Juniper Networks, Inc.

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

Thank you, Operator. Good afternoon, and welcome to our Third 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 Q3 2022 results. We delivered better than expected results during the September quarter. as total revenue of $1,415,000,000 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 growth and operating margin also exceeded expectations, resulting in non-GAAP earnings per share of 58 cents, which was above the high end of our quarterly guidance. Our Q3 results reflect the strong demand we've experienced across customer verticals and solutions 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 seeing high single-digit year-over-year growth when adjusted to account for customers placing orders early due to the extension of 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 timeline for certain projects, by and large, we remain encouraged by the overall momentum we're 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 WAN and data center environments. 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, where 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 Caderos, 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 upgrades and data center builds that are likely to present multi-year revenue tailwinds as supply improves. These customers are consuming prior purchases and forward revenue visibility remains high. The large deals we announced previously are performing and we're 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 costs 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're now incrementally more confident regarding our top line outlook and our ability to shift 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 timeframe. Revenue saw double-digit year-over-year growth across all customer verticals, with particular strength in our MX product family, where our newer 306-based products such as the MX10K, the LC9600 line card, and the MX304 continue to perform exceptionally well. We are continuing to see strong demand for our 400GB 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 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 abstract 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 Abstra Freeform, which provides more flexible deployment options and expands the list of potential customers we can address, we remain optimistic regarding the outlook for Abstra 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 continued 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 Myst AI and the cloud. This area saw both revenue and orders grow more than 50% year-over-year. with record sales of missed Wi-Fi and EX switching. On an annualized basis, our mystified order run rate surpassed $850 million in the Q3 timeframe, 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 healthcare provider in the U.S., a large U.S. 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 products, all managed via a common microservices cloud and six-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 networks 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 quadrants for wired wireless land 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 mid-range 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 timeframe, 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 irratable 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 in its tax rates. In addition to strong revenue, we also achieved another quarter of solid services margins. Our services organization continues to execute extremely well, and it's 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.