Q1 2020 Earnings Call
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It's now my pleasure to introduce your host Jess Lubert, Vice President Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and welcome to our first quarter 2020 conference call joining.
Joining me today, Rami Rahim, Chief Executive Officer, and can Miller, Chief Financial Officer.
Today's call contains certain forward looking statements based on current expectations.
Statements are subject to risks and uncertainties actual results might differ materially. These wells are discussed our most recent 10-Q's, that's really CFO commentary furnished with our 8-K filed today and in our other I see filings.
Forward looking statements speak only as of today, Andrew undertakes no obligation to update any forward looking statements.
Our discussion today will include non-GAAP financial results reconciliation information can be found on the Investor Relations section of our website under financial report.
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'll take questions. Please limit yourself to one question and one follow up with.
With that I'll now hand, the call the Turabi.
Good afternoon, everyone and thanks for joining us during these difficult times.
Before I comment on our results I'd like to make you comments regarding the Cobiz 19, pandemic, which isn't impacting the weight all of us work and live.
I'd like to emphasize the to help the safety of our employees customers and business partners remain our top priority.
I mean, an integral part all we do.
I couldn't be more proud of the juniper cheap, which has worked tirelessly to meet the needs of our customer and deliberate you innovations to market. Despite the weaker challenges introduced by cope with 19.
I believe we are well position not only navigate the current prices, but also to emerge a stronger player in the meantime, we're hoping to support biking cope with 19 offering we secure wireless connectivity to pop up field hospital and getting back to the community through the Juniper Foundation.
Which is working to support those to need during these difficult time.
Now onto our results, we reported Q1 revenue non-GAAP EPS of $990 million.23, respectively books slightly below the low end up our guide.
Revenue for Q1 was impacted due to cope with 19 related supply chain challenges, which negatively affected customer lead time, and our ability to recognize the revenue in the quarter, particularly within our service provider business.
However, actual Q1 demand remains healthy with park order is growing 10% year over year.
We experienced do you want to order growth across all customer verticals.
Not for challenge is securing supply we believe our Q1 revenue and non-GAAP EPS would have been between the mid and high end up our guidance range.
We are entering Q2 with strong backlog and starting to see improvement within our supply chain, which Ken will touch on in greater detail during his prepared remarks.
We're also seeing healthy momentum in our cloud and surface water business to which typically account for approximately 85% upsale in any given quarter.
We believe these businesses are likely to cool Brazilian within the current environment. It could even benefits from the recent surgeon traffic, but it's raining many networks around the world.
While our enterprise pipeline has softened as a result, cobot 19 induced macro pressure. This has been factored into our near term forecast and is the primary driver behind our increased range for the June quarter and the withdrawal prior commentary for the full year I'd like to emphasize the juniper remain financially strong.
With more than 2.5 billion in cash and highly liquid security as compared to just 1.7 billion in debt.
We also maintained an untapped 500 million dollar credit facility.
We expect to generate positive free cash flow in 2020, and we have no debt maturing until 2024, we believe these attributes should not only position not to whether the current prices, but also to support our customers and take opportunistic action that help us come out stronger and gain share at the business.
Barman eventually improve.
Now I'd like to provide some insight into the quarter and addressed some of the key development, we are seeing within each of our core vertical.
Starting with cloud.
Experience better than expected result, during the March quarter as the business grew 17% year over year and increased year over year <unk> fourth consecutive quarter <unk>.
We continue to see momentum within our cloud customers wide area network, particularly for some of our switching products, although our cloud routing business also saw double digit growth year over year.
Order trends remains healthy and we saw improved momentum across multiple hyperscale account and continued strength with our tier two customers.
Based on our Q1 results and recent order, we still expect to modestly grow our cloud business in 2020.
Maintains strong durable franchises at each of our hyperscale customer and shouldn't be well positioned to benefit from the capacity growth in use cases, we own.
We continue to remain optimistic regarding our potential to win that you hyperscale use cases during the 400 gig cycle.
We are in the process of working through customer qualification and believe we have delivered the software systems in silicon needed to gain share within the opportunity we are targeting.
Well, we are ready to meet our customers' requirements. We do anticipate some risk to 400 gig timeline in light of the current cobot 19 challenges, which may slow testing and caused some customers to focus more on scaling existing footprint and less on deployment of new network architectures.
While our service provider business declined 14% year over year. During Q1 this business with most heavily impacted by Cobiz 19 related supply chain challenges as I previously mentioned.
If not for these challenges we anticipate our service provider business would have experienced a mid to high single digit year over year decline. It performed in line with our original expectations for the period.
Importantly, our service provider orders increased 4% year over year in Q1, representing the first Europe your increased to 2017.
While we believe we're seeing some modest cope with 19 related benefit within our service provider business. We believe most of the surface water order strength, we experienced is attributable to our diversification effort across customer and product over the last few year.
To this point, we're starting to see improved momentum with several of our U.S. cable customers as well as tier two and two or three carrier in international markets.
We're also seeing increased carrier adoption of our switching and security offering in addition to our traditional routing platforms.
We believe we remain well position with our service provider customers and that are continuing effort to diversify our customer base an increased the graph of our offering should benefit this business throughout the remainder of the year.
