
Total operating expenses |
$ | 541.1 | $ | 536.5 | 1 | % | ||||||
|
|
|
|
|||||||||
Operating margin % |
13.3 | % | 14.8 | % | (1.5 | )pts | ||||||
|
|
|
|
|||||||||
Net income |
$ | 116.5 | $ | 132.8 | (12 | )% | ||||||
|
|
|
|
|||||||||
Diluted net income per share |
$ | 0.33 | $ | 0.38 | (13 | )% | ||||||
|
|
|
|
Non-GAAP Q218 606 vs. 605
(in millions, except per share amounts and percentages) | 606 | 605 | Delta | |||||||||
Revenue |
$ | 1,204.1 | $ | 1,220.9 | (1 | )% | ||||||
Product |
824.9 | 795.7 | 4 | % | ||||||||
Service |
379.2 | 425.2 | (11 | )% | ||||||||
Gross margin % |
59.1 | % | 59.6 | % | (0.5 | )pts | ||||||
|
|
|
|
|||||||||
Total operating expenses |
$ | 489.1 | $ | 484.5 | 1 | % | ||||||
|
|
|
|
|||||||||
Operating margin % |
18.5 | % | 19.9 | % | (1.4 | )pts | ||||||
|
|
|
|
|||||||||
Net income |
$ | 170.2 | $ | 186.7 | (9 | )% | ||||||
|
|
|
|
|||||||||
Diluted net income per share |
$ | 0.48 | $ | 0.54 | (11 | )% | ||||||
|
|
|
|
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 Outlook below.
Q2 2018 Overview
We reported better than expected second quarter results, with revenue of $1,204 million, non-GAAP gross margin of 59.1% and non-GAAP earnings per share of $0.48, all above the mid-point of our guidance.
We saw sequential growth across all verticals. Our Enterprise vertical increased 20% sequentially, driven by strength from all technologies and increased 9% year-over-year primarily driven by the impact of the adoption of ASC 606, Services and Security. The Service Provider vertical was up 9% sequentially in line with seasonal trends, but declined 7% year-over-year, consistent with our expectations. However, without the impact of the adoption of ASC 606, Service Provider would have been essentially flat year-over-year. Cloud revenues were up 4% sequentially but declined 26% year-over-year. The year-over year decline reflects the continued architectural headwinds and the pace of deployments. We remain confident in our position with our strategic Cloud customers however, the timing of deployments may vary.
Routing increased 20% sequentially and declined 14% year-over-year. Switching increased 11% sequentially and declined 8% year-over-year. The positive momentum in Security continued, growing 9% sequentially and 16% year-over-year. Our Services business increased 2% sequentially and declined 3% year-over-year due to the impact of the adoption of ASC 606. Without the impact of the adoption of ASC 606, Services would have increased approximately 9% year-over-year.
In reviewing our top 10 customers for the quarter, six were Cloud, three were Service Provider, and one was an Enterprise.
Product deferred revenue was $142 million, down 52% year-over-year and 11% sequentially. The year-over-year decline was due to the adoption of ASC 606. Without the impact of ASC 606, deferred product revenue would have been flat sequentially and up 13% year-over-year.
Non-GAAP operating expense decreased 1% year-over-year and 2% sequentially.
Cash flow from operations was $170 million for the quarter. During the quarter, we paid $63 million in dividends, reflecting a quarterly dividend of $0.18 per share. The total cash, cash equivalents, and investments ending Q218 was $3.5 billion.
Revenue
Product & Service
| Routing product revenue: $491 million, down 14% year-over-year and up 20% sequentially. The year-over-year decrease was primarily due to Cloud. The sequential increase was driven by all verticals but primarily by Service Provider. The MX product family declined year-over-year and grew sequentially. The PTX product family grew both year-over-year and sequentially. |
| Switching product revenue: $255 million, down 8% year-over-year and up 11% sequentially. The year-over-year decrease was driven by Cloud and Service Provider, partially offset by the impact of the adoption of ASC 606. Sequentially, the increase was driven by Enterprise. |
| Security product revenue: $79 million, up 16% year-over-year and up 9% sequentially. Year-over-year, the increase was driven by the impact of the adoption of ASC 606 and Enterprise. The sequential increase was driven by Enterprise partially offset by Cloud. |
| Service revenue: $379 million, down 3% year-over-year and up 2% 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 9% year-over-year primarily driven by strong renewal and attach rates of support contracts and the timing of revenue recognition due to certain contractual clauses. Sequentially the increase was primarily driven by strong renewal and attach rates of support contracts. |
Vertical
Cloud: $280 million, down 26% year-over-year and up 4% sequentially. Year-over-year, the decrease was primarily due to Routing and Switching, partially offset by Services. The sequential increase was primarily due to Routing, partially offset by Security.
