Q3 2019 Earnings Call
Greetings and welcome to the Juniper networks third quarter 2019 earnings results Conference call.
At this time, all participants Arnie listen only mode.
Question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your hosts Jess Lubert Vice President of Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to our third quarter 2019 conference call. Joining me today, our Rami Rahim Chief Executive Officer, and can Miller, Chief Financial Officer today's call contain certain forward looking statements based on our current expectations.
These statements are subject to risks and uncertainties in actual results may differ materially.
Chris are discussing their most recent 10-K, the press release and CFO commentary furnished with our 8-K filed today and in our other SEC filings are 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 result.
Reconciliation information can be found on the Investor Relations section of our web site under financial reports commentary on why we consider non-GAAP information useful view of the Companys financial results is included in today's press release.
Following our prepared remarks, we will take questions. Please limit yourself to one question and one follow up with that I went out hand, the call over to Rami.
Thank you good afternoon, everyone. We reported mixed results during the September quarter total revenue of 1.133 billion was slightly below the midpoint of our guidance due to weaker than expected trends within our service provider business.
I'm just within this vertical more than offset healthy cloud and enterprise sales both of which grew year over year.
non-GAAP earnings per share a 48 cents came in two cents above the midpoint of our forecast is better than expected non-GAAP gross margins and strong cost control more than offset the impact from our incremental trying to tariffs.
While we remain on track to deliver turn to Europe . Your growth during the December quarter, we're now expecting a lower level of growth than we previously anticipated.
The change versus our prior expectations reflects our belief that the service provider weakness we experienced over the last few quarters is likely to continue and that our enterprise momentum will moderate from recent levels based on the order trends, we experienced this past quarter.
We believe these dynamics will more than offset the improved momentum were seeing with our cloud customers.
We believe we are executing well need dynamic environment. We continue to believe in the long term growth prospects of our business and we are investing to win in each of our core markets. Many of which are expected to undergo material technology transitions over the next few years.
Typically transitions present opportunities to gain share and we believe we have the right product strategy and go to market motions needed to capitalize on the Fiveg 400 gig enterprise multi cloud and wife Isix opportunities that are likely to play out over the next several years.
Even our conviction in our prospects and believes that the innovations we are bringing to market should position us to drive a sustainable return to modest growth starting next year. Our board has increased our buyback authorization by $1 billion, we intend to enter into a 200 million dollar MSR this quarter.
Now I'd like to provide some insight into the September quarter and addressed some of the key developments, we're seeing within each of our core verticals.
Starting with the positive we experienced a second consecutive quarter of improved trends within our cloud business during the September quarter, which grew 6% year over year as we continued to see momentum within our customers wider your network, particularly from some of our switching products this past quarter.
Order trends remain healthy and we're optimistic regarding our ability to once again grow this business year over year during the December quarter.
We are encouraged by the success, we are seeing within our cloud customers wide area network and continue to believe we are positioned to grow with their capacity requirements. In this segment now that the MX to Pgx transition is largely behind us.
Well cloud wide area spending trends should present growth opportunities for us over the next few years, we're very much focused on leveraging the 400 gig cycle to capture Hyperscale switching opportunity, where historically, we have maintained limited share.
On this last point, we've started to deliver the systems silicon and software needed to win Hyperscale switching shared during the 400 gig cycle and plans to introduce additional solutions and capabilities over the next few quarters.
We have started to introduce these solutions into our customers' lives and we remain optimistic regarding our ability to secure wins, where even a modest level of success could present material tailwinds for our business in the years to come.
Within our service provider vertical we experienced weaker than expected trends during the September quarter with this business declining 17% year over year due to ongoing challenges many of our carrier customers are facing.
While our carrier relationships remain strong we did see a number of expected project push out of the quarter as many of these customers are choosing to run their networks hotter summer our capital constrained and others have shifted resources to spectrum licenses and ran build outs.
Despite these challenges we do expect our service provider business to experienced sequential growth during the December quarter, and see more modest year over year declines in 2020.
The move up our amex by GE line cards from qualifications deployments the success of our contrail telco cloud platform and the availability of new axis products are some of the reason we expect our served spider vertical to present less of a headwind in future periods.
While we reported very healthy enterprise revenue during Q3 with this business growing 8% year over year, we saw a deceleration in ordered towards the end of the period that is leading us to moderate our enterprise expectations for the remainder of the year.
We believe this deceleration was due to lingering effects associated with the sale transformation actions, we took earlier in the year and macro related weakening in the customer spending environment.
Despite these dynamics, we're seeing some pockets of strength within our enterprise business that are providing optimism and longer term prospects for this business.
First our Q effect switching business experienced growth, both on a quarter over quarter and year over year basis.
You affects orders grew 20% year over year, driven by improved demand within the cloud as well as enterprise data center market.
