Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
JNPR > SEC Filings for JNPR > Form 10-Q on 11-Aug-2014All Recent SEC Filings

Show all filings for JUNIPER NETWORKS INC

Form 10-Q for JUNIPER NETWORKS INC


11-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q ("Report"), including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and the future results of Juniper Networks, Inc. ("we," "us," or the "Company") that are based on our current expectations, estimates, forecasts, and projections about our business, our results of operations, the industry in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "targets," "goals," "projects," "would," "could," "intends," "plans," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled "Risk Factors" in Item 1A of Part II and elsewhere, and in other reports we file with the U.S. Securities and Exchange Commission ("SEC"), specifically our most recent Annual Report on Form 10-K. While forward-looking statements are based on reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by applicable law.

The following discussion is based upon our unaudited Condensed Consolidated Financial Statements included in Part 1, Item I, of this Report, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory and spare parts, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors, including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives.

To aid in understanding our operating results for the periods covered by this Report, we have provided an executive overview and summary of our business and market environment along with a financial results overview. These sections should be read in conjunction with the more detailed discussion and analysis of our condensed consolidated financial condition and results of operations in this Item 2, our "Risk Factors" section included in Item 1A of Part II, and our unaudited Condensed Consolidated Financial Statements and Notes included in Item 1 of Part I of this Report, as well as our audited Consolidated Financial Statements and Notes included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Business and Market Environment

At Juniper Networks, we design, develop, and sell products and services for high-performance networks, which combine scale and performance with agility and efficiency, so customers can build the best networks for their businesses. Our routing, switching, and security products address high-performance networking requirements, which include High-IQ networking and cloud environments for global service providers, enterprises, governments, and research and public sector organizations that view the network as critical to their success. Our silicon, systems, and software represent innovations that transform the economics and experience of networking, helping customers achieve superior performance, greater choice, and flexibility, while reducing overall total cost of ownership.

We do business in three geographic regions: Americas; Europe, Middle East and Africa ("EMEA"); and Asia Pacific ("APAC"). We sell high-performance network products and service offerings across routing, switching, and security to service provider and enterprise markets.

Integrated Operating Plan

In the first quarter of 2014, we announced an integrated operating plan ("IOP") to refocus our strategy, optimize our structure, and improve operational efficiencies. In connection with the IOP, we realigned our organization into a One-Juniper structure, which included consolidating our R&D and go-to-market functions to reduce complexity, increase clarity of responsibilities, and improve efficiency. As a result of these changes, our consolidated business is considered to be one reportable segment. Future organizational changes, if any, could impact how the chief operating decision maker ("CODM") allocates resources and assesses performance.

During the first quarter of 2014, we also initiated the 2014 Restructuring Plan. Our 2014 Restructuring Plan consists of workforce reductions, facility consolidations or closures, asset write-downs, contract terminations and other charges of which $193.6 million was recorded in the six months ended June 30, 2014 consisting of $115.8 million of asset write-downs, $37.6 million of facility consolidation and closures, $37.9 million of severance costs, and $2.3 million of contract terminations. In connection with our


Table of Contents

2014 Restructuring Plan, we expect to record aggregate future charges of approximately $5.0 million to $10.0 million related to severance, consolidation and closure of facilities, and contract terminations and other charges. We are actively negotiating with the lessor of certain properties that we have exited to terminate our lease arrangement under favorable terms or to sublease the facilities. If actual events differ from our current assumptions, we will record the related benefit or expense in the period incurred.

Through the implementation of the IOP, we expect to exit the first quarter of 2015 with annualized operating expense savings of at least $160.0 million, compared to our fourth quarter of 2013.

On July 22, 2014, we announced that we had entered into a definitive agreement to sell the Junos® Pulse product portfolio to an affiliate of Siris Capital, a private equity firm, for approximately $250.0 million, of which $125.0 million will be payable in cash and $125.0 million will be in the form of an 18-month non-contingent seller promissory note. The sale is expected to close within the third quarter of 2014, following the satisfaction of regulatory requirements and other customary closing conditions. Our sale of Pulse is consistent with our overall strategy and further aligns our security products to where our customers and the market are heading with High-IQ networks and building the next-generation of clouds. The net assets, primarily goodwill, deferred revenue, intangible assets, and other, net associated with this sale approximate to a carrying value of $124.7 million as of June 30, 2014. The Junos® Pulse product portfolio contributed approximately $33.5 million in net revenues for the six months ended June 30, 2014.