| Service Provider: $523 million, down 7% year-over-year and up 9% sequentially. Year-over-year, the decrease was primarily due to impact of the adoption of ASC 606 and Switching. Sequentially, the increase was driven by Routing, partially offset by Switching. |
| Enterprise: $401 million, up 9% year-over-year and up 20% sequentially. Year-over-year, the increase was due to the impact of the adoption of ASC 606, Services and Security. Sequentially, the increase was across all technologies. |
Geography
| Americas: $676 million, down 16% year-over-year and up 15% sequentially. Year-over-year, the decrease was due to Cloud and Service Provider, partially offset by Enterprise. Sequentially, all verticals increased. |
| EMEA: $309 million, up 7% year-over-year and flat sequentially. Year-over-year, the increase was primarily due Service Provider and Enterprise. Sequentially, Service Provider growth was offset by Cloud and Enterprise. |
| APAC: $219 million, flat year-over-year and up 17% sequentially. The year-over-year result was due to growth in Enterprise and Service Provider offset by the adoption of ASC 606. The sequential increase was primarily driven by Enterprise and Service Provider. |
Gross Margin
| GAAP gross margin: 58.2%, compared to 61.3% from the prior year and 57.1% from last quarter. |
| Non-GAAP gross margin: 59.1%, compared to 62.0% from the prior year and 58.2% from last quarter. |
| GAAP product gross margin: 59.2%, down 1.5 points from the prior year and up 2.3 points from last quarter. |
| Non-GAAP product gross margin: 59.9%, down 1.3 points from the prior year and up 2.2 points from last quarter. |
Year-over-year, the decrease in product gross margin, on a GAAP and non-GAAP basis, was primarily due to product and customer mix as well as lower revenue, partially offset by the adoption of ASC 606 and improvements in our cost structure.
The sequential increase, on a GAAP and non-GAAP basis, was primarily driven by higher revenue and favorable product mix.
| GAAP service gross margin: 56.1%, down 6.4 points from the prior year and down 1.5 points from last quarter. |
| Non-GAAP service gross margin: 57.4%, down 6.6 points from the prior year and down 1.7 points from last quarter. |
Year-over-year, 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, higher delivery costs and professional services. Sequentially, the decrease in service gross margin was primarily due to higher delivery costs.
Operating Expenses
| GAAP operating expenses: $541 million, a decrease of $3 million, or relatively flat year-over-year, and a decrease of $22 million, or 4% sequentially. |
The year-over-year decrease in operating expenses was primarily due to lower restructuring costs and lower headcount, partially offset by stock based compensation. The sequential decrease was primarily due to lower stock based compensation and the seasonal decrease in fringe costs.
GAAP operating expenses were 44.9% of revenue, up 3.4 points year-over-year and up 7.1 points quarter-over-quarter.
| Non-GAAP operating expenses: $489 million, a decrease of $7 million, or 1% year-over-year, and a decrease of $8 million or 2% sequentially. |
The year-over-year decrease in operating expenses was due to continued cost discipline and lower headcount. The sequential decrease in operating expenses was primarily due to lower headcount related costs mainly driven by the seasonal decrease in fringe costs.
Non-GAAP operating expenses were 40.6% of revenue, up 2.7 points year-over-year and down 5.3 points quarter-over-quarter. The sequential improvement was primarily due to higher revenue.