We believe our industry, leading MVP mdx land capabilities and conch real fabric management software are resonating in the data center market and should position us to grow this business moving forward.
Second I'm pleased by the momentum, we're seeing with missed and the opportunity to bring to the broader enterprise market.
Well the numbers remain small the momentum we're seeing is real and I'm increasingly convinced that mid and the associated pull through it enables should become a material driver for juniper and 2020.
To this point missed customer base has grown 42% since we closed the deal and doubled year over year two proof points of the momentum we're seeing.
It's also worth mentioning we secured over 100, new Missy customer proof concept in just this past quarter more than 80% of which included an X or SRX opportunity.
We believe we have just scratched the surface of missed potential and we are investing to further monetize our existing customer base and capture new logos as the industry transition to wipe by six and the I driven enterprise.
The wife, Fivesix refresh and missed differentiator architecture is already enabling us to win wireless and wired opportunities. We previously were able to address and should present further tailwinds in the year to come.
Third our ft when capabilities are starting to see healthy traction in the market.
This opportunity remains in the very early innings, we believe our ability to offer cloud management security and why capability is resonating with many of our customers and should not only position us to gain share and what is likely to be a large in fast growing market, but also presents another catalyst that helped pull through.
Through our broader campus networking portfolio.
I think it's important to highlight that our security business is continuing to see strength with this business growing 22% year over year in the September quarter, driven by strength at the high end and mid range of our portfolio.
Well, we did not expect our security business to sustain the level of broke we experienced in Q3. We are encouraged by the momentum were seeing and the success of our secure networking strategy, which focuses on bundling security with our networking platforms across several customer use cases.
We think customers are increasingly looking to consume security as part of a networking solution and believe we are well positioned to capitalize on this trend.
We're also continuing to see success in our software business, which grew 13% year over year and accounted for approximately 10% of revenue during the September quarter.
While much of our software revenue today is driven by on Balk software licenses, our off Balk software orders increased more than 100% year over year, an off box subscriptions increased more than 200% year over year due to cost rail security subscriptions and missed.
Based on the momentum were seeing we believe our software as a percentage of sales will continue to increase overtime, especially a subscription based pricing model become more pervasive and gain traction in the market.
Before I turn it over to Ken I'd like to touch upon where we are with our sales transformation efforts, which were set into motion under the leadership of markets Jewel earlier this year.
The goal of these initiatives is to drive improved sales productivity by leveraging a more data oriented approach, putting the right sales incentives into place to encourage the best behaviors and identifying areas the potential savings that could be reinvested into additional quota carrying sales teams.
I firmly believe these actions will not only position us to grow on a sustainable basis, but also to take advantage of the innovations we are delivering across our portfolio to take share.
However, with an organizational change of this magnitude it is not uncommon to see an elevated level of turnover for a short period of time, which is something we encountered early this year.
Well this disruption was largely behind us exiting the June quarter, and we have made solid progress versus our hiring goals year to date, we have not been able to fill our open positions as quickly as we would have liked and many of our newer sellers are now early in the process of ramping to productivity the combination of which has slightly in.
Pack that their trajectory of our enterprise orders.
This disruption along with the emergence of some macro related caution has caused us to expect a slightly more conservative enterprise revenue outlook for the December quarter.
Longer term I believe the investments, we're making it our go to market organization, along with the product innovations, we're bringing to market are the right ones and should position us to deliver a return to modest growth next year.
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 third quarter results in India with some color on our outlook.
Third quarter results were mixed with total revenue of $1.133 billion, an increase of 3% sequentially, but slightly below the midpoint of our guidance range.
Strong non-GAAP gross margin of 61.1% was 1.1 points higher than the midpoint of our guidance.
This strength was driven by favorable deal mix and improved inventory management.
Gross margin strength as well as prudent operating expense management drove a non-GAAP earnings per share of 48 cents two pennies above the midpoint of our guidance range.
Looking at our revenue by vertical on a year over year basis.
Allowed increased 6% and we're pleased with the returned to growth in this vertical.
Well enterprise revenue increased 8% year over year, we did see some weakness in bookings towards the end of the quarter.
Finally service provider declined 17% year over year, which was weaker than expected.
On a sequential basis enterprise increased 10% service, a writer increased 1% and cloud was down 5%.
From a technology perspective, switching increased 9% security increased to 22% or routing decreased 18% year over year.
Software revenue continued to grow increasing 13% year over year and was approximately 10% of total revenue.
Our services business increased 1% you ever here I was flat sequentially.
In reviewing our top 10 customers for the quarter three were cloud six were service provider and one wasn't enterprise.
Product deferred revenue was $129 million down 3% year over year due to the timing of the delivery of contractual commitments.
non-GAAP operating expenses were flat year over year and up 1% sequentially.
