Operator:

Greetings. Welcome to Juniper Networks’ Q3 2023 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Jess Lubert, Head of Investor Relations at Juniper. You may begin.

Rami Rahim:

Good afternoon everyone, and thank you for joining us on today's call to discuss our Q3 2023 results. We delivered better-than-expected results during the third quarter, with total revenue of $1.5 billion. Better than expected results during the third quarter, with total revenue of $1.398 billion, exceeding the midpoint of our guidance. Profitability was also strong in Q3, as our non-GAAP growth and operating margins both exceeded expectations, resulting in non-GAAP earnings per share of $0.60, which was above the high end of our quarterly guidance range. Our teams continue to execute well against the backdrop of a challenging macro environment. We remain confident in our positioning from a technology perspective and our ability to win across industry verticals as customers increasingly look to leverage AIOps and software automation tools to improve network operations and reduce overhead costs, what we call experience-first networking. We believe our attention to providing customers with the best user experience, along with our continued go-to-market focus, will position us to deliver healthy, long-term growth and improved profitability. Total product orders came in largely as expected during Q3 and the rate of year-over-year order decline improved as compared to the prior few quarters. Our Enterprise business remained healthy as orders experienced high single digit sequential growth and exceeded our expectations. Enterprise strength helped offset order weakness with our Cloud and Service Provider customers where we continue to see accounts digesting prior purchases before placing new orders. I am extremely encouraged by the momentum we're seeing in our Enterprise business, which once again delivered record revenue results and accounted for more than 50% of total revenue for the first time in Juniper's history. Total Enterprise revenue grew by nearly 40% year-over-year in the Q3 timeframe and represented our largest and fastest growing vertical for a fourth consecutive quarter. Importantly, new logos saw another quarter of healthy double-digit growth, and we continue to see strong mid-market success as enterprise deal registration through the channel grew by more than 20% year-over-year and commercial orders grew by nearly 20% year-over-year. We believe continued growth in new logos and mid-market strength speaks to the differentiation of our products and our ability to capture share. Our campus and branch business had another record quarter in Q3 with our AI-driven enterprise revenue growing more than 40% year-over-year. Revenue from the mystified segment of our business, which consists of products driven by Mist AI, also had a record quarter growing by nearly 100% year-over-year in the Q3 time frame. Our mystified orders also achieved a notable milestone in Q3, surpassing $1 billion run rate on an annualized basis, less than four years after crossing the $100 million run rate milestone in Q4 2019. Customers and the industry are recognizing Juniper's clear and defensible leadership when it comes to AI-driven operations delivered via a modern microservices cloud and the meaningful benefits these solutions can provide in terms of reducing network trouble tickets, automating manual tasks, speeding time to deployment, and reducing mean time to repair as compared to competitive platforms. We see these benefits resulting in share gain opportunities as customers transition from legacy on-prem solutions managed by people to next-gen solutions managed using AI and the cloud. We believe this architectural transition remains in the early innings and will represent attractive growth opportunities for years to come. In Q3, we secured a win with a global pharmaceutical leader, the world's largest healthcare provider added to its Juniper Mist rollout and two very large retailers extended their Juniper Mist network to include our full stack across Wi-Fi, wired and SD-WAN. One of these retailers is approaching 10,000 locations. Initial demand for our cloud-based network access control product was also strong, securing more than 50 customer wins in a little more than a quarter of availability, with customers highlighting dramatic reductions in rollout time from days to minutes and simplified operations as being key differentiators. Mystified strength was broad-based across the portfolio with record wireless, wired, and SD-WAN revenue in the quarter, as well as record full-stack wins where customers purchased several of these campus and branch products together. We view momentum with these full-stack wins as a positive forward indicator, given our belief that for every dollar of wireless, there is $2 to $3 of wired switching and additional SD-WAN and NAC opportunity. Our Enterprise data center business also performed well in Q3, with Apstra continuing to see strong momentum in the market. Apstra new logos grew by more than 80% year-over-year in Q3, and the pipeline of opportunities remain solid. Hardware pull-through for every dollar of Apstra software has been meaningful and growing, which we view as a positive forward indicator for our data center prospects. Key data center wins in the quarter for Apstra and our QFX switch offerings included large government agencies, international Tier 1 service providers, and one of the largest global appliance manufacturers. The performance of our Enterprise business shows our diversification strategy is working. And given our level of portfolio differentiation balanced against our relatively modest share in the large markets where we compete, I expect us to grow our Enterprise revenue and orders in 2023 and 2024, even in a more challenged macro environment. As highlighted over the last few quarters, we continue to see accounts across each of our customer verticals more closely scrutinizing budget and project deployment timelines due to the macro uncertainties that are happening around the world. This has been particularly true in the Cloud vertical, where many of our customers are still in the process of digesting prior purchases. While these dynamics are likely to pressure our Cloud segment for at least the next few quarters, we remain optimistic regarding our longer-term prospects in the cloud. Our optimism is driven by our strong wide-area footprint, the rapid traffic growth that continues in many of these customers' environments and the opportunity to capitalize on the adoption of large language model and the build-out of AI clusters, where we are seeing strong customer engagement that is driving optimism regarding our opportunity to benefit as the industry increasingly considers Ethernet as the right choice for a wide array of AI-ML use cases, including front-end, back-end, in-print and storage networks. As I mentioned last quarter, we expect AI adoption to drive a meaningful uptick in traffic growth that is likely to benefit our cloud wide-area footprint over time. We also remain optimistic regarding our AI data center switching opportunity, but we are already seeing success with cloud major and enterprise accounts due to the performance and power efficiency of our custom silicon, the congestion management capabilities embedded within our Junos operating system and our support for technologies such as RDMA networking. Additionally, by incorporating Apstra in our AIML design, Juniper differentiates in its ability to deliver the turnkey deployment and reliable operations of AI-ML clusters, which is critical to achieving the performance goals required by AI-ML team. Our Service Provider business softened in Q3 and was impacted by some of the macro uncertainties that are happening around the world. These dynamics are causing many carriers to more closely scrutinize budgets and, in some case, to run their networks harder than planned. We found this to be particularly true amongst our Tier 2 and Tier 3 customers as well as certain large international accounts, while activity with the US Tier 1 operators has largely tracked according to plan. Despite these macro headwinds, we remain encouraged by the momentum we're seeing in our Cloud Metro portfolio where our new ACX7000 platform had a record revenue quarter and saw solid year-over-year growth from an orders perspective. These products secured six new footprint wins in the Q3 timeframe, including a win with an international Tier 1 account. We expect this business to build through the remainder of the year and become more material to revenue in the 2024 timeframe and beyond. I'd like to highlight that our services team continued to execute extremely well and delivered another quarter of record revenue and margins during the Q3 timeframe. Services accounts were more than 35% of our total revenue and we believe represents an underappreciated aspect of the business that is not only recurring and likely to grow in the years to come, but it also presents opportunities for margin expansion as the team continues to identify and capture efficiencies. In summary, while the macro environment remains uncertain and is impacting our near-term outlook, I remain confident with our strategy and optimistic regarding our long-term growth prospects. My enthusiasm is fueled by our continued enterprise momentum and the attractive longer-term opportunities we continue to see in the Cloud as well as Service Provider metro opportunity. I'd also like to emphasize that we remain committed to delivering improved profitability and still expect to deliver greater than 100 basis points of non-GAAP operating margin improvement in 2023. We also expect further improvement in 2024. While we view revenue growth as the primary lever to achieving improved profitability and reducing costs is never easy, we recently announced an action to protect profitability while preserving investments in strategic areas of the company. I will now turn the call over to Ken, who will discuss our quarterly financial results and outlook in more detail.

Operator:

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question today is coming from Amit Daryanani from Evercore. Amit, your line is live.

Rami Rahim:

Hi, Amit. This is Rami. I'll start. For some reason, you're really choppy. So I hope the issue is not on our end. I think I caught most of what you asked really around the demand environment that we're seeing for Cloud and SP, and I think you're looking for some commentary around sort of the duration of that -- the challenges that we're seeing in that segment. I'd say, first, not much has changed from the last quarter in terms of what we're seeing in SP and Cloud. Service Provider is probably incrementally more challenging. As I mentioned in my prepared remarks, not so much because of Tier 1 service providers in the US, more about Tier 2, Tier 3 and international. Cloud is challenging as we expected. I don't think it's gotten worse or better, really. And we've always expected that the digestion period that is being faced in the Cloud and, to some extent, in the Service Provider vertical as well, is going to last for several quarters. Having said that, I don't think it's all negative. I mean in the Service Provider space, for example, there are plenty of opportunities out there that we're competing for, especially in the metro, where we're seeing really great early momentum. And I expect that that's going to more meaningfully contribute to our top line next year. In the cloud provider space, there are projects that are ongoing. We're competing for new projects for certain. The AI cluster opportunity is going to emerge, as I think, a wonderful opportunity for us to go and to pursue. I just think it's going to be a few more quarters of digestion before those opportunities start to play out and we begin to benefit from them.

Rami Rahim:

Thanks, Amit.

Michael Ng:

Hey, good afternoon. Thanks for the question. I just have two. First, I was just wondering if you can talk a little bit more around the strength in hardware, maintenance and professional services. Very good quarter-on-quarter growth. Was there something that may have helped on the maintenance side, whether it's the incremental challenges in SP that you talked about that may have led to more maintenance? And then second, I was just wondering if you could talk a little bit more about product orders. It's encouraging to hear that it was in line with expectations and the year-over-year decline improved. But how much did product orders actually decline in the quarter? Thank you.

Michael Ng:

Great. Thank you.

Samik Chatterjee:

Hi, thanks for taking my question. I guess if I start on the margin front, you're guiding to operating margin expansion, although with the sort of caveat about what that revenue outlook looks like. I do see you sort of expanding gross margins next year. So can you just outline what is sort of the sort of puts and takes here? What is the amount of revenue decline you can absorb even with gross margin expansion and still sort of deliver operating margin expansion as you look to next year? And just a quick clarification on Michael's question here. So you said orders have tracked in the quarter largely in line, but you seem to be moderating your 4Q order trajectory of saying now it's maybe a more modest decline where earlier you were saying it's an increase as of the last quarter. So there seems to have been an incremental change there even though it tracked in line in the quarter. So can you just clarify what led to that change? Thank you.

Samik Chatterjee:

Okay. Thank you. Thanks for taking my question.

Alex Henderson:

Great. Thanks. I was hoping you could give us some sense of when you think some things are going to normalize. And most specifically, the -- at what juncture do you think your backlog is fully normalized? And at what juncture do you think your excess inventory will normalize? I assume that's with a lag to the backlog. And do you think that there's any risk within that inventory as we're going through these delays and changing environment? Is there anything in your inventory that you think might be an obsolescence problem? Thanks.

Alex Henderson:

Great. Thanks.

Simon Leopold:

Great. Thanks for taking the question. First, just a quick clarification, if I might. In your prepared remarks, you talked about a return to normal seasonality in 2024, and you also make a reference to Q1 being down double digits in the past. Are we to take it that you expect Q1 '24 to be down by a double-digit rate? That's the clarification, simple. In terms of the broader question, however, I see a number of the third-party market research firms expect the campus environment, both wireless LAN and campus switching, will decline in 2024. And you've been experiencing some good growth here. I assume it's decelerating, but you sound very confident that you'll still grow. Could you help us unpack what separates your view from the market research firms? Thank you.

Ken Miller:

Yeah. And on your clarification question, the short answer is yes, I would expect a sequential decline from Q4 to Q1 in that double-digit realm based on kind of previous traditional patterns.

Operator:

Thank you. The next question is coming from David Vogt from UBS. David, your line is live.

Ken Miller:

Yeah. So I'll address the seasonal pattern one. We do expect the double-digit decline Q4 to Q1 as we mentioned. And then from there, we expect sequential growth throughout the rest of the quarter. I would say we've talked a lot about revenue next year was uncertain predominantly because it's just unclear about the pace and timing -- the size and timing of the recovery within Cloud and SP. So that implies to me that we expect it to recover at some point next year but just not exactly sure when. And when that does, that should accelerate revenue. So I would expect revenue to be maybe a bit more back-end loaded, probably closest traditional patterns this last year 2023 or this year. 2023 was not kind of a sequential growth quarter. It was kind of a flattish quarter from a quarter-to-quarter perspective throughout the year. Next year, I think we'll start down and it will build back up as the year progresses.

Ken Miller:

Yes. So backlog continues to be a bit of a tailwind in each of our quarters, but it's lessening quarter after quarter as it starts to normalize. So not giving any specific guidance other than I do expect it to remain elevated as we exit the year but not to the degree that we previously thought. We were thinking it was going to be two times previous kind of historical levels. We now think it will be less than that but still be above historical levels.

Operator:

Thank you. The next question is coming from George Notter from Jefferies. George, your line is live.

Ken Miller:

Yeah. So I mean we are seeing -- we're definitely seeing some improvements in what we used to refer to as the transitory costs, right? These were predominantly logistics costs and expedite fees or purchase price variance fees, where we're paying more just to get a hold of the product that was scarce, hard to get. We clearly are not paying any more of those fees as we are able to get products pretty much on time with standard lead times at this point. The supply chain has completely normalized from a lead time perspective. But we do still have some inventory that we bought at prior higher prices, as you mentioned, and that's going to bleed through over the next few quarters. But each quarter, we're getting more and more of that benefit or less and less of those additional fees on the expedite side. Logistics has effectively recovered completely, right, where the logistics cost that we were paying -- the elevated logistics costs have completely normalized. And that's obviously benefiting our current gross margin results and our expectations going forward. The one area that has gone negative, if you will, or have gotten worse over the last 12 months are those inventory carrying fees that I mentioned. And that's really just a factor of the balance sheet and inventory that we're carrying. So I would expect those costs to remain for the next few quarters higher-than-normal levels as inventory remains higher-than-normal levels, but I do see a path to recovery on those as well. All this is factored into our guidance, obviously, for Q4 as well as our expectation that next year, we expect to grow gross margin.

Ken Miller:

Yeah. The revenue -- SaaS was definitely a part of it and has been a continual part of it for the last few years as SaaS is becoming a bigger part of our overall business. we disclosed on the call, our ARR business at $357 million at an all-time high and growing quite nicely. So that is becoming a bigger factor of overall services. However, I don't want to discount the maintenance business, which also grew nicely in the quarter and the efficiencies we're getting within our services organization. So really, this is a situation of revenue growth and cost of revenue decline, and that's resulting in the margin expansion that you're seeing.

Ken Miller:

I think it's fair to say that directionally, we should be moving up as we move forward. Any given quarter, you might see some small anomalies, but I do feel good about the ability to continue to grow gross margin in a more of an aggregate time period basis.

Operator:

Thank you. The next question is coming from James Fish from Piper Sandler. James, your line is live.

Rami Rahim:

Okay. Let me start with your first question. And Ken, I'll let you talk a little bit more about the commentary for next year. So I'll address the Mist question from both the standpoint and sort of market dynamics and then what's happening with our business more specifically. From a market dynamic standpoint, I think it's really important to understand that the -- if you look at the campus and branch market all up, that's sort of a slow, maybe flattish-type market opportunity. Within the campus and branch market, there's actually a segment really ran cloud-managed. These are basically enterprise solutions where the control and the management of that solution is really done through the cloud. And that part of the market is actually growing at a healthy clip, and I expect that it will continue to grow through next year as well. And that is the opportunity that we are entirely focused on, at least when it comes to campus and branch. Every single one of our access point is connected to the cloud, managed through the cloud with an AIOps engine, Marvis in the cloud. And all of the growth that we're seeing now in the wired switching as well as in the WAN is happening through the cloud. And even the security capabilities, such as network access control that we've introduced, is a cloud-based solution as well. So I think it's a little bit -- it's wrong to look at the growth of just the campus and branch market all up. It's actually more useful to look at it from the standpoint of that cloud-connected portion of the market that's actually growing at a much faster clip. Then in terms of the solution itself, really, when it comes to harnessing the power of AIOps, and I know it's a bit of a used and abused words out there. I mean the proof is in the pudding. Our customers today are seeing real benefits. Reduction in number of tickets by 90-plus percent, reduction in total -- the time frame it takes to deploy a new solution from what used to be a year to a matter of weeks, if not maybe a month or so. The root cause analysis that used to take days with all of the frustration of people that are trying to use the network to do whatever they want to do has been reduced to essentially no time at all because most of the time, we're proactively identifying issues and fixing them. You mentioned Zoom. We have already integrated Zoom visibility into our Mist solutions so that when there is, in fact, some sort of a video issue, we can, if not proactively, instantly provide the IT staff visibility into whether the issue is more in the application side, the wireless side, the wired side, the cloud, et cetera. And that's the capability that our IT customers are really, really happy to see. So I know I'm maybe beating a little bit of a dead horse here. I'm very optimistic about the competitiveness of our solutions in the market, whether it be a challenged market or not.

James Fish:

Very helpful color guys. Thanks.

Karl Ackerman:

Yes, thank you. I have two questions. Rami, perhaps a question for you to start. So the upside in the quarter appears to be on the services side, while product growth is going the other way. I understand there is a mix dynamic at play on services given the growth that the company is seeing in Enterprise. But where do you think we are in the cycle for Service Provider and Cloud spending on product hardware?

Operator:

Thank you. And the next question is coming from Atif Malik from Citi. Atif, your line is live.

Rami Rahim:

Yeah. So I'm actually quite bullish about the AI cluster opportunity. As I mentioned in the last call, I think we all have to acknowledge that today, the technology of choice for connectivity between GPUs and either inference or learning clusters is InfiniBand. It's not Ethernet. However, the momentum behind Ethernet in the industry is very strong. And so I believe it is a matter of time before Ethernet reigns as the fabric technology of choice in AI clusters. And I do believe this will present opportunities for us. In terms of timing, I think next year, 2024, maybe closer to the second half of the year and in particular, what we're seeing, especially among the cloud majors customers for us, there are a lot of projects. There are a lot of opportunities out there where we are being asked. There have been some good technical dialogue about how we move Ethernet to become sort of that cluster technology of choice for either learning or inference for their solutions. And in fact, even large enterprises, we're seeing that more and more large enterprises, financial services, insurance companies, even healthcare, they're pursuing these private clusters. All up, I'm optimistic about the opportunity. I like how we stack up from a technology standpoint with the combination of our customer and merchant silicon, our Junos operating system feature that we developed specifically for the Ethernet cluster solution and Apstra, which provides the automation and the visibility into it, Ethernet AI cluster solution, that gives me good optimism for capturing our fair share, if not more, in this market opportunity.

Ken Miller:

Yeah. So I expect our Enterprise revenue -- I expect our Enterprise business to grow faster than market. So I do think we will take market share. The market, as many are predicting, is expected to slow down pretty significantly next year as compared to this year, but we expect to be able to grow -- even if the market is slightly down, we would expect to grow our Enterprise business. So we are absolutely expecting market share taking.

Meta Marshall:

Great. Thanks so much. Maybe first question, I know on the Enterprise side, you guys are not as tied to macro just given kind of the share gain position you're in. But just wanted to get a sense of any commentary around time from initial Wi-Fi sales to kind of the upsell of additional campus switching or additional SD-WAN, just whether you're seeing an elongation of that in a more challenged macro or if it's actually shorter just given the compelling ROI. And then maybe just as a second question, just the visibility. As we've kind of extended this inventory digestion period on Cloud and Service Provider, just the visibility that you have within those customers of just how much inventory they have. What is kind of the ongoing dialogue to get a sense of just when you guys could have a little bit more sense of visibility there? Thanks.

Operator:

Thank you. And the next question is coming from Tal Liani from Bank of America. Tal, your line is live.

Rami Rahim:

Okay. Thanks for the questions, Tal. Let's start with Cloud Providers. The biggest thing driving the decline today is the fact that lead times have gone from what was over a year to normal, just a few weeks. And so the need for them to purchase in sort of like way upfront from when their needs are is just not there anymore. And therefore, they've just reduced the orders that they're placing. So that is the number one thing that's affecting our business. It's not the only thing. There are definitely -- there have definitely been some project pushouts. I think macro has affected their own businesses and the need for equipment. So that would be the second thing. And I think the other thing is they have shifted some of their priorities to, for example, AI, GPUs, which, as you know, are extremely expensive. So those are the main reasons. I again feel the need to reiterate

Operator:

Thank you. That was all the questions we had today, and that does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.