Operating Margin
| GAAP operating margin: 13.3%, a decrease of 6.4 points year-over-year and an increase of 8.2 points sequentially. |
| Non-GAAP operating margin: 18.5%, a decrease of 5.7 points year-over-year and an increase of 6.2 points sequentially. |
Tax Rate
| GAAP tax rate: 22.8%, a decrease compared to 26.7% in Q217 and an increase compared to 16.9% last quarter. |
The year-over-year 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 a change in the level of discrete items recorded in the prior year and an unfavorable change in the forecasted geographic mix of earnings.
The quarter-over-quarter increase in the effective tax rate, on a GAAP basis, was primarily related to discrete items recorded in Q118 that did not recur in Q218.
| Non-GAAP tax rate: 20.2%, a decrease compared to 27.3% in Q217 and an increase compared to 16.7% last quarter. |
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 increase in the effective tax rate was primarily related to discrete items recorded in Q118 that did not recur in Q218.
Diluted Earnings Per Share
| GAAP diluted earnings per share: $0.33, a decrease of $0.14 year-over-year and an increase of $0.23 sequentially. |
The year-over-year decrease was due to lower revenue and lower gross margin. The sequential increase was primarily due to higher revenue and lower operating expense.
| Non-GAAP diluted earnings per share: $0.48, a decrease of $0.09 year-over-year and an increase of $0.20 sequentially. |
The year-over-year decrease was primarily due to lower revenue and lower gross margin, partially offset by a lower tax rate and a lower share count. The sequential increase was primarily due to revenue growth, higher gross margin and lower operating expenses.
Balance Sheet, Cash Flow, Capital Return, and Other Financial Metrics
(in millions, except days sales outstanding (DSO), and headcount) |
Q218 | Q118 | Q417 | Q317 | Q217 | |||||||||||||||
Cash(1, 2) |
$ | 3,530.5 | $ | 3,448.4 | $ | 4,021.0 | $ | 4,199.3 | $ | 4,214.6 | ||||||||||
Debt |
2,137.7 | 2,137.0 | 2,136.3 | 2,135.7 | 2,135.0 | |||||||||||||||
Net cash and investments(3) |
1,392.8 | 1,311.4 | 1,884.7 | 2,063.6 | 2,079.6 | |||||||||||||||
Operating cash flow(4) |
170.3 | 271.1 | 212.6 | 201.4 | 298.7 | |||||||||||||||
Capital expenditures |
37.1 | 42.2 | 53.6 | 33.3 | 32.2 | |||||||||||||||
Depreciation and amortization |
54.6 | 55.0 | 55.0 | 56.3 | 54.8 | |||||||||||||||
Share repurchases(7) |
| 750.0 | 329.7 | 140.0 | 125.0 | |||||||||||||||
Dividends |
$ | 62.8 | $ | 62.1 | $ | 36.9 | $ | 37.7 | $ | 37.8 | ||||||||||
Diluted shares(5) |
351.3 | 360.6 | 371.5 | 382.7 | 385.6 | |||||||||||||||
DSO |
52 | 57 | 62 | 52 | 52 | |||||||||||||||
Headcount(6) |
9,341 | 9,363 | 9,381 | 9,694 | 9,661 |
(1) | Includes cash, cash equivalents, and investments. |
(2) | 63% held onshore as of the end of Q218. |
(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) | 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: $170 million, down $128 million year-over-year and down $101 million sequentially. The year-over-year decrease was primarily due to timing differences in working capital related to customer collections and taxes. The sequential decrease was primarily due to timing differences in working capital related to customer collections and taxes, partially offset by lower payments related to variable compensation. The higher tax payments are a result of the impact of the US Tax Cuts and Jobs Act, including the first of eight annual installments related to the transition tax. |
Days Sales Outstanding (DSO)
| DSO: 52 days, compared to 57 days, a decrease of 5 days from the prior quarter, due primarily to high collectability of in-quarter invoicing and higher revenue. |
Capital Return
| The $750 million ASR initiated in Q118 is still underway and is expected to settle no later than August 6, 2018. |
| In the quarter, we paid a dividend of $0.18 per share for a total of $63 million. |
Demand metrics
| Total deferred revenue was $1,237 million, down $264 million year-over-year and down $20 million sequentially. |
| Product deferred revenue was $142 million, a decrease of $155 million year-over-year and down $17 million quarter-over-quarter. |
| Service deferred revenue was $1,095 million, down $109 million year-over-year and down $3 million sequentially. |
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 13% 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 approximately 2% year-over-year and down 2% sequentially.