Looking at our balance sheet total cash cash equivalents and investments at the ended the quarter was $2.8 billion.
We generated solid cash flow from operations of $185 million for the third quarter.
Sequential increase was primarily due to lower payments to suppliers and lower cash tax payments, partially offset by higher payments related to variable compensation.
I would like to provide some color on our guidance, which you could find detailed in the CFO commentary available on our website.
Revenue outlook shows a modest returned to year over year growth at the midpoint. However, it is lower than previously expected due to continued business challenges at some of our largest service provider customers lingering impacts from our salesforce transformation and macroeconomic uncertainty.
We remain confident in our position in the markets, we serve and in our relationships with our customers.
Our fourth quarter 2019, non-GAAP gross margin guidance reflects the recent increase in China tariffs, which is offset partially by the expected increase in revenue.
We continue to undertake specific efforts to improve our gross margin.
These efforts include value engineering, optimizing our supply chain and service business pricing management and increased software and solutions sales.
We expect a non-GAAP tax rate of approximately 17% in the fourth quarter due to the anticipated reduction in India's corporate tax rate.
Despite the lower than expected revenue outlook, we continue to manage cost prudently and still expect to achieve the low end of our dollar 70 to $1.80 earnings range for the full year 2019.
As Rami mentioned, our board of Directors has approved an additional $1 billion of share repurchase authorization, which brings our current authorization to $1.9 billion.
In addition, we intend to enter into an accelerated share repurchase program for $200 million in the fourth quarter of 2019.
We expect to be opportunistic on future capital returns.
In closing I would like to thank our team for their continued dedication and commitment to juniper success.
Now I'd like to open the call for questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tonal indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q for participants using speaker equipment and maybe net.
Sorry to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from mine of Jeff Kvaal with Nomura Instinet. Please proceed with your question.
Oh, Thank you gentlemen.
Yes, I would love wrong, if you would spend a little bit more time, adding some color to your.
Commentary about starting to deliver software and silicon into some hyperscale for testing what is what does that mean in terms of.
Deep in the process you are with them what what are some of the milestones and timing that we can look for over the next quarter or so.
Hi, Thanks for the question Jeff.
So first as a bit of a context here I'm I'm pleased with the results in the cloud provider space and that Q3 time frame.
It is and no little part due to the really amazing efforts of the engineering team our sales team and what is essentially a pretty impactful product transition from him back to <unk>. The net of the is now we're in a position where we have retained the footprint that honestly leave juniper and a very unique positioning.
In terms of share in the routing space.
Now that allows us to grow with the capacity to requirements of our cloud provider customers and also allows us to focus on net new footprint in particular on 400 gig and the 400 gig opportunity will initially be in the data center interconnect and the data center switching opportunity and will it be.
Actually spend more use cases.
From a technology standpoint, we've already released into the market than you Junos operating system that has been designed very purposefully for the cloud provider space. So has all of the capabilities the Linux native capabilities. The modularity the program ability the telemetry aspects of what.
We know our cloud providers need and want we also have our very first systems based both on merchant silicon and custom silicon offerings that run that operating system and there will be more to come. So we're working on a roadmap of a different systems with different capacities that will be delivered over there.
Next couple of quarters in terms of the engagement with our customers. It's very strong we have the initial proof of concepts that are already in flight right now.
We are not confused about the fact that it's going to be a very competitive space because the opportunities are lucrative but I think that we are well positioned to gain more than our fair share and you know even a small share take in this space would be quite meaningful in terms of the tailwinds It will.
Give us starting next year time wise I expect that the the initial deployments for 400 gig will be in the second half of next year and that's very much time to the availability of 400, Gigoptix and I'd just remind you that that includes both the through third party for new adopted but are all also juniper.
Oh, and the 400 gigoptix through our Silicon Photonics, a project that is currently underway.
Okay Super and then can perhaps a clarification you talked about modest growth starting starting next year.
How does that compare to the modest growth in the fourth quarter and should we think about that over the course of the year. Thank you.
Yeah. Thanks, Jeff So while we remain opportunistic about our long term growth prospects and we are going to be looking for growth in 2020, I do think it's important to note that we are seeing some additional search about a weakness and some macroeconomic uncertainties. Therefore, I really would caution you to be conservative what's your models will provide.
Our detailed later on 2020, but flat to low single digit growth would be good way to think about 2020 at this point in time, given some of the uncertainties that we see out there in the markets that we serve.
Your next question comes from a line of Brian Young with Deutsche Bank. Please proceed with your question.
Hi, Thanks for taking my question. So you mentioned a weakening enterprise outlook I was wondering if you could expand on what you're seeing there is this a juniper specific issue due to the a the enterprise transformation kind of Salesforce initiatives. You you detailed or are you also seeing a broader enterprise.
Market environment.
