item 2.02 results of operations and financial...
TRANSCRIPT
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) January 26, 2017
Juniper Networks, Inc.(Exact name of registrant as specified in its charter)
Delaware 001-34501 770422528
(State or other jurisdictionof incorporation)
(CommissionFile Number)
(I.R.S. EmployerIdentification 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 ApplicableFormer 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 followingprovisions ( 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))
Item 2.02 Results of Operations and Financial Condition.
On January 26, 2017, Juniper Networks, Inc. (“we”, “us”, “our” or “the Company”) issued a press release in which we announced preliminary financial results forthe quarter and fiscal year ended December 31, 2016. The Company also posted on the Investor Relations section of its website (www.juniper.net) preparedremarks with respect to the quarter and fiscal year ended December 31, 2016. Copies of the press release and prepared remarks by the Company are furnished asExhibits 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 otherfilings 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 SecuritiesExchange 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 anyregistration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specificreference 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 January 26, 2017
99.2 Prepared remarks by Juniper Networks, Inc. dated as of January 26, 2017
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 undersignedhereunto duly authorized.
Juniper Networks, Inc.
January 26, 2017 By: /s/ Brian M. Martin Name: Brian M. Martin Title: Senior Vice President and General Counsel
Exhibit Index Exhibit No. Description
99.1 Press release issued by Juniper Networks, Inc. on January 26, 2017
99.2 Prepared remarks by Juniper Networks, Inc. dated as of January 26, 2017
Exhibit 99.1
Investor Relations:Kathleen NemethJuniper Networks(408) [email protected]
Media Relations:Leslie MooreJuniper Networks(408) [email protected]
JUNIPER NETWORKS REPORTS PRELIMINARY FOURTH QUARTER AND FISCAL YEAR 2016 FINANCIAL RESULTS
Company delivers sequential, year-over-year, and full year revenue growth
SUNNYVALE, Calif., Jan. 26, 2017 - Juniper Networks (NYSE: JNPR), an industry leader in automated, scalable and secure networks, today reportedpreliminary financial results for the three months and twelve months ended Dec. 31, 2016 and provided its outlook for the three months ending March 31, 2017.
Q4 2016 Results:
Net revenues for the fourth quarter of 2016 were $1,385.6 million, an increase of 5% year-over-year and an increase of 8% sequentially.
Juniper’s GAAP operating margin for the fourth quarter of 2016 was 21.5%, an increase from 21.2% in the fourth quarter of 2015, and an increase from 19.5% inthe third quarter of 2016.
Non-GAAP operating margin for the fourth quarter of 2016 was 26.5%, an increase from 26.0% in the fourth quarter of 2015, and an increase from 24.4% in thethird quarter of 2016.
Juniper posted GAAP net income of $197.4 million, flat year-over-year, and an increase of 15% sequentially. GAAP diluted earnings per share for the fourthquarter of 2016 was $0.51.
Non-GAAP net income was $254.3 million, an increase of 3% year-over-year, and an increase of 15% sequentially. Non-GAAP diluted earnings per share for thefourth quarter of 2016 was $0.66.
Full Year 2016 Results:
For fiscal year 2016, Juniper’s net revenues were $4,990.1 million, an increase of 3% year-over-year.
For fiscal year 2016, Juniper’s GAAP operating margin was 18.0%, compared to 18.8% for the prior fiscal year.
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Non-GAAP operating margin for fiscal year 2016 was 23.4%, compared to 24.0% in fiscal year 2015.
For fiscal year 2016, Juniper posted GAAP net income of $601.2 million, or $1.55 per diluted share. Non-GAAP net income was $2.09 per diluted share for fiscalyear 2016, an increase of 3% year-over-year.
The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Preliminary Net Revenues by Market tablebelow.
“I am pleased to report year-over-year revenue and non-GAAP earnings growth after a challenging start to 2016,” said Rami Rahim, chief executive officer atJuniper Networks. “We believe we are successfully executing on our strategy to diversify our business and capture share in the cloud and cloud-enabled segmentsof our market. Our innovation pipeline and product portfolio are strong and position us well as we head into 2017.”
“We maintained our focus on disciplined operating expense management while investing prudently for growth,” said Ken Miller, chief financial officer at JuniperNetworks. “In addition, we delivered strong cash flows from operations and I believe we are well positioned for the market opportunities ahead.”
Other Financial Highlights
Total cash, cash equivalents, and investments as of Dec. 31, 2016 were $3,657 million, compared to $3,480 million as of Sept. 30, 2016, and $3,192 million as ofDec. 31, 2015.
Juniper’s net cash flows provided by operations for the fourth quarter of 2016 was $334 million, compared to net cash flows provided by operations of $245 millionin the third quarter of 2016, and $117 million in the fourth quarter of 2015.
Days sales outstanding in accounts receivable, or “DSO,” was 68 days in the fourth quarter of 2016, compared to 53 days in the third quarter of 2016 and the fourthquarter of 2015.
Capital expenditures were $52 million and depreciation and amortization expense was $54 million during the fourth quarter of 2016.
Juniper’s Board of Directors has declared a quarterly cash dividend of $0.10 per share to be paid on March 22, 2017 to shareholders of record as of the close ofbusiness on March 1, 2017.
During the fourth quarter of 2016, the Company paid $38 million in dividends and did not repurchase any shares. Since the first quarter of 2014, inclusive of sharerepurchases and dividends, we have returned $4.1 billion of capital to shareholders, delivering on our commitment to return $4.1 billion by the end of 2016, andreduced our diluted share count by 22%.
Outlook
These metrics are provided on a non-GAAP basis, except for revenue and share count. The outlook assumes that the exchange rate of the U.S. dollar to othercurrencies will remain relatively stable at current levels.
Juniper Networks is focused on executing to its strategy and capitalizing on the momentum of its new products within the target markets it serves.
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The gross margin guidance for the quarter reflects typical seasonal patterns, primarily due to sequentially lower revenue volume. While we expect to continue tosee pricing pressure and product mix fluctuations, we remain focused on disciplined cost management.
As a reminder, the operating expense guidance for the quarter includes the annual reset of variable compensation and the typical seasonal increase in fringe costs.
Juniper’s guidance for the quarter ending March 31, 2017 is as follows:
• Revenues will be approximately $1,200 million, plus or minus $30 million.
• Non-GAAP gross margin will be approximately 62.5%, plus or minus 0.5%.
• Non-GAAP operating expenses will be approximately $515 million, plus or minus $5 million.
• Non-GAAP operating margin will be approximately 19.5% at the midpoint of revenue guidance.
• Non-GAAP tax rate approximately flat from the fourth quarter.
• Non-GAAP net income per share will range between $0.38 and $0.44 on a diluted basis. This assumes a flat share count from the fourth quarter.
All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges,restructuring charges (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges,gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets,and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in thequarter. Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis withoutunreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. For example, share-basedcompensation 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 atwhich the Company’s stock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any futureacquisitions. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentiallymisleading. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such asamortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continueto vary significantly from quarter to quarter.
Fourth Quarter and Fiscal Year 2016 Financial Commentary Available Online
A CFO Commentary reviewing the Company’s fourth quarter and fiscal year 2016 financial results, as well as first quarter 2017 financial outlook will be furnishedto 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 commentaryprior to participating in the conference call webcast.
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Conference Call Webcast
Juniper Networks will host a conference call webcast today, Jan. 26, 2017, at 2:00 pm PT, to be broadcast live over the Internet at http://investor.juniper.net . Toparticipate 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 thescheduled conference call time. The webcast replay will be archived on the Juniper Networks website.
