Juniper Networks, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Juniper Network's first 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.

Thank you, Operator. Good afternoon, and welcome to our first quarter 2022 conference call. Joining me today are Rami Rahim, Chief Executive Officer, and Ken Miller, Chief Financial Officer. Today's call contains certain forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties, and actual results might differ materially. These risks are discussed in our most recent 10-K, the press release, and CFO commentary furnished with our 8-K file today and in our other SEC filings. Our forward-looking statements speak only as of today, and Juniper undertakes no obligation to update any forward-looking statements. Our discussion today will include non-GAAP financial results. Reconciliation information can be found on the Investor Relations section of our website under Financial Reports. Commentary on why we consider non-GAAP information a useful view of the company's financial results is included in today's press release. Following our prepared remarks, we will take questions. We ask that you please limit yourself to one question so that as many people as possible who would like to ask a question have a chance. With that, I will now hand the call over to Rami.

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 event, 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 our focus 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 evident 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 that enterprise was 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 this strength reflects 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 continue to see strong investments include enterprise digital transformation and office reopening projects, 400 gig upgrades 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 are seeing and the backlog we have developed sets us up extremely well to deliver solid growth and improved profitability in the 2022 timeframe and beyond. Based on our recent order momentum, current backlog levels, and our assumptions regarding supply, we still expect to deliver 7% to 9% sales growth and still are targeting at least a point 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 tailwinds 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 shipment, demand for these solutions remains exceptionally strong as we experience at least double-digit order growth across all customer verticals and all major product families, including our MX, PTX, and ACX offerings. We are continuing to see strong 400 gig momentum with our cloud and service provider customers, which should present building tailwinds 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 MX 10K product family experienced a record quarter and our new LC9600 programmable 10 terabit 400 gig capable line card, which leverages our latest 306 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 ACS Metro portfolio and growing demand for our Paragon automation software. With additional 306-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 center switching opportunities that span across cloud 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 Mystify portfolio, which surpassed a $400 million annualized revenue run rate in Q1, as both the wireless business and the related EX wired switching pull-through more than doubled year-over-year to record levels. Mystify's 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 missed AI engine, a modern microservices 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 help desk 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 missed AI. While many of these capabilities are well-known, Juniper also delivers 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 ready their offices for return to work. Recognizing this point of critical differentiation, Gartner recently listed Juniper MIST as a magic quadrant leader for location-based services, making us the only vendor to make the leader's 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 missed AI differentiation. In Q4 of 2021, we acquired WhiteSand, a small private company with exceptional talent 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 have 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 mystifying 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 a large financial services organization 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 revenue 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 a 100% detection rate against cyber threats, the top results achieved by all other security peers. customers are telling us that in light of ongoing geopolitical difficulties, 100% security effectiveness is more important than ever and gives 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 offerings to term-based licenses, introducing more ratable subscription offerings, and training our sales organization to better monetize the value of our software stacks. While these efforts remained in the early innings, we experienced another quarter of encouraging momentum in the Q1 timeframe, which saw total software and related services revenue grow 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 revenues, which solely consists of truly ratable software subscriptions and related services, increased 30% year-over-year due to the strong demand for missed and security subscriptions. We are encouraged by the progress we are 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 margins. 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 margins. Our services organization continues to execute extremely well and is focused on driving innovation through automation and cloud-delivered insights that not only create new revenue opportunities but also benefit margins and the customer experience. Now I'd like to provide an update on our silicon photonics efforts, which have 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 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 drive 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 component sales and licensing models. We will also maintain an ownership interest in the new entity that will allow us to benefit from its products 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. Daryl 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 leads our sales organization in excellent shape, and I'm confident we have the talent and the organizational tools to navigate this 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 our stakeholders. I will now turn the call over to Ken, who will discuss our quarterly financial results in more detail.