Operator:

Greetings. Welcome to the Juniper Networks Q2 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Jess Lubert. You may begin.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q2 2023 results. We delivered better-than-expected results during the second quarter, with total revenue of $1.430 billion, growing 13% year-over-year and exceeding the midpoint of our guidance. Product revenue grew by 15% year-over-year and we saw year-over-year growth across all geographies. Profitability was also strong in Q2, as our non-GAAP gross and operating margin, both exceeded expectations, resulting in non-GAAP earnings per share of $0.58, towards the high-end of our quarterly guidance range. Our Q2 results reflect strong execution by our team, as well as the improvements we're seeing in the availability of supply. We remain confident in our positioning from a technology perspective and our ability to capitalize, as our customers build their networks for the next decade, which we believe will leverage AI powered software automation, an area where we have invested meaningfully over the last few years. We believe these investments, along with our go-to-market focus, will enable us to not only deliver sustained top-line growth, but also improve profitability, even in a challenged end market environment. With respect to demand, total product orders grew nearly double-digits on a sequential basis. And while the year-over-year rate of decline improved relative to last quarter, it was still meaningful due to the strong sequential performance in Q2 2022. While we are continuing to see positive momentum in our Enterprise business, we experienced weaker-than-expected trends with our Cloud and Service Provider customers, which we believe is due to the timing of project and the digestion of prior purchases. Despite these trends, we continue to expect the decline in orders to moderate further over the next few quarters and return to year-over-year growth potentially as soon as Q4 of this year. From a vertical perspective, I remain extremely encouraged by the momentum we're seeing in our Enterprise business, which delivered record revenue results and accounted for more than 45% of our total revenue, representing both our largest and fastest growing vertical for a third consecutive quarter. Not only did our Enterprise revenue grow by nearly 40% year-over-year in the Q2 time frame, our Enterprise product orders also saw healthy year-over-year growth despite a 20%-plus comp in the year-ago period. Importantly, new logos grew by more than 30% year-over-year, which we view as an important forward indicator, given the opportunity to expand after landing many of these accounts. Not to be overlooked, deal registration through the channel and commercial orders both grew by more than 40% year-over-year, which we think speaks to the differentiation of our products and our ability to capture share. Within the Enterprise, our campus and branch business had another record quarter in Q2 with our AI-driven Enterprise revenue growing more than 60% year-over-year. Customers are recognizing Juniper's clear and defensible leadership when it comes to AI driven operations delivered via a modern microservices cloud. While the rest of the industry continues to talk, we have real AI solutions that deliver real results, including a 90% reduction in worldwide trouble ticket at a global software company, 85% fewer store visits by IT at a multinational retailer and the fastest branch network rollout in the history of a national mobile operator. Revenue from the Mistified segment of our business, which are products driven by Mist AI, had a record quarter, growing by nearly a 100% year-over-year in the Q2 time frame, with orders growing by nearly 40% year-over-year. Strength was broad across the portfolio with a record wireless, wired and SD-WAN revenue in the quarter, as well as record full stack wins where customers purchase several of these campus and branch products together. We view momentum with these full stack wins as a positive forward-looking indicator, given our belief that for every dollar of wireless, there is $2 to $3 of wired switching and additional SD-WAN opportunity. Marquee new AI-driven Enterprise customers this quarter include a Fortune 10 technology company, a Fortune 50 financial institution, an American supercenter chain, the UK's largest cycling retailer and a multinational manufacturing company. We introduced several new innovations to the Juniper Mist portfolio this past quarter, including the industry's first AI-driven, Cloud-based network Access Assurance solution, which we believe has the ability to revolutionize a very dated NAC industry. In addition, we expanded our AIOps leadership by integrating the Marvis Virtual Network Assistant with ChatGPT for enhanced knowledge-based queries using large language models. And we integrated with a leading Internet collaboration platform for superior video performance. Our Enterprise datacenter business also performed well in Q2, with Apstra reporting a record quarter, both from a revenue and an orders perspective. The Apstra pipeline continues to grow with new logos more than doubling year-over-year for a second consecutive quarter, and we continue to see strong hardware pull-through for every dollar of software, which we view as a positive indicator for our Enterprise data center prospects. Our automation driven data center revenue in the Enterprise posted a record quarter, primarily due to the increasing adoption of Apstra. New Cloud-ready data center wins this quarter include a Fortune 250 financial services firm, a large US restaurant chain and a large US government agency. The performance of our Enterprise business shows our diversification strategy is working and given our level of portfolio differentiation, balanced against our relatively modest share in the large markets where we compete, I expect us to grow both our Enterprise revenue and orders during the year, even in a more challenged macro-environment. As highlighted over the last few quarters, we continue to see accounts across each of our customer verticals more closely scrutinizing budgets and project deployment timelines due to the macro uncertainties that are happening around the world. This is proving to be particularly true in the Cloud where we're seeing more customers digesting prior purchases and pushing projects to future periods. While these dynamics are likely to pressure our Cloud business for the next few quarters, we remain optimistic regarding our longer-term growth prospects in the Cloud, given our strong wide area footprint, the rapid traffic growth that continues in many of these customer environment and the opportunity to capitalize on the adoption of large language model and the build-out of AI clusters. To this last point, we expect AI adoption to drive a meaningful uptick in traffic growth that is likely to benefit our Cloud wide area footprint over time. However, we also see an attractive data center opportunity emerging, where we believe the performance and power efficiency of our custom silicon, the congestion management capabilities embedded within our Junos operating system and our support for technologies such as RDMA networking will position us well to capture share, particularly with Cloud Major accounts that are likely to bet on Ethernet as the protocol of choice to support their AI cluster investment. In fact, we've already begun to see successes in non-hyperscaler accounts. Our Service Provider business performed as expected in Q2, but moderated on both a sequential and year-over-year basis, following the strong shipments we experienced in the Q1 time frame. We expect this business to remain lumpy going forward, as the continued momentum we're seeing with respect to 400 gig deployments particularly with some of our larger Tier 1 customers is being offset by incremental weakness with Tier 2 and Tier 3 carriers that are being impacted by the softer macro-environment. Despite these headwinds, we remain encouraged by the momentum we're seeing in our cloud metro portfolio, where our new ACX7K platform experienced a record quarter, both from a revenue and in orders perspective, and the pipeline of opportunities remains strong. We expect this business to build through the remainder of the year and become more material to revenue in 2024 and beyond. In summary, I remain confident in our strategy and optimistic regarding our long-term growth prospects. My enthusiasm is fueled by our continued Enterprise momentum and the attractive longer-term opportunities we continue to see in the Cloud, as well as the SP metro opportunity. However, given the digestion of prior purchases and the uncertain timing of customer deployments, particularly amongst some of our larger Cloud customers, we have less visibility and our revenue results are likely to be pressured over the next few quarters. Based on these dynamics, we are reducing our full-year revenue growth forecast. We remain committed to delivering improved profitability and still expect to deliver greater than 100 basis points of operating margin improvement in 2023. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Operator:

Thank you. [Operator Instructions] Our first question is from Simon Leopold with Raymond James. Please proceed.

Rami Rahim:

Yeah. Thanks for the question, Simon. I think the biggest issue right now that we're facing in the Cloud provider segment is the period of digestion. It's not specific to any one customer. It's broad-based It's not even just hyperscalers. It includes the Cloud Major segment as well. To the question around AI and it being a priority, I definitely see it. There is no doubt that our Cloud customers are focusing pretty intensely on artificial intelligence, making sure that they're equipped to deal with the additional services they're going to be offering and the demand that's going to place on their network while in the short term that might have a bit of a negative impact, I think to your point in the long term, it's actually quite attractive for us for two reasons. To the extent that AI is a new killer app that's going to be offered by cloud providers to their customers, it's going to result in an increase of traffic across the board, in areas in the wide area where we have significant footprint and, of course, in the data center. And I do think as I mentioned in my prepared remarks that it could offer a nice new opportunity for us to participate in, in the data center with AI clusters being built increasingly over time with Ethernet as an alternative to what is today the technology of choice which is InfiniBand. That said, the timing to your question is -- it's difficult to call right now, but it's really in the several quarters.

Operator:

The next question is from Samik Chatterjee with JPMorgan. Please proceed.

Rami Rahim:

Sure. Thanks for the question. Yeah, so for the guidance, the reduction in revenue expectation for the year is largely Cloud. Right? I would say to a to a lesser degree, Service Provider, but the vast majority of that reduction would be attributable directly to our Cloud business. On a on a year-to-date basis, our cloud business is down 10%. I think it's likely that it ends the year down double digits. And really due to the weakness we saw in orders late in Q2 as well as what we expect to see for the rest of the year. So the vast majority of that is Cloud. I believe our Service Provider business will stay within kind of our guidance range of plus or minus 2%. So that's going to be largely intact with our long-term model. And Enterprise clearly way ahead of our long-term model and I expect it to remain way ahead as we exit the year. So the revenue decline is really mostly a Cloud phenomenon. From a backlog perspective, clearly backlog is coming down as we expected it to this year. I'll tell you it came down a little bit more than we expected given that the order weakness that we called out in Q2. So backlog is coming down. However, it still remains about 3x, what we would normally expect in kind of a pre-pandemic historical level. And I expect to exit the year -- I still expect to remain elevated as we exit the year at approximately 2x kind of normal historical level. So it's coming down quickly, but it still remains quite elevated. It is going to put some pressure on 2024 revenue growth. The backlog is a tailwind in 2023. It would be a headwind to 2024 at the backlog, but we will not have as elevated backlog entering next year as we did this year. It's going to require us to have a recovery in bookings and orders. The good news is I expect that we will have a recovery in orders. I expect next year to be a strong bookings year for all of our verticals as we kind of go through this backlog digestion period and react to the current lead time. So this year is obviously putting a lot of pressure on bookings. It's resulting in a declining backlog. I think next year would be a little more normal, but bookings will drive revenue growth.

Operator:

Up next, we have Tim Long with Barclays. Please proceed. Tim, your line is live.

Rami Rahim:

Okay. Thanks for the question, Tim. Yeah. So I'm obviously very pleased with the performance of our Enterprise business. And really, this is in the face of macro-related headwinds. Enterprise is now our largest, our fastest growing segment in Q2 with over 45% of total revenue. The level of differentiation that we have in our Enterprise portfolio has never been stronger. You see it in the numbers. Our AI driven Enterprise business grew at over 60%, Mistified revenue grew at over approximately 100% year-over-year and we also saw some really encouraging signs with Apstra in the data center, specifically again for the Enterprise. The question around -- really it's around durability. What happens if there were going to be sort of signs of weakness in the market? I'd just say that the Enterprise market if it was -- it's -- there are headwinds in the in the market today. Absent those headwinds, we'd actually be doing even better. We'd be posting even better results than we have right now. And as a -- just a point of consideration, take a look at how our Enterprise business performs even during the early days of the pandemic where peers in the industry were not seeing growth we were seeing growth. And that was through new logos, share taking, which is really happening right now. I'm very encouraged with the forward-looking metrics, things like 30% growth in new logos, deal registration up 40%. This is really an indication of how much opportunity our channel partners are bringing to Juniper, commercial business up at over 40%. This is -- these are signs I believe of success to come in the Enterprise. So for that reason, I'm encouraged by the business traction thus far, revenue growth and order growth this year, and it's I think fairly easy to call revenue growth for next year in the Enterprise.

Operator:

The next question is from Alex Henderson with Needham. Alex, please proceed.

Rami Rahim:

Maybe I'll start with the 2024 view and then, Ken, I'll let you comment a little bit more about linearity and pricing. And Alex, I appreciate the question. So it's a little too early to provide guidance on 2024 all up, especially given some of the digestion that we're seeing in the cloud and to a lesser extent in the SP segment. However, I do think it is possible for us to grow revenue in 2024, and I'll just walk you through just some of the puts and takes to that. Backlog draws, Ken just mentioned in 2023 creates a pretty meaningful revenue headwind for us in 2024. So if you think about it, orders would need to accelerate from here to overcome the backlog related headwind that this year is presenting to next year. Now the good news is we do expect orders to grow and in fact to accelerate for the full year in ‘24. And in fact, we see the order growth to happen across all customer segments, in Cloud, in SP and in Enterprise. And the Enterprise, as I just mentioned, which is the bulk of our business continues to do well today both from an order and the revenue standpoint, it's very easy to call revenue growth for Enterprise next year. Cloud and SP, I’d just say it's a little bit too early for us to call right now. Orders will accelerate. We don't know if they're going to accelerate fast enough to overcome the backlog related headwinds for next year. So the summary, what I would say is, so while 2024 full year revenue growth is possible, it really is going to depend on the timing of order recovery for Cloud and SP. And I would say, I'm sure Ken would say this if I don't, we're committed to both margin and EPS growth next year in 2024 irrespective of what Cloud and SP does.

Alex Henderson:

Great. Thanks.

David Vogt:

Great. Thanks guys for taking my question. Maybe, Rami, can I just follow up on the Cloud digestion sort of train of thought here. And how are you thinking about where Juniper kind of fits in or slots in as either the hyperscalers or the major cloud providers really start to accelerate maybe CapEx next year in terms of where you slot in maybe from a timing perspective? And along those lines, are you seeing some of the order digestion or maybe pushouts being driven by maybe a reallocation of CapEx from Cloud customers, whether it's the hyperscalers or main cloud providers? Are they spending more on GPU-enabled servers and compute and maybe that's putting pressure on other parts of network spend? And would you just kind of give some thoughts and color on what you're hearing from your customers at this point? Thanks.

David Vogt:

Great. Thanks, Rami.

Operator:

Up next, we have Karl Ackerman with BNP Paribas. Please proceed.

Ken Miller:

Yeah. So just to clarify, I was mentioning that at the end of the quarter orders, the weakness showed up late in the quarter. So actually, our orders were weaker at the end of the quarter than we would have expected as we started the quarter. So linearity was not back-end loaded. In fact, it didn't come in as strong as we thought it would over the last few weeks of the quarter from a bookings perspective.

Ken Miller:

Yeah. So our hardware and maintenance business really is an installed base business. So although current period in revenue and recent period revenue obviously matters, it really is about the installed base. And we have seen significant strength in that business over the last several years, where it's been growing pretty routinely, maybe not as much as product when product is growing well, but it grows -- it still grows even when products has a down period. So it's a pretty stable business that's growing in line with our expectations, to be honest with you. There is a shift happening as well to more software. So when you isolate just hardware maintenance and support, you are kind of underestimating that the true power of our services business, which is on the software side, which shows up in a different line item.

Operator:

Up next is George Notter with Jefferies. Your line is live.

Rami Rahim:

Yeah. So to answer the second part of the question first, no, we do not believe this is a market share issue. Just keep in mind that in hyperscale, our dominant footprint is in the wide area. So it is very much around sort of capital intensity, specifically for wide area investment and so on. The first part of your question, the answer is yes. I mean, it did intensify. We obviously had some expectation of how long the period of digestion would take, how long it would take to deploy new projects and it has elongated. Having said that, it's important to say that projects that we have been working on and competing for remain intact. We have not seen Cloud providers cancel projects. 400-gig deployments in the wide area, for example, remain incredibly important, especially with cloud providers having to invest in new AI capabilities. Ultimately, that's going to generate more demand, traffic growth on their network across every use case. And the projects that were in place might have moved out in time, but they have not been eliminated. And it continues to be an intense area of focus for us at Juniper.

Rami Rahim:

Yes. So I mean, it's looking great, honestly. I mean the level of innovation and just the sophistication of the silicon technology that we've developed, and the latest express silicon looks just absolutely remarkable. Customers that have had an early view of what we've developed, are incredibly excited about it. I believe from a market fit standpoint, it absolutely is addressing some of these big cloud provider use cases that I just discussed, and we're getting close. So stay tuned.

Operator:

The next question is from Mike Ng with Goldman Sachs. Please proceed, Mike.

Ken Miller:

Yeah. So we still expect to exit the year on an elevated level, about 2x normal. And we define normal historically as -- we were $400 million plus or minus a bit for quite a period of time. So I'm talking about maybe the middle to the high end of that $500 million to $1 billion range that you talked about, $800 million, plus or minus $100 million or $200 million would be where I'd expect our backlog to exit for the end of the year. So still elevated. To date, it's been coming down fairly proportionately across all verticals. We entered the year with a pretty balanced backlog as compared to what our revenue is. That said, I think we'll exit the year with a little bit more in the Enterprise side, and we'll probably burn through the Cloud backlog at a little faster rate than the other verticals, given some of the weakness that we've mentioned on the new orders.

Ken Miller:

Yeah, we did see a modest improvement from last quarter on a year-over-year basis, and we expect modest -- we expect improvement going forward. And we could return to growth as soon as Q4. So yes, we are -- we did see some modest improvement. So that's in line, I think, with kind of where you are.

Operator:

The next question is from Meta Marshall with Morgan Stanley. Meta, your line is live.

Rami Rahim:

Okay. Thanks, Meta. So the period of elongation has been mostly at Cloud, to a lesser extent in SP. You are right, we have won, we've secured new projects over the last year or two that we have mentioned on these earnings calls. And even there, where we have started deployments, some of the deployments have just moved out in time. So it applies to areas where we have existing footprint and net new wins where we've started to see some benefit, but maybe not as much benefit as we would have otherwise enjoyed had these -- had this elongation not taken place. And again, it's mostly a Cloud phenomenon to a lesser extent, in the SP. And then the second part of the question, I'll leave it to Ken on the gross margin.

Meta Marshall:

Great. Thanks.

Atif Malik:

Hi, thank you for taking my question. And good to see orders growing double digits sequentially. I have a question for Ken, and I apologize, I'm a bit new to covering Juniper. Ken, why provide a full year outlook given Cloud and Service weakness? Is this because of supply chain tightness that you guys saw during COVID, which stretch your lead times? I'm just trying to understand the rationale behind providing the outlook for this year and even commentary into next year. Thank you.

Operator:

Okay. The next question is from James Fish with Piper Sandler. James, please proceed.

Rami Rahim:

Okay. So the optimism, I would say, is not just rooted in Ethernet being sort of the technology of choice for AI clusters, that's a component of it. But the optimism really is around the fact that traffic growth in Cloud providers continues to grow. Digestion can't happen forever. Eventually, they're going to deplete through their inventory and they're going to -- and Cloud providers are going to need to invest in their networks. To the extent that they invest in the wide area, we will benefit from that just based on our footprint. And then in the data center, as you know, we've got a very good footprint in the top 10 and on the broader cloud majors. And I would add to that, and it's in addition that AI clusters moving to Ethernet would present a net new opportunity for us. And to your question about why Ethernet and not InfiniBand, I mean, obviously, today, most AI clusters are built with InfiniBand. In the future, however, Ethernet present has some distinct advantages. From an economic standpoint, it's got a broader ecosystem. So it's not just Juniper. There will be a number of players. They're going to be innovating in the Ethernet space to capture the requirements of AI clusters. That means from an economic standpoint, customers that want to deploy large language model type clusters are going to benefit economically from moving to Ethernet. But I want to just highlight that this does not happen overnight. This is going to be something that will take several quarters, likely over a year or so, in order for Ethernet to start having a meaningful volume of business tied to AI cluster networking.

Rami Rahim:

Well, it's mostly a Cloud provider thing. It's to a lesser extent in the Service Provider space Obviously, they're sitting on elevated inventory. When we talk about digestion, really, it means that they are drawing down that inventory and deploying it into their networks. I think your question is really getting to the timing. And we don't know with certainty at this point in time. I can tell you there's going to be several quarters before, as they draw down inventory, do that deployment and they start to see the acceleration -- and we start to see the acceleration of orders again.

Tal Liani:

Yes. Hi, guys. Sorry to ask third question on the same topic. I just wanted to get the numbers right. Last quarter, you said that backlog was roughly $1.7 billion and the drawdown was about $350 million. This time -- and in the past, you said that the normal backlog is $300 million to $400 million. So this time, you're saying 3 times the backlog. So if I take the $400 million, at high end, it's $1.2 billion, and it means that the backlog drawdown went up from $350 million to $500 million sequentially. But then you're saying that by the end of the year, it will be $800 million to $1 billion. So that means that the -- you expect the backlog drawdown to slow down materially in the next two quarters. Just want to make sure that the numbers that we have are correct? Or if you can give us -- be a little bit more specific with that because I'm sure everyone is doing the same math to understand the backlog drawdown. Thanks.

Tal Liani:

Got it. on the same topic, but differently, if the weakness is coming -- the order weakness is coming mainly from Cloud and a little bit less than in Service Providers. And on the other hand your Enterprise is very strong. So does it mean that the backlog drawdown is much more meaningful as a percentage of your revenues in these verticals? So I'm just trying to understand if we should assume that the backlog drawdown is mostly tilted towards the Service Providers and Cloud and less to the Enterprise, given the difference in the revenue performance?

Tal Liani:

Got it. Great. Thank you.

Operator:

Greetings. Welcome to the Juniper Networks Q1 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jess Lubert. You may begin.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today’s call to discuss our Q1 2023 results. We delivered better-than-expected results during the first quarter with total revenue of $1,372 million, growing 17% year-over-year and exceeding the midpoint of our guidance. Total product sales grew 23% year-over-year and we saw year-over-year growth across all customer solutions and all geographies. Profitability was also strong in Q1 as our non-GAAP gross and operating margin both exceeded expectations, resulting in non-GAAP earnings per share of $0.48, above the high end of our quarterly guidance range. These results reflect healthy customer demand for our solutions as well as the improvements we’re seeing in the availability of supply. Our teams continue to execute extremely well, and we remain confident in our positioning from a technology, go-to-market and supply chain perspective, to capitalize on our customers’ digital transformation and cloudification initiatives that are likely to further increase network requirements over the next several years. As expected, total orders softened during the March quarter, declining more than 30% year-over-year. I do not believe this reflects true underlying demand due to our customers’ consumption that previously placed early orders and the reduced need for new early orders as lead times have improved. With that said, we believe customer ordering patterns are normalizing and we would expect to see a return to more traditional seasonal patterns on a sequential basis starting this quarter. This would imply that our year-over-year order declines should improve on a go-forward basis, and return to year-over-year growth potentially as soon as Q4 of this year. From a vertical basis, I remain extremely encouraged by the momentum we’re seeing in our enterprise business, which grew nearly 30% year-over-year in Q1 with double-digit revenue growth in both the campus and branch and the data center. We also saw strong momentum in the channel where deal registration grew by more than 30% year-over-year, and in the commercial market, where orders grew by 40% year-over-year. As of the March quarter, the Enterprise accounted for more than 40% of our total revenue and represented both our largest and our fastest-growing vertical for a second consecutive quarter. Our Enterprise campus and branch business performed exceptionally well in Q1 with revenue growing nearly 50% year-over-year. Our customers are clearly recognizing the value of our cloud-native AI-driven architecture, which helps them optimize user experiences from client to cloud and minimize operating costs through proactive automation. Revenue from the Mistified segment of our business, which is defined as products driven by Mist AI grew by nearly 60% year-over-year in the Q1 time frame with new logos increasing by nearly 30% year-over-year. Wi-Fi momentum continues to outpace the market and we are seeing record pull-through of wired switching as well as increased attach of our AI-driven SD-WAN offerings. Important wins this quarter included a top-tier U.S. bank, one of the largest U.S. retailers, a leading global logistics provider and a top pharmaceutical company just to name a few. Not to be overlooked, our Apstra pipeline continued to build as new logos more than doubled on a year-over-year basis and we experienced strong hardware pull-through for every dollar of software, which we view as a positive indicator for our Enterprise data center prospects. Given our level of portfolio differentiation, balanced against our relatively modest share in the large markets where we compete, I expect us to grow both Enterprise revenue and orders during the year even in a more challenged macro environment. Our service provider business also performed well in Q1 due in large part to the timing of supply which enabled us to fulfill prior orders with some of our larger Tier 1 Service Provider customers, particularly for our MX and PTX platforms. While revenue with these customers is likely to remain lumpy on a quarter-to-quarter basis, I’m optimistic about our ability to grow this business during the year based on the momentum we’re seeing around customer 400-gig wins, many of which remain large opportunities in the early stages of deployment. We also continued to see strong early interest in our cloud metro portfolio, led by our Paragon automation suite. In fact, our ACX7K platform saw another quarter of triple-digit year-over-year order growth. With further enhancements to this portfolio expected later this year and next, we expect momentum within this business to build through the year and become more material to revenue in 2024 and beyond. I’d like to acknowledge we continue to see accounts across each of our customer verticals, more closely scrutinizing budgets and project deployment time lines due to the macro uncertainties that are happening around the world. While order cancellations continue to remain extremely low, as supply improves, we are seeing more customers reschedule delivery dates to better match current project time line. This is proving to be particularly true in the cloud vertical, where certain customers are digesting prior purchases, and we saw a series of projects pushed to future periods during the March quarter. While these delays may negatively impact our ability to grow our cloud business in the current year, based on the conversations we’ve had with many of these accounts, we’re confident these delays are a function of timing and remain positive regarding our long-term growth outlook in cloud. In summary, I remain confident in our strategy and optimistic regarding our ability to navigate market uncertainty. My enthusiasm is fueled by our continued Enterprise momentum, the success we’re seeing around Service Provider 400-gig deployments, the ongoing strength of our backlog which remains well above historical levels and the improvements we’re seeing in supply. Longer term, I continue to see attractive growth opportunities in the cloud, while we already maintain a meaningful footprint and remain closely engaged with many of these customers on potential new opportunities both in the wide area and the data center that could present additional growth drivers. Finally, I remain encouraged by the improved diversity of our business which is lessening our sensitivity to any one customer or vertical and enabling us to navigate pockets of weakness in the market by pivoting resources to the greatest areas of opportunities. Based on these dynamics, coupled with our Q1 actuals and expectations for Q2, we are raising our full year revenue outlook and currently expect to deliver at least 9% growth for the year. We continue to remain focused on delivering improved profitability and expect to deliver greater than 100 basis points of operating margin improvement in 2023. I will now turn the call over to Ken who will discuss our quarterly financial results in more detail.

