Q2 2013 Juniper Networks Earnings Conference Call
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Q2 2013 Juniper Networks Earnings Conference Call

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Q2 2013 Juniper Networks Earnings Conference Call

Q2 2013 Juniper Networks Earnings Conference Call

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Q2 2013 Juniper Networks Earnings Conference Call Q2 2013 Juniper Networks Earnings Conference Call Presentation Transcript

  • Q2 2013 FINANCIAL RESULTS CONFERENCE CALL Tuesday, July 23, 2013 2:00 P.M. Pacific Time
  • Forward Looking Statements Information, statements and projections contained in these presentation slides and related conference call concerning Juniper Networks' business outlook, economic and market outlook, future financial and operating guidance, and overall future prospects are forward looking statements that involve a number of uncertainties and risks. Actual results could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including: general economic and political conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication service providers; the network capacity requirements of communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation; and other factors listed in Juniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission. All information, statements and projections contained in these slides and related conference call speak only as of the date of this presentation and related conference call. Juniper Networks undertakes no obligation to update the information contained in these slides and related conference call in the event facts or circumstances subsequently change. Use of Non-GAAP Financial Measures These presentation slides contain references to certain non-GAAP financial measures. For detailed reconciliation between the non-GAAP financial results presented in these slides and corresponding GAAP measures, please refer to the appendix at the end of this slide deck. In addition, for important commentary on why Juniper Networks considers non-GAAP information a useful view of the company’s financial results, please see the 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 and judgment compensation expenses, acquisition related charges, restructuring charges, impairment charges, litigation settlements and resolutions, gain or loss on equity investments, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and income tax effect of non-GAAP exclusions. 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.
  • COMPANY REVIEW Kevin Johnson CHIEF EXECUTIVE OFFICER
  • Enterprise Service Provider Fourth Consecutive Quarter of Y/Y Growth STRONG RESULTS & GOOD EXECUTION • Good strength in revenue and bookings environment • Wireline/Wireless: Good overall demand; Strength in Americas; Emerging growth in EMEA • Cable/Content: Design wins in core routing and switching; Capex strengthening • Routing: Strong demand in edge; Expect investment in core to pick up • Switching and Data Center performed well • Strong demand for EX9200; Record quarter for QFabric family of products • Positive activity in Security bookings
  • OR SCALE AND PERFORMANCE AGILITY AND EFFICIENCY OR DRIVING INNOVATION AND DIFFERENTIATION
  • 1. Expect macroeconomic environment to remain uncertain 2. Expect modest growth in the markets we serve 3. Take share in Routing and Switching and stabilize share in Enterprise Security 4. Expand 2013 operating margins over 2012 5. Continue to generate solid cash flows and prudently allocate capital 2013 OPERATING PRINCIPLES
  • SOFTWARE SOLUTIONS DIVISION UPDATE Bob Muglia EXECUTIVE VICE PRESIDENT & GM, SSD
  • Data Center Service Provider Customers Bookings Grew 6% Q/Q with Strong Backlog NETWORK SECURITY BUSINESS • Enabling high-scale firewalls for mobile users • SRX ideally suited for growth of LTE networks • Shipped Spotlight Secure in Q2; works in conjunction with Junos WebApp Secure • Generating good customer interest • Shipped Junos DDoS Secure Corporate End-users in Campus and Branch • Good Y/Y growth in branch SRX as transition from Screen OS continues • Recovery will occur over multiple quarters