Thank you, Rami, and good afternoon, everyone. I will start by discussing our first quarter results and end with some color on our outlook. We ended the first quarter of 2022 at $1,168,000,000 in revenue, above the midpoint of our guidance and up 9% year over year. Non-GAAP earnings per share was 31 cents, in line with our guidance and increased 3% year over year. Product orders remained strong in the first quarter, posting greater than 35% year-over-year growth, and we again saw double-digit order growth year-over-year across all verticals and customer solutions. Some of this order strength continues to be attributable to industry supply chain challenges, resulting in customers placing orders ahead of their normal order rate to account for the extended lead time. After adjusting for these early orders for certain large customers, Total product orders are estimated to have grown double digits versus last year. Our backlog increased more than $300 million on a sequential basis. Looking at our revenue by customer solution, we saw revenue growth in all areas on a year-over-year basis. Automated WAN solutions revenue increased 1% versus the first quarter of 2021. Cloud ready data center revenue increased 20% year over year, and AI driven enterprise revenue increased 33% year over year. Turning to revenue by vertical, momentum in our enterprise business continued and grew 19% versus the first quarter of last year. For the first time in our history, it represented our largest customer vertical. Our cloud business grew 13% year over year, our fourth consecutive quarter of double digit growth. While service provider revenue declined 2% year-over-year due to the timing of shipments, orders increased double digits versus the first quarter of last year. Total software and related services revenue was $228 million, which was an increase of 60% year-over-year. Annual recurring revenue, or ARR, grew approximately 30% year-over-year. Total security revenue was $161 million, down 1% versus the first quarter of last year. In reviewing our top 10 customers for the quarter, three were cloud, six were service provider, and one was an enterprise. Our top 10 customers accounted for 32% of total revenue as compared to 31% in the first quarter last year. In the quarter, we had one cloud customer that accounted for more than 10% of our total revenue. Non-GAAP gross margin was 57.5%, which was below the midpoint of our guidance, primarily due to the unfavorable product and customer mix partially upset by an increase in service margin. As expected, COVID-19-related supply costs continue to be elevated, and if not for these costs, we estimate that we would have posted non-GAAP gross margin of approximately 60%. Operating expenses on a non-GAAP basis increased 5% year-over-year and was essentially flat sequentially. Non-GAAP operating margin was 11.8% for the quarter, which was in line with our expectations. Cash flow from operations was $193 million for the quarter. We paid $68 million in dividends, reflecting a quarterly dividend of 21 cents per share. We also repurchased $112 million worth of shares in the quarter. Total cash, cash equivalent, and investments at the end of the first quarter of 2022 was $1.7 billion. I'm very pleased with the financial performance in the first quarter. The performance is a testament to our team's dedication and resiliency through these challenging and dynamic times. Now I'd like to provide some color on our guidance, which you could find detailed in the CFO commentary available on our investor relations website. We expect second quarter revenue of $1,255,000,000 plus or minus $50,000,000, which is growth of 7% year over year. We continue to experience significant supply chain related headwinds associated with elevated component, freight, and logistics costs, which are expected to continue throughout the year. We also expect to see a decrease in service margin on a sequential basis. Therefore, we expect second quarter non-GAAP gross margin of approximately 58%, plus or minus 8%, which is up sequentially at the midpoint. Our non-GAAP earnings per share is expected to be approximately 45 cents, plus or minus 5 cents, assuming a share count of approximately 330 million shares. Turning to our expectation for the full year 2022, I'd like to echo Rami's sentiment with respect to the war between Russia and Ukraine. In addition, I'd like to point out that we do not expect this ongoing conflict to have a material impact on our business. Given the strong order momentum and current backlog, we continue to expect 7% to 9% revenue growth for the full year. This assumes the supply chain environment remains constrained throughout the year, similar to current levels, and does not further deteriorate. We expect revenue to grow sequentially through the remainder of the year. We expect supply chain constraints to be particularly tight during the second quarter and remain challenged throughout the year. We also anticipate backlog to remain at elevated levels throughout the course of the year. Moving on to non-GAAP gross margin, which can be difficult to predict due to the uncertain macroeconomic environment, we expect to see sequential improvement through the year. However, given our current view of freight costs and other pressures on supply chain costs, we now expect full year non-GAAP gross margin to be below the midpoint of our 58% to 60% range. we remain committed to disciplined expense management and will target full-year non-GAAP operating margin expansion of at least 100 basis points versus 2021. That said, we will continue to invest to take advantage of market opportunities, and non-GAAP operating expense is expected to be up on a full-year basis, consistent with the guidance we provided previously. Our non-GAAP tax rate on worldwide earnings is expected to be 20% plus or minus 1%. Our non-GAAP EPS is expected to grow faster than revenue on a full year basis. In closing, I would like to thank our team for their continued dedication and commitment to Juniper's success, especially in this challenging environment. Now, I'd like to open the call for questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from Simon Leopold from Raymond James. Your line is live.