While we acknowledge that some of our surface water customers, they're continuing to base business challenges that may impact their ability to spend in future quarters based on our recent momentum and customer conversation. We continue to believe Arthur butter business is likely to see a mid single digit declined in 2020.
Our enterprise business experienced 5% sales growth and double digit order growth during Q1.
We experienced growth in both our campus and data center offering with strength in the U.S. more than offsetting some enterprise headwinds in EMEA and Asia Pac where demand impact, but with 19 became more apparent earlier in the quarter.
We believe our Q1 results speak to the strength of our enterprise portfolio and ability to gain share even than the challenged environment.
While our enterprise orders were strong during the March quarter, we lost some momentum toward the ended the period and our pipeline has been impacted by scope in 19 related macro dynamics their cloud in our visibility into Q2 and the remainder of the year. We now believe our enterprise business is likely decline sequentially during the June.
Quarter incoming weaker than we previously expected for the year.
Despite the coping 19 related headwinds we are facing we remain confident regarding our ability to gain enterprise share for the following reason.
First we continue to see strong momentum with net which we acquired in April burst of last year and is the centerpiece of our enterprise strategy.
Just to make networking simple for customers and improve the user experience and reduces operational costs.
Levy attributes are likely to resonate with customers under any environment, we're seeing that in our continued business momentum.
You missed logos grew more than 100% year over year in the March quarter, and Standalone booking exceeded $100 million run rate on an annualized basis.
This is continuing to eat expectation. We believe we have just scratched the surface of miss potential and the impact is likely to have on the broader juniper portfolio.
At this point, we're seeing strong demand for our mid wired assurance offering <unk> launched in Q4 last year and bring cloud management to AI capabilities to the yes portfolio.
This capability has now enabled us to secure X when would we fortune 10 account and in Q1 over 100 joint mid and yes customer.
We plan to mystify additional elements of our switching and security portfolio throughout the year, which is create incremental pull through opportunities for enterprise offering in future period.
Second we believe our enterprise switching portfolio is continuing to gain share with both revenues and orders growing during the March quarter.
We believe our industry, leading N D explained capability and Contrails fabric management, our position to win in the data center market, while our yes portfolio is likely to benefit from synergy with mid and pull through from our wire to shirt offerings in future quarters.
Third I believe the investments we've made in our go to market organization over the last 12 months should position us to capitalize on our innovation, particularly in the enterprise market as conditions improve and our account rep ramp to full productivity.
And for our enterprise mix should work in our favor given our high exposure to government sector and mid to large size enterprise accounts, which are likely to prove more resilient to recent industry headwind and b well positioned to recover when the environment normalized.
I'd like to mention that we're continuing to see momentum in our security and software segment.
Our security revenue increased 10% year over year in Q1 due to strong demand for high end portfolio, which continues to gain traction, particularly with our cloud and service provider customers.
We remain encouraged by the momentum, we're seeing and its exactly bar secured networking strategy, which focuses on embedded security as a key element of several routing and switching solution.
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.
Our software business grew 9% year over year and accounted for more than 11% of revenue in Q1.
While much of our software revenue today is driven by on ball software licenses, our off balks soccer orders increased more than 15% year over year and off box subscription increased more than 180% year over year due to this.
Based on the momentum were seeing we believe our software the percentage of revenue will continue to increase over time, especially at subscription based pricing model will become more pervasive and gain traction in the market.
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 will discuss our quarterly financial results in.
More detail.
Thank you Robin and good afternoon, everyone.
I'll start by discussing our first quarter results inclusive of supply chain challenges due to the cobot 19th endemic.
Then provide some color on our outlook and with an overview of our financial position in light of dependent.
We ended the first quarter 2020 $998 million in revenue flat year over year.
Non-GAAP earnings per share were 23 cents.
Both result were slightly below the low end of our guidance range due to supply constraint related to the cobot My team and then.
Without impacting the pandemic related supply constraints, we estimate that revenue non-GAAP EPS would have been between the mid and high end of the range. We provided in January.
I'd like to briefly address some of the dynamics and our supply chain.
We have a global supply chain footprint.
With our primary manufacturing partners located in China, Taiwan, Malaysia, Mexico, and the United States.
Our component suppliers are even more geographically distributed with suppliers for many countries throughout the world.
During the quarter the supply constraints, we experienced were due to both constrained manufacturing capacity, particularly in China, and Malaysia as more component park shortages as our component suppliers also facing manufacturing challenges.
These challenges resulted an extended lead times to our customers and ultimately call just the fall short of our revenue guidance for the quarter.
While the situation remains very dynamic we have seen improvement for our manufacturing capacity.
However, we expect several of our component suppliers will remain challenged throughout most of the second quarter as they are operating under restricted work condition.
As a result, we have factored continued supply chain challenges into our current Q2 forecast.
We have a robust and flexible supply chain. The cobot 19 pandemic had brought the industry unprecedented challenges.
Our supply chain teams have been working tirelessly to meet our customer needs during dependency.
We have been executing a strong risk mitigation plan, including multi sourcing.
The ordering components, transforming our logistics network and prioritizing critical customers.
All the while we're working with local government agencies to understand challenges and partner on solution that ensure the safety of our employees partners and suppliers.
As a result, a deep mitigation efforts, we believe we're delivering about possible outcome for safety and satisfying customer need and we will continue to do so.