Yeah. Thanks for the question, Brian first I should say that we're really pleased with the revenue performance that we saw in the enterprise space in Q3 timeframe both.
No year over year and quarter over quarter growth across pretty much all technologies and spend geos.
Real great strength in Q3 in our federal business in particular helped a the performance in the enterprise space.
We did mention that yes near the ended the quarter, we started to see some weakening of orders and there are really a couple of factors that are that have impacted the business and they're roughly equal in terms of the total impact first is the sales transition.
I mean I've mentioned in my prepared remarks. The issue there is really around the fact that we have a lot of new sellers that are not quite as productive as.
You know seller that had been in seek for quite some time.
We haven't been able to fill the open Rex that we created as a part of the transition as quickly as we would like that of course, it resolves itself over time and in fact, you know I expect that the fully be.
Beneficial to the business over the next few quarters.
In addition to that and separate to that we I do believe that there had been some overall macroeconomic.
Factors that have impacted the timing of orders to what we saw our some of the opportunities that we were competing for took longer to close the moved out into a few four and entered into next year and I'd say that that's a really a very orthogonal issue and one that somewhat out of our control we're going to focus on what we can control, which is really around getting through the.
Sales for information the good news about that it is the hard part is really behind us at this point and that is really around rebuilding and getting our new sellers as productive as possible in the short a timeframe as possible.
Great. Thanks, Rami and Ken maybe one for you on gross margins are you outlined various margin improvement initiatives can you talk about which ones are more the immediate opportunities versus the longer term opportunities I'd imagine that you know increasing software sales that's more longer term, whereas you know supply chain opt.
In addition, or pricing management that could be more near term that's the right way to think about it.
And if you could quantify any of those that 2020 and beyond that that'd be helpful. Thank you.
Yeah, I do think that's the right way to think about it as far as kind of whats been impacting us to date, you know pricing supply chain management, obviously mitigating the tariffs has been a big big focus over the last several quarters and we've done a pretty good job on all those regards value engineering and design for value were longer term. However, I would say that we've been working on it for a few years right.
So as we introduce new products you know this year and into next year and beyond we're very focused on on on the cost of those products and really some of that will pay off over the long term. So at this point in time, all all of the attributes are starting to benefit us odd because we are in the cycle, where some products are coming to market that we started value engineering work a year or two.
Your next question comes from line of Simon Leopold with Raymond James. Please proceed with your question.
Great. Thanks, Thanks for taking the question I wanted to see if we could maybe triangulate the disclosures you offer on products and verticals and specifically thing a lot of strengthen your security business.
And and strengthen switching coincident with strength in the enterprise vertical.
And so I want to see if we can get a better understanding of what specifically going on with with the enterprise customers since I think historically.
Many folks associated security with enterprise and switching with cloud a and I think it's probably much more nuanced if you could double click on that topic.
I'm happy to Simon So I, you're you're roughly right. The secured the big element of security and switching that's tied to enterprise momentum at Juniper, but I think if you take take a look at both of these technology areas. The strength is actually somewhat broad base. So in switching we saw.
Strength in the enterprise, but we also saw strength in the cloud provider in particular, the Hyperscale cloud provider space.
In security I think we saw strength really all up across all the the verticals and it's very much I think and artifacts of the technology that we're developing into salute solutions and use cases that were addressing so take for example, switching really it's around 100 gig.
That's very interesting to the Hyperscale space. It's also very interesting to large enterprises that are building out their own private data centers.
We have implemented really world class protocol technologies like Mdx land on or 100 gig switches that make it well suited for again large enterprises that are building out their own data centers.
It goes without saying I'm I'm really pleased with the performance that we saw in security and again broad based account across Sps cloud providers and enterprise up 22% year over year. There. The strength was mainly in areas, where there is a combination of features that are.
Acquired efficacy of stopping attack and also performance.
So large enterprise cloud providers service providers that are securing mobile infrastructure users data Oh. This is where we have some unique strengths that we are benefiting from right now in a security space I would not expect this kind of performance and security on an ongoing basis I think we benefit from a little.
Bit of an easy compare in Q3 in the compare gets much more difficult.
As you look into Q4, but nonetheless, I do have confidence in the trajectory of security across all the all our vertical going forward.
Great and one quick follow up you did a in an earlier question indicate that you expected your optics products would be part of the availability ramp in the second half of of 2020, I and and I interpreting that comment to mean that you're you're on track and that you're you're a silicon based photonics.
Are going to be available around the turn of the calendar year, but your expectation is that they would be volume production in the second half of calendar 2000 to get my understanding this correctly.
We will introduce.
Our our plan is to introduce 400 gig silicon Photonics based optics next year.
And with certainly in volume by the end of the year and sort of the specific milestones it to get US there, we're not really ready to talk about that right now. The most important thing is to catch the beginning of the 400 gig wave and I believe that we can do that.
