8-K

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) October 23, 2018

Juniper Networks, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-34501	770422528
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)
1133 Innovation Way, Sunnyvale, California		94089
(Address of principal executive offices)		(Zip Code)

Registrant’s 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 October 23, 2018, Juniper Networks, Inc. (“we”, “our” or the “Company”) issued a press release in which we announced preliminary financial results for the quarter ended September 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 September 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 October 23, 2018
99.2	Prepared remarks by Juniper Networks, Inc. dated as of October 23, 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.
October 23, 2018	By:	/s/ Brian M. Martin
		Name: Brian M. Martin
		Title: Senior Vice President and General Counsel

EX-99.1

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 THIRD QUARTER 2018 FINANCIAL RESULTS

SUNNYVALE, Calif., October 23, 2018 - Juniper Networks (NYSE: JNPR), an industry leader in automated, scalable and secure networks, today reported preliminary financial results for the three months ended September 30, 2018 and provided its outlook for the three months ending December 31, 2018.

Third Quarter 2018 Financial Performance

Net revenues were $1,179.8 million, a decrease of 6.0% year-over-year, and a decrease of 2.0% sequentially.

GAAP operating margin was 13.6%, a decrease from 18.4% in the third quarter of 2017, and an increase from 13.3% in the second quarter of 2018.

Non-GAAP operating margin was 20.0%, a decrease from 23.5% in the third quarter of 2017, and an increase from 18.5% in the second quarter of 2018.

GAAP net income was $223.8 million, an increase of 35.0% year-over-year and an increase of 92.0% sequentially, resulting in diluted earnings per share of $0.64.

Non-GAAP net income was $191.0 million, a decrease of 10.0% year-over-year and an increase of 12.0% sequentially, resulting in diluted earnings per share of $0.54.

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 reported better than expected Q3 results, as continued enterprise strength and better than expected service provider results more than offset weakness in the cloud,” said Rami Rahim, chief executive officer, Juniper Networks. “While our Q4 outlook is being impacted by the pace of deployments at several cloud customers, we believe this is a temporary headwind and remain confident that we have the right products and strategy in place to grow the business in 2019.”

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“We delivered better than expected non-GAAP earnings during Q3, as gross margin exceeded the high-end of our forecast and operating expenses came in at the low-end of our outlook. We also completed our $750 million accelerated share repurchase in the period,” said Ken Miller, chief financial officer, Juniper Networks. “While we believe we are making the investments needed to win in the market, we remain focused on capturing additional efficiencies and creating shareholder value.”

Balance Sheet and Other Financial Results

Total cash, cash equivalents, and investments as of September 30, 2018 were $3,648.0 million, compared to $4,199.3 million as of September 30, 2017, and $3,530.5 million as of June 30, 2018.

Net cash flows provided by operations for the third quarter of 2018 was $207.3 million, compared to $201.4 million in the third quarter of 2017, and $170.3 million in the second quarter of 2018.

Days sales outstanding in accounts receivable, or “DSO,” was 49 days in the third quarter of 2018, compared to 52 days in the third quarter of 2017, and 52 days in the second quarter of 2018.

Capital expenditures were $31.6 million, and depreciation and amortization expense was $48.8 million during the third quarter of 2018.

Juniper’s Board of Directors has declared a quarterly cash dividend of $0.18 per share to be paid on December 26, 2018 to shareholders of record as of the close of business on December 5, 2018.

Outlook

These metrics are provided on a non-GAAP basis, except for revenue and share count. Non-GAAP 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.

While we were previously expecting Q4 to return to growth on a year-over-year basis, the mid-point of our revenue guidance reflects a year-over-year decline due to the slower pace of expected deployments in Cloud.

At this time, the Chinese tariffs are not expected to have a material direct impact on our Q4’18 financial results. However, customer buying behavior could be affected and gross margin could be slightly impacted.

While we expect to see gross margin benefit from volume in Q4’18, our guidance is down sequentially due to more normalized product and geographic mix. We continue to undertake specific efforts to improve our gross margin. These efforts include value engineering, optimizing our supply chain and Service business, pricing management and increasing software and solution sales.

With higher interest rates, other income and expense is likely to be lower going forward, in-line with our Q3’18 result.

While we expect our Q4’18 non-GAAP tax rate to be approximately 18%, we believe our go-forward non-GAAP tax rate will be approximately 19% to 20%.

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Our guidance for the quarter ending December 31, 2018 is as follows:

Revenue will be approximately $1,220.0 million, plus or minus $30.0 million.

Non-GAAP gross margin will be approximately 60.0%, plus or minus 1.0%.

Non-GAAP operating expenses will be approximately $490.0 million, plus or minus $5.0 million.

Non-GAAP operating margin will be approximately 20.0% at the midpoint of revenue guidance.

Non-GAAP tax rate will be approximately 18.0%.

Non-GAAP net income per share will be approximately $0.57, 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 on this event is available at http://investor.juniper.net.

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, strategic partnership-related charges, legal reserve and settlement charges or benefits, 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 tariffs and 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 Company’s future hiring needs, the type and volume of equity awards necessary for such future hiring, and the price at which the Company’s 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.

