Q2 2021 Juniper Networks Inc Earnings Call
Greetings and welcome to Juniper networks second quarter 2021 financial results Conference call at this time all participants.
On a listen only mode.
A question answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host, Jeff Luber, Vice President Investor Relations.
It's been so thank you operator, good afternoon, and welcome to our second quarter 2021 Conference call. Joining me today are Rami Rahim, Chief Executive Officer, and Ken Miller, Chief Financial Officer.
Today's call contains certain forward looking statements based on our current expectations.
These.
Statements are subject to risks and uncertainties and actual results might differ materially. These risks are discussed in our most recent 10-Q, the press release and CFO commentary furnished with our 8-K filed today and in our other SEC filings.
Forward looking statements speak only as of today and juniper.
<unk> 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 website under financial reports common.
Commentary on why we consider non-GAAP information a useful view of the company's financial.
<unk> is included in today's press release.
Following our prepared remarks, we will take questions. Please limit yourself to 1 question and 1 follow up.
That I will now hand, the call over to Rami.
Good afternoon, everyone and thank you for joining us on today's call to discuss our Q2.2020.
Adults, we reported better than expected Q2 results delivering a second consecutive quarter, which saw year over year revenue growth across all verticals and geographies. We also experienced record orders in Q2, which helped us grow backlog, both sequentially and year over year.
1 is strong entering the second half of the year I am encouraged by the diversity of the strength, we are seeing which is spread across verticals customer solutions and geographies. While this strength is due in part to improved trends with some of our large strategic customers, particularly in the cloud and service provider.
Moment verticals, we're also seeing strong momentum with new logos and an increased number of deals greater than $1 million.
Especially in the enterprise vertical.
I would call out 3 factors driving our momentum first our focus on leading the industry in delivering simplified operations and a superior.
Wider brewer user experience, what we call experienced first networking is resonating in the market, our AI and software management tools are second to none and deliver meaningful customer value that is enabling us to accelerate our success and take share, particularly in the enterprise campus.
And the data center market, but also in service provider and cloud vertical by.
By leveraging software control points like mist, Astra and juniper Paragon to improve customer operations and experience, where not only creating sticky new software revenue stream, but also create.
Creating platform that pulls through a broader suite of core juniper infrastructure.
Second our teams are executing extremely well our internal alignment around customer solutions and investments in our go to market organization are enabling us to capitalize on our technical.
Differentiation and benefit from improved end market conditions. We're seeing in addition, our customer satisfaction ratings are at record highs, reflecting the strong work of our engineering and services organization as well as our supply chain team, which continues to work tirelessly to meet customer demand.
And an extremely tight supply environment third we are seeing improved end market conditions across verticals and geographies as global businesses reopen and companies look to bring workers back to the office many projects, which were halted are resuming and many new ones.
Starting a digital transformation and quantification initiatives accelerate.
Enterprise cloud and service provider customers are all recognizing the strategic importance of the networks and investing to support a more distributed workforce, which is increasingly reliant on high bandwidth applications.
Locations, such as real time video collaboration.
While the demand environment is strong we like others in our industry are managing through significant supply chain challenges customers have become more aware of these challenges and many are either placing orders early or providing.
Significantly greater visibility into future project. This is particularly true with some of our large strategic customers, especially in the cloud and service provider vertical we.
We view these early orders and insight into our customers longer term plan as a positive development.
Importantly, even excluding these acceleration orders are estimated to have experienced mid teens growth in the period with healthy momentum across vertical and customer solutions.
Based on this strength, we now expect to grow our business approximately 6% in 2021 on a.
Full year basis, despite the challenging supply chain backdrop.
I am excited by the momentum we're seeing the investments, we're making are paying off and I'm increasingly confident in our ability to not only grow our business this year, but to do so on a sustainable basis.
Our strategy is sound and we are.
<unk> and succeeding in several big industry opportunities that should provide attractive tailwind over the next few years.
The first area, where winning is the enterprise transition to AI driven cloud architectures missed.
Mist was 1 of the first to deliver on this vision with wireless and since.
The acquisition, we have brought the same automation insight and agility to the wired Lan and now the win.
This unique client to cloud approach for AI ops deliberate superior end user and operator experiences, which is enabling us to both land new full stack wins.
Defined as Wi Fi Wired and SD Wan and expand our opportunity with a large existing accounts.
Built micro services cloud architecture.
Generation data science expertise, a unified AI engine across the land wireless Lan SD Wan and AI driven support led by the industry's only conversational assistant Margaret.
This differentiation has enabled us.
To take share in key networking segment, which we believe will continue as the $20 billion of campus and branch market transition to AI driven cloud architectures in the years to come.
We're also continuing to see success with our 400 gig offerings both in wide area.
Area as well as data center use cases, we now maintain more than 200 wins that span across Hyperscale service provider and cloud major accounts, which is up materially on a quarter over quarter basis.
We remain optimistic regarding our ability to not only protect our footprint.
But also to capture net new opportunities in these larger accounts.
We continue to expect 400 gig deployment to begin later this year and present, increasing tailwind over the next few years.