At this point just to give you a bit more color on where we are yeah. We have confidence in the technology, because we prove that out in a lab environment I think it's really going to be differentiated, but we still have work to do in terms of making it available and at scale and in order.
To de risk that we have signed strategic partnerships with a fab houses that are out there that specialize in tech and taking technology like this and manufacturing it in volume.
And yeah, I would say that most of the risk is behind us, but there's still a lot of work ahead of us in order to get to the important ship days next year. So in summary, I think if.
When we deliver it should be really right.
At the sweet spot of the growth in 400 gig next year.
Your next question comes from mine of Samik Chatterjee with JP Morgan. Please proceed with your question.
Hi, I'm. Thanks for taking my question I just wanted to start off with a question prime many other on kind of medicine I got a few other comments that you heard on strength, you're seeing with MS systems and be hearing the same from customers that create talking to just wanted to see what you just kind of thinking about well too.
All the products, particularly some of the campus switching portfolio with these trends you're seeing in minutes, because I think last quarter. When he spoke about may as you mentioned you wouldn't have a separate especially scheme for it. So do you need more integration not been a moral oppose com global market motion to be able to create more through a few other products with missed.
Yeah. Thanks for the question Cemig.
So interest level and missed is very high both from our customers and importantly from our own sales teams that are very excited about positioning and competing with the technology I mentioned the proof points you know the customer base permit has now grown at 40 a bike.
40% since the close of the transaction Youre right that there is a significant.
Opportunity to pull through additional juniper products and that was part of the synergy thesis behind the acquisition that we've made and thus far what we're seeing in many of the net new customers that we are winning.
There is in fact, a significant portion or opportunity of attached for both switching and security.
Particular switching so many people who look at missed and think of it as primarily filling a wireless Lan gap in our portfolio our honestly missing.
The bigger picture, which is that missed offers the framework of cloud management and analytics and AI that can simplify the the job and network operator and enhance the end user experience. What we want to do now is expand that to include other port portfolio enterprise portfolio product the juniper.
The first of which will be E checks and we're seeing a very high level of interest from our customers from doing that we're executing on that roadmap as we speak.
Got it I just want a follow up quickly on before hundred gig get us into switching opportunity that you talked about and you get.
Quite a bit of details on that already I just wanted to understand you mentioned, you're traveling with both the merchant silicon based products solution. That's one of the custom Citic on solution. What do you how do you feel about the positioning of the list products as well as the differentiation, but do you have or do you bought and which one do you think will be the preferred solution for the hype mosquitoes.
Cool it.
I appreciate the question I should clarify that we don't see those products addressing the same use case. So we have chosen to use merchant silicon in certain parts of the network. For example, the access layer of but have a service provider or.
Cloud when deployment for the top of rack.
In you know or first level access and aggregation within the Hyperscale network. The custom solutions that we're offering address more of a spine lear within the data center.
Data center interconnect wide area deployments in the cloud provider space as well as the service provider space, So they're very much complementary.
To your question around differentiation I feel very good I think we have both the goods that are necessary and software with our new units evolved a software that gives the modularity the program ability to telemetry capabilities that our customers need. It is the most modern operating system is now out in the industry.
And now coupled that with.
With the silicon offerings that give I think an advantage to our customers in terms of price performance and honestly the gravy on top it would be silicon photonics. Once we introduced that capability into the market next year.
Great. Thank you.
Your next question comes from line of Tim along with Barclays. Please proceed with your question.
Thank you Yeah, just wanted to follow up if I could first Rami can you just go back to kind of the whole campus wife I area. Obviously missed is off to a good start as a part of the portfolio here, but it seems to be a time, if you could talk a little bit about competition, obviously, Cisco has a product cycle and H.P. is.
Seems to be reinvesting in interest does.
Trying to do a better job as well there. So just talk a little bit about what you're seeing a competitively there and then the second one is on the service provider side I mean, you're not alone here, saying the weakness in your view what is it kinda take to turn this business around more broadly this vertical as it does it have does it have to be fiveg years, there's something else.
Oh that you see over the next several quarters that can maybe reverse the trend that we've seen across the the S.P. markets. Thank you.
Okay. Thanks for the question Tim So first missed I think the level of differentiation that we have right. Now we've missed is truly unique compared to any competitive offerings that are out there I think that the a competitive advantage that we have as measured in years I'm not less than that and I try.
Really do believe now having a much close there view of the technology as they are part of the Juniper family that in order to achieve the kind of cloud native management and AI capabilities that missed offers you have to start from scratch you have to build a true cloud native management so low.
In addition from the beginning and you know that's something that missed started to do the mid teens started to do years ago and now we are benefiting from that today. So I feel very confident about the differentiation, but more importantly, the proof points of that confidence in terms of wins.
