Juniper Networks Inc (JNPR) — Q1 2022 Earnings Call Transcript

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-Q, the press release, and CFO commentary furnished with our 8-K filed 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 in 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 turn 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 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 see enterprise become 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 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’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 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 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 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 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 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 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 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 levels. 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 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 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 ready 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, who 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 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 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 and 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 that 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 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 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 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 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 in 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.

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 million in revenue, above the midpoint of our guidance and up 9% year-over-year. Non-GAAP earnings per share were $0.31, 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 providers, 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 offset 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 $0.21 per share. We also repurchased $112 million worth of shares in the quarter. Total cash, cash equivalents, 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 million, plus or minus $50 million, which is growth at 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 $0.45, plus or minus $0.05, 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.

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 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 the 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 data center 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 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 solid industry tailwinds coupled with excellent execution of our sales and engineering team.

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, and also heard 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. 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 pick up 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 data center. 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 the 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.

Rami, I would just reiterate, I think for all of our verticals, including service provider, and all of our customer solutions, including CRBC, 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. In 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 that you saw last quarter and this last Q4 and that will continue. But for the long run, we feel very good about all verticals and all customer solutions.

Yeah. 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 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 more Mist 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.

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 supplier? Is it just all these disruptions that make it impossible to 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 90 days what we’re going to ship 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 a kind of 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 in 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 expecting the $1.8 billion backlog given that change? I know you mentioned aiming to exit the year with that amount. Do you think the backlog you end with might be a bit higher, or do you still believe you can stick to that? I believe it was $1.8, if I remember correctly.

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.

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.

I would say the duration is similar to what we observed last quarter. To clarify, customers are generally seeking the product sooner than we can provide it. Unfortunately, due to the supply constraints we are facing and the lead times involved, customers are actually interested in receiving the product sooner than we are currently able to deliver.

Yeah. As a quick follow-up to Simon’s question about the data center footprint, it seems significant. Ken, in the past, you've been hesitant to view data center switching victories as a major opportunity for Juniper among some of the major cloud vendors. Has your perspective changed on that? How would you describe the competitive landscape? Was it a competitive displacement? Any additional insights on that significant 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 are very few at that, 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 that. And we absolutely saw that as a strategic opportunity for us to go in 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 achieve pretty difficult tasks of getting the supplies when it was in fact required and requested by the customer. So, all of the above led to a sizeable win. I want to be clear that we continue to see a 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 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.

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 of 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.

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.

It's a great question. Headcount is increasing, and we anticipate our operating expenses to rise as well this year compared to last year. We expect to significantly maintain our operating expense spending and believe revenue will surpass operating expenses this year. This gives us confidence in our ability to expand our operating margin, and we continue to aim for a 100 basis points improvement in that margin. From a headcount perspective, most of our investments are in go-to-market strategies, particularly in the enterprise sector, where we see a chance to leverage our unique portfolio. We are looking beyond just the current and next quarters, focusing on the next several years to capitalize on the opportunities in the market. Hiring salespeople does come with a learning curve and a productivity ramp-up, but we've accounted for this in our models. We feel optimistic that we can continue to outperform in the enterprise market as we have been, and our investments will provide us with sustained revenue momentum in the future.

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?

Yeah, so we’re not prepared to provide specifics on 2023. I will say this: last year, we did 6.5% revenue growth on a full year basis, this year we’re expecting 7% to 9% growth on a full year basis, and we are expecting to exit the year with significantly elevated backlog, so that does give us a lot of confidence in 2023. We’ve been outperforming the model, and I think there’s really no reason to believe we won’t just continue to outperform in 2023, especially if the supply chain starts to normalize, because we do have the backlog built up and the opportunity to turn into revenue, I think will be with us for not just 2023, but quite honestly, a few years to come.

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 gain for you right now?

Yes, it’s a good question. I do think 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 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 and 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 solutions based on the Mist 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 Apstra for automation, and our underlay switching technology. The differentiation is solid; it addresses the key pain points 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 PTX 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. In your prepared comments, Rami, you mentioned some new wins and I think you’d mentioned the word 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 a top 10 customer? So just any clarity to help us, 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 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 less 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, I’m excited. Cloud-ready data center grew 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. 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 pure 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.