In addition to our cost reduction activities, we introduced a capital allocation program to return capital to our stockholders through share repurchases and dividends. In the first quarter of 2014, we announced our intention to return $3.0 billion to stockholders over the next three years in the form of share repurchases and quarterly cash dividends. We made progress in returning capital to our stockholders through the initiation of a $1.2 billion accelerated share repurchase program ("ASR") of which $900.0 million of shares were initially delivered to us during the first quarter of 2014 and the remainder were delivered on July 24, 2014. We also issued $350.0 million aggregate principal amount of 4.50% senior notes due 2024 ("2024 Notes"), allowing us to partially fund the ASR.

On July 22, 2014, we announced that we would pay a quarterly cash dividend of $0.10 per share of our common stock on September 23, 2014 to stockholders of record as of the close of business on September 2, 2014.

Quarterly Results
During the second quarter of 2014, we saw strong year-over-year revenue growth. Our net revenues continued to be well-diversified across our target verticals, and we saw revenue growth, particularly with customers who are in a build cycle for High-IQ networks and Cloud ecosystems. The combination of the strong revenue growth and the cost and efficiency initiatives noted above have resulted in strong earnings expansion and strong operating cash flows for the six months ended June 30, 2014.
Compared to the second quarter in 2013, our revenue growth was driven by increased sales of our edge routing and switching products, and we continued to see growth in our SRX security products. We continue to remain committed to our security products as our customers build High-IQ networks and cloud environments. Further, we believe that we are experiencing an improving but still uncertain global macroeconomic environment in which our customers exercise care and conservatism in their investment prioritization and project deployments. We expect that our customers will remain careful in their capital spending. We believe our product gross margins may vary in the future due to competitive pricing pressures, which may be offset by additional operational improvements and cost efficiencies, such as continuing optimization of the supply chain. Nevertheless, we are focused on executing our strategy on high-performance networking. We believe our product portfolio continues to be strong, and we remain focused on innovation and executing to our IOP.


Table of Contents

Financial Results and Key Performance Metrics Overview

The following table provides an overview of our key financial metrics (in
millions, except per share amounts, percentages, days sales outstanding ("DSO"),
and book-to-bill):
                                 Three Months Ended June 30,                               Six Months Ended June 30,
                         2014          2013        $ Change    % Change          2014             2013        $ Change     % Change
Net revenues          $ 1,229.5     $ 1,150.7     $   78.8          7  %   $      2,399.6     $  2,209.9     $  189.7         9  %

Gross Margin          $   748.2     $   720.5     $   27.7          4  %   $      1,468.3     $  1,391.3     $   77.0         6  %
Percentage of net
 revenues                  60.9 %        62.6 %                                      61.2 %         63.0 %

Operating income      $   115.9     $   138.5     $  (22.6 )      (16 )%   $        109.7     $    225.5     $ (115.8 )     (51 )%
Percentage of net
 revenues                   9.4 %        12.0 %                                       4.6 %         10.2 %
Net income            $   221.1     $    97.9     $  123.2        126  %   $        331.7     $    188.9     $  142.8        76  %
Percentage of net
 revenues                  18.0 %         8.5 %                                      13.8 %          8.5 %
Net income per share:
Basic                 $    0.47     $    0.19     $   0.28        147  %   $         0.69     $     0.37     $   0.32        86  %
Diluted               $    0.46     $    0.19     $   0.27        142  %   $         0.68     $     0.37     $   0.31        84  %
Stock repurchase plan $       -     $   105.5     $ (105.5 )     (100 )%   $        900.0     $    235.4     $  664.6       282  %
 activity

Operating cash flows                                                       $        551.0     $    275.5     $  275.5       100  %
DSO                          41            40            1          3  %
Book-to-bill                  1            >1

                                                                                              December 31,
                                                                            June 30, 2014         2013        $ Change     % Change
Deferred revenue                                                           $      1,173.3     $  1,069.3     $  104.0        10  %

• Net Revenues: During the three and six months ended June 30, 2014, compared to the same periods in 2013, we experienced strong net revenue growth across our three geographical regions: Americas, EMEA, and APAC. The year-over-year increase in our net revenues during the three and six months ended June 30, 2014, was primarily due to an increase in sales from our edge routing and switching products, partially offset by a decline in our core routing and security products .

• Gross Margin: Our gross margin as a percentage of net revenues decreased during the three and six months ended June 30, 2014, compared to the same periods in 2013, as a result of higher inventory charges driven by product rationalizations in connection with our 2014 Restructuring Plan and charges related to an industry-wide memory product quality defect for a component from a third-party supplier. Higher support-related costs also drove down gross margin as a percentage of net revenues.