Third Quarter 2018 Financial Commentary Available Online

A CFO Commentary reviewing the Company’s third quarter 2018 financial results, as well as fourth quarter 2018 financial outlook will be furnished to the SEC on Form 8-K and published on the Company’s website at http://investor.juniper.net. Analysts and investors are encouraged to review this commentary prior to participating in the conference call webcast.

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Conference Call Webcast

Juniper Networks will host a conference call webcast today, October 23, 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 Company’s 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 Company’s 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, including pricing pressure, product mix and currency exchange rates; our future financial and operating results; expectations with respect to our market trends; expectations as to the timing of deployments; our expectations regarding the impact of tariffs on our financial results and the purchasing behavior of our customers; 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; our future financial and operating results, including our financial guidance; 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 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

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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 company’s 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.

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Juniper Networks, Inc.

Preliminary Condensed Consolidated Statements of Operations

(in millions, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net revenues:
Product	$	794.7		$	869.7		$	2,330.4		$	2,615.8
Service		385.1			388.1			1,136.1			1,171.9
Total net revenues		1,179.8			1,257.8			3,466.5			3,787.7
Cost of revenues:
Product		312.5			336.0			955.5			1,026.4
Service		156.3			149.4			480.7			440.4
Total cost of revenues		468.8			485.4			1,436.2			1,466.8
Gross margin		711.0			772.4			2,030.3			2,320.9
Operating expenses:
Research and development		253.8			236.4			772.0			752.8
Sales and marketing		224.8			232.5			702.5			716.6
General and administrative		67.9			70.6			178.1			176.7
Restructuring charges		4.4			2.0			2.3			29.4
Total operating expenses		550.9			541.5			1,654.9			1,675.5
Operating income		160.1			230.9			375.4			645.4
Other expense, net		(8.1	)		(5.1	)		(31.1	)		(33.8	)
Income before income taxes		152.0			225.8			344.3			611.6
Income tax (benefit) provision		(71.8	)		60.1			(30.4	)		157.3
Net income	$	223.8		$	165.7		$	374.7		$	454.3
Net income per share:
Basic	$	0.65		$	0.44		$	1.07		$	1.20
Diluted	$	0.64		$	0.43		$	1.05		$	1.18
Shares used in computing net income per share:
Basic		346.2			378.3			350.1			380.0
Diluted		350.5			382.7			355.2			386.5
Cash dividends declared per common stock	$	0.18		$	0.10		$	0.54		$	0.30

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Juniper Networks, Inc.

Preliminary Net Revenues by Product and Service

(in millions)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Routing	$	496.4	$	585.8	$	1,395.1	$	1,679.9
Switching		221.1		212.6		705.9		730.2
Security		77.2		71.3		229.4		205.7
Total Product		794.7		869.7		2,330.4		2,615.8
Total Service		385.1		388.1		1,136.1		1,171.9
Total	$	1,179.8	$	1,257.8	$	3,466.5	$	3,787.7

Juniper Networks, Inc.

Preliminary Net Revenues by Vertical

(in millions)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cloud	$	250.0	$	344.9	$	798.1	$	1,056.1
Service Provider		543.6		576.9		1,546.8		1,707.8
Enterprise		386.2		336.0		1,121.6		1,023.8
Total	$	1,179.8	$	1,257.8	$	3,466.5	$	3,787.7

Juniper Networks, Inc.

Preliminary Net Revenues by Geographic Region

(in millions)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Americas	$	643.1	$	729.2	$	1,906.4	$	2,241.6
Europe, Middle East, and Africa		329.9		298.6		946.8		871.3
Asia Pacific		206.8		230.0		613.3		674.8
Total	$	1,179.8	$	1,257.8	$	3,466.5	$	3,787.7

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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
		September 30, 2018			June 30, 2018			September 30, 2017
GAAP operating income		$	160.1		$	159.8		$	230.9
GAAP operating margin			13.6	%		13.3	%		18.4	%
Share-based compensation expense	C		53.2			56.6			45.0
Share-based payroll tax expense	C		0.4			0.6			0.3
Amortization of purchased intangible assets	A		4.4			4.3			4.1
Restructuring charges (benefits)	B		4.4			(0.2	)		2.0
Acquisition-related charges	A		—			—			1.4
Strategic partnership-related charges	B		0.9			1.2			—
Legal reserve and settlement charges	B		12.0			—			13.2
Supplier component remediation recovery	B		—			—			(1.0	)
Non-GAAP operating income		$	235.4		$	222.3		$	295.9
Non-GAAP operating margin			20.0	%		18.5	%		23.5	%
GAAP net income		$	223.8		$	116.5		$	165.7
Share-based compensation expense	C		53.2			56.6			45.0
Share-based payroll tax expense	C		0.4			0.6			0.3
Amortization of purchased intangible assets	A		4.4			4.3			4.1
Restructuring charges (benefits)	B		4.4			(0.2	)		2.0
Acquisition-related charges	A		—			—			1.4
Strategic partnership-related charges	B		0.9			1.2			—
Legal reserve and settlement charges	B		12.0			—			13.2
Supplier component remediation recovery	B		—			—			(1.0	)
Loss (gain) on equity investments	B		2.8			—			(3.6	)
Recognition of previously unrecognized tax benefits	B		(67.6	)		—			—
Reduction of expected tax liabilities from tax accounting method change	B		(33.2	)		—			—
Income tax effect of non-GAAP exclusions	B		(10.1	)		(8.8	)		(16.0	)
Non-GAAP net income		$	191.0		$	170.2		$	211.1
GAAP diluted net income per share		$	0.64		$	0.33		$	0.43
Non-GAAP diluted net income per share	D	$	0.54		$	0.48		$	0.55
Shares used in computing diluted net income per share			350.5			351.3			382.7

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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.