Turning back to the first quarter results, while supply constraints negatively impacted our top and bottom line results. We saw strong demand in the quarter with orders growing 10% year over year exceeding our expectations. Additionally, the order strength was broad based with all vertical and all geography growing year over year.
Looking at our revenue by vertical on a year over year basis cloud increased 17% and enterprise increased 5% well service provider declined 14%.
If not for the supply constraints related to the Cobot 19 pandemic service provider revenue declined would have likely band in the mid to high single digits.
From a technology perspective switching revenue increased 25% you every year and security revenue increased 10% year over year.
Routing revenue, which was the most impacted by supply constraints related to the cobot 19 pandemic decreased 16% year over year.
Our services business increased 2% year over year.
We continue to see solid performance from our software offerings.
Software revenue was approximately 11% total revenue and grew 9% year over year.
And we're dealing our top end customers for the quarter for cloud fiber service provider and one wasn't enterprise.
Non-GAAP gross margins were 59.6% inline with our expectations.
Non-GAAP operating expenses increased 1% year over year ever flat sequentially.
Which was slightly below the low end of our guidance range.
As expected cash from operations in the first quarter was strong at $272 million.
We paid $66 million and dividend, reflecting our quarterly dividend of 20 cents per share.
Also we repurchased $200 million worth of shares and the open market and completed an accelerated share repurchase program, we entered into in the fourth quarter 2019.
Total cash cash equivalents and investments at the end of the first quarter 2020 was $2.5 billion, which was flat from the fourth quarter of 2019.
Now I'd like to provide some color on our guidance, which you could find detailed the CFO commentary available on our website.
Well, we are seeing uncertainty in our business due to the cobot 19 pandemic, we expect to see sequential revenue and earnings growth and the second quarter.
Confidence in our forecast is driven by strong backlog and healthy momentum with our service provider and cloud customers.
We believe these factors should help offset increased uncertainty in certain segments of the enterprise market.
Due to the uncertain macro environment, we have widened our revenue range for the second quarter.
We expect non-GAAP gross margin to be essentially flat sequentially relative to the first quarter.
We expect to see sequential volume driven improvements in margin during the June quarter to be offset by certain strategic insertion opportunity. In addition to increase the egistics and other supply chain related costs due to the Carbonite gene.
We expect second quarter non-GAAP operating expense to decline sequentially as we pretend to focus on prudent cost management, while continuing to invest to capture future opportunities.
While we are optimistic regarding our long term prospects an opportunity to gain share across each of our customer verticals, where withdrawing our previously announced full year 2020 commentary because we cannot predict that specific steps or duration of the impact of the Copa 19 pandemic on our financial results.
Turning to our capital return program, our board of directors have declared a cash dividend a 20 cents per share to be paid during the second quarter.
We remain committed to paying our dividend.
And while we expect to remain opportunistic with respect to share buyback.
We expect to play the greater emphasis on further building liquidity and this uncertain environment.
Before we move onto Una I'd like to spend a few moments outlining the financial strength of Juniper in light of the coping 19 pandemic.
We have a high degree of confidence and our ability to meet our commitment and whether the current economic environment.
Juniper is they financially strong company with over $2.5 billion in hobby liquid high credit rated cash and investments.
With access to additional liquidity sources if needed.
We are profitable and generate strong operating cash flows both of which we currently expect will continue.
Further the diversity of our revenue streams is favorable and our position with our cloud and service provider customers should help offset pressure and the enterprise market.
We intend to implement additional cost controls by continuing to invest in areas to take advantage of the market opportunities ahead.
Our objective is to protect our talent at this time, we expect to retain our workforce.
Despite the uncertain macroeconomic environment, we believe we are well positioned to sustain our financial strength.
Our long term financial principles remain unchanged. Our objective is to grow revenue expand earnings over time and maintain our balanced capital strategy.
In closing I would like to thank our team for their continued dedication and commitment to juniper success.
Especially in this challenging environment.
Now I'd like to open the call for questions.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad a confirmation total indicate your line is in a question Q.
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Our first question comes from the line of Cemig Chatterji with JP Morgan. Please proceed with your question.
Hi, good afternoon. Thank for taking my question if I can just start off with the cloud revenue growth do you.
Growth for couple of quarters No Oh, if you can help me think about how much of that growth is being driven by your existing cost of all the then if there's any new logo wins on the deal to outside the <unk>.
Front and I believe you briefly mentioned when upgrade so with custom was.
Acting any cloud customers to act straight line upgrade activities of the Oh scale. The current architecture that he was referring to.
Yes, thanks for the questions to me.
So obviously very pleased with our results in the cloud vertical 70% year over year growth in revenue. This is actually the fourth quarter in a row, where we've seen year over year strength.
And in fact, the strength was pretty broad based across technology both.
All three areas routing switching and security the other thing that I like to but the results in Q1 is the breadth across tier one hyperscale cloud providers as well as tier two and two or three.
In the tier one space, it's mostly around the deployed footprint that we already have.
The traffic requirements over those networks, which resulted in good bookings and revenue momentum and in the tier two tier three phase there was some of that as well as in that area, because we've really been focusing on net new logos and our go to market organization. There are probably a few new account that contributed to the momentum.