About Juniper Networks
Juniper Networks (NYSE: JNPR) challenges the status quo with products, solutions and services that transform the economics of networking. Our teamco-innovates with our customers and partners to deliver automated, scalable and secure networks with agility, performance and value. Additional information canbe found at Juniper Networks ( www.juniper.net ) or connect with Juniper on Twitter and Facebook .
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’sblogs as a means of disclosing information about the Company and for complying with its disclosure obligations under Regulation FD. The social media channelsthat 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 InvestorRelations website.
Juniper Networks, the Juniper Networks logo, and Junos are registered trademarks of Juniper Networks, Inc. and/or its affiliates in the United States and othercountries. Other names may be trademarks of their respective owners.
Safe Harbor
Statements in this release concerning Juniper Networks’ business outlook, economic and market outlook, future financial and operating results, seasonal revenueand cost patterns, expectations with respect to market trends (including pricing pressure and product mix fluctuations), future strategy, strength of certain customersegments, ability to expand business opportunities, ability to capture market share, cost management, and overall future prospects are forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act that involve a number of uncertainties and risks. Actual results or events could differ materiallyfrom those anticipated in those forward-looking statements as a result of several factors, including: general economic and political conditions globally orregionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication serviceproviders and major customers; 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, changes or disruptions;availability of key product components; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mixof products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, productsand future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and marketchange; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrateand manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of taxlegislation and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation settlements and resolutions; and other factors listed inJuniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission. All statements made in this press release are made only asof the date set forth at the beginning of this release. Juniper Networks undertakes no obligation to update the information in this release in the event facts orcircumstances subsequently change after the date of this press release.
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Use of Non-GAAP Financial Information
Juniper Networks believes that the presentation of non-GAAP financial information provides important supplemental information to management and investorsregarding financial and business trends relating to the company’s financial condition and results of operations. For further information regarding why JuniperNetworks believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, andsome of the limitations associated with the use of these measures, please refer to the discussion below. The following tables and reconciliations can also be foundon 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 December 31, Twelve Months Ended December 31, 2016 2015 2016 2015 Net revenues:
Product $ 985.6 $ 973.9 $ 3,528.9 $ 3,563.1 Service 400.0 345.7 1,461.2 1,294.7
Total net revenues 1,385.6 1,319.6 4,990.1 4,857.8 Cost of revenues:
Product 359.6 346.5 1,315.4 1,269.6 Service 157.5 130.7 559.4 509.6
Total cost of revenues 517.1 477.2 1,874.8 1,779.2
Gross margin 868.5 842.4 3,115.3 3,078.6 Operating expenses:
Research and development 263.0 247.2 1,013.7 994.5 Sales and marketing 254.5 255.9 972.9 943.8 General and administrative 52.9 60.3 224.9 228.9 Restructuring charges (benefits) 0.1 (0.1) 3.3 (0.6)
Total operating expenses 570.5 563.3 2,214.8 2,166.6
Operating income 298.0 279.1 900.5 912.0 Other expense, net (15.1) (18.5) (62.3) (59.8)
Income before income taxes 282.9 260.6 838.2 852.2 Income tax provision 85.5 62.8 237.0 218.5
Net income $ 197.4 $ 197.8 $ 601.2 $ 633.7
Net income per share: Basic $ 0.52 $ 0.52 $ 1.58 $ 1.62
Diluted $ 0.51 $ 0.51 $ 1.55 $ 1.59
Shares used in computing net income per share: Basic 379.9 383.1 381.7 390.6
Diluted 385.6 390.9 387.8 399.4
Cash dividends declared per common stock $ 0.10 $ 0.10 $ 0.40 $ 0.40
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Juniper Networks, Inc.Preliminary Net Revenues by Product and Service
(in millions)(unaudited)
Three Months Ended December 31, Twelve Months Ended December 31, 2016 2015 2016 2015 Routing $ 654.0 $ 647.6 $ 2,353.0 $ 2,359.2 Switching 250.8 210.2 858.0 768.3 Security 80.8 116.1 318.0 435.6
Total product 985.6 973.9 3,529.0 3,563.1 Total service 400.0 345.7 1,461.1 1,294.7
Total $ 1,385.6 $ 1,319.6 $ 4,990.1 $ 4,857.8
Juniper Networks, Inc.Preliminary Net Revenues by Geographic Region
(in millions)(unaudited)
Three Months Ended December 31, Twelve Months Ended December 31, 2016 2015 2016 2015 Americas $ 875.6 $ 754.6 $ 2,968.8 $ 2,792.2 Europe, Middle East, and Africa 314.6 345.2 1,238.1 1,320.3 Asia Pacific 195.4 219.8 783.2 745.3
Total $ 1,385.6 $ 1,319.6 $ 4,990.1 $ 4,857.8
Juniper Networks, Inc.Preliminary Net Revenues by Market
(in millions)(unaudited)
Three Months Ended December 31, Twelve Months Ended December 31, 2016 2015 2016 2015 Service Provider $ 978.2 $ 933.2 $ 3,452.2 $ 3,289.8 Enterprise 407.4 386.4 1,537.9 1,568.0
Total $ 1,385.6 $ 1,319.6 $ 4,990.1 $ 4,857.8
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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 Twelve Months Ended
December 31,
2016 September 30,
2016 December 31,
2015 December 31,
2016 December 31,
2015 GAAP operating income $ 298.0 $ 250.0 $ 279.1 $ 900.5 $ 912.0 GAAP operating margin 21.5% 19.5% 21.2% 18.0% 18.8%
Share-based compensation expense C 63.8 55.6 55.9 226.8 217.3 Share-based payroll tax expense C 0.3 0.2 0.8 5.8 6.4 Amortization of purchased intangible assets A 3.3 4.8 5.3 16.2 28.4 Restructuring charges (benefits) B 0.1 0.8 (0.1) 3.3 (4.1) Acquisition/divestiture and other charges A,B 1.1 2.8 1.7 14.5 2.7 Professional services related to non-routinestockholder matters B — — — — 3.0
Non-GAAP operating income $ 366.6 $ 314.2 $ 342.7 $ 1,167.1 $ 1,165.7 Non-GAAP operating margin 26.5% 24.4% 26.0% 23.4% 24.0%
GAAP net income $ 197.4 $ 172.4 $ 197.8 $ 601.2 $ 633.7 Share-based compensation expense C 63.8 55.6 55.9 226.8 217.3 Share-based payroll tax expense C 0.3 0.2 0.8 5.8 6.4 Amortization of purchased intangible assets A 3.3 4.8 5.3 16.2 28.4 Restructuring charges (benefits) B 0.1 0.8 (0.1) 3.3 (4.1) Acquisition/divestiture and other charges (income) A,B 1.1 2.8 0.5 11.8 (5.2) Professional services related to non-routinestockholder matters B — — — — 3.0
Loss (gain) on equity investments B 1.6 0.3 — 3.7 (11.3) Income tax effect of non-GAAP exclusions B (13.3) (14.9) (12.6) (58.7) (58.5)
Non-GAAP net income $ 254.3 $ 222.0 $ 247.6 $ 810.1 $ 809.7
GAAP diluted net income per share $ 0.51 $ 0.45 $ 0.51 $ 1.55 $ 1.59
Non-GAAP diluted net income per share D $ 0.66 $ 0.58 $ 0.63 $ 2.09 $ 2.03
Shares used in computing diluted net income per share 385.6 384.5 390.9 387.8 399.4
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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 ConsolidatedStatements 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 U.S. generally accepted accounting principles, or GAAP. In addition, these measures may be different from non-GAAP measures usedby other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in the table above should not be considered inisolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with theuse of non-GAAP financial measures as an analytical tool. In particular, certain of the adjustments to our GAAP financial measures reflect the exclusion of itemsthat 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 makingoperating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAPmeasures presented above to be helpful in assessing the performance of the continuing operation of our business. By continuing operations we mean the ongoingrevenue 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 inperiods unrelated to when the actual amounts were incurred or paid. Consistent with this approach, we believe that disclosing non-GAAP financial measures to thereaders of our financial statements provides such readers with useful supplemental data that, while not a substitute for financial measures prepared in accordancewith GAAP, allows for greater transparency in the review of our financial and operational performance. In addition, we have historically reported non-GAAPresults to the investment community and believe that continuing to provide non-GAAP measures provides investors with a tool for comparing results over time. Inassessing 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 tableabove, 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. Notesidentified for line items in the table above correspond to the appropriate note description below. Additionally, with respect to future financial guidance provided ona non-GAAP basis, we have excluded estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuringcharges (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges, gain or loss onequity investments, the retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and theincome tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter.Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis without unreasonableeffort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. For example, share-based compensation expenseis 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’sstock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items thatare being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to anyone 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.