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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 charges or benefits; (ii) strategic partnership-related charges (iii) legal reserve and settlement charges or benefits; (iv) supplier component remediation charges or recovery; (v) gain or loss on equity investments; (vi) significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform; (vii) recognition of previously unrecognized tax benefits that are non-recurring in nature; (viii) 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 to an event that is distinct and does not reflect current ongoing business operations. In the case of legal reserves and 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, we exclude previously unrecognized tax benefits that are non-recurring in nature which are recorded in the period in which applicable statutes of limitation lapse or upon the completion of tax review cycles as the tax matter may relate to multiple or different periods. Further, the impact of certain income tax reform, including the revaluation of our deferred tax assets and liabilities 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 these tax events limit the comparability with prior periods and that these expenses or benefits 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)

	September 30, 2018		December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	2,501.7	$	2,006.5
Short-term investments		887.3		1,026.1
Accounts receivable, net of allowances		648.3		852.0
Prepaid expenses and other current assets		253.4		299.9
Total current assets		4,290.7		4,184.5
Property and equipment, net		967.6		1,021.1
Long-term investments		259.0		988.4
Purchased intangible assets, net		115.0		128.1
Goodwill		3,094.3		3,096.2
Other long-term assets		373.7		415.5
Total assets	$	9,100.3	$	9,833.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	184.7	$	217.6
Accrued compensation		177.2		186.0
Deferred revenue		814.1		1,030.3
Short-term debt		349.7		—
Other accrued liabilities		214.8		304.3
Total current liabilities		1,740.5		1,738.2
Long-term debt		1,788.6		2,136.3
Long-term deferred revenue		351.2		509.0
Long-term income taxes payable		436.7		650.6
Other long-term liabilities		132.4		118.8
Total liabilities		4,449.4		5,152.9
Total stockholders’ equity		4,650.9		4,680.9
Total liabilities and stockholders’ equity	$	9,100.3	$	9,833.8

Page 11 of 12

Juniper Networks, Inc.

Preliminary Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

	Nine Months Ended September 30,
	2018			2017(*)
Cash flows from operating activities:
Net income	$	374.7		$	454.3
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense		180.2			151.1
Depreciation, amortization, and accretion		159.2			169.7
Other		3.5			(6.7	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net		200.9			331.9
Prepaid expenses and other assets		43.9			51.2
Accounts payable		(27.6	)		(11.5	)
Accrued compensation		(4.2	)		(60.6	)
Income taxes payable		(244.0	)		8.8
Other accrued liabilities		(14.5	)		(20.3	)
Deferred revenue		(23.4	)		(21.2	)
Net cash provided by operating activities		648.7			1,046.7
Cash flows from investing activities:
Purchases of property and equipment		(110.9	)		(97.6	)
Purchases of available-for-sale debt securities		(608.1	)		(1,298.6	)
Proceeds from sales of available-for-sale debt securities		1,012.2			761.2
Proceeds from maturities and redemptions of available-for-sale debt securities		446.6			521.3
Purchases of equity securities		(8.1	)		(13.7	)
Proceeds from sales of equity securities		29.8			1.3
Proceeds from Pulse note receivable		—			75.0
Payment of escrow balance related to prior year acquisitions		(31.5	)		—
Payments for business acquisitions, net of cash and cash equivalents acquired		—			(27.0	)
Net cash provided by (used in) investing activities		730.0			(78.1	)
Cash flows from financing activities:
Repurchase and retirement of common stock		(755.5	)		(395.5	)
Proceeds from issuance of common stock		56.8			64.4
Payment of dividends		(187.0	)		(113.5	)
Change in customer financing arrangement		(16.9	)		—
Other		(1.5	)		—
Net cash used in financing activities		(904.1	)		(444.6	)
Effect of foreign currency exchange rates on cash, cash equivalents, and restricted cash		(10.9	)		13.3
Net increase in cash, cash equivalents, and restricted cash		463.7			537.3
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	$	2,522.8		$	2,417.9

^(*) 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 $54.2 million increase in cash, cash equivalents and restricted cash in the beginning and ending balances, respectively for the nine months ended September 30, 2017. The adoption did not have a material impact on the cash flow activity presented on the Company’s Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017. The Company applied this provision on a retrospective basis.

Page 12 of 12

EX-99.2

Exhibit 99.2

Juniper Networks, Inc.