Deferred Revenue
June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||||||||||
(in millions) | 606 | 605 | 606 | 605 | 605 | |||||||||||||||
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Deferred product revenue, net |
$ | 142.0 | $ | 335.7 | $ | 158.8 | $ | 334.4 | $ | 297.3 | ||||||||||
Deferred service revenue |
1,095.2 | 1,231.1 | 1,098.1 | 1,254.7 | 1,203.7 | |||||||||||||||
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Total |
$ | 1,237.2 | $ | 1,566.8 | $ | 1,256.9 | $ | 1,589.1 | $ | 1,501.0 | ||||||||||
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Headcount
| Ending headcount was 9,341, a decrease of 320 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 Q3 revenue guidance reflects stronger than expected Q2 business, particularly in Enterprise and the timing of certain Cloud and Service Provider deployments which are taking longer to materialize.
In addition, we are working through some industry-wide supply constraints related to certain power management components, which could further impact our lead times in Q3. At this time, we believe we will largely be able to mitigate this issue, and therefore its not a significant factor within our guidance; however, it could impact our future results.
While customer spending remains dynamic and difficult to predict, we continue to expect a return to year-over year growth during the fourth quarter.
We expect gross margins for the quarter to remain stable in Q3, and improve with volume over time; 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 September 30, 2018 is as follows:
| Revenues will be approximately $1,170 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 17.1% at the midpoint of revenue guidance. |
| Non-GAAP tax rate will be approximately 20%. |
| Non-GAAP net income per share will be approximately $0.44, plus or minus $0.03. This assumes a |
share count of approximately 350 million.
The guidance above is provided under ASC 606.
We plan to host an Investor Day in New York City on Friday, November 9, 2018. Additional information will be provided at a later date.
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; the impact of, and our ability to mitigate supply constraints for certain components; our product portfolio and success of particular products and product families; our expectations around revenue, operating expense, and earnings, including returning to year-on-year growth by Q42018; our expectations around margin growth, 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; strength of certain of our customer segments; 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, 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; the timing of orders and their fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; delays in scheduled product availability; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; significant effects of tax legislation, including the Tax Act, and judicial or administrative interpretation of tax regulations; 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, strategic partnership-related 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 | ||||||||
June 30, 2018 | December 31, 2017 | |||||||
Deferred product revenue: |
||||||||
Undelivered product commitments and other product deferrals |
$ | 152.2 | $ | 312.6 | ||||
Distributor inventory and other sell-through items |
| 68.1 | ||||||
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Deferred gross product revenue |
152.2 | 380.7 | ||||||
Deferred cost of product revenue |
(10.2 | ) | (46.5 | ) | ||||
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Deferred product revenue, net |
142.0 | 334.2 | ||||||
Deferred service revenue |
1,095.2 | 1,205.1 | ||||||
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Total |
$ | 1,237.2 | $ | 1,539.3 | ||||
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Reported as: |
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Current |
$ | 872.1 | $ | 1,030.3 | ||||
Long-term |
365.1 | 509.0 | ||||||
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Total |
