Juniper Networks, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Juniper Network's 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. Thank you, Operator. Good afternoon, and welcome to our second 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 10Q, the press release, and CFO commentary furnished with our 8K 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 Q2 2022 results. We delivered strong top line results during the June quarter. As total revenue of $1,270,000,000 exceeded the midpoint 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 remained healthy, and we are seeing attractive opportunities across our enterprise, cloud, and service provider markets. With that said, we were particularly encouraged by the Q2 momentum in our enterprise business, which not only delivered a record revenue quarter, but also saw orders increase by 20% year over year. We believe this strength is reflective of our sustainable differentiation in 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're 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 one US 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 parts 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-based Flex software, off-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 radical 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're now continuing to see strong 400 gig momentum with our cloud and service provider customers, including the new 400 gig core win with the US 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 TRIO6 silicon, including the MX10K, the LC9600 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 multi-service edge environments. We also saw another quarter of triple-digit order growth for our ACX Metro portfolio and introduced several new platforms such as the ACX 7024 and the ACX 7509, 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'm 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 Mystified portfolio, which grew more than 60% year-over-year, achieving another record quarter for both Myst Wi-Fi and Mystified 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 CyberRatings 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.