Thanks for taking the question. I just wanted to see if maybe you could unpack a little bit about what's going on with your cloud customers. So notable that you talked about a 10% customer breaking in. But I wanted to see if you could dig into the patterns or behaviors of the cloud majors and what's going on with that group in terms of what are they buying and how do you see them growing in their contributions to your cloud vertical? Thank you.

Yeah, thanks for the question. What I'm seeing within the cloud vertical is strength. and and momentum in ordering and in just our ability to compete and win net new opportunity i think that strength is broad-based we're capsulizing 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 the hyperscale is in routing but beyond that it's in both routing and in switching so where 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 remark. 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 data center footprint that's quite meaningful from an order standpoint thus far but eventually it'll 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 on the part of our sales and engineering team.

Thank you.

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

Great. Thanks for taking my question, guys. So just quickly on service provider and cloud-ready data center growth, it looks like the timing of the shipments due to supply chain had an impact in Q4 and then a snapback this quarter. How should we think about normalized growth rate for cloud-ready data center going forward, given sort of the volatility in the supply chain is sort of a 5% to 9% CAGR, still the right way to think about it? And then along the same lines, it looks like SP was impacted by similar dynamics this quarter. That also hurt automated WAN. Should we expect a similar recovery next quarter like what we saw in this quarter in cloud data? And I'll just stop there. Thanks.

Okay, let me start, and then maybe, Ken, you can jump in as well on this one. So I'll start with service provider. You know, 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 you know, provide product to our customers. And this after the Q4 timeframe where we actually saw strong service provider, you know, 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 seen the fastest adoption of any new MX product 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, you know, I still think that in terms of the long-term outlook for this particular vertical minus two to plus two percent we're at if not better than that going forward i think the other part of the question was around the cloud ready data center there from a revenue standpoint we did very well 20 year-over-year growth and from an order perspective even better uh 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 the top 10. That's net new for us. That's just an example of the kind of wins that we're able to achieve these days. Rapid adoption of new merchant silicon technologies in our product offering. Apstra as a key piece of the end-to-end differentiation that brings industry-leading automation and tent-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, 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?

I would just reiterate, I think for all of our verticals, including service provider and all of our customer solutions, including CRVC, we haven't given specific FY22 revenue guidance, but I do believe All verticals, all customer solutions could be at or better than the long-term model that we put out there. And any given quarter, you're going to see a little bit of anomalies, which is really going to be shipment-based or supply chain-based. And you mentioned a couple you saw last quarter in this Q4, and that will continue. But for the long-run weeks, we feel very good about all verticals, all customer solutions. All right. Thanks, Ken. Thanks, Rami.

Yep.

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

Hey, guys. Thanks for the question. I just wanted to check back on the sequential product gross margin weakness. I know you guys talked a little bit about customer mix and also the cost, but I wonder if you could dig into the mix side of it a little bit and talk about how much of that is temporary. Give us any more color you can give us on the mix and how that affected the margins. Thanks.

Absolutely. And if you go back, if you're looking on a trend basis, The biggest impact of product gross margin by far are going to be these kind of COVID related supply constraint related costs that we've been talking about for a while. Even, you know, in Q1, the most recent quarter here, we posted 57.5% gross margin. It would have been, you know, approximately 150, 250 basis points higher, nearly 60% if it weren't 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, but we set our guide at 58 and we came in at 57 and a half. That is a systems mix or kind of a hardware mix issue. And in particular, MX was down a bit. And this is from a shipping perspective. Obviously, it has to do with our ability to, you know, 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, you know, at the time of shipment, you know, 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. And that was really the primary driver in the 50 basis points missed from our guidance.

And then maybe follow that up with just an additional question on that same topic. Do you guys have... any line of sight to that supply, or is it just, you know, all these disruptions just make it impossible to know when, you know, when supply there gets a little bit better? I know that's been kind of an ongoing supply issue for you. So just wondering what the visibility looks like here.

Yeah, it's difficult to predict in any given nine days what we're going to show up more of or less of. It's even difficult to predict, you know, beyond that. I mean, I would say for several quarters now, we've seen 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 of 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'll 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.