Note A: Acquisition-Related Charges . We exclude certain expense items resulting from acquisitions including amortization of purchased intangible assetsassociated with our acquisitions. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAPfinancial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had weinternally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have beenexpensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, acquisitionsresult in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. We believe thatproviding non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financialstatements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peercompanies.
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 (benefits); (ii) gain or loss on contract settlements (iii) gain or loss on equity investments; (iv) professional fees and other income andexpenses associated with the sale of Junos Pulse; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations;(vi) retroactive impacts of certain tax settlements; (vii) valuation allowance on deferred tax assets; (viii) the income tax effect on our financial statements ofexcluding items related to our non-GAAP financial measures; and
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(ix) professional services related to non-routine stockholder matters. It is difficult to estimate the amount or timing of these items in advance. Although these eventsare reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods.Restructuring charges result from events that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Theseexpenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. In the case ofcontract 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 underlyingdispute may relate to multiple or different periods. As such, we believe that these gains or losses do not accurately reflect the underlying performance of ourcontinuing business operations for the period in which they are incurred. Whether we realize gains or losses on equity investments is based primarily on theperformance and market value of those independent companies. Accordingly, we believe that these gains and losses do not reflect the underlying performance ofour continuing operations. In the case of professional fees and other income and expenses associated with the sale of Junos Pulse, we believe these are uniquetransactions that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Similarly, the significant effectsof tax legislation and judicial or administrative interpretation of tax regulations and the valuation allowance on deferred tax assets are as a result of unique eventsthat occur in periods that are generally unrelated to the level of business activity. We believe this limits comparability with prior periods and that these expenses donot accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. We also believe providingfinancial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users ofthe financial statements with better clarity regarding the on-going performance and future liquidity of our business. Because of these factors, we assess ouroperating performance with these amounts both included and excluded, and by providing this information, we believe the users of our financial statements arebetter 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 payrolltax. We began to include share-based compensation expense in our GAAP financial measures in accordance with Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation (“FASB ASC Topic 718”), in January 2006. Because of varyingavailable valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of share-based compensation, we believethat the exclusion of share-based compensation allows for more accurate comparisons of our operating results to our peer companies. Further, we believe thatexcluding share-based compensation expense allows for a more accurate comparison of our financial results to previous periods during which our equity-basedawards were not required to be reflected in our income statement. Share-based compensation is very different from other forms of compensation. A cash salary orbonus has a fixed and unvarying cash cost. For example, the expense associated with a $10,000 bonus is equal to exactly $10,000 in cash regardless of when it isawarded and who it is awarded by. In contrast, the expense associated with an award of an option for 1,000 shares of stock is unrelated to the amount ofcompensation ultimately received by the employee; and the cost to the company is based on a share-based compensation valuation methodology and underlyingassumptions that may vary over time and that does not reflect any cash expenditure by the company because no cash is expended. Furthermore, the expenseassociated with granting an employee an option is spread over multiple years unlike other compensation expenses which are more proximate to the time of award orpayment. For example, we may be recognizing expense in a year where the stock option is significantly underwater and is not going to be exercised or generate anycompensation for the employee. The expense associated with an award of an option for 1,000 shares of stock by us in one quarter may have a very differentexpense than an award of an identical number of shares in a different quarter. Finally, the expense recognized by us for such an option may be very different thanthe expense to other companies for awarding a comparable option, which makes it difficult to assess our operating performance relative to our competitors. Similarto share-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing and exercise by employees of our share-basedcompensation, over which our management has little control, and as such does not correlate to the operation of our business. Because of these unique characteristicsof share-based compensation and the related payroll tax, management excludes these expenses when analyzing the organization’s business performance. We alsobelieve that presentation of such non-GAAP information is important to enable readers of our financial statements to compare current period results with periodsprior to the adoption of FASB ASC Topic 718.
Note D: Non-GAAP Net Income Per Share Items . We provide diluted non-GAAP net income per share. The diluted non-GAAP income per share includesadditional 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)
December 31,2016
December 31,2015 (*)
ASSETS Current assets:
Cash and cash equivalents $ 1,833.2 $ 1,420.9 Short-term investments 752.3 527.1 Accounts receivable, net of allowances 1,054.1 780.7 Prepaid expenses and other current assets 332.3 183.7
Total current assets 3,971.9 2,912.4 Property and equipment, net 1,063.8 1,021.0 Long-term investments 1,071.8 1,244.2 Restricted cash and investments 99.9 36.2 Purchased intangible assets, net 130.2 33.9 Goodwill 3,081.7 2,981.3 Other long-term assets 237.2 378.9
Total assets $ 9,656.5 $ 8,607.9
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Short-term debt $ — $ 299.9 Accounts payable 221.0 159.3 Accrued compensation 233.6 269.5 Deferred revenue 1,032.0 822.9 Other accrued liabilities 238.5 250.3
Total current liabilities 1,725.1 1,801.9 Long-term debt 2,133.7 1,637.5 Long-term deferred revenue 449.1 345.2 Long-term income taxes payable 209.2 187.3 Other long-term liabilities 168.4 61.6
Total liabilities 4,685.5 4,033.5 Total stockholders’ equity 4,971.0 4,574.4
Total liabilities and stockholders’ equity $ 9,656.5 $ 8,607.9
(*) In 2016, the Company adopted the new accounting pronouncement on Simplifying the Presentation of Debt Issuance Costs, requiring debt issuance costs
related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent withdebt discounts. Certain amounts in the December 31, 2015 Condensed Consolidated Balance Sheet contained in this press release have been retrospectivelyadjusted to conform to the current-year presentation.