As well.
Okay, and I can just quickly follow up with and on gross margin was sitting headwind and one to gross margin from the supply chain challenges that you have and I think you mentioned in your.
I'm in Korea, he'll strategic in social opportunities that offset the gross margins into Q can you just elaborate on that.
Yes, so from a gross margin perspective, we did have a strong Q1, we did have some cost weighted cobot 19 is fairly immaterial I do expect to have additional costs in Q2, that's actually one reason why the Q2 guidance is relatively flat, even though volume is up so we had some cost in Q1, we should have.
A little bit more in Q2 still not not super material, but it's going to be a few tend to a point of a headwind in Q2 as compared to Q1, but overall margin is tracking fairly in line without exception.
<unk>.
Our next question comes from the line of Simon Leopold with Raymond James. Please proceed with your question.
Thanks for taking the question first I wanted to see if maybe you could help us unpack your enterprise.
Market vertical little bit and that I think one a points you you've tried to make is that you've got exposure to generally healthy enterprises.
And I'm, assuming that that would be financial services governments and just just if there's some more color you can give us as to the on certain verticals that you referenced in the prepared remarks. Thank you.
Thanks for the question Simon So again pleased with our performance in what is a dynamic and competitive environment in the enterprise space, we saw strength and switching U.S. government performed well our sales transformation that we have been embarking on over the last year are starting to pay off missed had a record quarter.
For the momentum there has been strong and you're absolutely right I think if you look at our enterprise business and unpack. It we have significant exposure to elements of the enterprise market like federal Federal government public sector education financial services that we believe are going to be more resilient.
Any economic downturn, the parts of the enterprise market like retail.
No.
Are probably going to be less resilience, we just have less exposure to.
And just in terms of my follow up but I'd like to see whether you've done anything in terms of actions to help out, particularly your enterprise customers, whether its financing or more flexible terms on payments, whether we should expect maybe dsos become more extended just what are you doing it.
In terms of the response in the adjustment to the shifting environment. Thanks.
Yes, so just to add onto the romney's previous answer the travel retail and hospitality those SUG segments of the enterprise, which we think are more exposed that's less than 15% of our total enterprise sales on on the average quarter. So we feel good about our the exposure levels. We have in some of the more resilient enterprise thugs sub segments on a on a fine.
Answering and accounts receivable perspective, we have not seen any change to date, we are anticipating some modest.
Push out of a collectability and perhaps a little bit more bad debt, but to date, we haven't seen it we are aggressively working with customers on our juniper financing services programs that we do offer leasing and extended payment term programs and we have revamped some of those in our often goes to customers as we speak and I do expect we'll see some more traction in that space going forward.
<unk>.
Our next question comes on line of Paul Silverstein with Cowen. Please proceed with your question [laughter].
<unk> said is that it's just too much uncertainty in the markets and talked about where gross margin operating margin can go over the next 12 months or so.
Yeah, I would say there is in particular.
The enterprise side, and we feel pretty good about about our cloud service provider visibility for the year I really nothing has changed there from where we were 90 days ago, but from enterprise side, it's very difficult to predict.
Second half and therefore, the default here now.
All right just some clarification is what Matt said, we'll follow up on sort of course moves us earlier in your comment.
About strategic insertion opportunity is impacting margin can you give any I assume that's it that's a clever way of putting but your <unk> understandable using discounting to get into market opportunities and then you mentioned exposure government can you tell so modest so large government is as a percentage of revenue for sure.
Yes, so the strategic sourcing opportunities, there's really a couple deals that we have in our Q2 pipeline that are in emerging markets that carry a higher discount and lower margin. These are break in opportunities. They also have an unfavorable mix words heavy on chassis is white on line card. So these insertion opportunities or are typically lower margin that we expect.
You know recoup some of that margin over time as to add more in line cards into the.
Install base of the chassis and we have a couple of those deals in the Q2 forecast that are impacting margin a bit.
I'm sorry, the second part of question.
Overall.
Revenue.
Oh, Yeah, I'm, sorry, so we did break out a couple of years back that the U.S. Federal government was 15% of total enterprise.
And that that percentage is largely unchanged. That's just the U.S. federal we obviously have international federal government local state government in other government agencies that are not part of that 15%, but that gives you some seasonal order of magnitude there.
Our next question comes from the line of Ittai Kidron with Oppenheimer. Please proceed with your question.
Thanks appreciate it.
Just wanted to make sure you can help me walk from the first quarter to your to the second quarter. It sounds like there is about $50 million that you could have shipped but you didn't.
Can you tell me in your guidance for the second quarter. How much was that you expect to capture a into second quarter and then with regards to order patterns.
Clearly had a very good quarter orders, but maybe you could talk about linear agenda corridor and you know how do you will should we think about orders.
In the second quarter are high and I'm really trying to triangulate and what kind of backlog do you hope to finished the second quarter.
Yes, the linearity in Q2 was actually in line with with our normal expectation Dutch across geography kind of across vertical et cetera. So linear already was was on track we already mentioned bookings you've touched and im sorry in Q1 bookings was stronger than we expected, but it wasn't it kind of the last last week booking it was really throughout the quarter, we saw strength.