1133 Innovation Way

Sunnyvale, CA 94089

October 23, 2018

CFO Commentary on Third Quarter Preliminary Financial Results

Related Information

The following commentary is provided by management and should be referenced in conjunction with Juniper Networks’ third quarter 2018 preliminary financial results press release available on its Investor Relations website at http://investor.juniper.net. These remarks represent management’s current views of the Company’s financial and operational performance and outlook and are provided to give investors and analysts further insight into the Company’s performance in advance of the earnings call webcast.

Q3 2018 Preliminary Financial Results

GAAP

(in millions, except per share amounts and percentages)	Q3’18			Q2’18			Q3’17			Q/Q Change			Y/Y Change
Revenue	$	1,179.8		$	1,204.1		$	1,257.8			(2	)%		(6	)%
Product		794.7			824.9			869.7			(4	)%		(9	)%
Service		385.1			379.2			388.1			2	%		(1	)%
Gross margin %		60.3	%		58.2	%		61.4	%		2.1	pts		(1.1	)pts
Research and development		253.8			248.8			236.4			2	%		7	%
Sales and marketing		224.8			238.3			232.5			(6	)%		(3	)%
General and administrative		67.9			54.2			70.6			25	%		(4	)%
Restructuring charges (benefits)		4.4			(0.2	)		2.0			N/M			120	%
Total operating expenses	$	550.9		$	541.1		$	541.5			2	%		2	%
Operating margin %		13.6	%		13.3	%		18.4	%		0.3	pts		(4.8	)pts
Net income		223.8			116.5			165.7			92	%		35	%
Diluted net income per share	$	0.64		$	0.33		$	0.43			94	%		49	%

N/M—Not meaningful

Non-GAAP

(in millions, except per share amounts and percentages)	Q4’18 Guidance		Q3’18			Q2’18			Q3’17			Q/Q Change			Y/Y Change
Revenue(1)		$1,220 +/-$30	$	1,179.8		$	1,204.1		$	1,257.8			(2	)%		(6	)%
Product(1)				794.7			824.9			869.7			(4	)%		(9	)%
Service(1)				385.1			379.2			388.1			2	%		(1	)%
Gross margin %		60% +/- 1%		61.1	%		59.1	%		62.0	%		2.0	pts		(0.9	)pts
Research and development				225.6			219.0			217.9			3	%		4	%
Sales and marketing				211.4			223.7			217.7			(5	)%		(3	)%
General and administrative				48.6			46.4			48.4			5	%		—	%
Total operating expenses		$490 +/- $5	$	485.6		$	489.1		$	484.0			(1	)%		—	%
Operating margin %		~ 20% at the midpoint		20.0	%		18.5	%		23.5	%		1.5	pts		(3.5	)pts
Net income			$	191.0		$	170.2		$	211.1			12	%		(10	)%
Diluted net income per share	$	0.57 +/- $0.03	$	0.54		$	0.48		$	0.55			13	%		(2	)%

⁽¹⁾ Revenue numbers are GAAP and Q2’18 actual, Q3’18 actual and Q4’18 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 September 30, 2018, the accounting impact of the adoption was a decrease in revenue recognition of approximately $5 million. Product revenue was approximately $23 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. The product revenue increase from ASC 606 was primarily allocated between Switching and Routing. Service revenue was approximately $27 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 decreased by approximately $1 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 Q3’18 606 vs. 605

(in millions, except per share amounts and percentages)	606			605			Delta
Revenue	$	1,179.8		$	1,184.4			—	%
Product		794.7			771.9			3	%
Service		385.1			412.5			(7	)%
Gross margin %		60.3	%		60.1	%		0.2	pts
Total operating expenses	$	550.9		$	551.4			—	%
Operating margin %		13.6	%		13.5	%		0.1	pts
Net income	$	223.8		$	224.1			—	%
Diluted net income per share	$	0.64		$	0.64			—	%

Non-GAAP Q3’18 606 vs. 605

(in millions, except per share amounts and percentages)	606			605			Delta
Revenue	$	1,179.8		$	1,184.4			—	%
Product		794.7			771.9			3	%
Service		385.1			412.5			(7	)%
Gross margin %		61.1	%		60.9	%		0.2	pts
Total operating expenses	$	485.6		$	486.1			—	%
Operating margin %		20.0	%		19.9	%		0.1	pts
Net income	$	191.0		$	191.0			—	%
Diluted net income per share	$	0.54		$	0.54			—	%

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.

Q3 2018 Overview

We reported better than expected third quarter results, with revenue of $1,180 million, above the mid-point of our guidance. Non-GAAP gross margin of 61.1% and non-GAAP earnings per share of $0.54, were both above our guidance range.

Our Enterprise vertical increased 15% year-over-year, driven by strength across all technologies and decreased 4% sequentially consistent with normal seasonality and in-line with our expectations. The Service Provider vertical declined 6% year-over-year, but increased 4% sequentially, and performed better than expected primarily due to strength in EMEA. Cloud revenues declined 28% year-over-year and 11% sequentially, reflecting a slower than expected pace of deployments. We remain confident in our position with our strategic Cloud customers however, the pace of deployments is difficult to predict.

Routing decreased 15% year-over-year and increased 1% sequentially. Switching increased 4% year-over-year and decreased 13% sequentially. Security increased 8% year-over-year but declined 3% sequentially. Our Services business declined 1% year-over year, but increased 2% sequentially.