Operator:

[Operator Instructions] Our first question is from Amit Daryanani with Evercore.

Ken Miller:

Yes. So from an order decline perspective, I would want to remind you that it really is about the comparison. So a year ago, we were still receiving a lot of early orders, as I mentioned in my prepared remarks, a year ago, the orders were over $1.1 billion. Now what’s happening is customers are actually receiving those orders and are no longer placing early orders as lead times are now coming in. So, you’re really seeing last year the orders were actually greater than real demand, if you will. This year, as we normalize, they’re less than what I would say is real demand as they’re leveraging what they already booked and no longer booking early orders. So that’s why you’re seeing those year-on-year declines. From a vertical perspective, we did see a slight decline in Enterprise, a very slight decline there. The majority of the client was in Service Provider and Cloud as those were the ones that were having the more normalization required compared to prior bookings. And I would say, in particular, in Q1, we did see Cloud was our weakest vertical from an orders perspective for some of the reasons that Rami mentioned in his prepared remarks. On the backlog perspective, we definitely expect to exit the year at elevated levels. I would say more than twice what we normally were from a backlog perspective pre-pandemic. So we used to be around $400 million, give or take, a little bit. I expect to exit north of $800 million, more than double normal levels as we close the year out.

Tim Long:

I was hoping you could just dig into the cloud and the push-out there a little bit. Maybe one, just keeping on the orders, as those push out into later periods, what do you think impact that will have on future period orders? And then, anything you could tell us secondly on kind of products or technologies or any other tidbits on why these push-outs are happening? Is it just a straight digestion, do you think it’s happening across the board, or anything more in your pieces of the network with the larger players?

Ken Miller:

Yes. And from a revenue perspective, I’ll just reiterate what Rami said that the quarterly results is largely due to just timing of supply and timing of deployments. We do expect cloud revenue to recover from Q1 levels. I don’t think the Q1 levels for cloud is going to be the new norm. You saw a little bit of a shift from a supply and timing of projects towards Service Provider in Q1 with a large growth in Service Provider. Cloud was down more than expected in Q1. That will normalize as we proceed to burn through the backlog and demand.

Paul Silverstein:

Returning to this issue on customer delays and downsizing if not cancellations. Ken and Rami, hoping -- I was hoping for some more insight, beyond Tim’s question, just focused on Cloud, what are you seeing over time and what are terms of those delays, the increased scrutiny, how severe is it and how does that compare to 90 days ago and how has it trended recently?

Paul Silverstein:

Rami, just to be clear, you specifically referenced cloud demand environment. But if we look beyond Cloud to Enterprise and carrier, is it the same comment?

Paul Silverstein:

No, it’s a broader question. Looking at the totality business, including Enterprise and Cloud.

Paul Silverstein:

All right. My follow-up question. I appreciate it’s hard enough forecasting margins in a good environment, I appreciate that much hard in this environment. But the question is, Ken, if you look beyond this year in terms of ever getting back to that 60-plus, 20-plus gross operating margin model. Any thoughts you can share? Presumably, things will improve over time. It will be a more hospitable environment. But any thoughts that you could share as to the longer term trajectory? And one quick clarification. Historically, you were kind enough to give this normalized order number where you made some adjustments. I might have missed -- I didn’t see it in this shareholder letter. Did I just miss it?

Paul Silverstein:

I thought you made an adjustment also in the backward looking, but I apologize.

Operator:

Next question comes from David Vogt with UBS.

Ken Miller:

Yes. So for the order growth it’s kind of difficult to provide more color. I mean I tried to provide -- I did provide last year’s number of greater than 1.1, and we did decline this year by greater than 30%. So that’s really how the math works. I mean, one thing I will point out that I know some folks models don’t account for is our SaaS business. So our SaaS business shows up in bookings, but does not show up in backlog. It’s only a product backlog number. And since SaaS is a service revenue stream, it is missing from a lot of the model. So that might help you translate kind of your model versus our actual results. On the operating margin question, we haven’t really provided a guide or a target for the year. We’re providing a floor, right, greater than 100 basis points. Yes, I did up the gross margin guide, but there’s still a plus or minus factor there. If we deliver 58% or gross margin, our current estimate is approximately 58%, give or take, that should translate to more than the minimum on the operating margin line of 100. So, we haven’t really provided an operating margin target, just more of a floor of greater than 100.

Samik Chatterjee:

I guess on the commentary that you had relative to seeing a more seasonal increase in orders going forward, I just wanted to dive into that a bit. Is that consistent across the three customer verticals, particularly I think in relation to enterprise, I think there’s an impression here that things have deteriorated more recently, particularly given some of the challenges and more recently on the banking or financial services side. Have you seen any of that? Is there a more consistent sort of seasonal improvement across all the verticals? Maybe you can touch on that. And secondly, I think, Ken, for you, in terms of orders getting back to growth in Q4, just wanted to check that. I mean, on my math, you need about sort of a mid-teens improvement from the order levels from Q1 to get back to growth in Q4. I just wanted to check if we sort of are doing the math, right?

Ken Miller:

Yes. And on the kind of seasonality of the order rates, I just want to make sure -- we’ve talked about it, but I want to make sure people really understand the Q1 2023 orders were below normal. I mean, I think that’s the best way to think about it. If normal orders were $100 and prior year orders were greater than normal, say, 120, this quarter, they’re below normal, say, 80, just to get back to the normalized true growth of 100. So that’s what’s happening in Q1 results, which is why you’re seeing the year-on-year decline that we mentioned. I expect orders to get back to closer to normal, closer to that 100 normalization by the end of the year, by Q4. And by the way, Q4 is typically our seasonally our largest quarter. So I do expect sequential growth from here possibly returning to growth by Q4. And those growth rates you’ve mentioned between Q4 and Q1 are absolutely directionally correct. I mean, we expect to see fairly significant growth from this Q1 order level.

Aaron Rakers:

I’ve got two as well, if I can. I guess, I want to go back to the operating margin trend and the trajectory here. One thing that stands out to me is that it looks like your headcount growth is the highest level sequentially that we’ve seen in quite some time. So I’m curious, I think it was up -- 340 employees sequentially. I’m just curious is there a change going on as far as investing in the headcount? If so, is that sales capacity? Just how do I kind of think about that investment you’re making in headcount and I guess tied back to that operating margin returned back to 20%.

Aaron Rakers:

Okay. And then a quick follow-up. Not asked earlier. Just curious, though, it seems like it’s garnering increased amount of traction with logos up by over 2x year-over-year. The Apstra business, can you help us appreciate the size of that? And again, I guess the real crux of that is the pull-through effect that you’re seeing on the hardware side. Just maybe unpack that a little bit further.

Operator:

The next question comes from Sami Badri with Credit Suisse.

Rami Rahim:

This really comes down to the customer conversations that we have each and every day in the normal due course of business. The competitiveness and differentiation of our solutions right now, really across the board. Enterprise 400-gig offerings for SP and Cloud, of course, we also have a pipeline of funnel that we scrutinize carefully. All of these factors give us confidence that order patterns should improve from here and could, in fact, result in year-over-year growth by the end of the year.

Ken Miller:

Yes. I think the primary driver there is our perpetual software, which does tend to be lumpy. And we did see a little bit less of that in this particular period than, say, a year ago period. The more ratable software is clearly growing sustainably, but it’s still -- it’s the minority of our overall software business as our on-box Flex model -- Flex licenses is still the lion’s share of our software overall, the fastest-growing piece is the SaaS piece, which is why you’re seeing ARR grow like it did.

George Notter:

I guess I wanted to ask about your content provider or cloud provider revenue stream and orders, obviously, quite a bit softer here this quarter. It seems like the conditions are here for an inventory correction. Is it possible that you were seeing customers build inventory of your products as your lead times were longer. And now as lead times are shortening their appetite for holding inventory is reduced. And maybe that’s physical inventory, maybe that’s an inventory of excess capacity that’s built in the network. Any sense that that might be going on would be helpful. Thanks.

George Notter:

I guess the follow-on to that is, do you think that the product you shipped in recent quarters to those customers went into networks, or do you think it went into inventories?

George Notter:

Got it. That’s great. And then also, any sense for your lead times? I realize it can vary by product line and SKU. But maybe you have a sense for where lead times were generally back in the summer of last year versus currently, I’d be curious. Thanks a lot.

Operator:

Next question comes from Meta Marshall with Morgan Stanley.

Ken Miller:

Yes. So, the inventory constraints are getting lessened. As I mentioned, on average, the amount of constraint is less. That’s why lead times are coming down, our lead times to our customers are coming down fairly materially. So we’re starting to be able to turn inventory quicker. But what you are seeing is the backlog of purchase orders, right? I’m sure you’ve been tracking our purchase order commitments. A year ago, they were north -- almost $3 billion, $2.8 billion. They’ve come down quite a bit. They’re about $2.3 billion expected this quarter, but we’re still receiving those orders, right? So, we are going to see, I think, inventory plateau in the summer, probably Q2 or Q3. And then, you’ll start to see the outflows of inventory faster than the inflows of the previously committed purchase orders that we, in many cases, put on the books upwards of a year ago because the lead times to our component providers are over a year long. So, you’re seeing that flow through the inventory.

Rami Rahim:

Well, all of the wins that we’ve cited in past quarters are meaningful, and they remain important, and they will help us even in the event of some slowdown or push-outs some projects. I mean having the win is still something that we’re very proud of and will help our cloud business. If not, as soon as we expected, maybe a little later, but it will still help. I think beyond that, I wouldn’t read too much into it.

Operator:

The next question is from Mike Ng with Goldman Sachs.

Rami Rahim:

Let me start, and Ken, you probably want to jump in here as well. So I do think that we can grow revenue in 2024. We are not going to provide a number on this call, but certainly, as we get closer, we will provide. And I also do think that we can achieve good profitability in 2024. And the reason for my optimism would be, first, the Enterprise business is now our largest segment and our fastest growing. And I’ve already provided commentary on how bullish I am about Enterprise even in a weaker economic environment. The Cloud provider weakness, I believe, is temporary, and I am a big believer in the growth potential of Cloud in the mid- to long term. Order patterns are going to improve from where we were in Q1. I think we’ve hit a trough in Q1, and we should start to see better order patterns going forward, and still elevated backlog relative to historicals by the end of the year. All of these factors lead me to believe that profitable revenue growth for ‘24 is absolutely possible, and we can do it.

Operator:

Up next, we have James Fish with Piper Sandler.

Ken Miller:

Yes. So the pricing actions we took over the past couple of years are playing a benefit. If you were to look at our revenue growth this year that we just posted, 2% to 3% of that growth was likely you could attribute to pricing increases. And I think that’s going to roughly be the impact to revenue this full year, roughly 3%, give or take, of our growth of at least 9% would likely be tied to pricing. You’re also seeing that show up in the gross margin line. But just to remind you, our price increase wasn’t intended to recover gross margin. It was really about gross profit. So although gross margin is under pressure, we are offsetting the costs that we’re getting on a one-for-one basis. We’re just -- we’re not creating 60% margin on the cost increases that we’re having to absorb, but we’re actually trying to offset those costs and make them one for one, which does result in margin, not necessarily bouncing back, but it does help the bottom line and obviously EPS. So, as costs were to normalize and we could still hold price, that’s when you would start to see margin expansion because of the actions we took. So far, we’re not seeing supply costs come down materially at all. And maybe there might be a couple of components where you’re seeing some reductions, but for the most part, component pricing are staying fairly stable. We are seeing some good signs on the freight side. I will point out that we did see a reduction in freight costs on a per kilogram basis in Q1, and that was encouraging. So, some of those transitory costs on the freight side, we’re starting to see normalized, but on the other parts of the transitory costs, we have yet to see a meaningful reduction.

Unidentified Analyst:

This is Victor in for Simon. Thanks for taking the question. In the past, you’ve discussed being intentional about taking share in metro edge routing. Can you tell us where you see your current share position and kind of what your targets are longer term? And maybe help us understand the key product differentiators in Juniper’s plan for displacing incumbents like Huawei?

Unidentified Analyst:

That’s helpful. And I think you touched on this a little bit earlier, but can you give us a little insight into the composition of the software? How much is hardware attached versus stand-alone, kind of what are the primary factors driving the demand for the software solutions?

Unidentified Analyst:

That’s good. That’s helpful. Thank you.

Operator:

The next question comes from Tal Liani with Bank of America.

Ken Miller:

Yes. So backlog came down largely in line with our expectations, right? We knew the normalizations of ordering was coming as lead times were coming in and the need to place early orders was effectively gone, and customers are now comfortable consuming previously placed orders and no longer need to place new orders. So we knew that the bookings pattern was largely going to play out the way it did. Supply was also a little bit better than we expected, which is why we beat the Q1 revenue guidance. But we’re talking about an extra $30 million there. So maybe backlog is down about $30 million more than I expected. But overall, it’s pretty much in line with my expectations. I do think it will continue to come down. I do not believe it’s going to be $350 million, give or take, every single quarter. I think as booking starts to normalize, and we’ve been talking about how we think that could start happening throughout this year, starting now, and we actually could return to growth in Q4 and be effectively normal by the end of the year, you will then see backlog moderate. The decline in backlog start to moderate. We expect to exit the year with elevated backlog, not normal, elevated backlog, greater than $800 million, which is more than 2 times kind of our normal backlog levels.

Rami Rahim:

So I’ll just end by saying despite the macro challenges that are out there, I remain very confident in the business. This is why we’ve, in fact, increased our 2023 revenue outlook to at least 9%. And also, we are -- we believe that we will deliver over 100 basis points of operating margin expansion. But most importantly, I think that we can achieve sustainable revenue growth and profitability in this business, not just this year, but 2024 and beyond. And thanks, everyone, for participating in the call today.

Operator:

Greetings. Welcome to the Juniper Networks' Q4 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jess Lubert, you may begin.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q4 and full year 2022 results. We delivered record revenue during the fourth quarter, although total sales of $1.449 billion were slightly below the midpoint of our guidance due to the timing of supply and some logistical challenges at the end of the quarter. Despite these challenges, we achieved a second consecutive quarter of double-digit year-over-year revenue growth. A record performance by our Enterprise business and our second highest Cloud revenue quarter. Our non-GAAP gross and operating margin also exceeded expectations resulting in non-GAAP earnings per share of $0.65, which was above the midpoint of our quarterly guidance. Our Q4 results capped a record revenue year for Juniper in 2022, which saw us accelerate our growth despite the challenged global supply chain environment. The diversity of our strength was also a highlight during the year as we grew our Enterprise business by more than 20% year-over-year. We grew our Cloud business by more than 13% year-over-year, and we grew our Service Provider business by approximately 3% year-over-year with the revenue growth for each of these verticals, exceeding the high end of our long-term model. I believe these results speak to the strong execution by our teams, the strength of our portfolio and our ability to win across each of the customer verticals and use cases where we compete. While revenue growth was healthy in Q4 and for the full year of 2022, as we expected, overall demand moderated in the December quarter, with total orders declining more than 20% year-over-year. Although our Enterprise orders were flat year-over-year despite a very difficult comp. This moderation in total orders was primarily driven by a normalization of buying patterns amongst our Cloud and Service Provider customers. This follows a year in which many of these accounts placed multiple quarters of demand in advance of knowing requirements to account for extended lead times. Now that many of these orders placed in prior periods are shipping and with significant orders on the books for the upcoming year, Cloud and Service Provider customers are placing fewer new orders which is a trend we expect to continue through at least the first half of the current year. As this order normalization process continues, we think revenue growth will be the most important metric to gauge customer demand over the next several quarters. I'd like to acknowledge that we are seeing some customers across each of our customer verticals, more closely scrutinize spending plans and deployment time lines due to the economic uncertainties that are happening around the world. Order cancellations continue to remain low and our customers' appetite to receive orders that were placed in prior periods remains high. As a result, we remain confident in our ability to monetize our backlog as supply improves. That said, we're watching these strengths closely and have factored the certainties into our financial outlook. Despite these current macro uncertainties, I remain optimistic regarding our prospects for the upcoming year. Five reasons driving my optimism include

Operator:

[Operator Instructions] And the first question is from Tim Long with Barclays.

Rami Rahim:

Tim. Okay, I'll start, and then Ken, I'll pass it on to you. So what we saw from an order standpoint in Q4 is pretty much expected. Yes, the compares are getting very difficult. A year ago period, definitely Service Providers and Cloud providers were placing orders for multiple quarters in order to get ahead of supply constraints. Enterprise is a little bit of a different story. We actually saw flattish type order momentum on a year-over-year basis in Q4, but that was off of a very difficult compare in the Enterprise segment, where a year ago period in Q4, this would be in '21, orders grew over 40% year-over-year. So looking forward to your question, I do think there will be for the next at least couple of quarters, a re-normalization of order patterns for Service Providers and Cloud providers as they consume orders that were placed a year ago period and in the Enterprise, I actually think that order momentum will continue. I think if I look at it to 2023, we should continue to see solid Enterprise growth, both from an order standpoint as well as from a revenue standpoint.

Operator:

The next question is coming from Alex Henderson with Needham.

Ken Miller:

Yes, I'll take that one. So we are seeing -- as you mentioned, Alex, the Product revenue does have a direct correlation to our Service revenue opportunity as our installed base gets bigger, given the pretty positive product revenue results of both 2022 and 2021, you are going to see, I believe, that have a positive impact on Services going forward. So Services is a bit of a lagging indicator. It doesn't -- is not as volatile. Typically, you won't see as large of increases or as large of decreases as product kind of gets a little bit normalized, but trying to convert it to installed base and services. But I would expect our Services business to continue to be strong in 2023 as it has been strong in 2022. And the other thing I would point to is our margin is also quite positive in our Services business. The team has done a great job there. Not only satisfying customers and renewals, et cetera, but also really working down the costs.

Ken Miller:

Yes. We're not giving specific guidance on Services, but I would say, as I mentioned, it is kind of -- it's a lagging unit care, it's not that volatile. So I wouldn't expect significant step function changes anytime soon. That said, maintenance business is the vast majority, but there also is a software element which is our SaaS element, which has been a big part of the growth of our services business over the last few years as more of our software revenue is getting recognized in the form of SaaS revenue.

Rami Rahim:

Yes. Alex, I'll take that one. So obviously, very pleased with our cloud-ready data center momentum and success that we saw in Q4 time frame. Over the last several quarters, we did highlight a couple of meaningful wins, one in particular, in a Top 10 cloud provider that was a data center win. So this would be a part of our CRDC business and the solutions that we're developing in that business. So whereas in prior quarters, that was sort of shown in terms of orders, now we're actually starting to see the revenue contribution. There are other elements as well. I think our focus on software-led data center sales in much the same way as we've seen Mist lead to success in the AI-driven enterprise. Cloud-ready data center is still in the earlier phases of that growth period, but we're starting to see a pickup in Apstra-led type opportunities where the net new logos and the sort of the strategic nature of those logos are actually starting to contribute nicely as well. I would not expect this kind of cloud-ready data center performance on an ongoing basis, but again, I do think that I'm optimistic about the overall growth prospects for this business.

George Notter:

I guess I wanted to ask about your thoughts on the composition of the growth this year. You said at least 8% revenue growth and I know if we look back, you guys have instituted some price increases, I think Q3 included. But how much of that 8% plus growth do you think really comes from pricing versus units? How do you think about it?

George Notter:

Got it. And then as I think about the unit volume piece. Is that really driven by new products, Mistified or ACX or some of the other new initiatives you've got? Or do you think it's -- what's the dynamic between sort of existing versus new products?

Operator:

Okay. The next question is coming from Samik Chatterjee with JPMorgan.

Rami Rahim:

Yes. Thanks for the question, Samik. So what we saw in Q4 was mostly, if not entirely a function of supply. And that's not totally unusual to see this kind of a pullback after a very strong quarter. And if you recall, Q3 was actually a great quarter for Service Provider because we happen to be able to ship quite a large volume of products that was required that was on our balance sheet and also new orders that came in, in the quarter. So -- but there's more that's happening in the Service Provider segment. First, we're monitoring closely new products that we have introduced over the last, let's say, a year or a couple of years or so. and we're seeing some really strong pickup, which I think gives us confidence in the next few years, if you will, in terms of the dynamics for this segment. The MX 304 is the fastest-growing product in the last five years, the PTX product family, which really goes to the heart of the 400-gig opportunities that are out there is performing really well as well. I just finished answering questions about the cloud-ready data center. One of the things that's actually driving momentum in our CRDC solutions is the fact that there is a strong diversity of interest among all of our segments especially including Service Providers that are moving to more of a virtualized approach to delivering the kind of services that we're delivering in the past. So there's a number of elements of this business that I think are positive for us long term. In the short term, we're going to get through this normalization of order patterns to revenue, as we just discussed. But long term, being in line with our long-term model, minus two to plus two or even better is definitely possible.

Sami Badri:

I had two questions. When you talk about 8%, you're using the words at least versus prior, I believe the word you would use is floor. Is it -- should we assume 8% is the floor of growth for 2023? So that's the first question. And then the other question is of the product orders that were submitted in 4Q of '22, how much of the growth was driven by price increases versus volume just so we can get a better idea on composition of the backlog and how that change in 4Q?

Operator:

Okay. The next question is from Simon Leopold with Raymond James.

Rami Rahim:

Let me start, and then, Ken, you might want to weigh in as well. So are there macro sort of challenges weighing in on the Service Provider segment. As I said in my prepared remarks, there are definitely customers across all segments, including in Service Providers that are, let's just say, scrutinizing orders a bit more, looking at time lines for projects, making sure that they're spending as efficiently as possible. So that is happening without a doubt. Having said that, our outlook, our long-term model for Service Provider is a minus two to sort of plus two range. We've managed to exceed that over the last couple of years. I actually think we can still, even with these sorts of macro challenges that are -- that we're seeing out there, maintain that sort of long-term range. Just based on some of these factors that I just mentioned in answering the prior question, right, there are still 400-gig projects that are out there that remain exceptionally important for Service Providers in order to keep ahead of their demand pattern in their networks. Metro opportunities are definitely still there. The need to carry an increased amount of 5G traffic in fiber optic networks. The need for highly automated Metro solutions continues to be there, and this is a net new market opportunity for us. So net-net, I actually am long term, quite optimistic about this segment despite some of the macro concerns that might be out there?

Operator:

Okay. The next question is coming from David Vogt with UBS.

Ken Miller:

Yes. It's a really good question. And quite honestly, if something, I don't have a perfect answer to you, but I'll let you know what I expect to happen. So I absolutely expect backlog to start to normalize, and I expect us to -- backlog to reduce in 2023. I still expect that we'll exit the year with what I refer to as elevated backlog. I don't exactly have the number for you, but I do think we'll exit the year elevated. So it will start to reduce, but remain elevated, would be my expectation. And what the new normal is hard to say. And as you mentioned, historically, we've been in that kind of $400 million to $450 million range for quite some time. I would like to think that the new normal is going to be greater than that, maybe closer to somewhere between $500 million and $1 billion as I think customers understand the value of giving us orders a little bit earlier, giving us a little longer lead times to react. I'm hoping that the new normal is a little less frantic as it was just a few years ago when we were starting the quarter with not enough backlog. So I feel good about our backlog position, obviously, the variability of it. I think it will decline throughout 2023 but remain elevated and work finally settled a couple of years from now, it's hard to predict, but I would like to speak more than where we were in that 400-level.