Page 11 of 12
Juniper Networks, Inc.Preliminary Condensed Consolidated Statements of Cash Flows
(in millions)(unaudited)
Twelve Months Ended December 31, 2016 2015 Cash flows from operating activities:
Net income $ 601.2 $ 633.7 Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense 224.6 217.3 Depreciation, amortization, and accretion 206.7 176.5 Restructuring benefits — (4.1) Deferred income taxes 58.2 (14.6) Loss (gain) on investments and fixed assets, net 3.5 (6.4) Excess tax benefits from share-based compensation (6.7) (12.3)
Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net (263.5) (218.9) Prepaid expenses and other assets (43.6) (43.5) Accounts payable 66.6 (80.2) Accrued compensation (18.1) 46.6 Income taxes payable 3.1 104.3 Other accrued liabilities (27.7) 1.8 Deferred revenue 301.7 92.3
Net cash provided by operating activities 1,106.0 892.5
Cash flows from investing activities: Purchases of property and equipment (214.7) (210.3) Proceeds from sales of available-for-sale investments 1,182.1 861.6 Proceeds from maturities and redemptions of available-for-sale investments 342.3 319.8 Purchases of available-for-sale investments (1,598.0) (1,486.4) Purchases of trading investments (4.9) (4.4) Proceeds from sales of privately-held investments 9.5 10.6 Purchases of privately-held investments (20.3) (5.4) Payments for business acquisitions, net of cash and cash equivalents acquired (144.6) (3.5) Changes in restricted cash (1.5) 9.3
Net cash used in investing activities (450.1) (508.7)
Cash flows from financing activities: Proceeds from issuance of common stock 62.3 121.2 Purchases and retirement of common stock (324.6) (1,152.8) Issuance of long-term debt, net 494.0 594.6 Payment of long-term debt (300.0) — Payment under lease obligations — (0.4) Payment of assumed debt (15.5) — Excess tax benefits from share-based compensation 6.7 12.3 Payment of cash dividends (152.5) (156.3)
Net cash used in financing activities (229.6) (581.4)
Effect of foreign currency exchange rates on cash and cash equivalents (14.0) (21.1)
Net increase (decrease) in cash and cash equivalents 412.3 (218.7) Cash and cash equivalents at beginning of period 1,420.9 1,639.6
Cash and cash equivalents at end of period $ 1,833.2 $ 1,420.9
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Exhibit 99.2
Juniper Networks, Inc.1133 Innovation WaySunnyvale, CA 94089
January 26, 2017
CFO Commentary on Fourth Quarter and Fiscal Year 2016 Preliminary Financial Results
Related Information
The following commentary is provided by management and should be referenced in conjunction with Juniper Networks’ fourth quarter and fiscal year 2016preliminary financial results press release available on its Investor Relations website at http://investor.juniper.net . These remarks represent management’s currentviews of the Company’s financial and operational performance and outlook and are provided to give investors and analysts further insight into its performance inadvance of the earnings call webcast.
Q4 2016 Preliminary Financial Results
GAAP (in millions, except per share amounts and percentages) Q4’16 Q3’16 Q4’15 Q/Q Change Y/Y Change Revenue $1,385.6 $1,285.3 $1,319.6 8% 5%
Product 985.6 928.2 973.9 6% 1% Service 400.0 357.1 345.7 12% 16%
Gross margin % 62.7% 62.2% 63.8% 0.5pts (1.1)pts Research and development 263.0 251.8 247.2 4% 6% Sales and marketing 254.5 242.9 255.9 5% (1)% General and administrative 52.9 54.0 60.3 (2)% (12)% Restructuring charges (benefits) 0.1 0.8 (0.1) (88)% N/M
Total operating expenses $ 570.5 $ 549.5 $ 563.3 4% 1%
Operating margin % 21.5% 19.5% 21.2% 2.0pts 0.3pts
Net income $ 197.4 $ 172.4 $ 197.8 15% — %
Diluted EPS $ 0.51 $ 0.45 $ 0.51 13% — %
N/M - Not meaningful
Non-GAAP (in millions, except per share amountsand percentages) Q1’17 Guidance Q4’16 Q3’16 Q4’15 Q/Q Change Y/Y Change Revenue (1) $1,200 +/- $30 $1,385.6 $1,285.3 $1,319.6 8% 5%
Product (1) 985.6 928.2 973.9 6% 1% Service (1) 400.0 357.1 345.7 12% 16%
Gross margin % 62.5% +/- 0.5% 63.2% 62.9% 64.5% 0.3pts (1.3)pts Research and development 225.4 224.5 215.7 — % 4% Sales and marketing 239.2 224.5 241.4 7% (1)% General and administrative 45.0 44.8 51.6 — % (13)%
Total operating expenses $515 +/- $5 $ 509.6 $ 493.8 $ 508.7 3% — %
Operating margin % ~ 19.5% 26.5% 24.4% 26.0% 2.1pts 0.5pts
Net income $ 254.3 $ 222.0 $ 247.6 15% 3%
Diluted EPS $0.38 - $0.44 $ 0.66 $ 0.58 $ 0.63 14% 5%
(1) Revenue numbers are GAAP.
Fiscal 2016 Preliminary Financial Results
GAAP
(in millions, except per share amounts and percentages) FY’16 FY’15 Y/Y Change Revenue $4,990.1 $4,857.8 3%
Product 3,528.9 3,563.1 (1)% Service 1,461.2 1,294.7 13%
Gross margin % 62.4% 63.4% (1.0)pts Research and development 1,013.7 994.5 2% Sales and marketing 972.9 943.8 3% General and administrative 224.9 228.9 (2)% Restructuring charges (benefits) 3.3 (0.6) N/M
Total operating expenses $2,214.8 $2,166.6 2%
Operating margin % 18.0% 18.8% (0.8)pts
Net income $ 601.2 $ 633.7 (5)%
Diluted EPS $ 1.55 $ 1.59 (3)%
N/M - Not meaningful
Non-GAAP
(in millions, except per share amountsand percentages) FY’16 FY’15 Y/Y Change Revenue (1) $4,990.1 $4,857.8 3%
Product (1) 3,528.9 3,563.1 (1)% Service (1) 1,461.2 1,294.7 13%
Gross margin % 63.2% 64.2% (1.0)pts Research and development 885.0 866.7 2% Sales and marketing 912.8 893.1 2% General and administrative 187.7 194.7 (4)%
Total operating expenses $1,985.5 $1,954.5 2%
Operating margin % 23.4% 24.0% (0.6)pts
Net income $ 810.1 $ 809.7 — %
Diluted EPS $ 2.09 $ 2.03 3%
(1) Revenue numbers are GAAP.
The following CFO Commentary contains non-GAAP financial measures and the reconciliations to GAAP can be found at the end of this document. We are unableto provide a reconciliation of forward-looking non-GAAP guidance measures to corresponding GAAP measures without unreasonable effort due to the overall highvariability and low visibility of most of the items that are excluded from our non-GAAP guidance measures. More information on these exclusions can be foundunder “Q1 2017 Outlook” below.
Q4 2016 Overview
The results for the December quarter reflect record revenue as well as non-GAAP earnings per share growth. Both Telecom and Cloud Providers were upsequentially, and Cloud Providers grew more than 50% year-over-year. We also saw significant year-over-year growth from our PTX family of products, and ourQFX product family continued to be strong in the data center with growth of approximately 90% year-over year. Our Services business remained strong with solidyear-over-year and sequential growth, due in part to our recognition in the quarter of revenue from a professional services project associated with a Telecom clouddeployment of Contrail.
In reviewing our top 10 customers for the quarter, five were Cloud Providers, three were Telecoms, and two were Enterprises. Of these customers, one was locatedoutside of the U.S.
Our product book-to-bill was greater than one. Product deferred revenue was $323 million, up $83 million or 34% year-over-year and 8% sequentially. Endingproduct backlog was $441 million, down $76 million or 15% year-over-year.
In the quarter, we had strong cash flows from operations of $334 million, up $88 million sequentially. During the quarter, we paid $38 million in dividends and didnot repurchase shares. Since the first quarter of 2014, inclusive of share repurchases and dividends, we delivered on our commitment to return $4.1 billion by theend of 2016.