In reviewing our top 10 customers for the quarter, five were Cloud, four were Service Provider, and one was in Enterprise.

Product deferred revenue was $134 million, down 59% year-over-year and 6% 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 up 1% year-over-year.

Non-GAAP operating expenses were flat year-over-year and declined 1% sequentially.

Cash flow from operations was $207 million for the quarter. During the quarter, we completed the $750 million accelerated share repurchase, or ASR, resulting in a final settlement of 6.0 million shares in the quarter. We paid $62 million in dividends, reflecting a quarterly dividend of $0.18 per share. The total cash, cash equivalents, and investments ending Q3’18 was $3.6 billion.

Revenue

Product & Service

• Routing product revenue: $496 million, down 15% year-over-year and up 1% sequentially. The year-over-year decrease was primarily due to Cloud, partially offset by strength in Enterprise, and to a lesser extent, the impact of the adoption of ASC 606. The sequential increase was driven by Enterprise and Service Provider, partially offset by a decrease in Cloud. The MX product family declined year-over-year but grew sequentially. The PTX product family declined both year-over-year and sequentially.

• Switching product revenue: $221 million, up 4% year-over-year and down 13% sequentially. The year-over-year increase was primarily driven by the impact of the adoption of ASC 606. Sequentially, the decline was across all verticals. While the EX product family grew year-over-year, the QFX product family slightly declined year-over-year due to the timing of deployments.

• Security product revenue: $77 million, up 8% year-over-year and down 3% sequentially. Year-over-year, the increase was driven by all verticals. The sequential decline was due to Enterprise, partially offset by an increase in Service Provider.

• Service revenue: $385 million, down 1% year-over-year and up 2% sequentially. Year-over-year, the decrease was due to the impact of the adoption of ASC 606. Excluding the impact of the adoption of ASC 606, our service net revenues would have increased 6% year-over-year primarily driven by strong renewal and attach rates of support contracts. Sequentially the increase was primarily driven by strong renewal and attach rates of support contracts.

Vertical

• Cloud: $250 million, down 28% year-over-year and down 11% sequentially. Year-over-year, the decrease was primarily due to Routing. The sequential decrease was primarily due to Routing and Switching.

• Service Provider: $544 million, down 6% year-over-year and up 4% sequentially. Year-over-year, the decrease was primarily due to Routing and the impact of the adoption of ASC 606. Sequentially, the increase was driven by Routing, Security and Services.

• Enterprise: $386 million, up 15% year-over-year and down 4% sequentially. Year-over-year, the increase was driven by strength across all technologies. Sequentially, the decrease was consistent with normal seasonality and in-line with our expectations.

Geography

• Americas: $643 million, down 12% year-over-year and down 5% sequentially. Year-over-year, the decrease was primarily due to Cloud and to a lesser extent, Service Provider, partially offset by Enterprise. Sequentially, the decline was primarily due to Cloud.

• EMEA: $330 million, up 10% year-over-year and up 7% sequentially. Year-over-year, the increase was primarily due to Service Provider and Enterprise, partially offset by the impact of the adoption of ASC 606. Sequentially, the increase was primarily driven by Service Provider, and to a lesser extent, Enterprise.

• APAC: $207 million, down 10% year-over-year and down 6% sequentially. The year-over-year decline was due to Service Provider, partially offset by the impact of the adoption of ASC 606 and an increase in Cloud. The sequential decrease was due to Enterprise.

Gross Margin

• GAAP gross margin: 60.3%, compared to 61.4% from the prior year and 58.2% from last quarter.

• Non-GAAP gross margin: 61.1%, compared to 62.0% from the prior year and 59.1% from last quarter.

• GAAP product gross margin: 60.7%, down 0.7 points from the prior year and up 1.5 points from last quarter.

• Non-GAAP product gross margin: 61.4%, down 0.4 points from the prior year and up 1.5 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 mix, partially offset by the impact of the adoption of ASC 606.

The sequential increase, on a GAAP and non-GAAP basis, was primarily driven by favorable product and geographic mix.

• GAAP service gross margin: 59.4%, down 2.1 points from the prior year and up 3.3 points from last quarter.

• Non-GAAP service gross margin: 60.6%, down 1.9 points from the prior year and up 3.2 points from last quarter.

Year-over-year, the decrease in service gross margin, on a GAAP and non-GAAP basis, was primarily due to the adoption of ASC 606.

Sequentially, the increase in service gross margin was primarily due to lower delivery costs and higher service revenue.

Operating Expenses

• GAAP operating expenses: $551 million, an increase of $9 million year-over-year, and an increase of $10 million, sequentially.

The year-over-year increase in operating expenses was primarily due to higher share-based compensation and restructuring costs. The sequential increase was primarily due to a reserve related to an estimated settlement.

GAAP operating expenses were 46.7% of revenue, up 3.6 points year-over-year and up 1.8 points quarter-over-quarter.

• Non-GAAP operating expenses: $486 million, an increase of $2 million year-over-year, and a decrease of $4 million sequentially.

The sequential decrease in operating expenses was primarily due to lower commissions.