Amit Daryanani:

I guess the first one I had was when you put talked about the order trajectory, you talked about auto going down on Service Provider and Cloud side, but they've be running to be flattish on the Enterprise side. I was wondering if you can talk about why are you seeing such a deviation in auto trends between those 3 buckets? And on the Enterprise side, is it flat because you're picking up share? What's to the better performance there versus other 2.

Ken Miller:

The only thing I would add is we've had a lot of momentum in Enterprise for the last several years, and we actually expect 2023 to be a growth year for Enterprise, both from a bookings, order perspective as well as a revenue perspective and I know we aren't naive to some of the macro conditions out there. But given the product differentiation we have, kind of the market share we have, the opportunity in front of us, we feel pretty confident we can continue to grow the enterprise in 2023 despite kind of some of the macro conditions.

Tal Liani:

I have two questions on -- related to the backlog. If the backlog is down $300 million or $250 million in Q4. Do you -- and we are entering into a year that is supposed to be tougher for spending because it's really only -- really only starts this year. Does it mean that the backlog declines could accelerate this year on a sequential basis, dollar basis, et cetera? That's the first question. And the second question is how should I think about the adjustment of backlog? I'm trying to think about what could the growth rate be after the backlog is adjusted down if the order -- if the environment is not changing. So when I look at the sequential basis of 4Q, last year, it was up 10% roughly. And this year, if I remove this quarter, if I remove the backlog, there is a 25% delta between the growth you had last year and the growth you have this year because without the backlog, you were down 15% instead of being up 10%. So the question is, is the order environment deteriorate that much between 3Q and 4Q? And then how does it carry on to 1Q, 2Q, 3Q, when the year progresses and the spending environment worsened in some sense. So again, my question is more about understanding how could the environment look like once you consume the backlog if the order environment doesn't change much.

Rami Rahim:

And I'll just add on this. I think Ken summarized the situation for Q4 really well. Orders that we would have otherwise received in Q4, we already had them in hand because of customers that were early ordering, especially in SP and Cloud. As we look at it to 2023, orders don't need to grow in order for us to hit the at least 8% in revenue growth for the year. But I actually think they can grow. And in the Enterprise, I believe they will grow.

James Fish:

Rami, for you, a big topic that's coming up is AI workloads. Is there a way to think about the opportunity -- or is that going to be out throughout the course of the year? Thanks.

Ken Miller:

Yes. And to your second question, so from a backlog perspective, we believe our backlog remains extremely durable. Level of cancellations remain extremely low compared to the backlog levels, and I expect that cancellation level to remain low going forward. From a Q4 kind of timing of revenue mix perspective, you're right in that the Q4 miss basically made -- we made that up in Q1. So it really was a timing thing. We had a few more days. We would have made the quarter's expectation, but that rate did slip into Q1. We've already made that up. You can see that reflected in the Q1 guide of $13.40 which lower sequential than we normally see from a Q4 to Q1. So I believe that has been made up. And other thing I'd mention is on the Q4 margin, which wasn't asked about, we did see some favorableness in the Q4 margin. Some of that is due to software mix and quite honestly, some of that's because we couldn't ship some of the hardware we were expecting to ship, which was at a lower margin. So that also has an impact on Q1 guidance where you're seeing margin come down seasonally a little more than normal off of Q4. It always -- it normally comes down, it comes down a little more to that software mix and as it relates to margin in 2023, I do think there's opportunity for margin to be flat to modestly up. I do expect there to be some improvement in some of those expedite fees and freight costs. That said, there's a lot of uncertainty with gross margin, and I feel that the street models as they are, the expectations there currently has, I would encourage you to keep those as they are for 2023. Operator, we'll take two more questions.

Unidentified Analyst:

This is Jake on for Aaron. I was just wondering if you could talk a little bit more about the momentum you're seeing in 400G and any changes in the competitive landscape there?

Operator:

This completes the -- absolutely. Last question is coming from Fahad Najam with Loop Capital.

Rami Rahim:

Let me start with the second part, and then I'll hand it over to you, Ken, for the first part. When we say some uncertainty that's out there, it's really more in conversations we're having with customers, the scrutiny that they're placing on budgets. There have been some, a few project push-outs, no cancellations really. But despite that, I think that there are plenty of reasons for us to be optimistic. The strategic importance of the network, digital transformation projects, the 400-gig opportunity that I just talked about, our Enterprise momentum that I think, in many ways, is unique to Juniper because of the differentiation, especially in artificial intelligence that we have and then the backlog that we're sitting on. Ken?

Jess Lubert:

Thank you, everyone, for your time. That concludes today's call.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Juniper Networks Third Quarter 2022 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jess Lubert. Sir, the floor is yours.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q3 2022 results. We delivered better than expected results during the September quarter as total revenue of $1.450 billion not only exceeded the high end of our guidance but also set an all-time quarterly revenue record for Juniper. Total product sales grew 25% year-over-year and we saw double-digit year-over-year revenue growth across all customer verticals and all customer solutions. Our gross and operating margin also exceeded expectations, resulting in non-GAAP earnings per share of $0.58, which was above the high end of our quarterly guidance. Our Q3 results reflect the strong demand we've experienced across customer verticals and solution since the beginning of last year as well as the actions we have taken to procure incremental supply and overcome the many supply chain challenges that continue to exist in the market. Our teams have executed extremely well over the course of the past year and these results are only possible due to the exceptional efforts from our go-to-market, product management, engineering, services and supply chain organizations, along with many others. This alignment across the company has not only helped us achieve strong Q3 results, but also should position us to deliver continued strength in Q4 and sustained growth in 2023 and beyond. Overall demand remained healthy in the September quarter with product orders being high single-digit year-over-year growth when adjusted to account for customers placing orders early due to the extension of the lead time related to supply chain challenges. While gross orders experienced a mid-teens year-over-year decline, this was primarily due to a difficult comparison in the same quarter of last year, when there was a large amount of this early ordering, particularly amongst our cloud and service provider customers, where order patterns are now beginning to normalize as supply improves. We're paying very close attention to customers' willingness to both invest in new network projects and consume prior orders as supply becomes available, given the various economic uncertainties happening around the world. While we have seen some customers more closely scrutinizing budgets as well as the time line for certain projects by and large, we remain encouraged by the overall momentum we are seeing, which remains well above pre-pandemic levels and the expectations we had entering the year. We believe this momentum reflects the network's growing strategic importance to our customers digital transformation and cloudification initiatives, as well as certain cyclical tailwinds surrounding early-stage opportunities, such as 400 gig upgrades, where we saw accelerated momentum this past quarter with nearly 100 new wins spread across wind and data center environment. Bolstering our momentum is the most differentiated solution portfolio Juniper has ever had. Our focus on delivering solutions that dramatically simplify customer operations and enhance end user experience, what we call Experience First Networking continues to resonate across each of the markets we serve. This is particularly true in the enterprise, while we not only achieved record revenue results in Q3, and a third consecutive quarter of double-digit year-over-year revenue growth, but we also saw continued demand strength with orders growing mid-teens year-over-year. We believe our portfolio of campus, data center and wide area solutions is truly differentiated which, along with the investments we've made in our go-to-market organization is enabling us to capitalize on our customers digital transformation and network modernization initiatives and, in many cases, shift share from the competition. We remain focused on scaling our enterprise business, and I'm confident that our new Chief Revenue Officer, Chris Kaddaras, will bring valuable insights and experience that will further accelerate our enterprise success. Our cloud business also delivered solid Q3 results with revenue growing 24% year-over-year. Many of our cloud customers are early in their deployment of large-scale 400-gig upgrade and data center builds that are likely to present multiyear revenue tailwinds as supply improve. These customers are consuming prior purchases and forward revenue visibility remains high. The large deals we announced previously are performing, and we are competing well for several additional large opportunities that could result in additional growth in future periods. I continue to be encouraged by the increased diversity of our cloud business as we saw strong growth from four of our top five cloud accounts and continued momentum amongst cloud majors during this past quarter. I view this increased diversity and reduced reliance on any one customer as an important positive development that is providing increased confidence in this vertical's long-term growth prospects and our ability to navigate any potential lumpiness in customer spending. Our service provider business also delivered strong results in Q3, with revenue rising 17% year-over-year. We remain confident regarding our ability to grow our service provider business as our customers consume prior purchases, and we make traction with the metro routing market where our new cloud metro solutions bring superior scale, power efficiency and automation capabilities to the sizable and growing portion of the market. I'd like to emphasize that we continue to feel good about our ability to capitalize on big opportunities tied to enterprise digital transformation and clarification initiatives, 400-gig upgrades at cloud and service provider customers and the broader adoption of cloud-based services and network architectures. Based on my recent conversations with customers, these opportunities represent key strategic initiatives that we believe will present durable tailwinds for our business over the next several years, even in the event macro conditions soften. We also believe our focus on leveraging artificial intelligence and software automation tools to improve network operations and reduce cost is truly differentiated and creating opportunities to shift share. In summary, overall demand remains healthy. And given the backlog we've built, along with the actions we've taken to secure more supply, we are now incrementally more confident regarding our top line outlook and our ability to ship products to customers. As a result, we now expect to deliver approximately 12% to 13% year-over-year revenue growth in 2022 and at least 7% year-over-year revenue growth in 2023. We remain focused on delivering improved profitability and expect non-GAAP operating margin to expand by at least 100 basis points in 2023. Now I'd like to provide some additional insights into the quarter and address some of the key developments we're seeing from a customer solutions perspective. Starting with automated WAN. We delivered strong results in the Q3 time frame. Revenue saw double-digit year-over-year growth across all customer verticals with particular strength in our MX product family where our newer Trio 6-based products such as the MX10K, the LC9600 Line Card and the MX304 continued to perform exceptionally well. We are continuing to see strong demand for our 400-gig products with our cloud and service provider customers and now have nearly 400 wins for wide area use cases across our MX, PTX and ACX products. We also saw another quarter of strong order growth for our ACX cloud metro portfolio, and our Paragon software automation suite. We plan to introduce new hardware and software automation capabilities in future quarters that will further enhance our competitive position in this attractive portion of the service provider market. Our cloud-ready data center revenue also saw a strong year-over-year growth in Q3 due to the momentum with cloud major accounts. Orders with these accounts also remained strong and saw solid double-digit growth year-over-year as we continued to successfully develop new franchises and generate strong momentum with deals greater than $1 million. Our 400-gig data center solutions are resonating in the market, and our solutions have now secured approximately 100 data center switching opportunities that span across cloud majors, enterprise and service provider accounts. Our Apstra pipeline continues to build with qualified leads approximately doubling on a sequential basis. New logos saw healthy momentum, and we're seeing strong hardware pull-through for every dollar of software, which is a positive indicator for future growth. With the recent launch of Abstract Freeform, which provides more flexible deployment options and expand the list of potential customers we can address, we remain optimistic regarding the outlook for Apstra and our data center opportunity. Customer interest in our cloud-ready data center portfolio remains high. And given the wins we've already secured, I'm optimistic about our ability to capitalize on the attractive growth within this market over the next several years. Our AI-driven enterprise business continues to materially outpace the market with revenue growing 16% year-over-year and orders rising more than 25% year-over-year. This strength was led by our mystified business, which is a segment of our campus and branch portfolio driven by Mist AI and the cloud. This area saw both revenue and orders grew more than 50% year-over-year, with record sales of Mist WiFi and EX switching. On an annualized basis, our Mistified order run rate surpassed $850 million in the Q3 time frame, which is up meaningfully from the run rate we last disclosed during Q4 of 2021. We remain encouraged by the traction we're seeing with large customers, especially those choosing Juniper for full stack wins, which we define as a combination of wired access, wireless access, SD-WAN and/or edge security products managed via Mist AI. Notable wins for the AI-driven enterprise this quarter include the largest health care provider in the US, a large US service provider, a top global logistics provider, a global 10 international energy provider and several top universities around the world. We also saw a large renewal with a Fortune 10 retail account. Juniper continues to remain highly differentiated in the industry with our full breadth of wired, wireless, SD-WAN and indoor location product, all managed via common microservices cloud and sixth-generation AI-driven operations. This provides industry-leading insight and automation, resulting in amazing user experiences from client to cloud. Juniper continues to innovate aggressively in these areas as evidenced by several exciting product announcements this quarter, including a new AI-driven access switch, the EX4100, enhancements to Marvis AIOps that deliver even more insights into client experiences and groundbreaking new features that combine AIOps with indoor location services to save time and money, when deploying new wireless networks. In addition, we announced new features and payment options that facilitate the consumption and operations of Juniper AI-driven network as a service, bringing even more flexibility, agility and insight to Juniper customers and partners. Our prospects for the AI-driven enterprise have never been stronger. We're taking market share in key areas such as wireless, where the 650 Group recognized Juniper as the fastest-growing enterprise and outdoor wireless vendor in their most recent market research report. And we continue to be distinguished by respected third parties like Gartner, who have us in the leader position in two most recent Magic Quadrant for wired wireless LAN access infrastructure and indoor location services. As a result, the AI-driven enterprise remains a cornerstone of our enterprise go-to-market efforts and promises to be a key catalyst for the growth Juniper expects in the enterprise in coming years. Our security revenue declined in Q3 due to the deliberate shift from upfront appliance sales to a ratable software subscription model, which is likely to present headwinds to revenue over the next few quarters. While we also saw some lumpiness in our high-end security business, we continue to see strength in our midrange firewall portfolio as well as our software-only security and cloud offerings. Customers appreciate the value of Juniper's Security Director Cloud platform to provide a single policy framework to manage all their firewalls, whether in the data center or at the edge or whether on-premises or in the cloud, which is essential to help customers migrate to Zero Trust and SASE architectures. This platform launched in Q1 and already has more than 200 customers. We remain confident in our connected security strategy and expect this business to return to growth during the second half of 2023, as we build up more ratable software revenue. We experienced strong software momentum in the Q3 time frame, which saw total software and related services revenue grow by 21% year-over-year to account for 18% of our total revenue. Our annualized recurring revenue, which solely consists of truly ratable software subscriptions and related services increased 38% year-over-year due to the strong demand for Mist and security subscriptions. We believe the outlook for our software business remains strong, and we are encouraged by the momentum we are seeing with our Junos-based Flex software, off-box subscription software and software-as-a-service offerings such as Mist. Much of this momentum can be seen in our deferred revenue from customer solutions, which grew 11% sequentially and 50% year-over-year. The truly ratable component of this deferred revenue, which accounts for more than half of the total grew even faster, doubling on a year-over-year basis. I'd like to mention that our Services team delivered yet another record quarter due to strong renewals and attach rates. In addition to strong revenue, we also achieved another quarter of solid services margin. Our services organization continues to execute extremely well and is focused on driving customer success through automation and cloud delivered insights, creating new revenue opportunities and also benefiting margins. I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results.

Operator:

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Aaron Rakers from Wells Fargo. Your line is live.

Ken Miller:

Yeah. That's a good question, Aaron. Thanks for the question. So yes, backlog declined approximately $100 million in this quarter, down to $2.3 billion, still an extremely high number relative to our past, and we're still enjoying a lot of visibility, great to the great demand in the backlog we built over the past several quarters. It did decline a bit, and that was really a factor predominantly of more supply, quite honestly. And you saw that in the revenue result as well. And we also raised Q4 revenue guidance a bit and raise next year. So we are seeing volume of supply start to improve. That should result in backlog declining over time. I mean, blacklog at $2.3 billion or at these levels is not sustainable, quite honestly. I do expect backlog to normalize over hopefully, a long period of time. At this point, I would expect backlog likely to decline a bit in Q4 as we continue to enjoy a little bit more supply and satisfy customer demand a little better than we were in the past. So I'm not surprised by the backlog performance. I still expect it to be up as compared to the beginning of the year and still extremely elevated, but do you think we'll start to see a decline here over the next couple of quarters. And next year, I think backlog, we're likely to decline as well at some point throughout the year. Our supply improved and lead times normalize, which I hope happens, we will see a normalization of backlog, I would expect next year at some level. Again, I still expect we'll enter – or exit next year elevated significantly elevated for that matter, but I think it will come down off of kind of record levels that we're at now.

Operator:

Thank you. Your next question is coming from Samik Chatterjee from JPMorgan. Your line is live.

Rami Rahim:

So Samik, thanks for the question. I'll start with the question around customers, and then I'll pass it on to Ken to talk a little bit about gross margins. So as I mentioned in our prepared remarks, demand remained healthy for the quarter. I think it remains above pre-pandemic levels. It remains above expectations that we had entering into the year. If you want a little bit more color about sort of SP cloud versus enterprise, I do think the dynamics of demand are a little bit different between those two segments. So if I look at SD and Cloud first, there was a huge amount of early ordering that was happening just a year ago. And that's starting to normalizing -- to normalize. I don't think it's completely normal at all, but it's starting to normalize. And so for that reason, I think if you want a view of demand, you really have to look at both orders and revenue. And the combination of both, I think are very positive for SP and Cloud and give us great visibility into next year, and it's why we feel good about raising our outlook for the following year. In the enterprise, there was some early ordering that was happening a year ago, but nowhere near as much as what was happening in SP and Cloud. And we continue to see great order growth, mid-teens order growth in the enterprise. I do think there's a market component to why that is. I also think there is just a differentiation, execution, the competitiveness of our offering, especially our AI-driven enterprise, our mystified solution that is doing so well in the market right now.

Samik Chatterjee:

Thank you.

Simon Leopold:

Thanks for taking the question. I wanted to see if maybe you could give us your insights or thoughts on what your product mix assumptions are for 2023 revenue. So, understanding that the sort of low end of 7% growth. But if you can maybe rank order your reported segments to give us a sense of how you expect it to perform relatively?

Simon Leopold:

Thanks. And just as a very quick follow-up. EMEA was down year-over-year for you. Just whether or not you're seeing the macro really pressuring your business in that region on foreign exchange shifts or anything like that? Thank you.

Simon Leopold:

Thank you.

Operator:

Thank you. Your next question is coming from David Vogt from UBS. Your line is live.

Rami Rahim:

Yes. Let me start with the second part of the question first, and I'll hand it over to Ken. The answer to, are there cancellations, no. We're not seeing any cancellations, nothing that is atypical at this period of time. And in push-outs, there have been a few project push-outs, but there are also push-out in normal times as well. So there's nothing that I'd say is outside normal patterns. And again, this is where we obviously have to keep a very close eye on things and just to see how the market evolves. But so far, so good in terms of what we're seeing on the ground, conversations, projects that are happening with our customers. In the event that there is more macro-related headwinds, I think we have a few things that are going for ourselves. First and foremost, the diversity of our business across SP, cloud and enterprise because it's unlikely in my view that there -- all of these verticals will be impacted equally, and we can rely on some verticals that do better than others. I think that the types of solutions that we're offering our customers take, for example, our AI-driven enterprise solution that is all around reducing the cost and the complexity of running network really resonate with digital transformation efforts that are happening. And for that reason, I think there's a higher likelihood that such projects would be protected in the future, the competitiveness of our solutions. The fact that we have relatively small share in these massive multibillion dollar markets, all give me confidence that even in the event that there are going to be any sort of headwinds, we can actually do quite well through that period of time.

David Vogt:

Great. Very helpful. Thanks, guys.

Sami Badri:

Hi, thank you. I wanted to kind of understand how much the effect of increasing pricing on products has impacted both your fiscal 4Q of 2022? And how that really impacts 2023? And I guess, like every company has been moving at a little bit of a different pace, pricing products and offering customers different terms and RFPs, et cetera, but we're trying to understand when all these price increases finally make their way into the actual numbers. So that's kind of the first part of the question. The second part is if we just looked at just units, right, ports, units, appliances, devices, and we look at the number in 2023, does your guide of high single digit or 7% revenue growth in fiscal year 2023 include greater amounts of units shipped, or is that increase being achieved via pricing mainly just to kind of get an idea on how Juniper is doing.

Operator:

Thank you. Your next question is coming from George Notter from Jefferies. Your line is live.

Ken Miller:

Yeah. So it was a little bit short of 300 basis points, but it is kind of in that 250 kind of range, 250 to 300 range if you were to normalize Q3 performance. And the majority of that delta is exit fees or purchase price variance, basically paying more to get the products that we want on time or earlier than we otherwise would get that, whether it's broker markets or paying extra for the part. So that is the majority. The other factor in that number is we still believe freight costs are elevated compared to where they're going to normalize at. So those are the two big numbers in that delta. I would like to think we'll see some improvement next year. I do think we're still in a very supply-constrained environment with the long lead times, and we still are going to prioritize satisfying customer demand to the best of our ability. So I don't believe those costs are going to go away entirely or go away anytime soon. But I do think we could see some benefit next year and particularly as we get into the second half of next year. But really, it's just too early to count on that. I want to make sure that we take it as time comes.

Ken Miller:

So from a price -- and to us or component costs are we talking about?

Ken Miller:

Yes. So I mean, our inventory will turn when we're able to ship it, right? And the cost that we'll pay has been elevated, and I think will continue to be elevated if we have it on our balance sheet. So we'll be paying for the same cost. The good news is the costs go up in the future, we won't have to pay those costs. if we're carrying it in inventory. The primary reason for getting the components, though, just to be clear, is not some – is not really a cost-driven exercise. It's really about supply and resiliency of supply and making sure we can satisfy customer demand to the best of our ability.

Meta Marshall:

Great. Thanks. I wanted to just kind of get a sense from you on what you're seeing in terms of cloud demand and maybe the difference between what you're seeing from your hyperscale customers versus your Tier 2 customers and if there's anything to note there? And also, just given that you had kind of a new project ramping, just how that influences how you look at cloud into 2023? Thanks.

Meta Marshall:

But just from a general how your customer -- like how those cloud customers are feeling about their budgets? I understand that you're doing very well within them. Just trying to get a sense of kind of how their budgets are trending or just how you're seeing their demand activity trend?

Operator:

Thank you. Your next question is coming from Paul Silverstein from Cowen. Your line is live.

Rami Rahim:

Yes, that's correct.

Rami Rahim:

So, Paul, it's a good question, but I don't know that number off the top of my head. It grew meaningfully just on a quarter-over-quarter basis because I think we probably added 100 or so in the -- from quarter-to-quarter. And generally speaking, because these are 400-gig wins, typically, they're going to be fairly large projects. They're not necessarily going to be all large initially, but they are typically -- they start with an initial deployment and then the they continue in time. So -- and the last thing I'll say about 400-gig, whether it be in the WAN or in the data center as much progress as we've seen, we're still early innings. The vast majority of ports that are being sold and deployed these days, whether it be in the WAN or the data center is still 100 gig. So that transition from 100 gig to 400 gig is still in the process of happening right now. We should continue to benefit from it.

Rami Rahim:

Yes. I mean, all we can say is there are certainly more customers that are thinking about their budgets and the time line of projects. Have there been projects canceled? No. There's nothing that we see that has been canceled. Have there been some projects that have been delayed? Yes, some -- but honestly, not much more than we would see in normal times as well. And is there anything that we're seeing that's sort of geo-specific like more in EMEA versus Asia Pacific or North America? The answer to that question is no. It's really kind of the same worldwide at this point in time.