In the market new opportunities net new accounts is absolutely there.
As we take that technology and extended across other portfolio products. The most obvious one would be our X campus wired switching portfolio I think we will get additional lift in that area.
On the service provider space.
The business challenges that we're seeing right now are not new we have been.
Citing this now for a number of quarters and yes, you're right. Our peer Theyre also seeing some of these I think that we're already dealing with limited budgets and flattish capex environment would that be customers and now what they're doing is reprioritizing investments.
So that it is they're addressing spectrum and ran Buildout is first and that means that they have less to invest in IP.
Having said that there is a positive side to the story, which is that to the extent that fiveg ran and radio becomes a reality access networks get built out that means that there's more traffic that needs to be carried within the service provider core an edge network, where we have strength. So this isn't.
That's something that I expect we will benefit from anytime soon it's not going to be a next quarter thing, but I do believe that this will be a catalyst overtime measured in many quarters that will help us benefits from you know net new investments in the SB space.
Additionally, all telcos today are thinking about how they can change their networks and their operations to reap the efficiency and agility benefits of cloud.
And we've got the Premier Telco cloud software stack, that's available in the market today with comp with calling frail cloud and we're seeing that as evidenced by net new wins, which as you know great and encouraging but it's early days to the extent that fiveg deployments start to.
Really get built out and the services over five you become Virtualized I think we benefit from that with the wins that we have.
We have had today. So these are a couple of factors that I think would be required in order to change the trajectory of our SP business I do think next year the headwinds in S.P. will be less than what we have been experiencing this year.
Okay. Thank you.
Your next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.
Yeah, Hey, guys. Thanks for fitting me and I wanted to I guess, that's a couple of questions. One is on 400 gig and the proof of concept trials that you're involved and could you say.
Are there any situations, where other operating systems are being used on your switches or is it all junos.
And just talk us through kind of the operating system competitive environment as well is it the likely suspects are there new alliances emerging you know et cetera, just interested in that and then secondly wanted to go back to service providers I know, it's kinda did beaten up but I just.
Structural question on service providers are you seeing any change in what types of routing towards people are buying like are you eat or are we seeing any structural changes here that are putting pressure on that service provider market or is it strictly the delays they had a five GE and architectural decisions and things like that thanks.
Yeah. Thanks for the question is right.
On 400 gig.
The question around.
Other operating systems running about our hardware no I've not heard of that and I doubt that that's actually happening you know more broadly for I think your question was about sort of the competitive nature of the different software stacks that are available we've been working on arginase ball software now for for a number of years and we have done.
So with a very tight hi on an engagement with our cloud provider customers. So we developed it to address the most pressing requirements of our cloud customers, which gives me confidence that the you know we've developed the right stack that allows us to to come.
Pete effectively in that space.
In the service provider space.
No not really I'm, not seeing any sort of I don't know architectural or structural changes.
As you know we have the benefit of both the scale up.
Like the traditional amex routing technology as well as scale out with P.T. Exton QFX <unk>.
I would argue that we probably have the most experienced right now among all of our peers in that transition from scale up to scale out because of what we have done with our hyperscale customers.
But having said that I would I would just reiterate what I've said in the past that I do not see a.
A rapid transition from one architecture to another the way that we have seen it and the cloud space and there's there's there are reasons for this I mean SP use cases, the services that they deliver tend to be more complicated they're much more tied to the underlying network in.
Sure.
And so whereas that transition my happened over time, I think it's going to be in a much longer timeframe, then that we experienced in the cloud base.
Okay. Thank you.
Thanks, Rob.
Your next question comes from the line of Ittai Kidron with Oppenheimer. Please proceed with your question.
Hi, guys couple from me pause for your Romney under hiring front, you've kind of mentioned that you're not clicking as fast as you do like come to upfront.
Is this an HR issue or is this just.
Well the talent availability is just not out there is there no wait to maybe perhaps for some of your service provider people like seems to be growing capacity. There maybe they can really repair persistency on for Ken on the buyback front, great to see the expansion there but.
Why only 200 million I guess I'm kind of wondering what's the portfolio evolving and the opportunities since you know some things seem to be.
Gradually cut I working for you wind up being more aggressive on to buy back near term or rather than just a 200 mailing. The trials like does does more did you can do their near term.
Thank you so I, let me start on the hiring question. So I would first point out that we are starting to see momentum in hiring a we have now over 100, new sales reps compared to just a quarter ago.
So the ramp is really starting and you know, it's just not as fast as what we would like and I probably the biggest reason for that is just the competitive environment.
Environment out there in terms of a you know attracting enriched recruiting talent, but I think now with the energy and focus that we put on the problem.
We will start to benefit from being able to fill the open Rex that are available I also just want to point out that as important as hiring is getting our sales teams to full productive the productivity as quickly as possible and we have put in place a really professional and robust.