Non-GAAP operating expenses were 41.2% of revenue, up 2.7 points year-over-year and up 0.6 points quarter-over-quarter.

Operating Margin

• GAAP operating margin: 13.6%, a decrease of 4.8 points year-over-year and an increase of 0.3 points sequentially.

• Non-GAAP operating margin: 20.0%, a decrease of 3.5 points year-over-year and an increase of 1.5 points sequentially.

Tax Rate

• GAAP tax rate: 47.3% benefit, a decrease compared to 26.6% in Q3’17 and a decrease compared to 22.8% last quarter.

The year-over-year decrease in the effective tax rate, on a GAAP basis, was due to discrete benefits recorded in Q3’18 and a lower tax rate as a result of the US Tax Cuts and Jobs Act (the “Tax Act”) enacted in Q4’17. We recorded discrete tax benefits of $100.8 million, of which $67.6 relates to the recognition of previously unrecognized tax benefits and $33.2 million is due to a reduction of expected tax liabilities under the Tax Act resulting from a tax accounting method change.

• Non-GAAP tax rate: 17.0%, a decrease compared to 26.5% in Q3’17 and a decrease compared to 20.2% 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 Q4’17.

The sequential decrease in the effective tax rate was primarily related to a favorable change in the forecasted geographic mix of earnings.

Diluted Earnings Per Share

• GAAP diluted earnings per share: $0.64, an increase of $0.21 year-over-year and an increase of $0.31 sequentially.

The year-over-year increase was primarily due to a lower tax rate and lower diluted shares. The sequential increase was primarily due to a lower tax rate and higher gross margin.

• Non-GAAP diluted earnings per share: $0.54, a decrease of $0.01 year-over-year and an increase of $0.06 sequentially.

The sequential increase was primarily due to higher gross margin and a lower tax rate.

Balance Sheet, Cash Flow, Capital Return, and Other Financial Metrics

(in millions, except days sales outstanding (“DSO”), and headcount)	Q3’18		Q2’18		Q1’18		Q4’17		Q3’17
Cash(1, 2)	$	3,648.0	$	3,530.5	$	3,448.4	$	4,021.0	$	4,199.3
Debt		2,138.3		2,137.7		2,137.0		2,136.3		2,135.7
Net cash and investments(3)		1,509.7		1,392.8		1,311.4		1,884.7		2,063.6
Operating cash flow(4)		207.3		170.3		271.1		212.6		201.4
Capital expenditures		31.6		37.1		42.2		53.6		33.3
Depreciation and amortization		48.8		54.6		55.0		55.0		56.3
Share repurchases(5)		—		—		750.0		329.7		140.0
Dividends	$	62.1	$	62.8	$	62.1	$	36.9	$	37.7
Diluted shares(6)		350.5		351.3		360.6		371.5		382.7
DSO		49		52		57		62		52
Headcount		9,311		9,341		9,363		9,381		9,694

⁽¹⁾  Includes cash, cash equivalents, and investments.

⁽²⁾ 63% held onshore as of the end of Q3’18.

⁽³⁾ Net cash and investments includes, cash, cash equivalents, and investments, net of debt.

⁽⁴⁾ In Q1’18, 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⁾ For Q1’18, $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 concluded in Q3’18, and at final settlement, an additional 6.0 million shares were received.

⁽⁶⁾ Non-GAAP diluted shares for Q4’17 was 376.6.

Cash Flow

• Cash flow from operations: $207 million, up $6 million a year-over-year and up $37 million sequentially.

The sequential increase was primarily due to lower tax payments, partially offset by higher payments related to variable compensation.

Days Sales Outstanding (DSO)

• DSO: 49 days, compared to 52 days, a decrease of 3 days from the prior quarter, due primarily to lower overall invoicing volume.

Capital Return

• The $750 million ASR initiated in Q1’18 concluded in Q3, resulting in a final settlement of 6.0 million shares and 29.3 million shares retired in total from the ASR inclusive of the initial delivery and final settlement. In addition, in the quarter, we paid a dividend of $0.18 per share for a total of $62 million.

Demand metrics

• Total deferred revenue was $1,165 million, down $298 million year-over-year and down $72 million sequentially.

• Product deferred revenue was $134 million, down of $190 million year-over-year and down $8 million quarter-over-quarter.

• Service deferred revenue was $1,032 million, down $108 million year-over-year and down $64 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 1% year-over-year. 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.

Deferred Revenue

	September 30, 2018				June 30, 2018				September 30, 2017
(in millions)	606		605		606		605		605
Deferred product revenue, net	$	133.6	$	326.8	$	142.0	$	335.7	$	323.7
Deferred service revenue		1,031.7		1,163.4		1,095.2		1,231.1		1,139.2
Total	$	1,165.3	$	1,490.2	$	1,237.2	$	1,566.8	$	1,462.9

Headcount

• Ending headcount was 9,311, a decrease of 383 employees year-over-year and 30 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. Non-GAAP 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.

While we were previously expecting Q4 to return to growth on a year-over-year basis, the mid-point of our revenue guidance reflects a year-over-year decline due to the slower pace of expected deployments in Cloud.