Are you guys, given that change, are you guys expecting the $1.8 billion to backlog? I know you said you'd kind of exit the year with that amount. Is there upward pressure on that now? Do you think maybe the backlog you exit with is a little bit higher than that, or are you still thinking that you can kind of stick to that? I guess it was $1.8 if I'm remembering right.

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're going to land, but I'll tell you this, it will be significantly elevated, whether it's 1.8 or 2.1, you know, somewhere in that order of magnitude would be my expectation as we exit the year. So, you know, if supply does not get better, you know, later this year, obviously that will result in even more opportunity in 2023 and beyond as we exit the year with, you know, significantly elevated backlog.

Thank you. Your next question is coming from Aaron Rakers from Wells Fargo. Your line is live.

Yeah, thanks. Just following up on that last question first, just curious, I think in your 10-K filings, you note 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.

Yeah, the duration is similar to what we saw last quarter. Just to clarify, I mean, customers are largely looking for the product sooner than we're able to supply. So that kind of 12-month horizon is unfortunately, because of the supply constraints we're seeing and the lead times that we're dealing with, you know, customers are actually interested in getting product, you know, sooner than we're able to deliver.

Yeah. And then as a quick follow-up, going back to Simon's question on the data center footprint win, it sounds like a big deal. I think, you know, 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, you know, what was the competitive, was it a competitive displacement, you know, just any kind of further additional color on that seemingly large cloud win?

Yeah, Aaron, that's a good question. So we have been reluctant to call a hyperscale data center win because there are very few number of hyperscale customers that use OEMs for their data centers. So let's just say there's just very few at best, which we are completely continuing to compete for. But at this point in time, we're just not announcing any. That said, we've all along said that the opportunity beyond hyperscale is large. with many at-bats, and we absolutely saw that as a strategic opportunity for us to go and to compete for, to take more than our fair share, and we're doing just that. So this net new is a perfect example of a non-hyperscale top 10, very meaningful in terms of orders and revenue, where we competed on the strength of our switching technology, the engagement that we already have with the customer in the routing side that we were able to translate into the switching side, the ability for us to do when necessary, you know, achieve pretty difficult tasks of getting the supply when it was in fact required and requested by the customer. So all of the above led to a sizable win. And I want to be clear that We continue to see large net new opportunities before us, both in hyperscale and in cloud majors, beyond hyperscale, in routing and in switching that we're competing for. And I am, you know, I feel very good about our opportunity to win more of these types of really lucrative deals just based on all of what I've mentioned.

Great. Congrats.

Thank you. Thank you.

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

Hi, thanks a lot. I guess I wanted to ask about pricing. I think you guys, looking back, have taken a couple of pricing actions, but could you give us an update on where you stand there? How much extra price have you embedded into the price list? And maybe talk about when that flows into the model and Is there some potential for additional pricing increases going forward?

Yeah, we have taken a couple actions, pretty significant actions last year. It will take some time for that to 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 make sense for us to take advantage of. You know, nothing to announce on this call, but, you know, you could count on us continuing to look at, you know, all options and making pricey decisions that we think make the best sense for Juniper moving forward. And we haven't quantified the previous actions, but, you know, really our intent here is to offset some of the gross profit dollars that we are going, you know, effectively we're 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.

Got it. And then also, one of the things I noticed, you guys seem to be hiring pretty aggressively, just looking at your headcount numbers. I know there was a little acquisition in here also, but can you talk about where the sales and marketing investments are going and when you expect to start to see the yield out of those investments?

Thanks. 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 prudent in our OPEX spend, and we absolutely expect 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, you know, we're thinking beyond this current quarter, next quarter, and thinking for the next, you know, several years to make sure we take advantage of the opportunity that we see in the marketplace. You know, these do take, you know, when you hire sales folks, obviously there is a learning curve and a productivity ramp. And, you know, we've modeled a lot of it in, and we feel very good that we could continue to outpace the market and enterprise like we have been. and continuing to invest everything could just give us years of revenue momentum to come.

Got it. Thank you.

Yep. Thank you. Your next question is coming from Amit Daryanani from Evercore. Your line is live.