Enabling enablement processed at Juniper, that's starting to work very effectively in our favor that will accelerate the time to productivity some.
More work to do but a I'm pleased with the direction that we're taking now in the speed that we're moving ahead.
Yeah and on the buyback front you know just you know called out that we did 300 million in in Q2 I started to just close last quarter. You know in addition to that we did $50 million in Q3 opportunistic purchases and we intend to enter into it a 200 million dollar you know buyback soon.
So that's $550 million this year that plus our dividends is well over 100% of our free cash flow and I feel good about that that said you know we will continue to be opportunistic right. We are announcing our intent to ensure interim enter into a 200 million dollar SAR, but we'll look to be opportunistic beyond that as we as we exit.
That is sharing into next.
Very good luck guys.
Thank you.
Your next question comes from the line of Paul Silverstein with Cowen. Please proceed with your question.
Appreciate it also taking the questions first off can I feel bad for you know I don't through just said too much on this call so from a margin perspective.
You've gotten back I think close it's not exactly to where you were before the few checks to IMX transition.
Any visibility as to how much better you can do without the benefit of meaningful revenue growth and with the benefit of more more meaningful relatively speaking more meaningful revenue growth before I have a fall [noise].
Yes, I don't feel bad first of all Paul It's it's a it's good to be here on the call on gross margin perspective, I would say I'm on a full year basis, we're gonna be about 60% right. So although we had a strong Q3 and our guide for Q4 is also strong for your basis about 60%. So we still have a ways to go to get to the high end of our.
Our model of 50 to 62, how we're very focused on that overtime.
Volume will be the driver that said sodas. So it was product mix, so making sure that our software solutions continue to grow out they have been for the last several quarters is a big part of the of the long term gross margin profile I'm continuing to focus on cost per bit on and margin management pricing management et cetera. So there's a lot.
Lot of initiatives underway topped the company to get to the higher into that range, but volume is definitely a driving factor.
All right.
Rami.
Two part question here one.
How would you characterize the challenge in terms the opportunity and breaking into the interim data center believe spine and perhaps tore portion of web scale relative to the risk of one of your competitors break into your baby with your stronghold.
Oh wide area within that cloud customer base, what are the differences what are the similarities in terms of the risk relative to the opportunity and the other question. If you would would be can you give us anywhere from one incremental insight on U.S. enterprise in U.S. service provider in particular.
Beyond the more general comments on the call Tricia.
Okay. Thanks for the questions Paul.
So the first it's good to understand our footprint in the Hyperscale networks were very strong in the wider yen core networks. We are reasonably strong when it comes to data Center interconnect and then we have relatively little if any share in hyperscale sleep.
Spine, we've got we've got good deployments in sort of the tier two tier three cloud provider switching but in hyperscale switching as it pertains to at least spine.
They're very limited footprint, if you look at where the initial opportunities are going to be for 400 gig I expect them to be in the data center and in the data Center interconnect, where our penetration is not as strong as that is it is in the wide area and in the poor market.
The second part of your question around sort of the ease of which there is share shift in any one of these different layers I'd I'd point out that you know share shift is always more difficult, but it is easier. When there is an inflection point and 400 gig is such an inflection point and I would also argue that the.
Software capabilities in DC I and in the data center, they're not small by any means but they're nowhere near as sophisticated from a routing scale functionality features.
Of the true core wide area deployments so.
I I know, we want to make it sound like this is going to be an easy slam dunk is going to be an extremely competitive process, but I think we have the goods a the technology the engagement model the relationships that allow us to compete very effectively.
And then I think the second question was around.
Enterprise and SP as it pertains to the U.S., specifically it say the trends in both of those areas are largely the same worldwide.
You know the in the service provider space. The challenges that are being felt by tier one estes as they you're up towards Fiveg deployments are roughly the same internationally, certainly where we have a strength in the U.S. in western Europe , and some parts of a.
Of Asia Pacific as well.
And then the enterprise.
I'd say the same thing which is that both factors are at play in terms of the macro.
The macroeconomic outlook and the impact of that on spending as well as our sales transformation, which is really a worldwide fields transformation. So I don't think there's anything specific to the U.S. in both cases, the only thing I would add is the U.S. federal business is typically strong Q3, we had a very strong resulting in Q3.
We typically see that go down in Q4 seasonally that said, we do expect all up enterprise on a worldwide basis to be up sequentially. Despite the fact that you et cetera will likely be down.
Your next question comes from line of <unk> dairy Yummy with Evercore. Please proceed with your question.
Yeah. Thanks for taking my question guys to for me a push up in the enterprise softness site, maybe I missed this but could you quantify the weakness that you guys saw towards the ended the quarter of either in terms of the change in bookings trajectory or how much revenue as you think you left on the table to its ended the quarter and then do you can pick up at least half of Dodd, which might be attribute it to juniper spin.