$ | 1,237.2 | $ | 1,539.3 | ||||
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Vertical Reporting: Revenue Trend
2016 | 2017 | Q217 | Q317 | Q417 | Q118 | Q218 | Q/Q Change | Y/Y Change | ||||||||||||||||||||||||||||||||||||
Cloud |
$ | 1,322.3 | $ | 1,314.9 | $ | 379.6 | $ | 344.9 | $ | 258.8 | $ | 268.3 | $ | 279.8 | $ | 11.5 | 4.3 | % | $ | (99.8 | ) | (26.3 | )% | |||||||||||||||||||||
Service Provider |
2,324.7 | 2,315.7 | 562.4 | 576.9 | 607.9 | 479.9 | 523.3 | 43.4 | 9.0 | % | (39.1 | ) | (7.0 | )% | ||||||||||||||||||||||||||||||
Enterprise |
1,343.1 | 1,396.6 | 366.9 | 336.0 | 372.8 | 334.4 | 401.0 | 66.6 | 19.9 | % | 34.1 | 9.3 | % | |||||||||||||||||||||||||||||||
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Total revenue |
$ | 4,990.1 | $ | 5,027.2 | $ | 1,308.9 | $ | 1,257.8 | $ | 1,239.5 | $ | 1,082.6 | $ | 1,204.1 | $ | 121.5 | 11.2 | % | $ | (104.8 | ) | (8.0 | )% | |||||||||||||||||||||
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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 | ||||||||||||
June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||
GAAP gross margin - Product |
$ | 488.3 | $ | 404.4 | $ | 557.0 | ||||||
GAAP product gross margin % of product revenue |
59.2 | % | 56.9 | % | 60.7 | % | ||||||
Share-based compensation expense |
1.7 | 1.9 | 1.4 | |||||||||
Share-based payroll tax expense |
| 0.2 | | |||||||||
Amortization of purchased intangible assets |
3.8 | 3.8 | 3.1 | |||||||||
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Non-GAAP gross margin - Product |
$ | 493.8 | $ | 410.3 | $ | 561.5 | ||||||
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Non-GAAP product gross margin % of product revenue |
59.9 | % | 57.7 | % | 61.2 | % | ||||||
GAAP gross margin - Service |
$ | 212.6 | $ | 214.0 | $ | 244.9 | ||||||
GAAP service gross margin % of service revenue |
56.1 | % | 57.6 | % | 62.5 | % | ||||||
Share-based compensation expense |
4.9 | 4.8 | 5.3 | |||||||||
Share-based payroll tax expense |
0.1 | 1.0 | 0.3 | |||||||||
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Non-GAAP gross margin - Service |
$ | 217.6 | $ | 219.8 | $ | 250.5 | ||||||
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Non-GAAP service gross margin % of service revenue |
57.4 | % | 59.1 | % | 64.0 | % | ||||||
GAAP gross margin |
$ | 700.9 | $ | 618.4 | $ | 801.9 | ||||||
GAAP gross margin % of revenue |
58.2 | % | 57.1 | % | 61.3 | % | ||||||
Share-based compensation expense |
6.6 | 6.7 | 6.7 | |||||||||
Share-based payroll tax expense |
0.1 | 1.2 | 0.3 | |||||||||
Amortization of purchased intangible assets |
3.8 | 3.8 | 3.1 | |||||||||
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Non-GAAP gross margin |
$ | 711.4 | $ | 630.1 | $ | 812.0 | ||||||
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Non-GAAP gross margin % of revenue |
59.1 | % | 58.2 | % | 62.0 | % | ||||||
GAAP research and development expense |
$ | 248.8 | $ | 269.4 | $ | 240.2 | ||||||
Share-based compensation expense |
(29.6 | ) | (44.1 | ) | (14.1 | ) | ||||||
Share-based payroll tax expense |
(0.2 | ) | (2.4 | ) | (0.5 | ) | ||||||
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Non-GAAP research and development expense |
$ | 219.0 | $ | 222.9 | $ | 225.6 | ||||||
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GAAP sales and marketing expense |
$ | 238.3 | $ | 239.4 | $ | 239.9 | ||||||
Share-based compensation expense |
(14.0 | ) | (13.5 | ) | (16.3 | ) | ||||||
Share-based payroll tax expense |
(0.3 | ) | (1.6 | ) | (0.5 | ) | ||||||
Amortization of purchased intangible assets |
(0.3 | ) | (0.4 | ) | (0.9 | ) | ||||||
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Non-GAAP sales and marketing expense |
$ | 223.7 | $ | 223.9 | $ | 222.2 | ||||||
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GAAP general and administrative expense |
$ | 54.2 | $ | 56.0 | $ | 55.6 | ||||||
Share-based compensation expense |
(6.4 | ) | (6.1 | ) | (7.0 | ) | ||||||
Share-based payroll tax expense |
| (0.4 | ) | (0.4 | ) | |||||||