Amit Daryanani:

Thanks for taking my question. I guess maybe I think back to what you just said to the prior question. You also talked about, I think enterprise will grow the fastest in fiscal 2023 versus that at least 7% growth bogey. Maybe just talk about -- how much of that yet is networking budgets, are you growing at enterprise companies versus you picking up share? And if the share gains are happening? Maybe you can just talk but where are you seeing the share gains in a more pronounced manner.

Operator:

Thank you. Your next question is coming from Alex Henderson from Needham. Your line is live.

Rami Rahim:

Alex, thanks for the excellent question and the great insight. I think you're picking up on something that's really important. We've always at Juniper had a strategy around automation and being automation-led. But you're right, the AI-driven enterprise and the miscomponent of the AI-driven enterprise has taught us some very valuable lessons in how to take that automation and take it to a whole new level with AI capabilities, and with a cloud-delivered strategy. So, for example, in our metro solution that we're now selling to our customers, we've made the automation cloud first and AI-driven. I think we have the potential to do the exact same thing in the data center as well. So, what you've described is exactly what's happening at Juniper. We've learned valuable lessons from one segment and we're applying them to others. And we need to do a better job in sort of communicating that more broadly. I think that's great feedback and I appreciate it.

Rami Rahim:

The more AI-driven capabilities we add to our solutions; I think the more of a competitive differentiation we give ourselves. And honestly, where there is an opportunity to sell anything AI-driven and cloud delivered to our customers is fun to compete today because we tend to win the vast majority of the time.

Rami Rahim:

Thank you, Alex.

James Fish:

Hey guys. Nice quarter given the environment. You guys made some comments that the supply chain is getting better, I would agree with you there. And if it continues to kind of improve in the step function Ken, without putting you in too much of a hole here, but w hat would prevent Juniper from growing kind of double digits next year on some of this backlog flush actually?

Operator:

Thank you. Your next question is coming from Fahad Najam from Loop Capital. Your line is live.

Rami Rahim:

Yeah. Thanks for the question, Fahad. So let me first answer the last part of it, which is no, I don't think there's anything geo-specific that we're seeing in our security business. Part of the decline is self-inflicted. It has to do with the transition that we're deliberately executing on at Juniper right now from an appliance-based model to more of a software-based model that's subscription-based and that will come with recurring revenue. And so for that reason, we expect that there's going to be sort of ongoing headwinds for a period of time, at least until we get into the second half of next year before we start to see a recovery. There's another element of our security, which is that, there's a high-end component that just tends to be lumpy. There are large customers that either buy or don't buy high-end security and Q3 was particularly weak from the high-end security standpoint. Having said all that, the way that we look at security and we measure the – our success in security is through the integration of security in our strategic solutions. We believe that more and more of our AI-driven enterprise solutions that we sell to our customers will have an embedded security component. We're starting to see that. We also believe that having strong security capabilities in our data center solution is going to be increasingly important to our customers, and we're also starting to see some of that as well. It's just that we're going to have – we're going to let – we need to let some of these sort of transitions, product transitions in particular, from hardware to software play out.

Operator:

Certainly. Your next question is coming from Jim Suva from Citigroup. Your line is live.

Ken Miller:

Yeah, it's a great question, Jim. And at this point, I do expect you to see some seasonality, but I think your point is valid. I do think that the degree of seasonality that we see could be lessened a bit. I mean historically, we've seen kind of a mid-teens decline sequentially from Q4 to Q1. At this point, it's a little bit too early to call, but I do see a possibility of that being a little lessened on a sequential decline basis, but I do expect there to be some decline and some seasonality to remain in the business from a revenue perspective.

Tal Liani:

Great for squeezing me in. Thank you. I have a very high-level question that I want to understand and it relates to something you answered before. So the biggest fear is that as we work off 2023 budgets, there's going to be weakness across the board. It's not company-specific, it's more macro related. And the question I have is just to understand how much visibility you have into the projects, into the spending plans of your customers? 2023 budgets will only be set in the next few months. How much is there involvement on your end? How much is their involvement in the future planning? I'm just trying to assess the risk of a surprise, negative surprise because of macro, nothing specific.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Juniper Networks' Second Quarter 2022 Financial Results Conference Call. At this time all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jess Lubert, Vice President of Investor Relations. The floor is yours.

Rami Rahim:

Good afternoon everyone and thank you for joining us on today's call to discuss our Q2 2022 results. We delivered strong top line results during the June quarter as total revenue of $1.270 billion exceeded the mid-point of our guidance and product revenue saw a second consecutive quarter of double-digit year-over-year growth despite ongoing challenges from a supply chain perspective. Demand remained strong and exceeded our expectations with product orders seeing double-digit year-over-year growth when adjusted to account for extended lead times. While gross orders experienced a single digit year-over-year decline, this was better than expected given the difficult comp in Q2 of last year, when the duration of customer orders began to extend. Total product backlog increased meaningfully on both a sequential and a year-over-year basis to end at a record level, setting us up well for future revenue growth as this backlog eventually begins to normalize. Our focus on delivering solutions that improve customer operations what we call experience-first networking continues to resonate across each of the markets we serve. This is evident in our Q2 results, which saw year-over-year revenue growth across all customer verticals. Demand signals remain healthy and we are seeing attractive opportunities across our Enterprise Cloud and Service Provider markets. With that said, we are particularly encouraged by the Q2 momentum in our enterprise business, which not only delivered a record revenue quarter, but also saw orders increased by 20% year-over-year. We believe this strength is reflective of our sustainable differentiation and technology and user experience, both in our campus and our data center offerings, as well as the investments we've made in our go-to-market organization. We believe these factors should enable us to gain share and deliver sustainable enterprise growth in future periods even if macro headwinds start to affect our markets. Another highlight in the quarter was the increased diversification within our Cloud vertical, where we saw improved momentum with multiple hyperscale providers and continued success with Cloud major accounts, both of which are adopting our 400 gig technology. Of our top 10 customers in the June quarter, six of them were Cloud accounts, which illustrates the diversification we are seeing. We view our increased Cloud diversification as a positive development, which should position this business for sustainable long-term growth. Not to be overlooked, we continue to see healthy momentum in the service provider vertical and just recently secured a new 400 gig core win with one of the Tier 1 U.S. carriers. We're also making progress in the Metro market where we recently introduced several new platforms that will further enhance our competitive position in this attractive portion of the market. Our teams are executing well and we continue to feel good about our ability to capitalize on big opportunities tied to enterprise digital transformation and clarification initiatives, 400 gig upgrades at Cloud and Service provider customers and the broader adoption of Cloud-based services and network architectures. Based on my conversations with customers, these opportunities represent key strategic initiatives that should present a durable tailwind for our business over the next several years. While revenue was a bright spot and customer demand remained strong, margin and EPS came in weaker than we expected due to higher than expected supply chain costs and lower than expected perpetual software revenue, both of which I'd like to address. First, from a supply chain perspective, the availability of remained extremely challenged during the June quarter, as we saw a meaningful uptick in the volume of supplier decommits. In order to secure access to additional parts and get products to customers as soon as possible, we incurred higher costs than we anticipated at the beginning of the quarter. While some of these actions will impact profitability over the next few quarters, they are also enabling us to access more parts and better satisfy customer demand, which should have positive, longer term implications for our business. Secondly, our software revenue mix came in lower than we expected, even though software revenue still grew 24% year-over-year. We believe the outlook for our software business remains strong and we are encouraged by the momentum we're seeing with our Junos Space Flex software, out-of-the-box subscription software and software-as-a-service offering, such as Mist. Much of this momentum can be seen in our deferred revenue from customer solutions, which grew 7% sequentially and 41% year-over-year. The truly ratable component of this deferred revenue, which accounts for more than half of the total, grew even faster, nearly doubling on a year-over-year basis. In summary, demand remains strong and given the backlog we've built, along with the actions we've taken to secure more supply, we're now incrementally more confident regarding our top line outlook and our ability to ship products to customers. As a result, we now expect to deliver approximately 10% sales growth in 2022 and at least mid-single digit revenue growth in 2023. While non-GAAP operating margin is likely to be flat to slightly down in 2022 due entirely to the lower than anticipated non-GAAP gross margin we now expect, we still expect non-GAAP earnings to grow. We remain focused on delivering improved profitability and expect margin to expand in 2023. Now I'd like to provide some additional insights into the quarter and address some of the key developments we're seeing from a customer solutions perspective. Starting with Automated WAN, we delivered strong results in the Q2 timeframe and orders once again, exceeded expectations, but did decline year-over-year. Revenue grew year-over-year across all customer verticals, all geographies and all major product lines, including our MX, PTX and ACX families. We are continuing to see strong 400-gig momentum with our cloud and service provider customers, including the new 400-gig core win with the U.S. Tier 1 provider that I previously referenced. This win was secured based on the strength of our PTX product family, which delivered the superior scale, embedded security and power efficiency this important customer requires. I was also encouraged to see another quarter of strong demand for our newer MX platform leveraging our 306 silicon, including the MX10K, the LC 9600 line card and the MX304. These platforms deliver the industry-leading logical scale, embedded security and power efficiency necessary to meet the needs of the most demanding multiservice edge environment. We also saw another quarter of triple-digit order growth for our ACX Metro portfolio and introduce several new platforms such as the ACX7024 and the ACX7509, both of which provide industry-leading performance and expand the number of Metro use cases we can address. We plan to further enhance our Metro portfolio with new hardware, software, and automation capabilities in future quarters that will further enhance our competitive position in this attractive portion of the service provider market. Our cloud-ready data center revenue was flat Q2 due entirely to the timing of shipments. Orders exceeded expectations, but did decline year-over-year due to an exceptionally large deal with a hyperscale account in the year ago quarter. Excluding this customer, orders experienced double digit year-over-year growth, and we continue to see healthy momentum with large enterprise and Cloud major accounts. Our 400-gig solutions are resonating in the market, and we have now secured approximately 80 400-gig data center switching opportunities that span across cloud majors, enterprise and service provider accounts. Customer interest in our cloud-ready data center portfolio remains high and given the wins we've already secured, I am optimistic about our ability to capitalize on the attractive growth within this market over the next several years. Our AI-driven enterprise revenue continued to materially outpace the market, growing 17% year-over-year. This strength was led by our Mist-ified portfolio, which grew more than 60% year-over-year, achieving another record quarter for both Mist Wi-Fi and Mist-ified revenue. We are especially encouraged by the traction we're seeing with large customers across the globe with wins at a global financial bank, a global car manufacturer, and a global furniture retailer, each of which recently purchased a combination of AI-driven wireless, wired, security and/or SD WAN products from Juniper. To build on this AI-driven enterprise momentum we continue to deliver groundbreaking new products that optimize both end user and operator experiences such as a recently launched EX4100 family of access switches. Like the EX4400 family announced last year, these are truly enterprise grade access switches born in the cloud with native AIOps ensuring easy setup and management coupled with best-in-class scalability, security and performance. In addition, we brought AIOps to indoor location services with recently announced features that simplify wireless access point placement and orientation and we are now delivering six generation AI driven actions to address even more common networking problems, such as DHCP failures and wired authentication errors. Based on our recent order momentum, third-party validation and the technical superiority of our AI driven enterprise portfolio, I remain highly confident regarding the outlook of our complete client-to-cloud campus and branch business. Our security revenue declined in Q2 due largely to supply chain constraints on our hardware platforms and a difficult comp in the year ago quarter. Despite these challenges, we saw healthy momentum in our mid-range firewall portfolio, as well as our software-only security offerings. We believe the performance of our products is industry leading, which has been validated by a number of independent tests. Most recently receiving a AAA rating from cyber ratings with a 100% block rate for our cloud firewall offerings. We remain confident in our connected security strategy and believe the convergence of networking and security provides us with a competitive advantage in the portions of the market where we are currently focused. We believe our technical strength in both security and networking will provide tailwinds in future quarters and should enable us to deliver better results over the next few quarters. I'd like to mention that our services team delivered a record quarter due to strong renewals and attach rates. In addition to strong revenue, we also achieved another quarter of solid service margin. Our services organization continues to execute extremely well and is focused on driving incremental efficiencies through automation and cloud delivered insights that not only create new revenue opportunities, but also benefit margin and the customer experience. I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders. I will now turn the call over to Ken who will discuss our quarterly financial results in more detail.

Operator:

Thank you, ladies and gentlemen. The floor is now open for questions. [Operator Instructions] First question is coming from Paul Silverstein with Cowen. Your line is live.

Ken Miller:

Yes. So the supply chain environment remains very challenged as it has been for the last several quarters. Lead times from suppliers and to us are extremely extended. Sourcing supply is proving to be very difficult. And at times is coming at an increased cost. We did mention on the prepared remarks that in Q2 in particular, we did see a higher volume of decommits from suppliers. And this really forced us to pay more expedite fees and heavily leverage the broker markets more than we historically have. And that comes at a higher cost. So the good news for us is, I feel very proud of our abilities to navigate these curve balls and these situations. And we actually – as you saw, we actually beat our revenue midpoint for the quarter. And based on these actions we're taking, albeit, they do come at a cost. We feel confident that we are getting access to more supply. And we actually raised our guidance for the full year. So we do see supply getting improving from an absolute volume perspective, but it is coming at an incremental cost and it's difficult. I mean, every quarter seems to be a different challenge, but we seem to be doing a pretty good job in my opinion, navigating those challenges.

Ken Miller:

Yes. It's difficult to quantify. I'll tell you that we had some large strategic suppliers that we were expecting supply early in the quarter than we received. We received some of it later in the quarter. The other impact we had was linearity in the quarter from a shipping perspective and invoicing perspective was also negatively impacted. So it was definitely greater than normal, Paul, but we haven't really given these numbers in the past, so it's hard to compare to historical norms.

Rami Rahim:

I'd be happy to Paul. So I'm actually really pleased with our results with our cloud providers all up. I think the name of the game for us in the cloud provider space is diversification. I think we're seeing increased diversification among the hyperscalers to Tier 1 hyperscaler. So if one of our top hyperscale accounts goes through period of digesting orders that they've placed in the past or finding is another one will step in and compensate for that with more orders. And that happened – some of that happened in Q2 and then brought more broadly, our cloud majors customers saw great momentum and not just in routing, but also in data center switching and in 400 gig opportunities. So all up, I'm very pleased with the momentum we're seeing and I'm optimistic about the cloud provider vertical going forward.

Tim Long:

Thank you. Just wanted to talk on the enterprise business a little bit. So Rami, just if you could talk a little bit, obviously it's been a great market, good results this quarter. Talk a little bit about kind of the sustainability of the elevated growth there and a little bit on how you're continuing to invest and go to market and how you're pulling through whether it's traditional wired products or some of the SD-WAN or other new technologies that you're bringing into the enterprise. Thank you.

Tim Long:

Okay. Thank you.

Operator:

Okay. The next question is coming from Amit Daryanani from Evercore. Your line is live.

Rami Rahim:

Yes. Amit, let me start and I’m sure Ken would like to weigh in as well. So order strength remains robust and it remains robust across all of our segments. So I know when it comes to macro indicators, I think people are mostly concerned about what might happen to the enterprise, but you saw there, enterprise revenue double digit growth, enterprise orders growing at 20% year-over-year. We’re not going to be immune to any sort of major macro changes that happen. But we’ve got our early warning indicators sort of – we’re sort of scoping and making sure that there isn’t anything to be concerned about. And thus far I’d say there is not. I think we are playing in markets that are large, that where we have relatively small share where there’s tons of opportunity for us to compete. And we’re competing with solutions that I think are very strategic, especially in a situation where there are going to be cost pressures and the need for IT teams to start cutting costs. So for these reasons, I actually think even in the event that there were challenges – macro related challenges we can do quite well. And with that said, I’ll just pass it on to Ken for additional commentary.

Amit Daryanani:

Perfect. Thank you very much.

Operator:

Okay. The next question is coming from Rod Hall with Goldman Sachs. Rod, your line is live.

Ken Miller:

Yes. So without getting specific on Q4, I’m sure your models are pretty accurate Rod. We do think the year would be about 57%. Really we expect there to be a volume benefit in Q4. We also expect to see more and more of the pricing actions that we’ve taken play out as time passes. So those would be the primary factors. Again, I’m not providing specific Q4 guidance. I don’t have exact mix prediction at this point. But I do believe 57% for the year is the right place to be right now.

Ken Miller:

Yes. And I’m sure your models are close. Yes. I just don’t have the model in front of me.

Rami Rahim:

Yes. So linearity in the quarter from an order’s perspective was very normal, right? We saw a very strong demand and bookings throughout the quarter. And we really didn’t see any sort of abnormally from a linearity perspective. That said, from a shipping and therefore invoicing, we did see a pretty backend loaded quarter. As I mentioned in my prepared remarks, we had some supplier de-commitments and we had to kind of recover and react to that. So we did ship later in the quarter than we normally do that had an impact on DSO. It had an impact on the cash flow, but also had an impact on freight cost as we had to take faster routes to get products to customers in the commitments we made to them. So it had a negative impact on a few of our metrics.

Ken Miller:

Yes.

Alex Henderson:

Great. Thank you very much. So $2.4 billion plus in backlog is an enormous backlog relative to the historical norms of the company. And as we look forward if I were to run what the equivalent of a bank stress test on your outlook for a CY2023, it looks like you could produce 20%, 30%, 40% declines in orders for the next three or four quarters and right through to the back end of 2023, still hitting at least mid-single-digits or plus revenue growth and still end up with a backlog that’s 250% to 300% of normal, is the backlog likely to increase as we go into the back half of the year? And how do you view these year-over-year declines versus the ability to sustain a book-to-bill somewhere in the broad vicinity of 1.0 as we go through the end of the year, because that’s are really the critical variables to the stability and visibility of the 2023 numbers.

Unidentified Analyst:

Yes. So, the key point of the question was, can you, in fact, if you went through a stress test analysis like a bank, absorb 20% or 30% declines for three or four quarters, and still end up with that massive backlog given where you are exiting 2023, and which case the only real question then is the improvement in the supply chains, your ability to deliver on better than 5% growth and in the top line over that timeframe that you clearly have the orders. And a put note to this, just want to clarify, when you talk about the geographies in your print, that’s a function of the timing of when orders came in. I assume these are first-in, first-out, and therefore not reflective of any particular change in demand in any particular geography, because it’s, your backlog increased. So therefore I assume it’s a allocation question, not a demand question.

Operator:

Okay. The next question is coming from George Notter with Jefferies. George, your line is live.

Rami Rahim:

Yes, George, let me take a crack at it. And then Ken, you can jump in. So total software grew at 24% year-over-year, that’s a good result, but it was down sequentially. And that affected our margins because of mix in the Q2 timeframe. The software softness was really all in our perpetual offerings. And those can be lumpy, they can be – they can swing around positively or negatively based on orders of state certain capabilities from some of the largest customers that we have for routing and switching products. Subscription software importantly remains really strong, and you can see that in deferred revenue, you can see that in our ARR, which grew at 34% year-over-year. So, I’m actually really confident in our ability to achieve our long-term software projections [ph], as well as our ARR. And then Ken, you can talk a little bit more about the mix issues in Q2.

Unidentified Analyst:

Got it. And then just as a follow-up, I know last quarter, I think more of the narrative around margins was on a higher mix of missed access points, a lower mix of MX shipments, obviously components drove that mix shift, but can you talk about how MX did this quarter, how you did with access points, did the mix of those pieces go up or down in Q2? Thanks.

Unidentified Analyst:

Got it. Okay, thank you.

Operator:

Okay. The next question is coming from David Vod with UBS. Your line is live.

Ken Miller:

Yeah. So on the supply getting better, is really kind of a nuanced message I want to make sure is well understood. Access to supply is still highly constrained. Lead times into us are still extremely limited. That said we've taken some action to actually procure more supply. So I think we'll have more supply than we originally expected when we started the year, which is a good thing. So that's an improvement in supply, but it's coming at cost. And that's really the offset here is that we are paying more. We're having to pay more expedite fees. We're going to broker markets and paying several times more than we should be paying for this, for that particular component in the open market. So it is coming at a cost. So volume is improving but costs are going up is probably the short summary on the supply side. For 2023 on the supply, was it a supply related question as well?

Ken Miller:

Yeah, so I do believe those expedite fees and component costs the $155 million that I referenced is transitory and exactly the timeframe is difficult to predict, but I do believe if you go out, I don't know, a couple of two, three years you'll see the majority, if not all of those costs go away. However, the timing, how many – the expedite fees we're paying, the elevator freight we're paying it's hard to predict exactly what we're going to start to see that normalize. I do think we should see some benefit in 2023, but I'm not ready to quantify how much.

Operator:

All right. The next question is coming from Simon Leopold with Raymond James. Simon, your line is live.

Rami Rahim:

Hey, Simon.

Rami Rahim:

Sorry. We’re going to interrupt you. Could you repeat the question? We had a little glitch here. So we missed a part of your question and sorry to bother you, but we’re going to need you to repeat it.

Rami Rahim:

Yes, we can.

Rami Rahim:

Yes, I’d be happy to. So I do think the one area where we are most obviously taking share is going to be in the enterprise and more specifically in the client to cloud. So that includes wired, wireless, and increasingly it’s going to include a full stack solution of wired, wireless and SD-WAN because we’re now pretty much integrated our 128 Technology SD-WAN solution into that end-to-end AI driven enterprise capability. So the numbers speak for themselves, double-digit revenue growth, double-digit order growth and all that. Very, very pleased there. I don’t think that’s the only place where we’re taking share. I do think in terms of 400-gig opportunities now that 400-gig has moved from discussions and PowerPoints into competitive bakeoffs. I do think that we are winning share wherever there is a net new opportunity, be it for our service about our core, where I just talked in my prepared remark about our new win, new data center, cloud WAN opportunities. I do think and time will tell as this translates to actual revenue results and actual share results. I do think this is an area where we’re performing very well and we are taking share. The last area that I will mention that I think is going to be an obvious place where we’re going to take share, because we’re really starting from very little is in the Metro. 5G is a real thing. It’s driving fiber build outs by service providers. We are essentially very small players in the Metro because we’ve never really had a complete portfolio and we just announced that complete portfolio and it should essentially come together and be fully in production by the early part of next year. So even in the absence of that solution, we’re seeing a 100 plus percent year-over-year growth in orders for ACX. I think that will only accelerate once we’ve got that complete solution. I’m sure there are other areas where we’re doing very well data center for example, but those the areas that I’d say are top of mind right now in terms of the biggest opportunity for share take.

Rami Rahim:

My pleasure. Thank you.

Angela Jin:

Hi, this is Angela Jin on for Samik. I don’t – I hate to ask the recession question, but I was curious how would each vertical respond in the event of a macro slowdown and what are the areas of a portfolio that you think are more resilient to a slowdown versus more aligned to cyclical trends?

Operator:

Okay. The next question is coming from Aaron Rakers with Wells Fargo. Aaron, your line is live.