We expect most of what we weren't able to ship in Q1 to ship in Q2 are we still have certain supply constraint that we're working through but I feel like most of the of the backlog occurred in Q2 will ship in Q2.
That said Q2, we do believe cloud and SP momentum will continue so we expect another quarter of strong bookings their enterprises, probably the one that has the most uncertainty we have seen some pipeline softness in our enterprise business I clearly, we factored all that into our into our Q2 God.
Very good then for Rami.
As a follow up as I tried to think about the cloud service provider sounds like you have some interesting opportunities there.
Is there way for you to get your hands around how much of that is clearly just a reaction to traffic patterns, given everything thats going on it and I'm asking more into context, so timing of span what I'd also like what you're seeing right here right. Now it's just time shifting there those customers just saying you're not we had strong plans for the second half, let's just put them into.
First house and then we get a little bit of you know where loan gases would get to the second half a year.
Yes, it's a good question you time, we obviously took a hard look at this and when we analyze the numbers than we saw where the bookings momentum was coming from I'd say that the co bids related.
Orders.
Were there, but they represented a relatively small part of the performance that we saw in the Q1 time frame and so let me expand on that little bit more in the in the service provider space. We have had a deliberate strategy over the last few years to diversify not just in the tier one accounts, where we have strengthened.
Brent but into tier to integrate tier three and we saw the tier two to three espeed kick in we saw good momentum and the cable space for example, especially here in the U.S.. So I actually think the diversification of our MSP business has helped us more than any coverage.
Related increases in traffic and on the cloud side again, I do think that there were certain elements of cloud momentum that we are result of.
Cloud services, especially those that were in the business of offering connectivity and services like video conferencing for work from home users, but there the exposure to tier two tier three that strategy certainly helped us.
And of course, the hard work.
Over the last.
A couple of years and transitioning our customers to a new scalo product set and as a result of that retaining that footprint has allowed us to be in a position, where we can reap the benefits of.
Deployments today.
Our next question comes from the line of Tal Liani with Bank of America. Please proceed with your question.
Hi, guys I'm trying to understand the.
The the source for the strength with cloud and with service providers and Oh, So on the enterprise, it's kind of the same question.
Do you feel that custom is had a brought in or brought forward demand from future quarters, just because of either on the surface water side it could be because of increased traffic. So they just a deployed plants sooner than they wanted and on the enterprise side, maybe a there was also.
So a concern that the budgets will shut down so do you see any abnormal behavior of custom is that is driving.
What you're seeing on the on the positive side is driving to strengthen the orders you are discussing.
Yes.
Thanks for the question in my answer is largely similar to that I just provided you tie and.
Like I said, there has been some order patterns, especially in cloud NSP that were clearly tied to increase traffic within network. As a result of the covert 19 situation, but in our analysis that as a relatively small portion of the.
Overall performance that we saw especially from a booking standpoint in those verticals.
And in the enterprise side, we actually saw sort of a balance of maybe some pull ins, but also some push outs near the ended the quarter in particular, so on average I think it was probably a wash or at least in the Q1 timeframe.
Got it.
Can we talk about that I I want to targets, it's a bigger question not about a quarter.
We hosted many calls recently about white box routing Cisco launch the product in December where do you stand with your position on White box routing and your preparation for this change in this market.
Yeah, a good question as well so we were one of the first no established networking vendors to embrace white bras routing and switching years ago. We've never resisted the movement, we've actually offered that as a business model to our customers where they can procure software.
Sure and hardware separately or procure software and deployed on white boxes.
If they if they choose to do so we've had many customer conversations about this over the years and we've actually invested in the architectural principled behind white boxed routing, where we did couple software from hardware because it makes sense for us to do so irrespective of whether customers embrace the bid business model quite frankly.
The uptake the interest level from customers and embracing it has just been limited and I think that many of our customers. Appreciate the fact that were not resisting we're offering it as an option, but also a appreciate the fact and choose to deploy the simpler model of just an integrated stack well what.
You know software running on on systems that are merchant silicon based or software. This running on systems that custom silicon based.
Oh next question comes on the line of Tim along with Barclays. Please proceed with your question.
[noise]. Thank you.
Rami I was hoping you could discuss kind of the 400 gig switching into the into the cloud vertical do you think any.
Of the disruptions that we've seen a impact timeframe or or junipers position kinda insert into into that market, a and then I had a follow up.
Yes, certainly Tim I mean, if anything.
Opened 19 had been a reminder of just how important the performance and the resilience of global networks are to juniper, but all certainly to the world and.
The big industry trends 400 gig being one of them one that we've invested in one that we're certainly counting on are going to be more important rather than less important as a result of.
The this pandemic.
Your question is around timing my belief is if there is an impact to timing to the deployment of 400 gig it will be fairly minimal because I do see that many cloud providers. Some of the service providers. Today are just so focused on deployment in existing network to meet the capacity.
Requirements of those networks that there might be some deep focusing from the projects for 400 gig, but that said I think if it is an impact it will be relatively small and the opportunity remains large and our ability to compete in our opportunity I feel very good about.
Okay, Great and then just a follow up on a on the service provider side it sounds like it's pretty.
Diversified business now, which is health and not just you know cobot impacts seeing the orders being the best it's been in several years, a it's probably early to call, but how do you feel about this kind of being a turning point for this business where it could.