At this time, the Chinese tariffs are not expected to have a material direct impact on our Q4’18 financial results. However, customer buying behavior could be affected and gross margin could be slightly impacted.

While we expect to see gross margin benefit from volume in Q4’18, our guidance is down sequentially due to more normalized product and geographic mix. We continue to undertake specific efforts to improve our gross margin. These efforts include value engineering, optimizing our supply chain and Service business, pricing management and increasing software and solution sales.

With higher interest rates, other income and expense is likely to be lower going forward, in-line with our Q3’18 result.

While we expect our Q4’18 non-GAAP tax rate to be approximately 18%, we believe our go-forward non-GAAP tax rate will be approximately 19% to 20%.

Our guidance for the quarter ending December 31, 2018 is as follows:

• Revenue will be approximately $1,220 million, plus or minus $30 million.

• Non-GAAP gross margin will be approximately 60.0%, 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 20% at the midpoint of revenue guidance.

• Non-GAAP tax rate will be approximately 18%.

• Non-GAAP net income per share will be approximately $0.57, plus or minus $0.03. This assumes a share count of approximately 350 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, product mix and currency exchange rates; factors that impact our gross margin; the architectural transition of our customers’ networks and timing of deployments by our 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 regarding the impact of tariffs on our financial results and the purchasing behavior of our customers; our expectations around revenue, operating expense, and earnings; our expectations around margin growth, and our ability to realize benefits from our gross margin optimization programs; our expectations regarding product and geographic mix; 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 and Service 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; legal settlements and resolutions; the potential impact of activities related to the execution of capital return, restructurings and product rationalization; the potential impact of tariffs; 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.

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; diluted earnings per share; and diluted shares outstanding. For important commentary on why Juniper Networks considers non-GAAP information a useful view of the company’s 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, legal reserve and settlement charges or benefits, 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 tariffs and 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 Company’s future hiring needs, and restructuring actions, the type and volume of equity awards necessary for such future hiring, and the price at which the Company’s 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
	September 30, 2018			December 31, 2017
Deferred product revenue:
Undelivered product commitments and other product deferrals	$	144.5		$	312.6
Distributor inventory and other sell-through items		—			68.1
Deferred gross product revenue		144.5			380.7
Deferred cost of product revenue		(10.9	)		(46.5	)
Deferred product revenue, net		133.6			334.2
Deferred service revenue		1,031.7			1,205.1
Total	$	1,165.3		$	1,539.3
Reported as:
Current	$	814.1		$	1,030.3
Long-term		351.2			509.0
Total	$	1,165.3		$	1,539.3

Vertical Reporting: Revenue Trend

	2016		2017		Q3’17		Q4’17		Q1’18		Q2’18		Q3’18		Q/Q Change					Y/Y Change
Cloud	$	1,322.3	$	1,314.9	$	344.9	$	258.8	$	268.3	$	279.8	$	250.0	$	(29.8	)	(10.7	)%	$	(94.9	)	(27.5	)%
Service Provider		2,324.7		2,315.7		576.9		607.9		479.9		523.3		543.6		20.3		3.9	%		(33.3	)	(5.8	)%
Enterprise		1,343.1		1,396.6		336.0		372.8		334.4		401.0		386.2		(14.8	)	(3.7	)%		50.2		14.9	%
Total revenue	$	4,990.1	$	5,027.2	$	1,257.8	$	1,239.5	$	1,082.6	$	1,204.1	$	1,179.8	$	(24.3	)	(2.0	)%	$	(78.0	)	(6.2	)%

Juniper Networks, Inc.

Preliminary Reconciliations between GAAP and non-GAAP Financial Measures

(in millions, except percentages and per share amounts)

(unaudited)

	Three Months Ended
	September 30, 2018			June 30, 2018			September 30, 2017
GAAP gross margin—Product	$	482.2		$	488.3		$	533.7
GAAP product gross margin % of product revenue		60.7	%		59.2	%		61.4	%
Share-based compensation expense		1.5			1.7			1.5
Share-based payroll tax expense		0.1			—			—
Amortization of purchased intangible assets		3.8			3.8			3.1
Supplier component remediation recovery		—			—			(1.0	)
Non-GAAP gross margin—Product	$	487.6		$	493.8		$	537.3
Non-GAAP product gross margin % of product revenue		61.4	%		59.9	%		61.8	%
GAAP gross margin—Service	$	228.8		$	212.6		$	238.7
GAAP service gross margin % of service revenue		59.4	%		56.1	%		61.5	%
Share-based compensation expense		4.5			4.9			3.9
Share-based payroll tax expense		0.1			0.1			—
Non-GAAP gross margin—Service	$	233.4		$	217.6		$	242.6
Non-GAAP service gross margin % of service revenue		60.6	%		57.4	%		62.5	%
GAAP gross margin	$	711.0		$	700.9		$	772.4
GAAP gross margin % of revenue		60.3	%		58.2	%		61.4	%
Share-based compensation expense		6.0			6.6			5.4
Share-based payroll tax expense		0.2			0.1			—
Amortization of purchased intangible assets		3.8			3.8			3.1
Supplier component remediation recovery		—			—			(1.0	)
Non-GAAP gross margin	$	721.0		$	711.4		$	779.9
Non-GAAP gross margin % of revenue		61.1	%		59.1	%		62.0	%
GAAP research and development expense	$	253.8		$	248.8		$	236.4
Share-based compensation expense		(28.1	)		(29.6	)		(18.5	)
Share-based payroll tax expense		(0.1	)		(0.2	)		—
Non-GAAP research and development expense	$	225.6		$	219.0		$	217.9
GAAP sales and marketing expense	$	224.8		$	238.3		$	232.5
Share-based compensation expense		(12.9	)		(14.0	)		(13.7	)
Share-based payroll tax expense		(0.1	)		(0.3	)		(0.2	)
Amortization of purchased intangible assets		(0.4	)		(0.3	)		(0.9	)
Non-GAAP sales and marketing expense	$	211.4		$	223.7		$	217.7
GAAP general and administrative expense	$	67.9		$	54.2		$	70.6
Share-based compensation expense		(6.2	)		(6.4	)		(7.4	)
Share-based payroll tax expense		—			—			(0.1	)
Amortization of purchased intangible assets		(0.2	)		(0.2	)		(0.1	)
Acquisition-related charges		—			—			(1.4	)
Strategic partnership-related charges		(0.9	)		(1.2	)		—
Legal reserve and settlement charges		(12.0	)		—			(13.2	)
Non-GAAP general and administrative expense	$	48.6		$	46.4		$	48.4