Rami Rahim:

Yes. So it is going to feather in over time. We are seeing more and more benefit each quarter. So Q2 this last quarter we saw more benefit than we saw in Q1. And I expect us to see more benefit here in the second half from the pricing actions. The actions we're about ready to take, we really aren't going to start to play until probably FY 2023, given the backlog. And again, I expect that to feather in overtime and be incremental over time as we move into the 2023 quarters. The unfortunate reality is the benefit we're seeing is getting more than offset by the cost, right? When we put the actions in place, we had some assumptions on the incremental costs, the expedite fees, great costs, et cetera, and we undershot – we overshot I should say or the cost overshot those expectations. So we are seeing some benefit. There is more of the pricing benefit in the backlog yet to come, that's going to continue to help us in the future quarters. But at this point we just don't see that help enough to really keep the margin range where we started the year at 58 to 60.

Rami Rahim:

Yes. It's a good question. First, I want to just clarify. The 80 or so wins are data center 400-gig wins, we've actually we're now seeing close to accumulative 400 wins across data center and wide area in service provider and in the cloud provider segments. In terms of where we are, I mean, if you looked at port mix between 100-gig and 400-gig, both in terms of orders and shipments, it's still at early innings for 400-gig. There are a lot more networks that are going to be built out with 400-gig. So we viewed these sorts of network interface happen once every several years, maybe four or five years or so. We're now at the beginning stages of one of those inflections and that's good for our industry, certainly good for Juniper.

Rami Rahim:

My pleasure.

Meta Marshall:

Great. Thanks. Maybe following up on the answer to George's question, you mentioned kind of some uncertainty on what addition might be elected in terms of kind of where the perpetual revenue comes in for software. I was just trying to get a sense of some of that volatility more – more pronounced this quarter just because of the amount of kind of cloud customers that you're servicing or just trying to get some insight into what is causing that volatility? And then maybe just as a follow-up question; just is this kind of quarter where you would consider inventory peaking, or do you still think that you'll be in an inventory kind of accumulation period for the kind of foreseeable future? Thanks.

Jess Lubert:

Operator, we'll take two more questions.

Sami Badri:

Hi, thank you. First question is, if we were just to take the percentage of revenues in 2022, that reflect the price increase actions, what percentage of those revenues are coming through, and what is the objective of 2023, will 2023 reflect all price action increases and maybe just like a percentage mix of 2022?

Operator:

Okay. Next we have Tal Liani with Bank of America. Tal, your line is live.

Rami Rahim:

Let me start, I think the key here is that we didn't say it's 5%. We said, it's, at least 5%, or at least mid single digits. If in fact the markets play out, as we expect, and there aren't any major sort of challenges macro wise. Yes, the opportunity is absolutely there for us, not just to meet, but to exceed that's bar that we are setting for ourselves. It's just a little early right now. I don't think we typically provide color on the next year in this timeframe, but we thought we'd start at this point in time. And yes, I mean, I've talked quite a bit, even on this call alone about some of the catalysts around 5G clarification efforts, 400 gig enterprise. Yes. I mean, I think these are all catalysts that can give us the opportunity to exceed that outlook.

Jess Lubert:

Thank you, Operator. That's all the questions we have. That concludes today's call.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Juniper Networks First Quarter 2022 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode and we’ll open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host, Jess Lubert. Sir, the floor is yours.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today’s call to discuss our Q1 2022 results. Before I begin, I’d like to provide a brief statement on the Russian invasion of Ukraine. My thoughts are with all those affected by this tragic war, particularly our colleagues in the region and those with loved ones who have been impacted. When the war began, we quickly suspended all sales and services within Russia and Belarus. Given the complexity of the events, we’re continuing to closely monitor the situation and hope for the restoration of peace and safety. In the meantime, Juniper and its employees made contributions to support humanitarian efforts in Ukraine, and the Juniper Foundation made a donation to UNICEF to help its vital work in the region. Turning to the quarter, we delivered strong Q1 results. Revenue growth accelerated year-over-year, and we met the midpoint of our non-GAAP earnings per share guidance, despite continued challenges from a supply chain perspective. Our teams continue to execute extremely well and are focused on delivering solutions that simplify the life of network operators and delight network users, what we call experience first networking, continues to resonate across each of the markets we serve. This is evidenced in our Q1 results, which not only benefited from a fourth consecutive quarter of double-digit year-over-year growth in cloud, but also an exceptional performance by our enterprise business, which saw revenue grow nearly 20% year-over-year. This enterprise performance is particularly noteworthy, as it was the first quarter in Juniper’s history to enterprise what’s the company’s largest customer vertical. Cloud and enterprise strength more than offset a modest decline in our service provider vertical, which was due entirely to the timing of shipments as a result of supply chain challenges. Demand remained strong in the March quarter, with orders estimated to have seen double-digit year-over-year growth when adjusted to account for certain large customers placing orders ahead of their normal order rate to account for extended lead times. On an unadjusted basis, orders grew by more than 35% year-over-year, and our ending backlog increased meaningfully on both a sequential and year-over-year basis. Order momentum was strong across all customer verticals and all customer solutions, with each of these categories experiencing strong double-digit order growth year-over-year. While some of the strength reflect healthy customer spending patterns across each of our core customer verticals, where the importance of the network has never been more clear, we believe much of this demand is attributable to our strong execution across our product management, engineering, and go to market organizations, which is enabling us to capitalize on significant customer initiatives. Examples of these initiatives that continued to see strong investments include enterprise digital transformation and office reopening project, 400-gig upgrade at cloud and service provider customers, and the broad adoption of cloud-based services and associated network architectures. As we enter the June quarter, momentum is strong and I remain optimistic regarding our prospects for the year, despite the various supply chain challenges we are facing. I continue to believe these challenges are likely to prove transitory and the strong order momentum we’re seeing and the backlog we have developed sets us up extremely well to deliver solid growth and improve profitability in the 2022 timeframe and beyond. Based on a recent order momentum, current backlog level, and our assumptions regarding supply, we still expect to deliver 7% to 9% sales growth and still are targeting at least 8 points of non-GAAP operating margin expansion in 2022. Our expectations for 2022 assume current supply chain challenges persist, and that we’re unable to work down backlog during the year, potentially creating long-term tailwind for our business once the supply chain situation improves and backlog returns to more normal levels. Now, I’d like to provide some additional insight into the quarter and address some key developments we’re seeing from a customer solutions perspective. Starting with Automated WAN, while this solution set experienced only modest Q1 revenue growth year-over-year, due entirely to the timing of shipments, demand for these solutions remains exceptionally strong as we experienced at least double-digit order growth across all customer verticals and all major product families including our MX, PTX and ACX offerings. We’re continuing to see strong 400-gig momentum with our cloud and service provider customers, which should present building tailwind for our business over the next several years. In this most recent quarter, I was particularly encouraged to see strong early interest in several of our newer Automated WAN solutions. To this point, our MX10k product family experienced a record quarter and our new LC9600 programmable 10-terabit, 400-gig capable line card, which leverages our latest Trio 6 silicon experienced the strongest adoption of any Automated WAN product launched over the last five years. We also saw another quarter of triple-digit order growth for our ACX Metro portfolio, and growing demand for our Paragon Automation software. With additional Trio 6 based MX products and new ACS Metro offerings expected to launch over the next several quarters, and new PTX products leveraging our next generation Express 5 silicon also coming to market next year, I am optimistic regarding the long-term growth potential of our Automated WAN solutions, and our ability to capitalize on our customers Core, Edge, and Metro requirements. Our cloud-ready data center solutions experienced 20% year-over-year revenue growth during the March quarter due to broad base strength across customer verticals and geographies. Orders were exceptionally strong in Q1 due to the momentum we’re seeing with cloud major customers, as well as certain service provider accounts. Our 400-gig solutions are resonating in the market and we have now secured more than 70 data centers switching opportunities that span across clouds majors, enterprise, and service provider accounts. One opportunity, which I believe speaks to the strength of our data center switching systems and software capabilities is a meaningful new data center win with a top 10 cloud provider. This deal is already generating orders and is likely to drive meaningful revenue over the next few years. Customer interest in our cloud ready data center portfolio remains high and given the wins we’ve already secured, we’re increasingly optimistic regarding our ability to capitalize on the attractive growth within this market over the next several years. Our AI-driven enterprise revenue continued to materially outpace the market growing 33% year-over-year. This strength was led by our Mist-ified portfolio, which surpassed a $400 million annualized revenue run rate in Q1, as both the wireless business and the related EX wired switching flow through more than doubled year-over-year to record level. Mist-ified revenue grew at 135% year-over-year, and we continue to see exceptional order momentum due to the success with existing customers and new logos. As a reminder, Juniper leverages the industry’s leading Mist AI engine, a modern micro services cloud, and a proven AI-driven Virtual Network Assistant Marvis to improve customer operations across the smallest to the largest customer environments. The ability to scale cost effectively, to reduce IT helpdesk tickets, to quickly remediate problems, and to rapidly introduce new business enhancing services are among the reasons customers of all sizes are swapping out the competition and standardizing on Mist AI. While many of these capabilities are well known, Juniper also delivered industry-leading location-based services based on Mist AI, which is incredibly important to certain verticals such as retail. We’re also seeing strong interest from enterprises, as they readied their offices for return to work. Recognizing this point of critical differentiation, Gartner recently lifted Juniper mist as a Magic Quadrant leader for location-based services, making us the only vendor to make the leaders Quadrant for both wired and wireless access and location-based services, which is an important validation that we believe is likely to further benefit demand. Despite our lead, we are continuing to invest in our Mist AI differentiation. In Q4 of 2021, we acquired WiteSand, a small private company with exceptional talents that will accelerate our development of a cloud native network access control solution. We believe this solution will prove highly attractive to many customers, which has grown frustrated by existing on-prem solutions, which are expensive and difficult to both deploy and manage. And not to be overlooked, we continue to make progress Mist-ifying our 128 Technology SD-WAN solution. The completion of this process is expected to further cement our ability to provide the industry’s best assured and secure connectivity experience from client to cloud. We continue to be encouraged by the momentum that 128 Technology is experiencing with recent wins with Fortune 200 enterprises in the US and the large financial services organizations in Europe. Based on our recent order momentum, third party validation, and the technical superiority of our AI-driven enterprise portfolio, I remain highly confident regarding the outlook of our AI driven enterprise business. Our security revenues slightly declined in Q1 year-over-year, but I continue to expect growth for this business. My confidence is fueled by the efficacy with performance of our firewall products, which were recently ranked number one by ICSA, a leading third-party independent security testing company, for a fifth consecutive quarter with 100% detection rate against cyber threats that top results achieved but all other security peers. Customers are telling us that in light of ongoing geopolitical difficulties, 100% security effectiveness is more important than ever, and give Juniper a unique competitive advantage. I believe the convergence of networking and security will only increase across the markets we serve and I’m confident that this will present a competitive advantage in all of our strategic customer use cases. Importantly, we continue to make progress transitioning our business to a more software-centric model by transforming more of our perpetual offering to turn-based licenses, introducing more radical subscription offerings, and training our sales organization to better monetize the value of our software stack. While these efforts remain in the early innings, we experienced another quarter of encouraging momentum in the Q1 timeframe, which saw total software and related services revenue grew by 60% year-over-year to account for 20% of our total revenue. Software orders were also strong in the period increasing by more than 80% year-over-year. Our annualized recurring revenue, which solely consists of truly ratable software subscriptions and related services, increased 30% year-over-year, due to the strong demand for Mist and security subscriptions. We’re encouraged by the progress we’re making in our efforts to capture more software revenue, which we view as critical to not only accelerating growth, but also improving customer stickiness and margin. Our services team delivered another impressive quarter due to strong services renewal and attach rates. In addition to strong revenue, we also delivered record service margin. Our services organization continues to execute extremely well and it’s focused on driving innovation through automation and cloud delivered insights that not only create new revenue opportunities, but also benefit margin and the customer experience. Now I’d like to provide an update on our Silicon Photonics efforts, which had been focused on disrupting the optical component market through unmatched optical integration that would result in lower cost and superior power efficiency as compared to traditional solutions in the market. Through our investment, and working closely with customers and partners, we’ve validated the advantages of our integrated hybrid laser technology and the broad market opportunity with applications and networking data center disaggregation AI, LiDAR and beyond. However, we learned that the full potential of this opportunity would be best realized if we could enable a large ecosystem of partners to design on the technology and derive volume economics. In order to capitalize on this broader opportunity set, we have created a new company that has launched the first open foundry platform for integrated Silicon Photonics. Synopsys has acquired a majority interest in this new company. They are an ideal partner to launch this company, as they bring deep expertise and customer presence, as a leader in intellectual property licensing and semiconductor design. We believe this new entity will be better equipped to target the broad array of Silicon Photonics opportunities that technology can address through both discrete components sales and licensing models. We will also maintain an ownership interest in the new entity that will allow us to benefit from its product as well as the business’s future financial success. Finally, you may have noticed our announcements that our Chief Revenue Officer, Marcus Jewell, has decided to leave Juniper for a new opportunity. Derrell James, Executive Vice President of Customer Experience, will assume the role on an interim basis. I’d like to thank Marcus for his services and the contributions he’s made to the company over the last few years. Marcus leaves our sales organization in excellent shape and I’m confident we have the talent and the organizational tools to navigate the transition and maintain our momentum without any disruption. I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Operator:

[Operator Instructions] Your first question is coming from Simon Leopold from Raymond James. Your line is live.

Rami Rahim:

Yeah, thanks for the question. What I’m seeing within the cloud vertical is strength and momentum in ordering and in just our ability to compete and win that new opportunity. I think that strength is broad based. We’re capitalizing on existing footprint that we have in both our tier one as well as our cloud major space. Most of that footprint, as you know, in hyperscale, is in routing, but beyond that, it’s in both routing and switching. So while we have footprint, I think the fact that this customer class continues to invest is something that bodes very well for our business and continues to do so. But then the other thing that’s really notable that I think we’ve provided several updates on key wins that we’ve had of net new footprint in the cloud provider space and there’s one notable one that I mentioned in my prepared remarks. This is a top 10 cloud provider. We were already a routing supplier for this customer and then we had an opportunity in essentially one net new datacenter footprint that’s quite meaningful, from an order standpoint thus far, but eventually it will become a revenue standpoint. And I think we won based on the strength of our engagement in routing that essentially translated to an opportunity in switching. We won based on the strength of our sales engagement, and also our ability to provide equipment in a timely manner, which was very important for this project as well. So it’s a combination of real good solid industry tailwinds coupled with excellent execution of our sales and engineering team.

Operator:

Thank you. Your next question is coming from David Vod from UBS. Your line is live.

Rami Rahim:

Okay, let me start, and then maybe, Ken, you can jump in as well on this one. So I’ll start with service provider. From an orders standpoint, I think we performed exceptionally well, the slight decline in revenue is entirely due to the timing of shipments, when we were basically able to provide product to our customers and this after the Q4 timeframe, where we actually saw strong service provider revenue performance, primarily, again, there because of the timing of shipments in that timeframe. All in all, I feel very good about where we are with our service provider customers, the strength of our solutions, the pickup of net new technologies that we’ve just recently introduced into the market. I mentioned in my prepared remarks, a new MX line card based on our latest generation silicon technology that we recently introduced into the market and it’s seeing the fastest adoption of any new MX products in the last five years. I think that speaks again to the health of the market, as well as to the strength of the technology that we’re offering. So, I still think that in terms of the long-term outlook for this particular vertical minus 2% to plus 2%, we’re at if not better than that going forward. I think the other part of the question was around the cloud ready datacenter. There, from a revenue standpoint, we did very well, 20% year-over-year growth, and from an order perspective, even better. And I think there again, it’s a combination of good industry tailwinds, solid execution. I talked about the cloud provider data center win in top 10. That’s net new for us. That’s just an example of the kind of win that we’re able to achieve these days. Rapid adoption of new merchant silicon technologies in our product offerings. Apstra is a key piece of the end to end differentiation that brings industry leading automation intent-based networking to our solutions. So there’s a lot we have going for us in the cloud-ready data center vertical right now. And again, there, our long term view is 5% to 9%. I think we’ll do at if not better than that long term view. Ken anything else you’d like to add?

David Vod:

All right. Thanks, Ken. Thanks, Rami.

Operator:

Thank you. Your next question is coming from Rod Hall from Goldman Sachs. Your line is live.

Rami Rahim:

Absolutely. And if you go back, if you’re looking at on a trend basis, the biggest impact to product gross margin by far are going to be these kind of COVID-related supply constrained related costs that we’ve been talking about for a while. And even in Q1, the most recent quarter here, we posted 57.5% gross margin, it would have been approximately 250 basis points higher, nearly 60% if not for some of these costs that we do believe will be transitory. But if you compare it to the guidance, I mean, obviously, we knew about much of that cost, so we set our guide at 58% and we came in at 57.5%. That is a systems mix or kind of a hardware mix issue. And in particular, MX was down a bit and this was from a shipping perspective, obviously, it has to do with our ability to procure the components and ship the product. We don’t have the demand issue with MX, it was actually very strong and we’re building a lot of backlog. But from what we shipped in Q1, we shipped a little bit less MX than we anticipated and we shipped a little bit more missed access points, which at the time of shipment carries a relatively low margin compared to the rest of our portfolio but obviously, as we sell more software and we recognize that software, which happens over time, it is margin positive over the long run. But in Q1 specifically, a little less MX than we expected to ship and a little more access points, not really the primary driver in the 50 basis points miss from our guidance.

Rami Rahim:

Yeah, it’s difficult to predict in any given 90 days what we’re going to shoot more of or less of, it’s even difficult to predict beyond that. I mean, I would say from several quarters now, we’re seeing is kind of a series of continuous disruptions, whether it’s COVID related shutdowns or material shortages, logistics bottlenecks, even the war in Ukraine, and we’ve even had some system outages with some of our suppliers and partners. We continue to navigate through these disruptions to the best of our ability. At this point in time, I think it’s prudent to presume we’ll have more unpredictable disruptions for the next couple quarters. I have to admit, I was a little more bullish on potentially seeing improvements in the second half of ‘22 at the beginning of the year than I am now. I now don’t anticipate significant improvements throughout the entire year and I do think we’ll see improvements in 2023. I still feel we’ll get the supply necessary, obviously, to get to our revenue goals of 7% to 9% this year, and that will be up year-on-year. We will grow revenue faster this year than last year as an example, so supply will be more plentiful and absolute, but it’ll still be very constrained as compared to what our demand signals are and our ability to ship even more.

Rami Rahim:

Yeah, it was 1.8. We did grow it greater than 300 million this last quarter. It’s hard to predict, Rod, with any certainty where we are going to land. But I will tell you this, it will be significantly elevated, whether it is 1.8 or 2.1 somewhere in that order of magnitude would be my expectation as we exit the year. So if supply does not get better later this year, obviously that will result in even more opportunity in 2023 and beyond, as we exited the year with significantly elevated backlog.

Aaron Rakers:

Yeah, thanks. Just following up on that last question first, just curious as I think in your 10-K filings you noted that the backlog that you’re carrying definitely extends out 12 months. That 2.1 billion plus that you’re carrying now, how would you characterize the duration of that relative to what maybe you saw coming out of last quarter? And I have a quick follow up, if I can, as well.

Aaron Rakers:

Yeah. And then as a quick follow up, going back to Simon’s question on the data center footprint, it sounds like a big deal. I think, Ken, in the past, you’ve been reluctant to think about data center switching wins as a big opportunity for Juniper inside some of the major cloud vendors. Has your opinion changed on that? And how would you characterize or what was the competitive -- was it a competitive displacement? Just any kind of further additional color on that seemingly large cloud win?

Aaron Rakers:

Great. Congratulates. Thank you.

Operator:

Thank you. Your next question is coming from George Notter from Jefferies. Your line is live.

Rami Rahim:

Yeah, we have taken a couple actions, pretty significant actions last year. It will take some time for that flow into the model, given the strength of our backlog, but we do expect to see some benefit of last year’s actions in the second half of this year. So we’ll start to realize some of that here in a few quarters. As far as future actions, we are always looking at opportunities that we think makes sense for us to take advantage of nothing to announce on this call, but you could count on us continuing to look at all options and making pricing decisions that we think make the best sense for Juniper moving forward. And we haven’t quantified the previous actions but really our intent here is to offset some of the gross profit dollars that we are going -- that we were losing due to the cost increases that we’re seeing. There is a timing lag here where we’re seeing the cost increases hit much sooner, and some of these pricing actions are going to take a few quarters to materialize.

Rami Rahim:

Yeah, no, it’s a great question. I mean, headcount is up and we talked about this year OpEx, we expect to be up as well, on a full year basis compared to last year. We do absolutely expect to remain very prominent in our OpEx spending and we absolutely expect to outpace -- revenue to outpace OpEx this year, which is why we feel confident we could expand our operating margin, and we continue to target 100 basis points improvement in operating margin. From a headcount perspective and where are we investing in general, the majority of it is go to market, the majority of it is in the enterprise space, where we believe we have an opportunity to really take advantage of the portfolio differentiation that we have, and we want to make sure that we’re thinking beyond this current quarter and next quarter and thinking for the next several years to make sure we take advantage of the opportunity that we see in the marketplace. These do take -- when you hire sales, folks, obviously, there is a learning curve and a productivity ramp and we’ve modeled a lot of it in and we feel very good that we could continue to outpace the market in enterprise like we have been and continuing to invest everything who does give us years of revenue momentum to come.

Rami Rahim:

Yep.

Amit Daryanani:

Thanks a lot for taking my question. Is just full staff is always a bit of a debater on the durability of demand that you’re seeing. So, Rami, if you look at your backlog, which is north of 2 billion, I think which you said, if you just talk about the quality of this backlog and your comfort and confidence around this, I mean, I guess if I look at the trajectory of how this backlog has built up, it should imply normally you see high single digit top line growth in ‘22 but perhaps even for the years after that. So, walk me through the puts and takes around in terms of does this enable you to see high-single digit growth on a multi-year basis versus just a one year?

Amit Daryanani:

If I can just kind of follow up on this, when you think about this outperformance, it’s almost like it’s accelerating over here right now for you. What do you attribute that because I don’t think that end markets are doing some degree growth that I’m guessing. From a Juniper perspective, do you think it is share gains or is it you are just able to get somewhat better suppliers than some of your peers and that’s somewhat helping you out? So I’m just curious, what do you think are the components of enabling the share grain for you right now?

Operator:

Thank you. Your next question is coming from Jim Suva from Citigroup. Your line is live.

Rami Rahim:

Yeah, so I’ll take the question. We’re very excited about the win and the opportunity, it absolutely has been meaningful to our orders strength, and it will soon be meaningful to our revenue results going forward from a size of customer perspective. That said, Jim, honestly, our revenue guide of 7% to 9% is more based on supply than anything else and our supply picture has not changed. If anything, I would say, my optimism that might get better in the second half is probably a little lessons today than it was 90 days ago. So it’s really a matter of who gets the supply, not so much if we have incremental customers and incremental demand, can we upside our revenue, because the supply is kind of fixed at what it is. But this customer has the potential to be a very meaningful customer for us, I would say, yes, a top 10 customer for us in certain quarters, depending on when products ship.

Jim Suva:

Thank you so much.

Operator:

Thank you. Your next question is coming from Meta Marshall from Morgan Stanley. Your line is live.