  • Software Business JunosV Contrail Controller Strong Industry Leadership Position with SDN Strategy SDN AND SOFTWARE BUSINESS • Entered Beta in May; pulled in ship date to 2H 2013 • Beta customers in both Enterprise and SP across all three geographies • Positioned to benefit in this area in 2014 and beyond • Small and growing bookings for broader software business • Moving our software licensing to Juniper Software Advantage SDN CONTROLLER Control
  • FINANCIAL REVIEW Robyn Denholm CHIEF FINANCIAL OFFICER
  • Q2 2013 RESULTS: REFLECT CONTINUED GROWTH AND OPERATING IMPROVEMENTS $1,074 $1,118 $1,141 $1,059 $1,151 $0.19 $0.22 $0.28 $0.24 $0.29 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $500 $600 $700 $800 $900 $1,000 $1,100 $1,200 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Revenue ($M) EPS ($) Financial Overview  Revenue increased Y/Y for fourth quarter in a row  Revenue up 9% Q/Q and 7% Y/Y  Non-GAAP Operating Margin of 18.9%  Non-GAAP Diluted EPS up $0.10 Y/Y and $0.05 Q/Q Demand Metrics  Book-to-bill greater than 1  Healthy product backlog increased Q/Q and Y/Y  Product deferred revenue reduced modestly Q/Q Revenue and Non-GAAP Diluted EPS -4% Y/Y 1% Y/Y 2% Y/Y 3% Y/Y Y/Y growth rate 7% Y/Y
  • Segment Market PSD $916 80% 13% Q/Q 13% Y/Y EMEA $301 26% 4% Q/Q 1% Y/Y APAC $175 15% -1% Q/Q -7% Y/Y Q2 2013 REVENUE MIX Geography Revenue in $ Millions  Americas: Strong Q/Q growth in Enterprise; continuing growth in SP  EMEA: Q/Q growth driven by Enterprise; SP flat  APAC: SP saw Q/Q growth driven by China, Taiwan and S. Korea; Y/Y decline due to weakness in Japan and Enterprise SSD $235 20% -6% Q/Q -11%Y/YAmericas $675 59% 14% Q/Q 15% Y/Y Service Provider $726 63% 2% Q/Q 7% Y/Y Enterprise $425 37% 23% Q/Q 8% Y/Y  Total Routing: $578M Q/Q increase in Edge routing with record quarter for MX; first revenue for MX2020  Total Switching: $160M up 22% Q/Q and 15% Y/Y; good start to EX9200  Total Security: $126M Focused on stabilizing Enterprise share  Service Provider: Strength in US SP, especially Cable and Content; pockets of strength in EMEA and APAC  Enterprise: Q/Q growth driven by Federal and Financial Services in US; broad-based growth in EMEA
  • Non-GAAP Except Revenue FINANCIAL RESULTS Q2‘13 Q1‘13 Q2‘12 Q/Q Change Y/Y Change Revenue $1,150.7M $1,059.2M $1,073.8M 9% 7% Gross Margin % 63.7% 64.6% 63.4% -0.9 pts 0.3 pts R&D Sales & Marketing G&A $224.5M $247.8M $43.1M $237.0M $239.7M $41.3M $240.1M $238.1M $41.7M -5% 3% 4% -6% 4% 3% Total Operating Expense Operating Margin % $515.4M 18.9% $518.0M 15.7% $519.9M 15.0% -1% 3.2 pts -1% 3.9 pts Net Income EPS (Diluted) $148.1M $0.29 $123.8M $0.24 $103.1M $0.19 20% $0.05 44% $0.10
  • CASH FLOW AND BALANCE SHEET METRICS Cash Position Operating net cash, cash equivalents and investments of $2.8B Net cash flows from operations of $284M Share Repurchase $106M or 6.4M shares, average price of $16.45/share DSO 40 days Product Deferred Revenue Healthy level at $278M
  • $2.0 $3.8 (gross) $4.4 $1.0 ($1.3) ($0.5) ($1.8) HISTORICAL SOURCES/USES OF CAPITAL 2008 - 1H 2013 In Billions Share Repurchases shown, net of proceeds from share issuances Cash Generated Invested in the Business Capital Distribution FY08 Beginning Cash & Investments June 30, 2013 Cash, cash equivalents & Investments Cash and cash equivalents from Operations Financing Proceeds Capital Purchases M&A Share Repurchases 60% Offshore 40% Onshore Demonstrated ability and commitment to generate strong cash flows, enabling investments in the business and capital distribution to shareholders
  • 3 Months Ending September 30, 2013 Q3 2013 OUTLOOK Revenue Between $1,140 million and $1,180 million Gross Margin 64.5%, plus or minus half a percent OPEX $525M, plus or minus $5 million Operating Margin At mid-point of revenue guidance, expect 19.5% EPS Between $0.29 and $0.32 per diluted share Tax Rate Approximately 28% Share Count Assume flat with Q2’13 Non-GAAP (Except for Revenue and Share Count)
  • APPENDIX
  • SEGMENT OPERATING RESULTS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 Platform Systems Division Segment: Product revenue $718.1 $619.6 $627.3 Service revenue 197.9 189.6 182.9 Total PSD revenue $916.0 $809.2 $810.2 Non-GAAP PSD contribution margin $ $397.5 $330.1 $315.7 Non-GAAP PSD contribution margin % 43.4% 40.8% 39.0% Software Solutions Division Segment: Product revenue $145.7 $162.2 $177.4 Service revenue 89.0 87.8 86.2 Total SSD revenue $234.7 $250.0 $263.6 Non-GAAP SSD contribution margin $ $96.8 $102.0 $109.9 Non-GAAP SSD contribution margin % 41.2% 40.8% 41.7% Total revenue $1,150.7 $1,059.2 $1,073.8