• Operating Income: Our operating income as a percentage of net revenues decreased during the three and six months ended June 30, 2014, compared to the same periods in 2013, primarily due to restructuring and other charges of $85.4 million and $207.3 million, respectively, related to severance, facility consolidation and closures, asset write-offs, and contract terminations in connection with our 2014 Restructuring Plan, as well as a memory related-supplier component remediation charge.

• Stock Repurchase Plan Activity: Pursuant to the $1.2 billion ASR program, we received and retired 33.3 million shares of our common stock during the three months ended March 31, 2014 at a cost of $900.0 million. No repurchases of our common stock were made during the three months ended June 30, 2014. On July 23, 2014, the ASR was completed, and we received an additional 16.0 million shares from the financial institutions for a total of 49.3 million shares, which


Table of Contents

resulted in a volume weighted average repurchase price, less an agreed upon discount of $24.35 per share. The 16.0 million shares received will be retired in the third quarter of 2014.

• Operating Cash Flows: Operating cash flows increased during the six months ended June 30, 2014, compared to the same period in 2013, primarily due to higher net income which included the gain on patent litigation settlement, higher cash collections due to the timing of receipts from customers, and lower prepayments to our supply chain and others, partially offset by higher payments for incentive compensation and payments related to all restructuring plans.

• DSO: DSO is calculated as the ratio of ending accounts receivable, net of allowances, divided by average daily net sales for the preceding 90 days. DSO for the second quarter of 2014 was relatively flat, with an increase by 1 day, or 3% compared to the same period in 2013.

• Book-to-bill: Book-to-bill represents the ratio of product orders booked divided by product revenues during the respective period. Book-to-bill was approximately one for the three months ended June 30, 2014 and greater than one for the three months ended June 30, 2013.

• Deferred Revenue: Total deferred revenue increased by $104.0 million to $1,173.3 million as of June 30, 2014, compared to $1,069.3 million as of December 31, 2013, primarily due to an increase in deferred service revenue driven by the execution of several multi-year support agreements and annual agreement renewals.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance is material. The accounting policies we believe to reflect our more significant estimates, judgments, and assumptions and are most critical to understanding and evaluating our reported financial results are as follows:

• Goodwill;

• Inventory Valuation and Contract Manufacturer Liabilities;

• Revenue Recognition;

• Income Taxes; and

• Loss Contingencies.

During the six months ended June 30, 2014, there were no significant changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Report, for a full description of recent accounting pronouncements, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.


Table of Contents

Results of Operations

The following table presents product and service net revenues (in millions,
except percentages):
                              Three Months Ended June 30,                             Six Months Ended June 30,
                    2014          2013        $ Change      % Change        2014          2013        $ Change     % Change
Routing          $   617.8     $   577.5     $    40.3          7  %     $ 1,167.6     $ 1,091.2     $   76.4          7  %
Switching            199.8         160.2          39.6         25  %         391.8         291.7        100.1         34  %
Security             111.6         126.1         (14.5 )      (11 )%         245.8         262.7        (16.9 )       (6 )%
Total Product        929.2         863.8          65.4          8  %       1,805.2       1,645.6        159.6         10  %
Percentage of
net revenues          75.6 %        75.1 %                                    75.2 %        74.5 %

Total Service        300.3         286.9          13.4          5  %         594.4         564.3         30.1          5  %
Percentage of
net revenues          24.4 %        24.9 %                                    24.8 %        25.5 %
Total net
revenues         $ 1,229.5     $ 1,150.7     $    78.8          7  %     $ 2,399.6     $ 2,209.9     $  189.7          9  %

Three Months Ended June 30, 2014 Compared with the Three Months Ended June 30, 2013

Routing

Routing product net revenues increased during the three months ended June 30, 2014, compared to the same period in 2013, due to higher net revenues from edge routing products, primarily driven by higher sales of our MX products. This increase in edge routing product net revenues was partially offset by a decrease in sales of core routing and older edge routing products.

Switching

Switching product net revenues increased during the three months ended June 30, 2014, compared to the same period in 2013, primarily due to new product introductions for EX and QFabric, as well as strong demand for switching products by service providers and, to a lesser extent, the enterprise market.

Security

Security product net revenues decreased during the three months ended June 30, 2014, compared to the same period in 2013, as demand for our non-Junos-based security products declined. This decline was partially offset by an increase in net revenue from our SRX platform and security software.

Service

The increase in service net revenues during the three months ended June 30, 2014, compared to the same period in 2013, was primarily driven by new service contracts and strong contract renewals from our installed base across routing and switching.

Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013

Routing

Routing product net revenues increased during the six months ended June 30, 2014, compared to the same period in 2013, due to higher net revenues from edge routing products, primarily driven by higher sales of our MX products. The increase in edge routing product net revenues was partially offset by a decrease in sales of core routing and older edge routing products.