Rami Rahim:

Yeah, so when it comes to kind of chips versus general components, I really -- the answer is it, unfortunately, it’s a bit of a whack a mole game. I mean, it really does kind of go back and forth a bit depending on the situation, depending on the quarter. Right now, I would say we’re constrained pretty much across the board, I would say relatively equally between some of our higher end ASICs, and some of those lower end transistors, if you will. We are scouring the market and like everybody to try to procure as many parts as we can across a broad spectrum of components. It’s -- yes, we were able to ship more in Q4, but kind of a higher end rounding portfolio as compared to say, Q1 and our Q1 expectations, but that’s really just a -- it’s just a timing of shipments thing. I don’t think there’s been a material change. I mean, we’ve been -- we would have liked to ship more in Q4 than we did, right. I would still argue we were short supply in Q4. We were perhaps a little bit more short in Q1 but the shortages are persistent. And it’s just really a matter of what we can build when we could ship and that’s going to kind of fluctuate quarter to quarter.

Rami Rahim:

Yeah.

Paul Silverstein:

Two quick questions if I may. Guys, I recognize that Mist in and of itself seems to be a significant differentiator for Juniper and your product portfolio in enterprise is far larger than when you entered enterprise, if I recall, back in 2008. But my question is, when you entered enterprise, way back when, in 2008, you had a [indiscernible] span where you took that business from ground zero, to, if I recall, about $850 million of revenue, it was phenomenally successful. The product launch was extremely exciting at the time. Again, I recognize it was just campus switching but it then proceeded to flat line when you hit 2015, 2016. My question for you is above and beyond the breadth and depth of the product portfolio today, which is very different from back when or so it seems, what’s the risk that from a channel go to market or other factors perspective because it’s never straightforward as it appears? What’s the risk that notwithstanding the significant momentum you have an enterprise today that’s similar to what happened back when that you get to replay of that scenario? And I realize the numbers would suggest that’s far off but if you could address that question. Then I’ve got a quick question about the Aurrion, Synopsys.

Paul Silverstein:

Appreciate the response. And then on the Synopsys JV, those are in assets, I assume there’s a decent amount of OpEx you’ve been putting into that since you acquired Aurrion back, I think it was in ‘16 or ‘17. But can -- is there going to be a benefit to OpEx, now that I assume it will be shown as a minority interest on the income statement, you’ll get rid of whatever R&D and any sales and marketing that you put into that and if you could respond to that. And any concerns from China lockdown?

Paul Silverstein:

China. China lockdowns.

Paul Silverstein:

Thank you.

Operator:

Thank you. Your next question is coming from Jim Fish from Piper Sandler. Your line is live.

Rami Rahim:

Yeah, it’s a good question. I’m actually glad you asked. So I think first, it’s important to understand that the way we look at our security business, primarily is that it’s an attach business, to our strategic solutions, in particular, our AI driven enterprise, and our cloud ready data center solutions. And it’s already absolutely helping and contributing to the success and growth of those particular businesses. Also, security has a strong software attached, that’s good for gross margins, it’s a profitable business, there is an element of our security business, that’s high end, that sells to a relatively fewer number of cloud and SP accounts and that just tends to be cyclical. It really depends on the purchasing and deployment patterns of these large accounts that tend to buy sort of in bulk orders every now and then that makes the security business just somewhat lumpy. So based on the fact that we continue to see strength in our solutions that competitive -- the attach of security, I think, bodes well for us in the future and why I remain confident about this business.

Operator:

Thank you. That concludes our Q&A session. I will now hand the conference back to CEO Rami Rahim for closing remarks. Please go ahead.

Operator:

Thank you, ladies and gentlemen. This concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for participation.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Juniper Networks Q4 2021 FY 2021 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode. And we'll open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host, Jess Lubert. Sir, the floor is yours.

Rami Rahim:

Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q4 and full year 2021 results. I hope you and your families are well, and my thoughts go out to all those who continue to be affected by the global pandemic. We delivered strong results during the fourth quarter, with revenue and non-GAAP earnings per share both exceeding the midpoint of our guidance, despite continued challenges from a supply chain perspective. Demand remained strong and exceeded our expectations with orders seeing high teens year-over-year growth when adjusted to account for extended lead times. On an unadjusted basis, orders grew by more than 50% year-over-year for a third consecutive quarter, and our ending backlog increased to a record level of more than $1.8 billion. Order momentum was strong across all verticals, all customer solutions and all geographies with each of these categories experiencing strong double-digit order growth year-over-year. Our Q4 results capped a very strong 2021, which saw us grow our Enterprise business for a fifth consecutive year, grow our Cloud business for a third consecutive year and return our Service Provider business to growth. Not to be overlooked, we also expanded our non-GAAP operating margin year-over-year, despite absorbing material increases in both supply chain and acquisition-related costs. Our teams are executing extremely well, and we are entering the new year with strong momentum. This momentum is being driven by our strategic actions, and there are four pillars that give me confidence as we look forward to 2022. First, our commitment to experience first networking and delivering technologies that simplify customer operations and improve the end user experience. While our experienced first journey started with Mist and then 128 Technology in our AI-Driven Enterprise portfolio, we subsequently extended this vision to the data center with the Apstra acquisition and the service provider market with our Paragon Automation suite. These software-centric solutions give us important strategic control point that not only create new recurring revenue opportunities, but also differentiate and pull through other Juniper products, creating a multiplier effect that will benefit growth in the years to come. Our experience-first vision is a key point of differentiation for our product that we believe is resonating across customers and providing confidence in our future prospects. Second, we are highly focused and aligned to three major use cases, Automated WAN, AI-Driven Enterprise and Cloud-Ready Data Center solutions, and we are enabling security to be seamlessly embedded within all of them. Each of these use cases is likely to see attractive market tailwinds over the next several years, focusing our company from a product management to engineering to go-to-market on a handful of meaningful and growing opportunities, enabled us to accelerate our growth in 2021. This focus also enables us to continue to deliver the technical differentiation and new innovations to capitalize on the big market inflection that we see unfolding in 2022 and beyond. Third, our go-to-market transformation is yielding meaningful results. This started with a change in sales leadership back in early 2019, which was followed by a meaningful increase in quota-carrying sales reps during 2020 and incremental sales development and enablement capabilities in 2021. We have also made meaningful investments in our channel, increasing the total number of Juniper channel partners by more than 30% since 2019. This investment not only resulted in record channel sales this past quarter, but also more than 100% increase in year-over-year deal registration, which reflects robust demand generated solely by channel. These investments in our sales and channel organizations have enabled us to accelerate our growth and should position us to do so again in the upcoming year. To be clear, we view our go-to-market organization as a competitive advantage where we will continue to invest to capture share. Finally, we continue to transition our business to a more software-centric model. This includes transforming more of our perpetual offerings to term-based licenses, introducing more ratable subscription offerings and training our sales organization to better monetize the value of our software stack. While these efforts remain in the early innings, we experienced encouraging momentum in the Q4 time frame, which saw total software and related services revenue grow 41% year-over-year and orders increased by more than 100% year-over-year. Our annualized recurring revenue, which solely consists of truly ratable software subscriptions and related services increased 32% year-over-year due to strong demand for Mist and certain security subscriptions. We are encouraged by the progress we're making in our efforts to capture more software revenue, which we view as critical to not only accelerating growth, but also improving customer stickiness and margin. Our strategy is well- aligned against a backdrop of healthy end markets that should position us for growth over the next few years. This growth is being driven by the strategic importance of the network, which is only likely to increase in the coming years as enterprise, digital transformation and clarification initiatives accelerate Cloud and Service Provider 400-gig upgrade, build momentum and Service Provider 5G investments expand beyond the radio access layer to the Metro, Edge and Core portions of the network. While I'm encouraged by the market dynamics we're seeing, I strongly believe the products we are delivering, the customer engagement we've developed and the investments we've made in our go-to-market organization will position us to gain share and deliver sustainable growth in the years to come, regardless of end market conditions. As you can tell, I am very optimistic regarding our future projects, despite the supply chain challenges we're continuing to navigate. I believe these challenges are likely to prove transitory, and the strong order momentum we're seeing and the backlog we have developed sets us up extremely well to deliver solid growth and improved profitability in 2022 and beyond. Based on our recent order momentum, current backlog levels and our assumptions regarding supply, we currently expect to deliver 7% to 9% sales growth and at least a point of operating margin expansion in 2022. Our expectations for 2022 assume current supply chain challenges persist and that we are unable to work down backlog during the year, potentially creating longer-term tailwinds for our business once the supply chain improves and backlog returns to more normal levels. While we would expect gross orders to decline in 2022 as lead times stabilize and we start seeing fewer early orders, we expect adjusted orders to grow for the year. Now, I'd like to provide some additional insights into the quarter and address some of the key developments we're seeing from a customer solutions perspective. Starting with our Automated WAN Solutions, which saw strong momentum from both a revenue and order perspective, particularly with our Cloud and Service Provider customers. We saw healthy demand across both our MX and PTX product families and strong adoption of our newer products, as well as our Paragon Automation portfolio. Our 400-gig solutions are performing well, and we now have more than 200 wide area wins that should present building tailwinds from a revenue perspective in the years to come. We are continuing to invest in our Automated WAN portfolio, and just recently announced next-gen custom silicon families for our MX and PTX platform that will offer industry-leading throughput, power efficiency and logical scale, all while maintaining investment protection. We are also continuing to invest in our ACX Metro portfolio, where we continue to see strong early interest that should further build as we complete the portfolio later this year. These investments are resonating with our Service Provider and Cloud customers, who appreciate that no single silicon family is optimized for all use cases and prefer to purchase systems with silicon that is purpose built for the job at hand. We are playing to win across all areas of automated LAN solutions and making the investments needed to capitalize on our customers' Core, Edge and Metro requirements that we believe present opportunities for growth over the next several years. Our AI-Driven Enterprise revenue significantly outpaced the market, growing 29% year-over-year in Q4 and 27% on a full year basis. It has been especially exciting to see our Mist solution go from a cool technology to a leader in the 2021 Gartner Magic Quadrant for wired and wireless access, with top scores in both vision and ability to execute, buoyed by several unique architectural differences, including leading AIOps and a modern microservices cloud, we continue to see record numbers in our wired and wireless access business. For example, our wireless revenue more than doubled year-over-year in Q4, and the winning continues as we recently closed a multimillion dollar win with a major multinational bank based on simplified operations via AIOps and location services that leverage our patented virtual BLE technology. We're also seeing strong Mist pull-through of our EX switching portfolio, which experienced record orders and units sold in the fourth quarter. Our Mistified revenue of wireless LAN, wired access, Marvis Virtual Network Assistant and associated EX pull-through more than doubled in Q4 as compared to last year and our annualized order run rate surpassed $600 million in the quarter. On a full-year basis, our Mistified revenue was approximately $300 million in 2021 and nearly doubled year-over-year. Our AI-driven SD-WAN solution, which combines the unique Session Smart Routing technology acquired by 128 Technology, with the automation and inside of Mist AI is following in the same footsteps. We saw triple-digit year-over-year revenue and order growth in Q4, with key wins in various sectors like retail and banking and strong traction within the federal government. One new customer deployed 300 sites the week before Christmas, highlighting the ease and scale of the Juniper SD-WAN solution driven by Mist AI. With new product enhancements announced this month, including day 0 and 1 operation via the Mist Cloud, new SSR hardware platform and bundled security capabilities, we expect demand to further build in future quarters. Of special note are the full stack, multimillion dollar opportunities we continue to win and deploy where companies are turning to Juniper for a combination of their wired access, wireless access and WAN Edge needs. Based on our recent order momentum, third-party validation and the technical superiority of our AI-Driven Enterprise portfolio, I remain highly confident regarding the outlook for our AI-Driven Enterprise business during the upcoming year. While our Cloud-Ready Data Center revenue declined in Q4 due solely to the timing of shipments related to supply chain challenges, we experienced another quarter of encouraging order trend, driven by broad-based strength across verticals and geographies. We continue to see strong momentum with new logos, and we secured a record number of deals greater than $1 million. 400-gig momentum remains strong. We now have more than 60 400-gig data center wins that include cloud majors, large enterprise and service provider accounts. Key to our continued growth in the data center is Apstra, the industry's leading intent-based networking solution that provides users with a superior experience versus our competitors across day 0, day 1 and day 2 operation. Apstra remains the only open-fabric management platform on the market, which is not only creating software-only management opportunities, but also driving full stack data center win. We're investing in sales enablement and the tools needed to accelerate our Apstra-driven success during the upcoming year. Customer interest in our Cloud-Ready Data Center portfolio is high, and we continue to be optimistic about the growth prospects for this business in the upcoming year. Our security revenue was essentially flat in Q4, but orders saw double-digit year-over-year growth. We remain confident in our connected security strategy, and believe the convergence of networking and security provides us with a competitive advantage in the portions of the market where we are currently focused. We believe our technical strength in both security and networking will continue to provide tailwinds in future quarters and should enable us to grow our security business during the current year. I'd like to mention that our services team delivered another impressive quarter, and our services business continues to grow year-over-year due to record renewals and strong attach rate. Our customer satisfaction scores once again set new all-time highs, and our service margins came in better than expected due to higher revenue and lower costs. On a full year basis, our service margins achieved a new all-time record of 65.8%, up 170 basis points as compared to the prior year. Our services organization continues to execute extremely well and is focused on driving incremental efficiencies through automation and cloud-delivered insights to not only create new revenue opportunities, but also benefit margin and customer experience. Before I conclude, I’d like to state that our mission at Juniper is to power connections and empower change. Now, more than ever, we are committed to ensuring networking is a force for good in this world, that includes building global resilience to combat climate risk throughout our business and supply chain and enabling solutions for a low-carbon future. We continue to make, monitor and report our environmental, social and governance progress through our annual corporate social responsibility report and CDP responses. Today, we are responding to the need for urgent and bold action. We are committing our global facility to be carbon neutral by 2025. You can follow our progress on our new climate web page, juniper.net/climate. I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Operator:

[Operator Instructions] And the first question is coming from Tim Long from Barclays.

Rami Rahim:

Yes, certainly. Thanks for the questions, Tim. So, I'll start with the first one around order momentum. And I'll just say that orders have been strong for the last year, the last three quarters over 50% year-over-year growth in orders. And they remain strong now. Our order momentum, what we're seeing in the market, the opportunity out there is very solid, very encouraging and it's true across all of our key strategic vertical market segments, Cloud, SP and Enterprise. So, I'd love to be able to say that we're going to continue to see over 50% year-over-year growth on a continuous basis forever. I mean, that's unrealistic. We have been clear that there is a certain amount of early ordering that happened over the last year. And that will eventually -- we don't know exactly when, but will eventually start to gradually decline. But that said, on an adjusted basis, our organic order, the true reflection of the health of the business will grow this year, and that's because of the strong demand environment, in addition I think to the great differentiation that we enjoy in our solutions. On the SP side of the house, I'm very pleased with the performance that we're seeing in our business. Orders grew well into double-digit territory in the Q4 time frame. Revenue grew 8% year-over-year. Orders for a full year basis was also very solid. We're exiting 2021 with record backlog in this area as well. The strength has to do with the broad-based nature of our go-to-market focus. So, it's not just Tier 1 carriers here in North America where we are actually seeing some encouraging momentum, but also Tier 2, Tier 3, cable and international accounts. 400-gig, which we've talked about a lot as an opportunity, it doesn't only apply to the cloud provider space. There are some significant opportunities out in the Service Provider space, especially in the core segment, and we are winning good amounts of those opportunities right now. And I think that will bode well for us in terms of tailwinds for revenue in the future. And last but not least, you touched on Metro. If you think about the part of the network that will benefit the most from 5G RAN deployments that are happening today, it will be the Metro, which is why we've made a strategic decision to invest in this space. And we don't yet have the complete portfolio, but we have certainly seen encouraging signs that we're on to something and something significant. And just as a data point, I'd tell you that our Metro-focused aggregation switch, which is the ACX family of products, now hit, for the first time, $100 million in bookings run rate in Q4. And that's solution, which I anticipate we will have by the end of this year. So that's a very encouraging data point that suggests that we should see some good tailwinds from the Metro opportunity later this year and especially next year.

George Notter:

I guess, I wanted to ask about your pricing increases. I heard what you said in terms of the timing of those coming in later in the year. But can you just talk about customer receptivity? I would imagine that some of your Enterprise customers are a bit easier in terms of taking pricing, but maybe more of a negotiation on Service Provider and Cloud. Can you just kind of walk through like what you're seeing there?

George Notter:

Got it. And then, the Service Provider and Cloud Provider pricing negotiations, so I guess, to underline this, they are taking higher pricing from you guys. Is that fair?

George Notter:

And then anything you can tell us about -- if I remember correctly, you guys raised pricing initially back in Q2 of last year or maybe towards the tail end of Q2 last year. Should those pricing increases be benefiting you earlier this year?

Operator:

The next question is coming from Simon Leopold from Raymond James.

Rami Rahim:

Thanks for the question, Simon. Let me start on the question around the cloud, and then I'll hand it over to Ken to talk about the contribution of price increases to our revenue growth this year. So, I'm delighted with the momentum we continue to see in our cloud vertical. I think the thing that I like the most about what we're seeing in this area is the diversity of the success that we're seeing, not just within the hyperscalers and the cloud majors or between those two, within each of those categories. So in hyperscalers, we traditionally, as you all know, had a very large customer that generated a lot of the growth over the last several years. It's now really much more distributed across a number of significant hyperscale accounts. And I think that speaks to the strength of our footprint, the strength of our technology and the engagements, the solid engagement that we have with the hyperscale accounts. We have, in addition to hyperscale, been very much focused on broadening within the Tier 2 cloud provider space or what we call the cloud major space, and we've made really great progress. The good news is, much of the technology that we develop for hyperscale applies very much to cloud majors, including a lot of the 400-gig wide area networking and data center investments. But in addition to that, our automation portfolio, so the Apstra technology that makes the act of developing or deploying and running a data center very simple now actually has strong applicability to our cloud majors segment. So, it really is strength across the board, and I'm delighted to see the momentum that we have here.

Operator:

The next question is coming from Tal Liani from BoA.

Ken Miller:

Yes. We haven't seen anything notable in the last 30 days. I would say we've seen pretty constant supply constraints for the last few quarters, right? So we have seen, I'm not going to say it's a good environment. It still remains constrained, but we haven't seen anything noticeable in the last 30 days. We expect lead times to remain extended we expect the cost obviously is definitely going out on the cost of components, et cetera. The one thing I would point out, although we comment that it's going to be remain contained for the year, particularly in the first half, we do believe we have line of sight to absolute volume increases year-over-year, right? I mean, we're guiding to a full year growth of 7% to 9% revenue growth. So, at this point in time, even with the constrained environment, and we're not getting as much supplies as we would like to get, we do believe we're getting enough to satisfy that revenue outlook.

Rami Rahim:

Right. I want to make sure I understand the question. Are you referring to the Service Provider segment specifically and then sort of different layers or opportunities within the Service Provider space? Are you really talking about Service Provider, Cloud and Enterprise as three separate segments?

Rami Rahim:

Got it. Got it. Okay. And specifically to routing. So, in routing, whenever you're talking about routing, you should really be focusing on two market opportunities in particular, and that's Cloud and SP. There is obviously also routing that goes into the Enterprise space, but I think our key focus is on Cloud and SP. The big inflection point that's happening right now in both of these segments is around 400-gig. And that is an opportunity for us to take share in that area. But in addition to that, specific to the SP is the Metro opportunity. So, let's talk about 400-gig. I want to be very clear. I am very confident, based on order momentum, right? Not yet seen in revenue because it's still early days in terms of shipping and deployments and building out these networks, but in terms of actual order momentum, where we've seen well over 50% growth for the last three quarters, we're taking share. I am very confident we're taking share. And now add to that in the SP space, the Metro, where there is no way but up for us because it's essentially a brand-new market opportunity for us. It's the fastest-growing subsegment of the routing opportunity within the SP space because that's where most of the 5G traffic needs to flow through. That is another area where I'm very confident we will take share, especially as that portfolio comes together throughout this year.

Paul Silverstein:

Yes. To begin with, I've got a broader question with respect to share gain versus market growth. And I appreciate it's hard to delineate, if not impossible. But the strength you've been referencing across every aspect of your business, Rami, Ken, how much of that do you attribute to a confluence of very strong trends with networking in virtually all of your customer markets, albeit of a different nature? And how much of that is the fact that in a number of cases, such as with Mist for wireless LAN, as well as the pull-through impact on other products? How much of it is a function of share gain? Any insight you can offer there before I have my follow-up?

Paul Silverstein:

Rami, on the enterprise piece, given your comments, risk of different details, but similar in terms of the strength they're seeing and then Cisco being the largest -- obviously, largest incumbent, they are not -- they have been very bullish about their business as well. As I parse on this as we look out longer term beyond 2022, well beyond 2022, there's a lot of what's going on in enterprise from a market standpoint. Does this go back to when there was an incredibly pregnant pause that lasted for years, as many enterprises were not sure, were evaluating what to do with respect to cloud. How many applications to keep on-prem? How much to move to public clouds, et cetera? And that cause a really pregnant pause in the enterprise decision-making with respect to network architecture, network deployment decisions. Are we now seeing the -- is the industry seeing -- or are you and peers seeing the reverberation that that pause is passed and now there's this multiyear investment cycle as enterprise catch up above and beyond the share gains that you've been referencing?

Operator:

The next question is coming from James Fish from Piper Sandler.

Rami Rahim:

Okay. So, I think the question, if I understood, James, is both about around data center switching and sort of more broadly security. And let me first address the easier part of your question, which is the second part. Everything would have grown if it weren't for supply chain constraints. Literally everything. Because we are currently supply chain constraint in terms of what we're able to ship and, of course, that ties to our revenue. Our data center switching business is performing very well. Throughout all of last year, we have grown orders well into double-digit territory. Our revenue grew for the full year last year as well. Our revenue declined in the Cloud-Ready Data Center in Q4, purely because of the timing of orders relative to the availability of specific parts in this somewhat crazy world we live in from a supply chain standpoint. So honestly, I don't -- I'm not concerned at all about demand or about the solutions that we have available to capture those demands and to compete with our peers in the industry. On the security side, there again, I think look at our security from two standpoints. There's sort of a more mainstream, broad-based security that attaches to our enterprise offerings. That actually grew very nicely. There is also a larger high-performance security segment, which is really characterized with these very large high-performance products, our high-end SRX product line that are just lumpy. They're going to vary from quarter-to-quarter. And you're going to -- you saw some of that in the Q4 time frame. But again, the true reflection, I think, of the health of our security business is in product orders, and that grew well into double-digit territory.

Operator:

The next question is coming from Alex Henderson from Needham.

Ken Miller:

Yes. No, thanks for the question. So, our 2022 revenue guide of 7% to 9% is absolutely constrained by supply. If we could access more supply, the guidance would likely be much higher, given the demand strength that we've seen, given the backlog that we’ve built out. So, it is a supply-constrained forecast, if you will. Now, what we said -- nothing's changed and that we still believe the supply chain is going to remain challenged. That said, our confidence in our line of sight to procuring the supply that we need for the year has changed a bit, right? So we were talking about at least mid-single digits. We just had a little more volatility in our assumptions 90 days ago. Now that we're 90 days forward, we feel better about saying 7% to 9%. So, we did raise it from at least mid-single to 7% to 9% basically on our confidence level and our ability to procure supply we need to deliver that revenue goal.