Revenue
Product & Service
• Routing product revenue : $654 million, up 1% year-over-year and up 5% sequentially. The year-over-year increase was primarily driven by CloudProviders, partially offset by Cable and Telecom. Sequentially, the increase was driven by Telecom and Cloud Providers, partially offset by a decreasein Cable Providers. Our PTX family saw another record quarter, with strong year-over-year and sequential growth, while MX was down year-over-year and up sequentially.
• Switching product revenue : $251 million, up 19% year-over-year and up 13% sequentially. The year-over-year and sequential increase wasprimarily driven by Cloud Providers, partially offset by a decrease in Enterprise, primarily due to deployments in Campus and Branch. We sawcontinued data center strength with record results in our QFX product family, which grew approximately 90% year-over-year. Our EX product familydeclined year-over-year and increased sequentially.
• Security product revenue : $81 million, down 30% year-over-year and down 5% sequentially. The year-over-year decrease was primarily due to
Telecom and Enterprise. The sequential decrease was primarily due to Enterprise and Cloud Providers. Our ScreenOS and Other Legacy products were$2 million.
• Service revenue: $400 million, up 16% year-over-year and up 12% sequentially. The year-over-year and sequential increase was primarily driven by
strong renewal and attach rates of support contracts. In the quarter, we recognized approximately $15 million from a professional services projectassociated with a Telecom cloud deployment of Contrail.
Geography
• Americas: $876 million, up 16% year-over-year and up 18% sequentially. The year-over-year increase was driven by Cloud Providers, Telecom and
Enterprise, partially offset by Cable Providers. The sequential increase was driven by Telecom and Cloud Providers, partially offset by CableProviders. The United States was the primary growth driver for both the year-over-year and sequential increases.
• EMEA: $315 million, down 9% year-over-year and down 7% sequentially. The year-over-year decline was primarily due to Enterprise. Sequentially,
the decrease was due to Telecom and, to a lesser extent, Enterprise. The sequential decrease was primarily due to the Middle East, which was downfrom a strong Q3.
• APAC: $195 million, down 11% year-over-year and down 3% sequentially. The year-over-year decline was due to Telecom, partially offset by anincrease in Cloud Providers. The sequential decrease was due to Enterprise, partially offset by Telecom. Australia, China and Korea drove the year-over-year decline, slightly offset by an increase in Japan. Sequentially, decreases were driven by China and Singapore, partially offset by growth inJapan.
Market
• Service Provider: $978 million, up 5% year-over-year and up 15% sequentially. The year-over-year increase was primarily driven by the Americas,
partially offset by a decline in APAC. Year-over-year growth was driven by Services and Switching. Sequential growth was driven by Americas,partially offset by a decline in EMEA. Routing, Switching, and Services drove sequential growth.
• Enterprise: $407 million, up 5% year-over-year and down 6% sequentially. The year-over-year increase was driven by the Americas, partially offset
by a decline in EMEA. Year-over-year growth was driven by Routing, partially offset by a decline in Security and Switching. The sequential decreasewas primarily in Routing, due to the timing of a large customer deployment in the Americas.
Gross Margin
• GAAP gross margin: 62.7%, compared to 63.8% from the prior year and 62.2% from last quarter.
• Non-GAAP gross margin: 63.2%, compared to 64.5% from the prior year and 62.9% from last quarter.
Non-GAAP gross margin was within our guided range for the quarter. While we continue to expect the pricing environment to be challenging, weremain focused on delivering innovation and continued improvements to our cost structure.
• GAAP product gross margin : 63.5%, down 0.9 points from a year ago and up 1.2 points from last quarter.
• Non-GAAP product gross margin : 63.9%, down 1.1 points from a year ago and up 1.0 points from last quarter.
Year-over-year, the decrease in product gross margin, on a GAAP and non-GAAP basis, was primarily due to elevated pricing pressure,and to a lesser extent, product mix, partially offset by improvements in our cost structure. The sequential increase was driven by higherrevenue and product mix.
• GAAP service gross margin : 60.6%, down 1.6 points from a year ago and down 1.3 points quarter-over-quarter.
• Non-GAAP service gross margin : 61.7%, down 1.5 points from a year ago and down 1.1 points quarter-over-quarter.
Year-over-year and sequentially, the decrease in service gross margin, on a GAAP and non-GAAP basis, was due to increased supportcosts related to the ramp of new products and higher delivery costs related to professional services projects.
Operating Expenses
• GAAP operating expenses: $571 million, an increase of $7 million, or 1% year-over-year, and an increase of $21 million, or 4% sequentially.
• Non-GAAP operating expenses: $510 million, an increase of $1 million, or essentially flat year-over-year, and an increase of $16 million, or 3%sequentially.
The year-over-year increase, on a GAAP and non-GAAP basis, was primarily due to acquisitions completed earlier in the year, partially offset bysavings in variable compensation. The sequential increase, on a GAAP and non-GAAP basis, was primarily due to variable compensation related tosales.
GAAP operating expenses were 41.2% of revenue, down 1.6 points quarter-over-quarter and down 1.5 points year-over-year. On a non-GAAP basis,operating expenses were 36.8% of revenue, down 1.6 points quarter-over-quarter and down 1.7 points year-over-year. We expect to continue our focuson operating expense discipline and execute to our annualized long-term model of 39% of revenue, on a non-GAAP basis.
Operating Margin
• GAAP operating margin: 21.5%, an increase of 0.3 points year-over-year and an increase of 2.0 points sequentially.
• Non-GAAP operating margin: 26.5%, an increase of 0.5 points year-over-year and an increase of 2.1 points sequentially.
We continue to focus on profitable growth and prudent cost management as we execute to our annualized long-term model of 25% of revenue, on anon-GAAP basis.
Tax Rate
• GAAP tax rate: 30.2%, an increase of 3.1 points compared to 27.1% last quarter.
• Non-GAAP tax rate: 28.0%, an increase of 1.7 points compared to 26.3% last quarter.
The increased tax rate on a GAAP and non-GAAP basis is primarily due to the geographic mix of earnings.
Diluted Earnings Per Share
• GAAP diluted earnings per share: $0.51, flat year-over-year and an increase of $0.06 sequentially.
The sequential increase was driven by lower operating expenses as a percentage of revenue and higher revenue, partially offset by a higher tax rate.
• Non-GAAP diluted earnings per share: $0.66, an increase of $0.03 year-over-year and an increase of $0.08 sequentially.
The year-over-year increase was driven by lower operating expenses as a percentage of revenue, higher revenue, partially offset by a higher tax rateand lower gross margin. The sequential increase was driven by higher revenue and lower operating expenses as a percentage of revenue, partiallyoffset by a higher tax rate.
Balance Sheet, Cash Flow, Capital Return, and Other Financial Metrics (in millions, except product book-to-bill, days sales outstanding(“DSO”), and headcount) Q4’16 Q3’16 Q2’16 Q1’16 Q4’15 Cash (1) $3,657.3 $3,480.1 $3,491.1 $3,416.8 $3,192.2 Debt (2) 2,133.7 2,133.1 2,132.5 2,131.8 1,937.4 Net cash and investments (3) 1,523.6 1,347.0 1,358.6 1,285.0 1,254.8 Operating cash flow 333.8 245.4 354.4 172.4 117.0 Capital expenditures 51.8 46.0 67.6 49.3 55.4 Depreciation and amortization 53.9 52.2 49.2 45.4 43.4 Share repurchases — 112.4 125.5 75.0 92.5 Dividends $ 38.1 $ 38.0 $ 38.1 $ 38.3 $ 38.3 Diluted shares 385.6 384.5 386.3 389.3 390.9 Product book-to-bill >1 >1 >1 >1 >1 DSO 68 53 55 64 53 Headcount 9,832 9,863 9,617 9,274 9,058 (1) Cash includes cash, cash equivalents, and investments.(2) Certain amounts in the prior period have been retrospectively adjusted to conform to the current period presentation.(3) Net cash and investments includes, cash, cash equivalents, and investments, net of debt.