Switching

Switching product net revenues increased during the six months ended June 30, 2014, compared to the same period in 2013, primarily due to new product introductions for EX and QFabric, as well as strong demand for switching products by service providers and, to a lesser extent, the enterprise market.


Table of Contents

Security

Security product net revenues decreased during the six months ended June 30, 2014, compared to the same period in 2013, as demand for our non-Junos-based security products declined. This decline was partially offset by an increase in net revenues from our SRX platform and security software.

Service

The increase in service net revenues during the six months ended June 30, 2014, compared to the same period in 2013, was primarily driven by new service contracts and strong contract renewals.

Net Revenues by Geographic Region

The following table presents net revenues by geographic region (in millions,
except percentages):
                              Three Months Ended June 30,                             Six Months Ended June 30,
                    2014          2013        $ Change      % Change        2014          2013        $ Change     % Change
Americas:
United States    $   660.7     $   610.2     $    50.5          8  %     $ 1,284.4     $ 1,157.2     $  127.2         11  %
Other                 50.3          64.9         (14.6 )      (22 )%         108.1         110.0         (1.9 )       (2 )%
Total Americas       711.0         675.1          35.9          5  %       1,392.5       1,267.2        125.3         10  %
Percentage of
net revenues          57.8 %        58.7 %                                    58.0 %        57.3 %
EMEA                 324.8         300.9          23.9          8  %         620.5         591.5         29.0          5  %
Percentage of
net revenues          26.4 %        26.1 %                                    25.9 %        26.8 %
APAC                 193.7         174.7          19.0         11  %         386.6         351.2         35.4         10  %
Percentage of
net revenues          15.8 %        15.2 %                                    16.1 %        15.9 %
Total net
revenues         $ 1,229.5     $ 1,150.7     $    78.8          7  %     $ 2,399.6     $ 2,209.9     $  189.7          9  %

Three Months Ended June 30, 2014 Compared with the Three Months Ended June 30, 2013

Americas

Net revenues in the Americas increased during the three months ended June 30, 2014, compared to the same period in 2013, primarily due to strong demand from service providers, specifically content providers. This increase in service provider net revenues was partially offset by a decline in net revenues from the enterprise market, primarily attributable to the recognition of a large U.S. federal government contract recognized in the second quarter of 2013. Although total net revenues from the enterprise market are lower in the three months ended June 30, 2014, than the comparable period in 2013, due to the recognition of the U.S. federal government contract, we have experienced improvement in federal demand.

EMEA

Net revenues in EMEA increased during the three months ended June 30, 2014, compared to the same period in 2013, primarily due to stronger demand from large carriers in Central and Eastern Europe and the Middle East. The increase was partially offset by a decrease in net revenues from the enterprise market, due to the timing of certain large public sector orders.

APAC

Net revenues in APAC increased during the three months ended June 30, 2014, compared to the same period in 2013, primarily due to growth in demand from regional carriers. In APAC, the enterprise market increased, primarily due to the timing of certain public sector orders.


Table of Contents

Six Months Ended June 30, 2014 Compared with the Six Months Ended June 30, 2013

Americas

The increase in net revenues in the Americas during the six months ended June 30, 2014, compared to the same period in 2013, was primarily due to an increase in sales from both the service provider and enterprise market. The increase in net revenues in the service provider market was primarily due to strong demand from content and cable providers, partially offset by a decrease in demand with carriers. The increase in revenues in the Americas enterprise market during the six months ended June 30, 2014, was primarily due to improvement in broad-based market demand, partially offset by a decline in revenues from Federal customers due to a large U.S. federal government contract recognized in 2013.

EMEA

Net revenues in EMEA increased during the six months ended June 30, 2014, compared to the same period in 2013, primarily due to stronger demand from larger carriers in Central and Eastern Europe and the Middle East, partially offset by a decrease in net revenues from the enterprise market.

APAC

Net revenues in APAC increased during the six months ended June 30, 2014, compared to the same period in 2013, primarily due to growth in demand from regional carriers. In APAC, the enterprise market increased primarily due to the timing of certain public sector orders.

Net Revenues by Market and Customer

The following table presents net revenues by market (in millions, except
percentages):
                             Three Months Ended June 30,                              Six Months Ended June 30,
                    2014          2013        $ Change     % Change        2014          2013         $ Change      % Change
Service provider $   831.8     $   726.0     $  105.8         15  %     $ 1,614.5     $ 1,438.9     $    175.6         12 %
Percentage of
. . .
  Add JNPR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for JNPR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.