Sami Badri:

Thank you. First, I just wanted to double-click on something you said earlier, Rami, and you've alluded to this twice on this conference call, which is the Metro opportunity and solution set. Can you just expand on all of this? Like, what is required? What are telcos, cables, other SPs, what are they going to need for this? What are you guys specifically looking to add to portfolio and just so we can better understand why this isn't actually in position yet and where it's really going? So that's the first piece. The second piece is on Apstra. And maybe you could just tell us -- I think you mentioned earlier that some of your cloud customers are actually using this. But maybe you could expand if this could actually be much more all encompassing for all your customers to potentially use. Could you just kind of help us understand these two things?

Operator:

The next question is coming from Rod Hall from Goldman Sachs.

Ken Miller:

Yes. So supply constraints are really across the board, and you are seeing ebbs and flows as we solve a particular problem, maybe another problem pops up. As it relates to MX specifically, you could see from the revenue results anyway, Q3 was actually down overall in kind of our SP business and Q4 was up. So we did ship more in Q4 than we did in, say, Q3. But that's going to vary quarter-to-quarter based on timing of orders, but more importantly, timing of supply. So I don't feel there's a unique supply constraint or situation with our MX line cards. It really is kind of across the board, across all of our products and solutions.

Samik Chatterjee:

I just had a question on the operating margin expansion. Does -- some of the companies that we talked to indicated that there's rising compensation costs for '22 to retain employees. Is that baked into your guidance for the at least 100 basis points of expansion?

Operator:

The next question is coming from Amit Daryanani from Evercore.

Ken Miller:

Yes. So, I'll tell you that both, freight is a big chunk of it, as well as just component costs and expedite fees. So I would categorize component costs and expedite fees is kind of the same bucket. If you look at that as a combined group versus freight, both are effectively equally impactful to that number.

Erik Lapinski:

This is Erik on for Meta. I guess, just when we look at the strength in Automated WAN, if we can go back to that, was any of that driven by new web-scale customer projects you've noted, or is that mostly from existing customers? And I guess, if a new customer, would there be any project-based volatility that we should be mindful of?

Operator:

The next question is coming from Jim Suva from Citigroup.

Rami Rahim:

Yes. I think it's fair to think of this as deployment will happen throughout this year, probably more in the second half of the year. Typically, the sequence of events is there's a testing period as part of an RFP process. There is winning the opportunity and then there's a certification period where you work closely with the customer to do use case-specific testing and getting it ready for early feed trials and then ultimately into deployment. So, maybe sort of second half of this year time frame. And that's typically true of most large-scale WAN wins, whether they be in the cloud provider space or the service provider space.

Rami Rahim:

Okay. Well, listen, I just wanted to thank everybody. I appreciate the time and the interest, as well as the confidence that you placed in our -- in myself and in my management team. I hope you can see the confidence that we have in our prospects, both in terms of our ability to deliver revenue growth as well as profitability, and not just for this year but on a sustainable basis. So, thank you. And we'll talk soon.

Operator:

Greetings. Welcome to the Juniper Networks Q3 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host. Jess Lubert, you may begin.

Rami Rahim:

Good afternoon everyone, and thank you for joining us on today's call to discuss our Q3 2021 results. We experienced very strong demand during the September quarter and delivered a fifth consecutive quarter of year-over-year growth, even though supply chain challenges impacted revenue in the period. Orders saw another quarter of mid-teens year-over-year growth when adjusted to account for extended lead time. On an unadjusted basis, orders grew by more than 50% year-over-year for a second consecutive quarter. And our ending backlog is now increased by more than $1 billion at compared to year-end 2020. Order momentum was strong [Indiscernible] vertical, customer solution, and geographies. With each of these categories experiencing growth well into double-digit territory. Needless to say, our team is executing extremely well. Our strategy is working. And investments we have made in technologies that enhance customer operations and improve the end user experience, what we call experience-first networking are allowing us to differentiate across the markets we serve. we serve. This technical differentiation along with the investments we've made in our go-to-market organization are paying off and enabling us to take share and capitalize on some of the big market transitions that are beginning to unfold across the verticals we serve. This is particularly true in the enterprise market, where customers are increasingly recognizing the value delivered by platforms such as Mist and Astra, that dramatically reduced deployment time, eliminate trouble ticket, and reduced meantime to resolution for network problems. These platforms are not only enabling us to win new logos in the campus and the datacenter, but also to pull through other Juniper products that present meaningful opportunities to expand with customers over time. In the Cloud and service provider vertical, we're seeing strong early adoption of our 400-gig capable platform due to the strength of our Juniper bulk operating system, our differentiated silicon capabilities, and the deep engagement we maintained with these important customers. These factors are not only enabling us to maintain our core franchises, but also to secure new footprint, including a large new Hyperscale wind deployment that should present tailwinds for our business over the next few years. I'm also encouraged by the early customer interest in our metro routing portfolio, which did direct a large and fast-growing market where historically we have in place. We expect this opportunity to steadily ramp through the course of next year as new products come to market and service provider 5G investments steadily increase. The bottom line is that I remain very optimistic regarding our future prospects despite the supply chain challenges we are currently navigating. I believe these challenges are likely to prove transitory in nature. And the strong order momentum we're seeing and the backlog we have developed set's us up extremely well to deliver improved growth and profitability in 2022 and beyond. While it remains early, and we'll provide a more detailed 2022 outlook when we report our Q4 results based on current backlog and the August strength we're continuing to see in the market. We currently expect to deliver at least mid-single digit sales growth and at least a point of Operating Margin Expansion in 2022. Our expectations for 2022 do not assume a material improvement in supply chain constraints. Now I'd like to provide some additional insights into the quarter and address some key developments we're seeing from a customer solutions perspective. Starting with our automated WAN solutions, while revenue declined year-over-year due entirely to supply chain constraints, we experienced another quarter of strong order growth with solid momentum in both our service provider and Cloud segment. We saw healthy demand across both our NF and PTF product family and strong adoption of our newer products, as well as our automation software portfolio. Our 400-gig solutions are performing well and enabled us to not only protect our existing footprint, but also to secure new wins that includes several large opportunities with our Cloud customers, including the hybrid scale opportunity I previously referenced. Driven in part by these opportunities, our Cloud orders saw a second consecutive quarter up triple-digit growth year-over-year. While we are continuing to see strong customer demand for our automated LAN solution, these products are currently the most impacted by supply chain challenges. As a result, we continue to expect revenue from this segment to be within the range of our long-term model calling for a 1% decline to a 3% growth this year despite the strong demand, we are seeing. Our Cloud-Ready Data Center solutions experienced 26% year-over-year revenue growth in Q3, and another quarter of encouraging order trends from our Cloud enterprise and service provider customers. We continued to see strong momentum with new logos and deal greater than $1 million. As I mentioned last quarter, Astra is creating a significant buzz in the market, which is not only leading to more software opportunities, but also full-stack datacenter wins. Customer interest in our Cloud-Ready Data Center portfolio is high. And we continue to be optimistic about the outlook of this business. Based on the momentum we are seeing; our Cloud ready datacenter business is now tracking to meet or exceed the high end of our long-term model looking for 5% to 9% growth year-over-year. Finally, our AI driven enterprise solutions significantly outpaced the market and grew 35% Year-over-year. Our mid AI differentiation continues to win in the market as wireless orders experienced another record quarter with triple digit growth and a record number of deals greater than $1 million. Our mystified revenue of wireless LAN, wired access, Marvis Virtual Network Assistant and associated EX pull-through, nearly doubled year-over-year. And we experienced record EX pull-through in the period. With this pull-through revenue growing more than 200% year-over-year. This momentum enabled EX to achieve the highest level of sales since 2014. We expect this momentum to continue in future quarters as customers increasingly recognize the value of AI driven Cloud operations, including new and innovative features such as EVPN - VXLAN fabric management in the Mist Cloud, which has launched this quarter. On a year-to-date basis, our mystified revenue has more than doubled year-over-year. We're also seeing very positive results with our AI -driven SD-WAN solution, which earned Juniper distinction as the only visionary in the Gartner WAN Edge Magic Quadrant published last quarter. We saw a record quarter for our Session Smart Router portfolio acquired from 128 technology with triple-digit year-over-year growth and [Indiscernible] in various sectors like retail and banking, plus especially strong traction with the federal government. In addition, branch SRX developed last quarter hit a two-year high. The pipeline for our AI-driven SD-WAN is strong, as both prospects and partners are gravitating towards the unique benefits provided by Juniper AI off with assured client to Cloud experiences. We are particularly encouraged by the number of full stack multi-million-dollar wins we're seeing in the campus and branch. Where companies are turning to Juniper for a combination of their wired access, wireless access, and [inaudible 00:10:45] retailer and leading international construction company in Europe and managed services providers in North America and Europe. This highlights the value of our AI driven enterprise offerings to customers and partners across all verticals and all Geo's. We believe that this AI continues to offer unique and market-leading differentiation, including self-driving operation and predictive actions driven by our virtual network assistant, Marvis, resulting in the best user and operator experiences. I am very pleased with the momentum we're seeing in this business. And now we expect our AI driven enterprise solution to see at least 20% growth in 2021. Our security revenue experienced strong results in Q3, with total revenue growing 9% year-over-year. Product revenue increasing by 16% year-over-year, which marks a third consecutive quarter of double-digit product growth. Strength with broad-based across our high-end, mid-range and branch SRX products, as well as our virtual SRX offerings. Our connected security strategy is gaining traction in the market because the convergence of networking and security provides us with a competitive advantage. And we continue to receive third-party accolades on our solutions from organizations such as ICFA and Net fax open often besting all competitors in head-to-head tech. We believe our technical strength in both security and networking will continue to provide tailwinds in future quarters and should enable us to grow our security business during the current year. Our software momentum, accelerated in Q3. Software and related services revenue grew 67% year-over-year as we experienced growth with ratable subscriptions, solid uptake of our Flex software licenses, and strong sales of certain perpetual onbox licenses. ARR grew 34% year-over-year, driven by a combination of mid subscription, ratable security software offering, and the related services associated with these software offerings. We experienced a record software orders in the quarter due to broad-based strength across verticals and customer solutions. Momentum is strong in both rattible subscriptions offerings, as well as on bluff flex licenses. Based on the momentum we're seeing, we're currently tracking ahead of the long-term total software and ARR target we presented at our recent Investor Day. I'd like to mention that our services team delivered another solid quarter and continued to grow on a year-over-year basis, due to strong renewal and service to tax rate. Our services team continues to execute extremely well to ensure our customers receive an excellent experience. I would like to extend my thanks to our customers, partners, and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Operator:

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. We also remind everyone to limit themselves to only one question. One moment, please, while we pose for questions. And our first question is from Rod Hall with Goldman Sachs, please proceed with your question.

Rami Rahim:

Thanks for the question, Rod. So, the short answer is, it's absolutely supply-chain limited. It just so happens that as you might imagine, for automated when the predominant product is routing, routing is when a more complex products that we need to build. They use the most amount of the sophisticated semiconductor components. And for that reason, the discrepancy between revenue and orders is going to be greater for automated WAN and by connection also for the service provider. Having said that, I'm very pleased with both our service provider and our automated WAN momentum, especially from a booking stand point I should mention every solution area automated WAN Cloud ready datacenter and the AI driven enterprise had order growth of over 50%. It's just that the automated WAN had a biggest impact from when it came to supply chain challenges. I really like the fact that our newer products that we've introduced into the market line cards for the MX, line cards for the PTX are performing very well. That's something that we monitor closely. We've talked a lot about the Metro opportunity, which in large part hasn't really positively helped us in any significant way that really, I think next year and year after it's when if kicked in. But nonetheless, we're seeing very solid early momentum with record orders for our ACX product line, which is predominantly used in that metro opportunity. And the last thing I'll say about automated WAN which is very encouraging, is our 400-gig win rate. So, while we don't necessarily see a tone of revenue yet, with 400 gig deployments, we are looking at very solid wins and also growing orders at this point, which is reflected in the automated WAN order growth.

Rami Rahim:

Yes. So, we've been building backlog throughout the year and it did grow quite healthy in Q3 as well as you noted, Rod. It is really across the board. I mean, backlog is up across all customer solutions. I would say that the automotive WAN is up a little bit more than the others, but it really is an across-the-board backlog build with a little bit more slanted towards automated WAN. So, we are entering the fourth quarter, and I believe next year with a very healthy backlog across all products, but automated when it is, I would say, the healthiest, if you will.

Rami Rahim:

Sure. Thank you.

Samik Chatterjee:

Thanks for taking the question. I guess I just wanted to start off by asking on pricing. What kind of actions have you taken on that front? If you can just break that down in some different verticals. Where are you finding it easier to take pricing, where it's been more difficult and in relation to the supply chain driven headwinds on gross margin when do we get to a point where you can be more net neutral with the price -- the pricing actions that you take? Another follow-up, please.

Samik Chatterjee:

Got it. As far as a follow-up, you are guiding the 5-plus in revenue growth and mid-single-digit as you call it, revenue growth in 2022. In the past, you've given some color about growth expectations by the vertical, just wanted to -- I can see different drivers, you have Cloud, you have the benefit of 400 gigs is Momentum and service provider as lenders. If you can help us think about directionally which vertical is probably going to be your strongest growth vertical and rank order them in terms of growth for next expectations for next year?

Ken Miller:

The only thing I'll add, we'll provide more color on our next call as we typically do in the beginning of 2022. So, our Q4 call, we'll provide more color on FY '22 at that time.

Ken Miller:

Okay.

Clinton :

Hey guys, this is Q - Clinton for [Indiscernible] Thanks for taking our question. Maybe touching base again on the Enterprise side, we've seen some really strong quarters, especially within the [Indiscernible] business. How should we think about the puts and takes of the Enterprise strength? Is it driven more by kind of delayed projects returning or are we seeing Juniper gaining more share? Are winning more against the incumbents? Thank you.

Ken Miller:

And I just want to add on to that a little bit. So as Rami mentioned, Enterprise from a revenue perspective was up 7%. We already talked about automated WAN and service provider being a little bit stunted because of supply. And I just want to make sure everyone is aware that all cuts, whether it's Enterprise Cloud or SP, or Automated [Indiscernible] Cloud Ready Datacenter [Indiscernible] than Price. All numbers are actually lower from a revenue perspective than we would otherwise expect if it were not for supply constraints. We're not going to give you an absolute number, but it could have been, but in one way to look at it is the difference between our adjusted bookings on a product perspective, which is 15% or mid-teens in Q3 year-over-year as compared to our revenue growth on a product perspective of 5%. So, it's easily to imply that there's an extra 10% of revenue growth that did not happen due to supply constraints. and that would have really lifted all boats, Enterprise, Cloud, NSP.

Operator:

Our next question is from Simon Leopold with Raymond James, please proceed with your question.

Ken Miller:

Yes. So, as you can see from -- we provided the actual reported gross margin of 60.1 this quarter, which was above midpoint due to product mix being favorable. But we also talked about what it would have been if it weren't for the elevated costs which would have been close to 61.5%. So, these elevated costs are hitting us now. And one thing I would say, Simon, yes, we have purchase orders throughout all of next year. In some cases, out 50 weeks, in other cases, out 80 weeks, in an attempt to secure supply. And these are non - cancelable committed purchase orders with pricing. That said, this pricing environment is taking that and throwing it out the window. We are seeing costs going up despite the fact that we have orders in place. So, we are expecting -- the orders we have in place are not necessarily the price we are going to pay. Whether it's disguised in the form of an expedite fee or purchase price variance, etc., we're seeing costs going up in advance of those orders being fulfilled if that makes sense.

Ken Miller:

Not providing 2022 specific gross margin guidance at this point, there's just too much uncertainty. You could count on us giving you a better understanding 90 days from now on our next call. I will say this, we're not dependent on gross margin improvement next year for us to hit our commitment of at least 100 basis points improvement in operating margin. So, we're very committed to expanding profitability next year and we're not dependent on gross margin to do that, but we are very committed to expanding profits.

Ken Miller:

Yes.

George Notter:

Hi, guys. Thanks very much. I guess, as I listened to the call, you guys have turned out a lot of numbers. Certainly, some eye-popping stats, I think, in terms of the additional billion-dollars in backlog, triple-digit order rates across a number of your business lines and customer areas, and yet we're talking about mid-single-digit growth for next year. Certainly, I think you caveated that at least mid-single, but I guess I'm trying to understand sort of the delta between all these numbers. I mean, it seems like at some level you expect that some of your customers have double and triple ordered with you. And I guess I'm wondering like how you see that dynamic and how does that play out going forward?

Ken Miller:

Absolutely. I mean, there's no doubt that the limiting factor or the primary input into our guidance or outlook for next year is supply. This really has to do with how much supply we think we're going to have access to next year. And that's where we came up with at least mid-single digits. If it were purely a demand equation, the number would be much greater than that. And that that holds true to nominate next year. But also, this year.

Operator:

Our next question is from Meta Marshall (ph.) with Morgan Stanley. Please proceed with your question.

Rami Rahim:

Yeah. Let me start with your question about Astra. So first, I'll just say very quickly that we never anticipated that Astra would be a significant opportunity in the hyperscale space. Primarily because the top 5 hyperscale customers tend to develop their own automation software. That being said, everything outside of hyperscale

Meta Marshall:

Great, thanks, guys.

Operator:

Our next question is from Amit Daryanani with Evercore ISI. Please proceed with your question.

Rami Rahim:

Yeah, I sorry, you glitched there for a second. I think you're asking about Mist Wi - Fi, and then also the.

Rami Rahim:

Got it. Thank you. So first, I think by any measure, Mist has been an incredible acquisition for Juniper Networks, and it really has put our enterprise business on a significant growth and take share of trajectory. Q3 was no difference in terms of the quarter-over-quarter record we continue to make. This was a record AI - driven enterprise orders quarter and record AI - driven revenue quarter for us. Order growth is well into double-digits and Growth in all customers verticals, SP Enterprise and Cloud providers that are all bracing the technology. And I think I did mention that it's not just about WIFI, although Wi-Fi___33 in and of itself was a record and it hit triple-digit bookings for the first time in the Q3 timeframe. We saw a record number of EX pull-through, both in units, but also in revenue as well. So that has always been the strategy for Mist, not just about Wi-Fi___33, it's that entire client to Cloud connection that includes Wi-Fi___33, wired, and WAN. We're seeing the full benefit in wireless and wired, as we integrate 128 technology into the LAN, which is really going to happen by the end of this year. And the first part of next year, I think we'll see a similar pull-through effect happening on that side as well. So, the momentum has just been really strong. I expect that to continue for sure.

Operator:

Our next question is from David Vod with UBS. Please proceed with your questions.

Ken Miller:

Yes. So, I think those numbers you're referring to are in the ballpark from an adjusted bookings perspective, our actual backlog is growing much faster than that. We've talked about greater than a billion. So much bigger numbers. But if you just go to our adjusted bookings number, which is that mid-teen number, that delta the revenue or the numbers you just quoted and those are the revenue that we could have or arguably should have recognized already, right, in Q3. That plus 10%, that $70 million you were referring to. That if there were not supply constraints, we would have recognized approximately that much more revenue is really the math I want you to understand. From a backlog build is much greater than that because customers are placing orders at a faster rate.

Ken Miller:

I do think that the backlog build, whether it's the adjusted bookings backlog build or even the unadjusted, for that matter, is going to ship essentially. So, I think that gives us confidence in our revenue outlook of at least mid-single-digit revenue growth. The reason why we're not guiding more than at least single-digits is supply constrained. So, we are supply constrained today and we're expecting to be supply constrained next year as well. So how much of that backlog and how quickly we are able to ship it is still uncertain at this point, but we feel very good about at least mid-single-digit growth due to the strength of our backlog, due to the strength of the momentum we're seeing on the bookings side, quite honestly, the execution we have in the field and depart differentiation we enjoy. So, there's a lot of reasons to be more bullish, the one reason to be somewhat prudent is supply and that's something that's keeping us kind of at the at least mid-single digit level at this point.

Ken Miller:

Sure.

John Najam :

Thank you for squeezing me in. I apologize I missed much of the call so if I'm repeating, I apologize. but I just want to get a better sense on your gross margin trend. In terms of -- can you give us some color on pricing environment, and how much of a percentage does that offset to a degree the component and freight costs that are impacting your near-term gross margin and how do you think the pricing environment plays out next year? I suspect it's probably favorable when -- and if anything, if I look at some of your peers like Cisco who highlight is significantly benefit in the fourth quarter for the pricing environment, I suspect you are also likely to benefit from that. So, can you give us a color on how that plays out versus component costs?

John Najam :

Can you share how the customer feedback has been on the price hikes, especially like are you getting a lot of pushback? Can you give us some color on the discounting environment, is it more discipline across the market? And should that all else being equal, if you have a favorable discounting environment, wouldn't that a good degree significantly offset the component headwinds that you've highlighted?

David Vod:

Appreciate the answer. Thank you.

Operator:

And our next question is from Jim Suva with Citigroup. Please proceed with your question.

Ken Miller:

Yeah. Next year's outlook does not assume any new acquisitions. The acquisitions we made approximately 12 months ago are now baked in to our run rate and baked in to next year's outlook. Those businesses are growing. And so, you would see a year-on-year improvement if we were to break that out, which we're not. But we have back that into our at least mid-single-digit Growth. But this is an organic Juniper as today, outlook for next year does not require any additional M&A.

Ken Miller:

Sure.

Paul Silverstein :

I appreciate you squeezing me in all I do apologize if this has been asked and answered. First off, with respect to web-scale customers, I know 60 of your top 10 customers were Cloud and I know there has been pretty typical with presiding quarters but are all 4 of the Web Skill Johnson among those 6.

Rami Rahim:

I do want to add just Paul, that our Cloud provider businesses is performing incredibly well. second quarter of triple-digit order growth. And I love the broad-based strength that we're seeing. So, we're seeing an expansion within Hyperscale of opportunities and diversity across the four or five big hyperscale customers. So, it's not just our traditionally largest Cloud provider customer that's driving that growth, is also other hyperscale customers and add to that, that Cloud major Tier 2, Tier 3 Cloud providers that are also performing very well. There's an additional element of strength and broad-based diversity and net is in the technology space. So, routing, switching, and security are all performing really well within the cloud provider segment.

Rami Rahim:

Well, I am not going to answer a question that specific to a customer. However, I will say, I'm looking at the hot off the press earnings results from our -- the Hyperscale Cloud providers looking at their capex rates and feeling very good about that because as long as their business is performing well, they will need to invest in their infrastructure to maintain that strength, to keep up with the demand that they're seeing and we will benefit from that. The simplest that our footprint in routing within Hyperscale is phenomenal. We've maintained that footprint despite many attempts by competitors to take slices of it away from us. And then as you get into the top 10 and Cloud major, it's not just about routing, it's about routing and switching for us.

Ken Miller:

Yeah, I think given the strength of our backlog and that's the most tangible way to look at it. I mean, we have a hard order in place for a much greater percentage of next year's revenue than we normally would entering the year. So, I think that absolutely gives us better visibility than we are accustomed to as we enter in future periods.