Thanks a lot for taking my question. You know, just full stop, there's always a bit of a debate around the durability of demand that you're seeing. So, Mani, if you look at your backlog, which, you know, not the $2 billion, I think what you said, If you just talk about the quality of this backlog and your comfort and confidence around this, because I guess if I look at the trajectory of how this backlog is built up, it should imply not only do you see high single-digit top-line growth in 2022, but perhaps even for the years after that. So maybe 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 for one year?

yeah so we're not prepared to provide you know specifics on 2023 I I will say this you know last year we did six and a half percent revenue growth on a full year basis you know this year we're expecting seven to nine percent growth on a full year basis and we are expecting to exit the year uh with significantly elevated backlog so you know that does give us a lot of confidence in 2023 um you know we've been outperforming the model and and I think there's really no reason to believe wouldn't continue to outperform in 2023 especially if supply chain starts to normalize because we do have the backlog built up uh and the opportunity to turn that to revenue i think will be with us for you know not just 2023 but quite honestly a few years to come right you know if i could just kind of follow up on this and you know when you think about this out performance that's almost like it's accelerating over here right now for you uh what do you attribute that because i don't think that i mean marks are doing some degree of growth but i'm guessing

From a Juniper perspective, do you think it's share gains or is it you are just able to get somewhat better supply than some of your peers and that's somewhat helping you out? So I'm just curious, what do you think the components of enabling the share gains be right now?

Yeah, it's a good question. I do think, you know, we have done a really good job of managing what is a difficult supply situation, but I don't think that's the primary factor. I think the primary factor is a number of things. One is healthy supply. demand dynamics in the market, really strong product differentiation, solution differentiation in the use cases that we are maniacally focused on and have been focused on for the last several years, and then solid execution. I mean, take, for example, our AI-driven enterprise business grew 33% year-over-year in terms of revenue, also exceptional order growth That's driven by what is a market leading, very differentiated, no longer just Wi-Fi. It's really an enterprise architecture that's cloud delivered, AI driven solution based on the missed acquisition, but expanded to include EX switching and SD-WAN. It really is the best solution in the market. I can also say the same thing about our data center now with the combination of abstract for automation, and our underlay switching technology, the differentiation is solid. It addresses the key pain point for our customers, and it's working. And even in automated WAN, where we have these new product introductions in the MX with brand-new silicon technology, so we're essentially starting just now a new product cycle associated with the MX, and PTS continuing to perform. I think the strength of that solution is helping us out tremendously in winning net new opportunities in the market.

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

Thank you. In your prepared comments, Rami, you mentioned some new wins, and I think you'd mentioned them where they could be significant or material. Were those new wins after you gave your full year 2022 guidance? Are they kind of new since then? And I'm just trying to get a view. When you say significant, are you talking like top 10 customer? Just any clarity to help us, you know, I guess calibrate the excitement and optimism around that. That'd be great. Thank you.

Yeah, so I'll take the question. We're very excited about the win and the opportunity. It absolutely has been meaningful to our order 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 to seven to nine 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 lessened 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.

And just to add, Jim, You know, I'm excited. You know, Cloud Radio Data Center grew at 20% year over year. I don't think that the market is growing that fast at this point in time. And I'm excited not just by this specific win, but what this win, in addition to the ones prior to this one that we've also talked about, means for us in our ability to win even more going forward. You know, we're now competing with new technology that's in the market technology that we have been working with our teams together on for years that's now in the market. And so we have a much better understanding of the competitive landscape, what we're up against in terms of peer technologies, and the fact that we are able to win these new solutions in a competitive space gives us a lot of confidence in our ability to do even more going forward.

Thank you so much.

You bet.

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

Great, thanks. A couple of questions for me. One, just any additional context you could give on what you're seeing as far as supply chain constraints on maybe more of the specialized networking chips versus some of the general componentry and just if there's any different trends there. And then the second question maybe builds upon that of last quarter you guys had had some availability kind of free up on the service provider side. And so just kind of wondering, is it, you know, some of the constraints on the service provider side just coming from the new products or just what has kind of changed from maybe categories of semiconductors that you're waiting for? Thanks.