Balance Sheet
• Cash: $3.7 billion, up $177 million from the prior quarter, with 13% held onshore. The increase in cash was driven by $334 million of cash generated
from operations, partially offset by $52 million of capital expenditures, $48 million related to the acquisition of AppFormix, and $38 million ofdividend payments.
• Debt: $2.1 billion. We continue to maintain investment grade credit ratings of BBB/Baa2 by S&P and Moody’s. We believe that our debt has well-staggered maturities and aligns with our focus on an efficient capital structure.
• Net cash and investments: $1.5 billion, an increase of $177 million quarter-over-quarter.
Cash Flow
• Cash flow from operations: $334 million, up $217 million year-over-year and $88 million sequentially. The year-over-year increase was driven bytiming differences in working capital. The sequential increase was primarily due to higher net income and timing differences in working capital.
DSO
DSO:
68 days, compared to 53 days from the prior quarter, an increase of 15 days. The elevated DSO was primarily due to a significant increasein Service invoicing which occurred late in the quarter and resulted in higher deferred Services revenue, as well as the timing ofproduct invoicing. We believe the quality of our receivables is strong with the majority expected to be received early this quarter. As a reminder,the primary drivers to our DSO results are payment terms, the timing of in-quarter invoicing as well as changes in deferred revenue.
Going forward we expect DSO to be in the 50 to 60 days range, an increase of 5 days compared to our previous target range as our average customerpayment terms have increased slightly and our deferred revenue balance continues to grow.
Capital Return
• Since the first quarter of 2014, inclusive of share repurchases and dividends, we have returned $4.1 billion and reduced our diluted share count by22%. This completes our commitment.
• In the quarter, we paid a dividend of $0.10 per share for a total of $38 million, and did not repurchase shares.
• Diluted shares declined 1% year-over-year.
• Beginning in 2017, we intend to return approximately 50% of annual free cash flow to our shareholders, inclusive of share repurchases and dividends.
Demand metrics
• Product book-to-bill was greater than 1.
• Total deferred revenue was $1,481 million, up $313 million year-over-year and up $177 million quarter-over-quarter.
• Product deferred revenue was $323 million, an increase of $83 million year-over-year and $25 million quarter-over-quarter.
• Product backlog was $441 million, down $76 million or 15% year-over-year.
Headcount
• 9,832, an increase of 774 employees or 9% year-over-year, and a decrease of 31 employees or approximately flat quarter-over-quarter. The year-over-
year increase was primarily in Research and Development, driven by acquisitions, as well as in Services and Sales as we focus on delivering our newproducts to our customers.
Fiscal 2016 Overview
As expected, our fiscal 2016 saw modest growth in both revenue and non-GAAP earnings per share. Revenue growth was driven by Cloud Providers, whichincreased more than 25% year-over-year. While Routing was approximately flat, our PTX family of products had significant year-over-year growth. Switchinggrew 12% driven by continued data center strength led by our QFX family of products, which increased more than 50% year-over-year. Security remainschallenged, but we are confident in our new products and our strategy. Our Services business continues to be strong with another year of solid year-over-yeargrowth.
In reviewing our top 10 customers for the year, four were Cloud Providers, four were Telecoms, and two were Enterprises. Of these customers, two were locatedoutside of the U.S.
For the year, we had strong cash flows from operations of $1,106 million, up $213 million. We repurchased $313 million of shares and paid $153 million individends.
Revenue
Product & Service
• Routing product revenue : $2,353 million flat, year-over-year. We saw growth in Cloud Providers, partially offset by declines in Telecom and Cable.Our PTX product family saw significant growth while MX was down year-over-year.
• Switching product revenue : $858 million, up 12%year-over-year. We saw continued data center strength, driven by Cloud Providers. Our QFXproduct family had record results and grew slightly more than 50% year-over-year. Our EX product family declined year-over-year.
• Security product revenue : $318 million, down 27% year-over-year, primarily due to Enterprise, Telecom and Cloud Providers. Our Screen OS andOther Legacy products were down 65%.
• Service revenue: $1,461 million, up 13% year-over-year. The increase in service revenue was primarily driven by strong attach rates and renewals ofsupport contracts.
Geography
• Americas: $2,969 million, up 6% year-over-year. The increase was driven by growth in Cloud Providers, partially offset by Cable Providers.
• EMEA: $1,238 million, down 6% year-over-year. The decrease was due to declines in Telecom and Enterprise, partially offset by growth in CloudProviders.
• APAC: $783 million, up 5% year-over-year. The increase was driven by Enterprise and Cloud Providers, partially offset by Telecom.
Market
• Service Provider: $3,452 million, up 5% year-over-year, driven by growth in Americas and APAC, partially offset by EMEA. Services and Switchinggrowth was partially offset by a decline in Security.
• Enterprise: $1,538 million, down 2% from the prior year, declines in EMEA and APAC, partially offset by growth in the Americas. The decline wasprimarily in Security, partially offset by growth in Services.
Gross Margin
• GAAP gross margin: 62.4%, compared to 63.4% from the prior year.
• Non-GAAP gross margin: 63.2%, compared to 64.2% from the prior year.
• GAAP product gross margin : 62.7%, down 1.7 points from a year ago.
• Non-GAAP product gross margin : 63.3%, down 1.8 points from a year ago.
The decrease in product gross margin, on a GAAP and non-GAAP basis, was due to elevated pricing pressure and product mix,partially offset by improvements in our cost structure.
• GAAP service gross margin : 61.7%, up 1.1 points from a year ago.
• Non-GAAP service gross margin : 62.8%, up 1 point from a year ago.
The increase in GAAP and non-GAAP services gross margin was driven by an increase in support revenue as well as improvements inlabor productivity and logistics, partially offset by increased support costs related to the ramp of new products.
Operating Expenses
• GAAP operating expenses: $2,215 million, compared to $2,167 million a year ago, an increase of $48 million.
• Non-GAAP operating expenses: $1,986 million, compared to $1,955 million a year ago, an increase of $31 million.
The year-over-year increase on a GAAP and non-GAAP basis, was primarily due to acquisitions completed earlier in the year, partially offset bysavings in variable compensation.
GAAP operating expenses were 44.4% of revenue compared to 44.6% in 2015. On a non-GAAP basis, operating expenses were 39.8% of revenuecompared to 40.2% in 2015. This improvement reflects our continued focus on operational discipline and executing to our annualized long-term modelof 39% of revenue, on a non-GAAP basis.
Operating Margin
• GAAP operating margin: 18.0%, compared to 18.8% a year ago, a decrease of 0.8 points.
• Non-GAAP operating margin: 23.4%, compared to 24.0% a year ago, a decrease of 0.6 points.
We continue to focus on top line growth and cost management while we execute against our annualized long-term model of 25%, on a non-GAAPbasis.
Tax Rate
• GAAP tax rate: 28.3%, up from 25.6% last year.
• Non-GAAP tax rate: 26.7%, up from 25.5% last year.
On a GAAP basis, the increase is primarily due to a change in the geographic mix of earnings. As a reminder, the effective GAAP tax rate for FY’15included a one-time benefit related to a change in the tax treatment of share-based compensation in our cost sharing arrangement. On a non-GAAPbasis, the increased tax rate is primarily due to the geographic mix of earnings.