Amortization of purchased intangible assets |
(0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||
Acquisition-related and other charges |
| (0.1 | ) | | ||||||||
Strategic partnership-related charges |
(1.2 | ) | | | ||||||||
Litigation settlement benefits |
| 0.6 | | |||||||||
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Non-GAAP general and administrative expense |
$ | 46.4 | $ | 49.8 | $ | 48.0 | ||||||
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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 | ||||||||||||
June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||
GAAP operating expenses |
$ | 541.1 | $ | 562.9 | $ | 543.7 | ||||||
GAAP operating expenses % of revenue |
44.9 | % | (52.0 | )% | 41.5 | % | ||||||
Share-based compensation expense |
(50.0 | ) | (63.7 | ) | (37.4 | ) | ||||||
Share-based payroll tax expense |
(0.5 | ) | (4.4 | ) | (1.4 | ) | ||||||
Amortization of purchased intangible assets |
(0.5 | ) | (0.6 | ) | (1.1 | ) | ||||||
Restructuring benefits (charges) |
0.2 | 1.9 | (8.0 | ) | ||||||||
Acquisition-related and other charges |
| (0.1 | ) | | ||||||||
Strategic partnership-related charges |
(1.2 | ) | | | ||||||||
Litigation settlement benefits |
| 0.6 | | |||||||||
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Non-GAAP operating expenses |
$ | 489.1 | $ | 496.6 | $ | 495.8 | ||||||
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Non-GAAP operating expenses % of revenue |
40.6 | % | 45.9 | % | 37.9 | % | ||||||
GAAP operating income |
$ | 159.8 | $ | 55.5 | $ | 258.2 | ||||||
GAAP operating margin |
13.3 | % | 5.1 | % | 19.7 | % | ||||||
Share-based compensation expense |
56.6 | 70.4 | 44.1 | |||||||||
Share-based payroll tax expense |
0.6 | 5.6 | 1.7 | |||||||||
Amortization of purchased intangible assets |
4.3 | 4.4 | 4.2 | |||||||||
Restructuring (benefits) charges |
(0.2 | ) | (1.9 | ) | 8.0 | |||||||
Acquisition-related and other charges |
| 0.1 | | |||||||||
Strategic partnership-related charges |
1.2 | | | |||||||||
Litigation settlement benefits |
| (0.6 | ) | | ||||||||
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Non-GAAP operating income |
$ | 222.3 | $ | 133.5 | $ | 316.2 | ||||||
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Non-GAAP operating margin |
18.5 | % | 12.3 | % | 24.2 | % | ||||||
GAAP income tax provision |
$ | 34.4 | $ | 7.0 | $ | 65.4 | ||||||
GAAP income tax rate |
22.8 | % | 16.9 | % | 26.7 | % | ||||||
Income tax effect of non-GAAP exclusions |
8.8 | 12.9 | 17.3 | |||||||||
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Non-GAAP provision for income tax |
$ | 43.2 | $ | 19.9 | $ | 82.7 | ||||||
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Non-GAAP income tax rate |
20.2 | % | 16.7 | % | 27.3 | % | ||||||
GAAP net income |
$ | 116.5 | $ | 34.4 | $ | 179.8 | ||||||
Share-based compensation expense |
56.6 | 70.4 | 44.1 | |||||||||
Share-based payroll tax expense |
0.6 | 5.6 | 1.7 | |||||||||
Amortization of purchased intangible assets |
4.3 | 4.4 | 4.2 | |||||||||
Restructuring (benefits) charges |
(0.2 | ) | (1.9 | ) | 8.0 | |||||||
Acquisition-related and other charges |
| 0.1 | | |||||||||
Strategic partnership-related charges |
1.2 | | | |||||||||
Litigation settlement benefits |
| (0.6 | ) | | ||||||||
Income tax effect of non-GAAP exclusions |
(8.8 | ) | (12.9 | ) | (17.3 | ) | ||||||
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Non-GAAP net income |
$ | 170.2 | $ | 99.5 | $ | 220.5 | ||||||
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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 | ||||||||||||
June 30, 2018 | March 31, 2018 | June 30, 2017 | ||||||||||
GAAP diluted net income per share |
$ | 0.33 | $ | 0.10 | $ | 0.47 | ||||||
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Non-GAAP diluted net income per share |
$ | 0.48 | $ | 0.28 | $ | 0.57 | ||||||
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Shares used in computing diluted net income per share |
351.3 | 360.6 | 385.6 | |||||||||
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