You know turned back into a more sustainable growth business kind of like you saw in the in the cloud vertical over the past year.
Yeah.
There are two elements to the diversification in this business. The I like the first is around diversification and customers geographically and also in segments sort of tier one and tier two or three but then the second thing that I really like the diversification of the solutions that we're offering them. So certainly.
There is traditional routing, but we saw double digit growth in switching double digit growth and security.
That we sold into the service provider market.
And I think that diversity is certainly help a healthy we exited Q1 with solid bookings. So I actually expect you to to see a meaningful sequential recovery and I think for the full year seeing sort of what we expected sort of mid single digit declines in in surface water is probably a.
A good way to think about the business.
Our next question comes from the line of Alex Henderson with Needham. Please proceed with your question.
Very much.
So I was hoping you could talk a little bit about.
Inability to supply.
Not so much in the first quarter, because you think you're pretty clear on that but rather to what extent you're pulling back your expectation for the second quarter, what's the size and then.
On the supply chain.
Challenges for Twoq as you're exiting the quarter in your guide.
Yes, so were presuming similar dynamics in Q2, that's what we're assuming when we created our Q2 guide we're not counting on significant improvements in the supply chain.
Lead time started to extend in early February they've been extended throughout the rest of Q Q1, and they're currently still extended and I believe that's going to improve overtime exactly when is still yet to be determined. There's obviously every day, we seem to get a different update on what country is struggling to do.
Actually Ah you get into the factories in produced good. So we anticipate similar dynamics again, we're trying to improve them, we're working very diligently to improve our flexibility in supply chain, but we're not counting on that when we set the Q2 guide.
So if I'm hearing that correctly does that imply that you're expecting a book to bill in the June quarter to continued to be above one as it was in the March quarter.
I would say, we expect to maintain a healthy backlog as we exit you to as as we entered Q2, so won't comment specifically on book to Bill, but I do believe our backlog that weve grown in Q1 will remain strong as we execute to <unk>.
And just one more clarification on the backlog.
[laughter] assumption to assume that that's going to continue to be in the routing space predominately in the service provider space as we continue through Twoq.
Shift.
Except the type of business that you're looking.
Yes, it's pretty pretty hard to predict to be honest with you I mean less than to do with just the timing of the orders that particular components that were struggling to procure so I wouldn't assume it's going to be one vertical or the other in Q2 clearly in Q1, it did impact service provider more than the other verticals, but again it wasn't some sort of structural.
No reason it was just really the timing and the situation that we're in this last quarter that could very well change on moving forward. All lead times are excited and not just service provider lead times in enterprise and cloud be times. We've also seen an extension in those due to supply constraints.
Our next question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.
Yeah, Hi, guys. Thanks, a question I wanted to just come back to the geographic assumptions, you're making in the guide.
I think if I heard to answer that last question right. When you say similar dynamics can do you mean 50 million or so of impact.
In a in the guide because you assumed supply shortages, what do you mean by similar dynamics I guess just to clarify.
What I mean, my similar dynamics is I think our ability to ship product as compared to what we book will be in assemble there from a ratio perspective, so based on the money area that we expect I think our ability to fulfill orders on a percentage basis of total orders will be largely in line with what we what we didn't Q1, which was lower than.
Historical average clearly right as we were not able to ship is many orders as we.
Normally do.
Yeah, Okay that makes sense and then if I think about that then in the context of the guide in the geographies I'm just wondering what.
What do you expect for the Americas. Some it's grown year over year last couple of quarters or you know felt the same rate close is just under 7% do you think that's flat or do you think it's down or what what are you thinking happens in the Americas and then maybe you could drill into.
Enterprise versus service provider within that context.
Yeah, so because we saw booking strength across all geographies in Q1, and yet revenue you'll note. The only Americas grew the rest of World did not you know I do believe that the rest of world has a strong.
Rental growth opportunity had given the backlog we built in Q1.
On on the Americas side, there is a heavy cloud focused area. We had a very strong cloud quarter in Q1 expected to remain strong and I expect us to grow cloud for the Europe on any given quarter, you're going to see some lumpiness there and we do have a more difficult compare Q2 last year than in Q1 of last year. So I don't think the cloud growth will be.
What we've had the last few quarters and that will impact Americas, but beyond that rod it's difficult to get into specifics on geographic mix of Q2, we feel good about the overall revenue objective I do think SP will be up sequentially quite strong and the rest of business as we outlined.
Our next question comes on the line of metal Marshall with Morgan Stanley. Please proceed with your question.
Great I wanted to dig a little bit into the enterprise market. You know you had noted that.
That you were kind of seen a pause in that market, but I just wondered if any of the conversation I kind of turned get cost saving initiatives. So whether that be asked when projects or whether you know there has been a focus on kind of outfitting wide by while people were out of the office and then maybe the second follow up question on professional service.
The you noted kind of services being down because of professional services sequentially and just you know should we expect services to grow in Q2 or will be professional services downtick per about that thanks.
Yes, let me let me.
Answer the first question and then I'll pass it on to.
Tend to talk a little bit about your question around services.
In the enterprise space I wouldn't actually classified as a pause in so much as a weakening of pipeline the outlook and especially over the next immediate few quarters.