Diluted Earnings Per Share
• GAAP diluted earnings per share: $1.55, a decrease of $0.04 year-over-year.
The year-over-year decrease was due to lower gross margin and a higher tax rate, partially offset by a lower share count and higher revenue.
• Non-GAAP diluted earnings per share: $2.09, an increase of $0.06 year-over-year
The year-over-year increase on a non-GAAP basis was driven by higher revenue, lower share count, and lower operating expenses as a percentage ofrevenue, partially offset by lower gross margin.
Balance Sheet, Cash Flow, and Capital Return
(in millions) FY’16 FY’15 Y/Y Change Cash (1) $3,657.3 $3,192.2 15% Net cash and investments (2) 1,523.6 1,254.8 21% Operating cash flow 1,106.0 892.5 24% Capital expenditures 214.7 210.3 2% Depreciation and amortization 200.7 170.1 18% Share repurchases 312.9 1,142.5 (73)% Dividends 152.5 156.3 (2)%
(1) Cash includes cash, cash equivalents, and investments.(2) Net cash and investments includes, cash, cash equivalents, and investments, net of debt.
Balance Sheet
• Cash: $3.7 billion, up from $3.2 billion the prior year primarily as a result of operating cash flow and debt issuance, partially offset by debtrepayments and share repurchases.
• Net cash and investments: $1.5 billion, an increase of $269 million year-over-year primarily driven by operating cash flow.
Cash Flow
• Cash flow from operations: Strong cash flow from operations of $1,106 million, up from $893 million from the prior year, primarily driven bytiming differences in working capital.
Capital Return
• We repurchased $313 million of shares in the year and paid $153 million in dividends.
• Weighted average diluted shares for the year were 388 million, a decrease of 3% year-over-year.
2017 Expectations and Financial Principles
We continue to operate in a competitive market and expect the timing of our customers’ deployment patterns to vary from quarter to quarter. We intend to managethe business in 2017 with these considerations in mind and will continue to focus on driving shareholder value with the following three financial principles as aguide:
1. We expect revenue growth for 2017. We are pursuing opportunities with our differentiated product portfolio within our target markets and will focuson growth from emerging technologies as the market landscape continues to evolve.
2. We remain focused on earnings expansion with long-term consistency. We will remain diligent in managing our operating expenses while balancinginvestments for the short and long-term. We intend to expand non-GAAP operating margins and non-GAAP earnings per share for fiscal year 2017.
3. We intend to maintain a healthy balance sheet and an optimized capital structure, while balancing internal investments and the potential for valueenhancing M&A. We expect continued strong cash flow generation and intend to return approximately 50% of free cash flow to shareholders.
Q1 2017 Outlook
These metrics are provided on a non-GAAP basis, except for revenue and share count. The outlook assumes that the exchange rate of the U.S. dollar to othercurrencies will remain relatively stable at current levels.
We are focused on executing to our strategy and capitalizing on the momentum of our new products within the target markets we serve.
The gross margin guidance for the quarter reflects typical seasonal patterns, primarily due to sequentially lower revenue volume. While we expect to continue tosee pricing pressure and product mix fluctuations, we remain focused on disciplined cost management.
As a reminder, the operating expense guidance for the quarter includes the annual reset of variable compensation and the typical seasonal increase in fringe costs.
Our guidance for the quarter ending March 31, 2017, is as follows:
• Revenues will be approximately $1,200 million, plus or minus $30 million.
• Non-GAAP gross margin will be approximately 62.5%, plus or minus 0.5%.
• Non-GAAP operating expenses will be approximately $515 million, plus or minus $5 million.
• Non-GAAP operating margin will be approximately 19.5% at the midpoint of revenue guidance.
• Non-GAAP tax rate approximately flat from the fourth quarter.
• Non-GAAP net income per share will range between $0.38 and $0.44 on a diluted basis. This assumes a flat share count from the fourth quarter.
We are focused on growth and continued earnings expansion, and are confident in our strategy and driving toward our long-term model.
Forward-Looking Statements
Statements in this CFO Commentary and related conference call concerning Juniper Networks’ business, economic and market outlook, including pricing pressureand product mix, long-term financial model, 2017 expectations and financial principles, product portfolio and success of particular products and product families,our DSO going forward, future financial and operating results, seasonal revenue and cost patterns, focus on operational expense discipline, execution towards ourlong-term model, ability to deliver revenue and earnings per share growth, expectations with respect to near term gross margins, improvements to our cost structureand expense reductions and management, momentum of new products, strength of certain customer segments, capital structure, capital return program, quality andtiming for receipt of receivables, and overall future prospects are forward looking statements within the meaning of the Private Securities Litigation Reform Actthat involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as aresult 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 and spending by communication service providers and major customers; the network capacity requirements ofcommunication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders andtheir fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; ability to establish and maintainrelationships 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; marketacceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networksproducts, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns orvulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations;currency fluctuations; litigation settlements and resolutions; the potential impact of activities related to the execution of capital return and product rationalization;and other factors listed in Juniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”). All statementscontained in this CFO Commentary and related conference call are made only as of the date set forth at the beginning of this document. Juniper Networksundertakes no obligation to update the information contained in this document or the related conference call in the event facts or circumstances subsequentlychange after the date of this document.
Use of Non-GAAP Financial Measures