Perfect dynamics.
Yes on the Q3 results revenue results, we actually didn't see the weakness right. So there was nothing left on the table. If you will from a from a Q3 revenue perspective. The commentary was really more about guidance I into Q4, and you know we are off you know.
$20 million to $40 million in total works. It works the way. We previously worked in our Q4 guys. So we're still guiding to modest growth, but it is down slightly from where we were before.
That both you know that that Delta is really split between enterprise and NSP weakness. So we're talking you know $10 million to $20 million range of kind of a softness.
Got that that'd be helpful and then.
That's helpful and well just follow when I think about calendar 20 of the commentary around you know flopped getting low single digit growth is what you guys I've talked about up can you just talked about what sort of trend line do you need the service provider business to be odd for the overall company to have that kind of growth can you do this low single digit growth. Even if there was providers are down mid teens.
[noise] or do you need a step up there to achieve those overall kinda 20 target.
Yeah. So for next year, we're really not prepared to talk about specific guidance. You know I do think overall, we have a lot of opportunity to grow across many verticals you know cloud and enterprise in particular and service provider Rami already mentioned, we think we have an opportunity to lessen the decline if you will but how it can actually shake out next year. It's a lot. It's early to call out at this point I just.
Caution it'd be got you know I I encourage you to be cautious just given some of the macro uncertainties that continued weakness that's why being flat to perhaps some slight growth next year is a good model at this point.
Operator, well take two more questions.
Okay. Your next question comes from line of James Faucette with Morgan Stanley . Please proceed with your question.
Hi team you have Eric on for Seamus. Thanks for taking your question, maybe just to touch on the the share repurchases and the increase authorization today can you maybe walk us through the decision process on.
Moving forward with share repurchases first maybe maintaining extra dry power for acquisitions and given the success it missed and if anything was attractive in the space.
Yeah. It's a good question Eric I'm in balance is very important we clearly want to maintain our flexibility for future value enhancing M&A. The same time I think it's prudent to return capital to shareholders, particularly when we feel as an option opportunistic time to do so and that's kind of wherever you are now we feel good about our prospects in the future.
We still are going to maintain you know well north of a you know two and a half billion dollars even post asrs will grow cash in Q4 with no cash from operation. So our cash balances remained very strong as well so that gives us opportunity to continue to be a you know as an add needed from an M&A front.
Thanks, and then maybe if I could just sneak in a second one as you were mentioning actions to mitigate tariffs and kind of maintain gross margins could you just walk us through maybe some of the specific actions there.
You you're doing there.
Yeah, what the primary action is really just on the geographic footprint of where our products are produced so we have a you know products, we have plants in China as well as outside of China, and Asia and other parts of North America. So really it's about a shifting some of the supply chain, particularly about headed into the U.S. to some of our.
Alternate supply plants, and that's what we're doing over the last several quarters.
Our final question comes from line of George Notter with Jefferies. Please proceed with your question.
Hi, Thanks, a lot guys I guess I'm curious about a your views on the cost structure of the company I'm thinking about it from an Opex perspective, you. If I look back you know you've got two years of you're on your topline declines yeah. The Opex run rates are still clipping along at 480 $490 million.
Quarter up about the same is even two years ago. So I guess I'm just curious about your thoughts on an opportunity for cost reductions here or he was there something about the business now that makes it more R&D intensive or or sales and marketing intensive any thoughts there would be great. Thanks.
Yes, so actually feel pretty good about our ability to control costs, we've been flat to slightly down over the last couple of years. This would be the second year, we're actually on a full year basis will be slightly down clearly that's in the headwinds of cost of living and et cetera that said you know I do think that we are quite honestly were optimize where were you I don't see.
Yes, going deeper we've been pretty committed that when we don't grow revenue, we're not going to grow opex I, but I do think we've done the low hanging fruit over the last several years on cost controls and Opex take out if you will at this point you know it requires investment for us to grow and that's what we're focused on so you know going forward you could expect us to remain.
Prudent when when revenues challenge, we will not be investing much in opex, but we want to continue at these investment levels to take advantage of the opportunities. We have it you know ahead of us to grow you know just add that you know, whereas we have been really careful and prudent and how we invest across the board including R&D.
Where we have been investing in technologies like 400 gig Silicon Photonics are our cloud delivered enterprise, which includes I missed portfolio. Our data center technology and I believe are the right areas for us to invest in order to achieve long term growth for this company.
So for that reason I do think that these are you know these investments are truly going to pay off for us.
Great. Thank you.
Ladies and gentlemen.
We have reached the end of the question answer session and I would like to turn the call back to management for closing remarks.
Thank you everyone for your questions UEC far to speaking and meeting with you during the quarter.
Concludes today's call.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.