  • SEGMENT OPERATING RESULTS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 Non-GAAP segment contribution margin $ $494.3 $432.1 $425.6 Non-GAAP segment contribution margin % 43.0% 40.8% 39.6% Corporate unallocated expenses ($277.1) ($266.1) ($264.7) Non-GAAP total segment operating margin $ $217.2 $166.0 $160.9 Non-GAAP total segment operating margin % 18.9% 15.7% 15.0% Share-based compensation expense (61.5) (49.9) (61.8) Share-based payroll tax expense (0.6) (3.5) (0.6) Amortization of purchased intangible assets (7.7) (7.5) (8.8) Restructuring charges (8.8) (7.7) (3.2) Acquisition and litigation charges (0.1) (10.4) 0.2 GAAP operating income $138.5 $87.0 $86.7
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP gross margin - Product $542.5 $503.6 $512.1 GAAP product gross margin % of product revenue 62.8% 64.4% 63.6% Share-based compensation expense 1.2 0.9 1.1 Share-based payroll tax expense — 0.2 — Amortization of purchased intangible assets 6.5 6.3 7.6 Restructuring charges 0.8 0.7 — Non-GAAP gross margin - Product $551.0 $511.7 $520.8 Non-GAAP product gross margin % of product revenue 63.8% 65.5% 64.7% GAAP gross margin - Service $178.0 $167.2 $155.8 GAAP service gross margin % of service revenue 62.0% 60.3% 57.9% Share-based compensation expense 3.5 4.6 4.2 Share-based payroll tax expense 0.1 0.5 — Non-GAAP gross margin - Service $181.6 $172.3 $160.0 Non-GAAP service gross margin % of service revenue 63.3% 62.1% 59.4%
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP gross margin $720.5 $670.8 $667.9 GAAP gross margin % of revenue 62.6% 63.3% 62.2% Share-based compensation expense 4.7 5.5 5.3 Share-based payroll tax expense 0.1 0.7 — Amortization of purchased intangible assets 6.5 6.3 7.6 Restructuring charges 0.8 0.7 — Non-GAAP gross margin $732.6 $684.0 $680.8 Non-GAAP gross margin % of revenue 63.7% 64.6% 63.4%
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP research and development expense $257.7 $262.2 $268.7 Share-based compensation expense (33.0) (23.6) (28.5) Share-based payroll tax expense (0.2) (1.6) (0.1) Non-GAAP research and development expense $224.5 $237.0 $240.1 GAAP sales and marketing expense $266.2 $255.2 $259.5 Share-based compensation expense (18.1) (14.5) (21.0) Share-based payroll tax expense (0.3) (1.0) (0.4) Non-GAAP sales and marketing expense $247.8 $239.7 $238.1
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP general and administrative expense $48.8 $47.8 $48.8 Share-based compensation expense (5.7) (6.3) (7.0) Share-based payroll tax expense — (0.2) (0.1) Non-GAAP general and administrative expense $43.1 $41.3 $41.7 GAAP operating expense $582.0 $583.8 $581.2 Share-based compensation expense (56.8) (44.4) (56.5) Share-based payroll tax expense (0.5) (2.8) (0.6) Amortization of purchased intangible assets (1.2) (1.2) (1.2) Restructuring charges (8.0) (7.0) (3.2) Acquisition and litigation charges (0.1) (10.4) 0.2 Non-GAAP operating expense $515.4 $518.0 $519.9
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP operating income $138.5 $87.0 $86.7 GAAP operating margin 12.0% 8.2% 8.1% Share-based compensation expense 61.5 49.9 61.8 Share-based payroll tax expense 0.6 3.5 0.6 Amortization of purchased intangible assets 7.7 7.5 8.8 Restructuring charges 8.8 7.7 3.2 Acquisition and litigation charges 0.1 10.4 (0.2) Non-GAAP operating income $217.2 $166.0 $160.9 Non-GAAP operating margin 18.9% 15.7% 15.0% GAAP income tax provision (benefit) $28.0 ($14.1) $31.8 GAAP income tax rate 22.2% (18.3%) 35.5% Income tax effect of non-GAAP exclusions 27.9 44.6 14.0 Non-GAAP provision for income tax $55.9 $30.5 $45.8 Non-GAAP income tax rate 27.4% 19.8% 30.7%
  • GAAP TO NON-GAAP RECONCILIATIONS Three Months Ended (in millions, except per share amounts and percentages) Q2'13 Q1'13 Q2'12 GAAP net income $97.9 $91.0 $57.7 Share-based compensation expense 61.5 49.9 61.8 Share-based payroll tax expense 0.6 3.5 0.6 Amortization of purchased intangible assets 7.7 7.5 8.8 Restructuring charges 8.8 7.7 3.2 Acquisition and litigation charges 0.1 10.4 (0.2) Gain on equity investments (0.6) (1.6) (14.8) Income tax effect of non-GAAP exclusions (27.9) (44.6) (14.0) Non-GAAP net income $148.1 $123.8 $103.1 GAAP diluted net income per share $0.19 $0.18 $0.11 Non-GAAP diluted net income per share $0.29 $0.24 $0.19 Shares used in computing diluted net income per share 506.3 512.7 531.8