Juniper Networks, Inc.

Preliminary Reconciliations between GAAP and non-GAAP Financial Measures

(in millions, except percentages and per share amounts)

(unaudited)

	Three Months Ended
	September 30, 2018			June 30, 2018			September 30, 2017
GAAP operating expenses	$	550.9		$	541.1		$	541.5
GAAP operating expenses % of revenue		46.7	%		44.9	%		43.1	%
Share-based compensation expense		(47.2	)		(50.0	)		(39.6	)
Share-based payroll tax expense		(0.2	)		(0.5	)		(0.3	)
Amortization of purchased intangible assets		(0.6	)		(0.5	)		(1.0	)
Restructuring (charges) benefits		(4.4	)		0.2			(2.0	)
Acquisition-related charges		—			—			(1.4	)
Strategic partnership-related charges		(0.9	)		(1.2	)		—
Legal reserve and settlement charges		(12.0	)		—			(13.2	)
Non-GAAP operating expenses	$	485.6		$	489.1		$	484.0
Non-GAAP operating expenses % of revenue		41.2	%		40.6	%		38.5	%
GAAP operating income	$	160.1		$	159.8		$	230.9
GAAP operating margin		13.6	%		13.3	%		18.4	%
Share-based compensation expense		53.2			56.6			45.0
Share-based payroll tax expense		0.4			0.6			0.3
Amortization of purchased intangible assets		4.4			4.3			4.1
Restructuring charges (benefits)		4.4			(0.2	)		2.0
Acquisition-related charges		—			—			1.4
Strategic partnership-related charges		0.9			1.2			—
Legal reserve and settlement charges		12.0			—			13.2
Supplier component remediation recovery		—			—			(1.0	)
Non-GAAP operating income	$	235.4		$	222.3		$	295.9
Non-GAAP operating margin		20.0	%		18.5	%		23.5	%
GAAP income tax (benefit) provision	$	(71.8	)	$	34.4		$	60.1
GAAP income tax rate		(47.3	)%		22.8	%		26.6	%
Recognition of previously unrecognized tax benefits		67.6			—			—
Reduction of expected tax liabilities from tax accounting method change		33.2			—			—
Income tax effect of non-GAAP exclusions		10.1			8.8			16.0
Non-GAAP provision for income tax	$	39.1		$	43.2		$	76.1
Non-GAAP income tax rate		17.0	%		20.2	%		26.5	%
GAAP net income	$	223.8		$	116.5		$	165.7
Share-based compensation expense		53.2			56.6			45.0
Share-based payroll tax expense		0.4			0.6			0.3
Amortization of purchased intangible assets		4.4			4.3			4.1
Restructuring charges (benefits)		4.4			(0.2	)		2.0
Acquisition-related charges		—			—			1.4
Strategic partnership-related charges		0.9			1.2			—
Legal reserve and settlement charges		12.0			—			13.2
Supplier component remediation recovery		—			—			(1.0	)
Loss (gain) on equity investments		2.8			—			(3.6	)
Recognition of previously unrecognized tax benefits		(67.6	)		—			—
Reduction of expected tax liabilities from tax accounting method change		(33.2	)		—			—
Income tax effect of non-GAAP exclusions		(10.1	)		(8.8	)		(16.0	)
Non-GAAP net income	$	191.0		$	170.2		$	211.1

Juniper Networks, Inc.

Preliminary Reconciliations between GAAP and non-GAAP Financial Measures

(in millions, except percentages and per share amounts)

(unaudited)

	Three Months Ended
	September 30, 2018		June 30, 2018		September 30, 2017
GAAP diluted net income per share	$	0.64	$	0.33	$	0.43
Non-GAAP diluted net income per share	$	0.54	$	0.48	$	0.55
Shares used in computing diluted net income per share		350.5		351.3		382.7