This CFO Commentary contains references to the following non-GAAP financial measures: gross margin; product gross margin; service gross margin; productgross margin as a percentage of product revenue; service gross margin as a percentage of service revenue; gross margin as a percentage of revenue; research anddevelopment expense; sales and marketing expense; general and administrative expense; operating expense; operating expense as a percentage of revenue;operating income; operating margin; provision for income tax; income tax rate; net income; and diluted earnings per share. For important commentary on whyJuniper 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 filedtoday 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 charges (benefits), impairment charges, professional services related to non-routinestockholder matters, litigation settlement and resolution charges, gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurringincome tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any futureacquisitions, 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 theirusefulness for comparison purposes. The non-GAAP financial measures used in this CFO Commentary should not be considered in isolation from measures offinancial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAPfinancial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring andwill 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 lowvisibility with respect to the charges which are excluded from these non-GAAP measures. For example, share-based compensation expense is impacted by theCompany’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 inthose future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items that are being excludedare difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these itemscould have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-basedcompensation 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)(unaudited)
Deferred Revenue As of
December 31,
2016 December 31,
2015 Deferred product revenue:
Undelivered product commitments and other product deferrals $ 302.4 $ 210.1 Distributor inventory and other sell-through items 74.2 81.8
Deferred gross product revenue 376.6 291.9 Deferred cost of product revenue (53.7) (51.6)
Deferred product revenue, net 322.9 240.3 Deferred service revenue 1,158.2 927.8
Total $ 1,481.1 $ 1,168.1
Reported as: Current $ 1,032.0 $ 822.9 Long-term 449.1 345.2
Total $ 1,481.1 $ 1,168.1
Security Products: Quarterly Revenue Trend Q4’15 Q1’16 Q2’16 Q3’16 Q4’16 Q/Q Y/Y SRX Platform and Security Software $110.5 $68.1 $74.3 $83.5 $78.9 $(4.6) (6)% $(31.6) (29)% Screen OS and Other Legacy 5.6 5.3 3.9 2.0 1.9 $(0.1) (5)% $ (3.7) (66)%
Total product revenue $116.1 $73.4 $78.2 $85.5 $80.8 $(4.7) (5)% $(35.3) (30)%
Juniper Networks, Inc.Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)(unaudited)
Three Months Ended Twelve Months Ended
December 31,
2016 September 30,
2016 December 31,
2015 December 31,
2016 December 31,
2015 GAAP gross margin - Product $ 626.0 $ 578.6 $ 627.4 $ 2,213.5 $ 2,293.5 GAAP product gross margin % of product revenue 63.5% 62.3% 64.4% 62.7% 64.4%
Share-based compensation expense 1.5 1.5 1.1 6.4 5.6 Share-based payroll tax expense — — — 0.3 0.2 Amortization of purchased intangible assets 2.1 3.5 4.4 11.6 24.6 Restructuring benefits — — — — (3.5) Acquisition/divestiture and other charges — — — 2.8 —
Non-GAAP gross margin - Product $ 629.6 $ 583.6 $ 632.9 $ 2,234.6 $ 2,320.4
Non-GAAP product gross margin % of product revenue 63.9% 62.9% 65.0% 63.3% 65.1%
GAAP gross margin - Service $ 242.5 $ 220.9 $ 215.0 $ 901.8 $ 785.1 GAAP service gross margin % of service revenue 60.6% 61.9% 62.2% 61.7% 60.6%
Share-based compensation expense 4.0 3.5 3.4 15.3 13.8 Share-based payroll tax expense 0.1 — 0.1 0.9 0.9
Non-GAAP gross margin - Service $ 246.6 $ 224.4 $ 218.5 $ 918.0 $ 799.8
Non-GAAP service gross margin % of service revenue 61.7% 62.8% 63.2% 62.8% 61.8%
GAAP gross margin $ 868.5 $ 799.5 $ 842.4 $ 3,115.3 $ 3,078.6 GAAP gross margin % of revenue 62.7% 62.2% 63.8% 62.4% 63.4%
Share-based compensation expense 5.5 5.0 4.5 21.7 19.4 Share-based payroll tax expense 0.1 — 0.1 1.2 1.1 Amortization of purchased intangible assets 2.1 3.5 4.4 11.6 24.6 Restructuring benefits — — — — (3.5) Acquisition/divestiture and other charges — — — 2.8 —
Non-GAAP gross margin $ 876.2 $ 808.0 $ 851.4 $ 3,152.6 $ 3,120.2
Non-GAAP gross margin % of revenue 63.2% 62.9% 64.5% 63.2% 64.2%
GAAP research and development expense $ 263.0 $ 251.8 $ 247.2 $ 1,013.7 $ 994.5 Share-based compensation expense (37.5) (27.2) (31.2) (126.5) (125.4) Share-based payroll tax expense (0.1) (0.1) (0.3) (2.2) (2.4)
Non-GAAP research and development expense $ 225.4 $ 224.5 $ 215.7 $ 885.0 $ 866.7
GAAP sales and marketing expense $ 254.5 $ 242.9 $ 255.9 $ 972.9 $ 943.8 Share-based compensation expense (14.5) (17.5) (13.4) (55.2) (45.6) Share-based payroll tax expense (0.1) (0.1) (0.4) (2.1) (2.3) Amortization of purchased intangible assets (0.7) (0.8) (0.7) (2.8) (2.8)
Non-GAAP sales and marketing expense $ 239.2 $ 224.5 $ 241.4 $ 912.8 $ 893.1
GAAP general and administrative expense $ 52.9 $ 54.0 $ 60.3 $ 224.9 $ 228.9 Share-based compensation expense (6.3) (5.9) (6.8) (23.4) (26.9) Share-based payroll tax expense — — — (0.3) (0.6) Amortization of purchased intangible assets (0.5) (0.5) (0.2) (1.8) (1.0) Acquisition/divestiture and other charges (1.1) (2.8) (1.7) (11.7) (2.7) Professional services related to non-routine stockholder matters — — — — (3.0)
Non-GAAP general and administrative expense $ 45.0 $ 44.8 $ 51.6 $ 187.7 $ 194.7
Juniper Networks, Inc.Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)(unaudited)
Three Months Ended Twelve Months Ended
December 31,
2016 September 30,
2016 December 31,
2015 December 31,
2016 December 31,
2015 GAAP operating expenses $ 570.5 $ 549.5 $ 563.3 $ 2,214.8 $ 2,166.6 GAAP operating expenses % of revenue 41.2% 42.8% 42.7% 44.4% 44.6%
Share-based compensation expense (58.3) (50.6) (51.4) (205.1) (197.9) Share-based payroll tax expense (0.2) (0.2) (0.7) (4.6) (5.3) Amortization of purchased intangible assets (1.2) (1.3) (0.9) (4.6) (3.8) Restructuring (benefits) charges (0.1) (0.8) 0.1 (3.3) 0.6 Acquisition/divestiture and other charges (1.1) (2.8) (1.7) (11.7) (2.7) Professional services related to non-routine stockholder matters — — — — (3.0)
Non-GAAP operating expenses $ 509.6 $ 493.8 $ 508.7 $ 1,985.5 $ 1,954.5
Non-GAAP operating expenses % of revenue 36.8% 38.4% 38.5% 39.8% 40.2%
GAAP operating income $ 298.0 $ 250.0 $ 279.1 $ 900.5 $ 912.0 GAAP operating margin 21.5% 19.5% 21.2% 18.0% 18.8%
Share-based compensation expense 63.8 55.6 55.9 226.8 217.3 Share-based payroll tax expense 0.3 0.2 0.8 5.8 6.4 Amortization of purchased intangible assets 3.3 4.8 5.3 16.2 28.4 Restructuring charges (benefits) 0.1 0.8 (0.1) 3.3 (4.1) Acquisition/divestiture and other charges 1.1 2.8 1.7 14.5 2.7 Professional services related to non-routine stockholder matters — — — — 3.0
Non-GAAP operating income $ 366.6 $ 314.2 $ 342.7 $ 1,167.1 $ 1,165.7
Non-GAAP operating margin 26.5% 24.4% 26.0% 23.4% 24.0%
GAAP income tax provision $ 85.5 $ 64.2 $ 62.8 $ 237.0 $ 218.5 GAAP income tax rate 30.2% 27.1% 24.1% 28.3% 25.6%
Income tax effect of non-GAAP exclusions 13.3 14.9 12.6 58.7 58.5
Non-GAAP provision for income tax $ 98.8 $ 79.1 $ 75.4 $ 295.7 $ 277.0
Non-GAAP income tax rate 28.0% 26.3% 23.3% 26.7% 25.5%
GAAP net income $ 197.4 $ 172.4 $ 197.8 $ 601.2 $ 633.7 Share-based compensation expense 63.8 55.6 55.9 226.8 217.3 Share-based payroll tax expense 0.3 0.2 0.8 5.8 6.4 Amortization of purchased intangible assets 3.3 4.8 5.3 16.2 28.4 Restructuring charges (benefits) 0.1 0.8 (0.1) 3.3 (4.1) Acquisition/divestiture and other charges (income) 1.1 2.8 0.5 11.8 (5.2) Professional services related to non-routine stockholder matters — — — — 3.0
Loss (gain) on equity investments 1.6 0.3 — 3.7 (11.3) Income tax effect of non-GAAP exclusions (13.3) (14.9) (12.6) (58.7) (58.5)
Non-GAAP net income $ 254.3 $ 222.0 $ 247.6 $ 810.1 $ 809.7
GAAP diluted net income per share $ 0.51 $ 0.45 $ 0.51 $ 1.55 $ 1.59
Non-GAAP diluted net income per share $ 0.66 $ 0.58 $ 0.63 $ 2.09 $ 2.03
Shares used in computing diluted net income per share 385.6 384.5 390.9 387.8 399.4