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 may be 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 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.

When it comes to chips versus general components, it's unfortunately a bit of a whack-a-mole situation. The dynamics really vary depending on the circumstances and the quarter. Currently, I would say we're facing constraints fairly equally across the board, including some of our higher-end ASICs and lower-end transistors. We're actively searching the market, like everyone else, to secure as many parts as possible across a wide range of components. While we were able to ship more in Q4, it was largely a higher-end portfolio compared to our expectations for Q1. However, this is mainly about the timing of shipments, and I don't believe there has been a significant change. We would have preferred to ship more in Q4 than we did, and I still believe we experienced shortages in Q4. We might be facing even more shortages in Q1, but these issues are ongoing. The challenges really depend on what we can manufacture and when we can ship, which will continue to fluctuate from quarter to quarter.

I have two quick questions if I may. I see that Mist is a major differentiator for Juniper, and your product portfolio in the enterprise sector has grown significantly since you entered that market back in 2008. When you initially entered the enterprise space, you quickly grew that business from ground zero to approximately $850 million in revenue, which was an incredible achievement. The product launch was very exciting at the time. However, it seems that growth stalled around 2015 and 2016. My question is, considering the current breadth and depth of your product offerings, what are the risks from a channel go-to-market perspective or other factors that could lead to a scenario similar to what happened back then? I understand the numbers suggest that is unlikely, but I'd appreciate your thoughts on that. Lastly, I have a quick question regarding Aurrion and Synopsys.

Okay, Paul, 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 up from a solution, go to market, channels, you name it, 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 to understand 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.

Thank you for the response. Regarding the Synopsys joint venture, I assume there has been a significant amount of operating expenses since the acquisition of Aurrion back in 2016 or 2017. Will there be an impact on operating expenses now that it will be indicated as a minority interest on the income statement? Specifically, will you eliminate the research and development and sales and marketing expenses associated with that? Also, do you have any concerns regarding the lockdowns in China?

I didn’t catch the last part. Concerns on what channel, what?

China. China lockdowns.

Regarding Silicon Photonics, our spending will effectively drop to zero now that the transaction has closed. Consequently, year-on-year, we won't incur less operating expenses in Silicon Photonics compared to last year. This transaction has been in the works for several months and has been incorporated into our plans and long-term guidance for the year. We are expecting an increase in total operating expenses year-on-year, mainly in go-to-market efforts, as we continue to capitalize on the enterprise opportunities previously mentioned. So, to summarize, this is indeed considered in our long-term targets. About the situation in China, we haven’t experienced any significant impact from the recent COVID-related shutdowns, though we are monitoring the situation closely. We have reduced our manufacturing presence in China, but we still rely on some components from there. Fortunately, the latest shutdowns have not affected us yet. However, we remain vigilant regarding future developments.

Thanks, Paul.

Thank you, everyone. This is for Jim Fish. I appreciate the opportunity to ask a question. Regarding the security business, we have observed some recent slow growth despite strong market demand, but you mentioned there are long-term growth opportunities. Can you clarify what makes you optimistic that we can see a return to a stronger security performance? Additionally, any insights on how sustainable this growth might be would be helpful. Is this a temporary increase for one or two quarters, or can we expect it to continue into 2022 and 2023? Thank you.

It's a great question, and I'm glad you brought it up. First, it's important to note that we view our security business mainly as an attachment to our strategic solutions, especially our AI-driven enterprise and cloud-ready data center offerings. This approach is already supporting the success and growth of those specific areas. Additionally, security has a strong software component that positively impacts gross margins and contributes to profitability. There is a segment of our security business that targets a smaller number of cloud and service provider accounts, which is somewhat cyclical. The purchasing and deployment patterns of these larger accounts often result in bulk orders, leading to some variability in our security business. However, we continue to see robust demand for our solutions, and the integration of security features indicates a positive outlook for us going forward. This is why I remain optimistic about the potential of this business.

Thanks very much. 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.