That pipeline, we were counting on just softened up a little bit, but actually you know the momentum as I mentioned in Q1 was.
Relatively strong all up and that's true for both the datacenter side as well as the the campus and land side.
Your question around.
Transformation initiatives enterprise transformation as they pertain to things like when transformation or as you win campus transformation moving to cloud managed.
Solutions for wireless Lan and land is actually very good. One you know you know I do think there will be some perturbation in the business as a result of economic uncertainty due to cold bid in the short term I also think that as we emerge from the Covance crisis and things.
Start to recover to a new normal I believe that those transformation efforts, especially in the enterprise are going to become more important as opposed to less important and that's good because that's exactly what we have been counting on as a trend that shaped our strategy and where we have been investing you know we're not.
Going after the generic wireless Lan and land market, we're going after the AI driven cloud delivered wireless land and land market and even in the when the thing that were after the F. you win transformation I think that the long term prospects for that part of the enterprise market is actually good and that's.
For we're investing in.
Yeah and on the services front the business continues to do quite well you know we grew 2% in this first quarter and I'm most of that revenue and the vast majority of that revenue is service and maintenance contracts. We do have a smaller confessional services business and that that's one of the business. It is a bit lumpy based on when we actually complete services.
So really the P.S. professional services volatility you're gonna see quarter to quarter has to do with just timing of revenue recognition in current quarter as compared to the prior compare it whether it be the prior quarter, where the prior year quarter. So really nothing unusual there I expect the service business to remain strong the rest of this year and I think the growth rates, we've been saying that.
And pass kind of the low single digit growth rates are what I would expect going forward in aggregate basis.
Yes.
Our next question comes from the line of emit dollar Jani with Evercore. Please proceed with your question.
Hey, Bob Thanks, a lot for taking my question guys I'll I guess two for me as well up first one just <unk> gross margins are perhaps I missed this all of your but Oh sequentially in June to figure out some decent revenue leverage, but gross margin I think I guided flat.
Maybe one of the offsets to that and then be supply chain disruptions are impacting you. What's is there a gross margin had been in Q1 in Q2 is left from there.
Yeah. So so yes, I do think that things are going in our favor sequentially in the Q2 gross margin would be volume increase in volume is typically favorable as well as the customer mix as we expect service provider.
Do you actually have a nice sequential growth in Q2 those are both positive. The reason why we're guiding to flat is there a couple offsetting factors one of which as we've mentioned that certain strategic insertion opportunities in some of the emerging markets that we forecast of land in the second quarter and those are lower margin deals with the opportunity to expand margin over time.
But those a handful of deals are negatively impacting our forward guide from a gross margin perspective. In addition, we do expect there to be some supply chain related costs due to fill the 19, we're doing everything we can do.
Secure and source supply we're doing everything we can do.
Ship and integrated logistics, a machines that we need to actually deliver products to customers. It's very challenging in today's environment. So some of those some of those actions are actually more costly than they would have been in a normal environment.
Got it that's really helpful. Let me just follow up on missed how do you talked about deals couple of veterans that showed a lot of traction that you're gaining over there you mentioned 100 million in bookings on mistaken I'll still be to think about the strength, you're seeing with miss how much of that is from.
Cross selling to juniper existing customer base forces net new the wins for you as you go forward.
Yeah missed had or a record quarter and I did say that the customer count grew 100% year over year and Standalone bookings has now exceeded $100 million on an annualized basis on a standalone.
Basis. So does not include any pull through of other products. So.
Your question is a good one because we are very much now investing in a strategy where missed the platform behind missed the cloud enabled AI driven platform actually starts to manage and monitor more and more of our enterprise focus the first one being our X wired switches.
Platform that happened, we delivered that as a product offering into Q4 timeframe and we're already seeing meaningful momentum. So while most of the Miss strengths had been in just wireless Lan the component.
Which is due to sort of attached products under the Miss umbrella is becoming increasingly significant quarter by quarter and I I think thats going to be a big part of the success story in the and the next several quarters in years.
Operator, we'll take two more questions.
Our next question comes from the line of Jeff Kvaal with Nomura Instinet. Please proceed with your question.
Thank you gentlemen for taking the question. My first question is fairly abroad. One the the cliched now is that customers are compressing three or four years' worth of changes into three or four weeks worth your time frame.
What do you see as.
Some of that some sustainable changes on the other side of this crisis, you talked a little bit about what might be different enterprise data.
What might we see in.
Service provider or cloud preface that by saying Theres been some talk of the club networks have not necessarily held up hopefully as well as the as the service provider networks.
Yeah. Thanks for the question.
Well I will say this if I think about how well juniper as a company has been executing in a work from home basis over the last several weeks I think its eye opening to see just how well we have done under those extreme conditions and in many of the.
Conversations that I've had with customers Ceos CTO Ceos.
Many would express the same thing. So there has this has been this grand experiment in some ways of trying to determine how well we can work remotely and the one thing that enables us to do this as the global network that we juniper as well as our pure isn't it.
Industry have had a hand in building over the years on some sense like the network has almost been taken for granted for the last few years and this has been a reminder of just how important. It is your question is about lasting effect and I do think there is going to be a lasting effect.
My belief is more meetings will happen.
After even after we returned two offices nice I'm sure that will happen at some point there will be more meetings.