Yeah. So when it comes to kind of chips versus, you know, general components, I really, you know, the answer is, 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, you know, lower-end, you know, transistors, if you will. We are, you know, scouring the market, and like everybody, to try to procure as many parts as we can across a broad spectrum of components. You know, it's Yes, we were able to ship more in Q4 for kind of a higher-end routing portfolio as compared to, say, Q1 and our Q1 expectations, but that's really just a timing of shipments thing. I don't think there's been a material change. I mean, 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 have persisted, and it's just really a matter of what we could build, when we could ship, and that's going to kind of fluctuate quarter to quarter. Got it. Thanks.

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

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 seven or eight year 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 flatline when you hit 2015, 2016. My question for you is, above and beyond the 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 in enterprise today, that's similar to what happened back when, that you get a replay of that scenario? And I realize the numbers would suggest that's far off. But, you know, if you could address that question. And then I've got a quick question about the Orion Synopsis, David.

Okay, Paula. I'm going to take a crack at that. I think the big difference today is three key things. Maybe four, actually. One, the talent that we have leading the enterprise business that has unbelievable firsthand experience in what it takes to win all ups. from a solution, go to market, channels, you name it. We really have talent with the right depth and breadth that can do it. Second, we did not just set out to solve the technology differentiation that we know is necessary to win, but we set out to solve the go to market requirements that we understood based on the lessons that we had learned, some painful ones in the past, on what it takes to win and to win sustainably. And this, by the way, includes not just the direct selling motion, but the channel selling motion. And keep in mind, again, new talent, new leadership that understands what it takes to win and to create a fabulous channel motion to get this technology to continue to perform well in the market. And then finally, of course, it's the strength of the solution itself. I think the level of differentiation that we enjoy right now in the AI-driven enterprise in particular, but I would also include data center with Apstra, is second to none. I have not seen this magnitude of differentiation qualified not just by internal analysis, but by our customers, by third-party independent analysts ever in the history of Juniper. So I have utmost confidence that this is not a short-term thing. This is a long-term, sustainable competitive advantage, and growth vertical for the company.

I appreciate the response. And then on the synopsis, JB, those are in assets. I assume there's a decent amount of OpEx you've been putting into that since you acquired Orion back, I think it was in 16 or 17. But, Ken, is there going to be a benefit to OpEx now that I assume it'll 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 in... If you can respond to that. Ken, any concerns on China lockdown?

I didn't catch the last part. Concerns on what channel? What? China. China lockdowns.

Oh, China. Sorry. So on the RNPCS, if you look at just our silicon photonics spend, it's going to be, you know, it's going to go to zero here since this transaction is closed. So year on year, we would see less off-deck spent on silicon photonics internally than, say, last year. That said, this transaction was contemplated for a while. We've been working on it, you know, for several months now, and It was factored into our plans for the year, so factored into our long-term guidance. We talked about OPEX being up year-on-year and absolute total OPEX predominantly in go-to-market as we continue to invest to take advantage of the opportunities that Rami just mentioned earlier about our enterprise motion in particular. So it is factored into the long-term targets, Paul, is the short answer. On China, you know, we have not seen any real impact due to the, you know, more recent shutdowns, COVID-related shutdowns. Obviously something we're watching very closely. We have reduced our footprint and manufactured footprint in China, but we still have some dependence there, particularly on the component side. But for the most recent shutdowns, you know, we were so far unimpacted. And, you know, who knows what's going to happen tomorrow, but it is something we're watching very closely. Thank you.

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

Thanks for taking our question. Just thinking about the security business, you know, we've seen some recent deflated growth despite the strong market demand, but you know, opportunity for growth kind of longer term here. Can you help us understand what you're seeing that makes you confident that we can return to some sort of security strength and then any color you can provide in terms of how sustainable this is? Is it a one or two quarter bump or is it something that could kind of persist through 22 into 23? Thank you.

Yes, 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 attached 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. You know, 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, the attach of security I think bodes well for us in the future and why I remain confident about this business.

Thanks, Dan.

Thank you.

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.

Thanks very much. You know, I just want to say that I continue to be very encouraged by the strong momentum we're seeing in our business. I believe that our end markets are performing well. They're healthy. I think they're even recovering in areas that were in fact affected by the pandemic. I love the diversity of the strength that we're seeing across solution areas, across vertical market segments. And I believe that the demand strength we're seeing as well as the execution sets us up well to do very well relative to our long-term outlook that we've already provided. So I want to thank everyone for the opportunity and the time today.

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.