That will be had held through video conferencing as opposed to travel.
More conferences will be conducted virtually as opposed to compensate that require a lot of travel and people Congregating similar places.
And I think that's good for obviously for our business. We're on the right side of that change and specifically when you look at the areas, where we've invested I just mentioned around.
Enterprise transformation cloud delivered AI AI, driven et cetera. These are elements of the new normal, but I think they're going to work in our favor.
Okay. Thanks, Robbie and then a follow up would be on the enterprise sales build I think last quarter. We talk that was going to be a little bit ahead of what you had previously thought this time it sounds like you've ratcheted that down a little bit can you help us square that circle.
Yeah, you're talking about the sales go to market investment that we've talked about historically.
Yes, I think you okay. So oh, so we have as you know restructured sales to create an opportunity for us to invest in more quota carrying seller is I think that started now more than a year ago. We started to see the benefits of that in Q4 and.
I think that continued into Q1.
To the extent that no the the cobot uncertainty will impact the enterprise market more than anything else, we will monitor and modulate our investments in sales.
Accordingly, so we're going to keep a very close eye on what happens in that vertical and we won't you know.
The last them what to do is get ahead of ourselves and invest more than what we need to do but at the same time I think the momentum that we have seen the differentiation that we have in the market the strength of our products and the fact that we have a relatively small share and an opportunity to take share even in a more challenge.
The market gives us the confidence that some investment as we're doing today still makes sense.
Our next question comes on the line of Jim Suva with Citigroup. Please proceed with your question.
Hey, Thank you so much and especially for fitting me in the last question I think you say that the smartest enhancements in the last question anyway. So I think what I'll do to make it very easy is I'll just ask one question.
Probably kind of both of you can chime in on not just to show my appreciation.
When we look at the orders in the bookings you have is there any change to the historical linearity in the world that we live in now and what I'm getting at is.
Yes, juniper had orders that they couldn't sale because there weren't enough parts.
Out there, it's fair to assume that juniper wants to order a little bit sooner.
And so your customers probably would have liked to have their product you know a week or two ago. Instead. It when it was delivered so I'm thinking about the linearity of the orders the visibility bolt on your customer side as well as your supplier side. Thank you gentlemen, so much.
Yeah I think.
At the highest level, we haven't seen immaterial difference to linearity Q1 than you already was largely tracking as we would normally expect Q1 linearity to track that said I do believe there are situations, where our sellers and our customers are working together on when they actually need the product.
Window when the time to deploy is currently scheduled than they might be backtracking forward, maybe a couple of more months than they normally would to place that order. So I do believe there's going to be some of that going forward, Jim but it's been hasn't been big enough hasn't been enough of that to really move the numbers materially at a macro level I would completely agree it nothing more to add.
Our final question comes from the line of Sammy Badri from Credit Suisse. Please proceed with your question.
Well that means I get to steal Gen statement.
[laughter].
So I just wanted to clarify one specific thing, which is giving you saw some supply constraints and that in turn led to less sales generation in the quarter. The real kind of question I have has kind of two parts or it is looking for to par answers.
As.
No you're customers probably didn't have many alternatives to where they went so.
For where they went that would be very helpful to understand abate even didn't choose an alternative vendor in the second thing is do you perceive these missed sales opportunities as potential like catch up sales opportunities to the rest of the year, even 2021 or should we think of these as just lost sales for the time being and the shock.
Clock re commences and you guys used to go back and win in the market.
Okay semi so on the first question if I understood correctly.
You know in terms of juniper versus alternative to juniper and the decisions our customers make I mean, that's not a new dynamic in the industry. This isn't a competitive industry.
And we're very comfortable operating in a competitive industry I did mentioned earlier in the call.
I believe you know this is true that when you have periods like this where traffic capacities and traffic dynamics are changing and your service providers and cloud providers in particular are supporting a work from home.
Type of scenario I.
I think that environment favor as.
Those cut those technology providers that have deployed footprint and we certainly have a very wide global deployed footprint that we can and continue to take advantage of on your question around missed you know the enterprise space in Q1 in particular, you know what we saw was.
More broadly than just missed really an enterprise it all up and missed obviously the significant component of enterprises. There were some orders that pushed out in time and there were some ordered that but were pulled in and net net it was probably a wash in terms of how that effected the performance of the enterprise business.
In the Q1 timeframe and then one thing I would add is from a orders and shipments perspective, we had strong orders. We are doing with extended lead times, we talked about that just to give you guys. Some some dated there. The average lead time for our products is two to four weeks, depending on the product and we've seen that extend by about two weeks. So we're looking at 46 weeks on average is because.
Currently times and we've seen that for the last last couple couple of months customers. We're working with our customers were booking to order, we're doing our best to get the product the timeline. They need we have not seen customers de book orders customers aren't.
You know, we weren't able to fill in the time into we're driving to we're working with those customers and we're still being able to retain those bookings were not seeing a de bookings are not shifting from our geared to something else because of supply constraints. At this point, obviously work and continue to look to avoid that type of behavior, but we havent seen any today.
That is all the time, we have for questions I'd like to hand, it back to management for closing remarks.
Thank you everyone failure, great questions, we look forward to meeting and speaking with you during the quarter.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.