In addition, we are optimistic about our <unk> metro opportunity.
We believe the investments, we're making in our juniper Paragon automation suite as well as our ACX Metro access and aggregation portfolio will position us to capitalize on the sizable and growing market.
While it remains early we're seeing healthy customer interest in our new metro portfolio and.
We expect to continue to introduce new solutions over the next 18 months that should further enhance our ability to succeed in this market.
Now I'd like to provide some additional insights into the quarter and address some of the key developments, we're seeing from our customer solutions perspective.
Starting.
Being with our automated Wan solutions, while revenue slightly declined year over year due to the timing of shipments in the cloud we experienced strong orders with solid momentum in both our service provider and cloud segment, we saw healthy demand across both our nx and <unk> product families and improved adoption of.
Our newer product as well as our automation software portfolio.
Our 400 gig solutions are performing well and enabling us to not only protect our existing footprint, but also to secure several net new wins.
While we are continuing to see strong customer demand for our automated win solution. These.
These product are currently the most impacted by supply chain challenges and therefore, the most difficult for us to predict.
As a result, despite very strong orders, we now expect our results from this segment to return to within the range of our long term model, calling for a -1% decline.
Line with 3% growth during the year with supply likely to be the biggest determinant of where we will ultimately fall within this range.
Our cloud ready data center solutions experienced 28% year over year growth during the June quarter, and encouraging order trends.
Trends from our cloud enterprise and service provider customers.
We saw strong momentum with new logos as well as an increase in average deal size in the period, including a meaningful increase in deals over $1 million.
After exceeded expectations for a second consecutive quarter.
It is creating a significant buzz in the market. This is leading to more software opportunities and full stack data center win.
Customer interest in our cloud ready data center portfolio was high and we remain optimistic regarding the outlook of this business.
For the year, we believe our cloud ready data.
Center business is now tracking at to slightly above the high end of our long term model looking for 5% to 9% growth year over year.
Finally, our AI driven enterprise solutions also grew 28% year over year.
Our mist AI differentiation continues.
To resonate in the market as new logos increased 130% year over year and missed orders experienced another quarter of solid triple digit growth.
Our mystified revenue from wireless Lan Wired assurance Marvin's virtual network assistant and associated <unk> pull.
Nearly doubled year over year, and we saw another quarter of record EPS pull through.
I believe the mist pull through opportunity will continue to grow thanks to the recent introduction of the <unk> 4400, a groundbreaking new access which that combines 2.
Through enterprise grade scalability and performance with the ease of AI driven cloud operation.
Mist also positively impacted our branch security business, which performed well in Q2, and we continue to make progress with 128 technology, which we are integrating.
Trading with our <unk> secure branch gateways under a common cloud and AI umbrella.
The pipeline of SD Wan opportunities remained strong thanks to these technology differences, coupled with the unique synergy potential of a unified client to cloud enterprise portfolio.
Integrate from Juniper with end to end automation insight and action.
In addition to strength with large fortune 500 customers. We continued to see very strong momentum in the channel and success with smaller commercial accounts during Q2, which highlights the value of our AI driven enterprise.
Folio to customers of all sizes and across all verticals.
We believe mist AI continues to offer unique and market, leading differentiation, resulting in the best user and operator experiences IRA.
I remain encouraged by the momentum we're seeing in this business and remain confident.
Our AI driven enterprise solutions are likely to see double digit growth in 2021.
Our security revenue experienced strong results during the June quarter and orders also exceeded expectation.
<unk> was especially notable in the high end of the market, where we have historically been strong.
But we saw growth across all customer verticals and both product families.
Our connected security strategy is gaining traction in the market because of the convergence of networking security provides us with a competitive advantage in the portions of the market, where we are currently focused.
We believe our technical strength.
Although both security and networking will continue to provide tailwind in future quarters and should enable our security business to achieve our growth objectives.
Our software momentum is also strong our software and related services revenue grew 59% year over year in Q2 as.
Strength in <unk> growth with ratable subscription solid uptake of our flex software licenses and strong sales of certain perpetual on box licenses.
<unk> grew 32% year over year in the period driven by a combination of mid subscription ratable security software offering and.
As we collated services associated with these software offerings.
We experienced record software orders in the quarter due to broad based strength across verticals and use cases, we're seeing ongoing strength in ratable subscription offerings and improved adoption of our on book Flex licenses.
And we're seeing traction across all of the customer verticals that we serve.
Based on the momentum we're seeing we remain confident in the long term software and our target we presented at our recent Investor day.
I'd like to mention that our services team delivered another solid quarter.
Which are on continued growth on a year over year basis, due to strong renewal and service attach rate <unk>.
Our services team continues to execute extremely well to ensure our customers receive an excellent experience.
I would like to extend my thanks to our customers partners and shareholders for their continued support.
<unk> and competence 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.
And car by discussing our second quarter results and end with some color on our outlook.
We ended the second quarter of 2021 at $1 billion $172 million in revenue and non-GAAP earnings per share of 43.
Both above the midpoint of our guidance.
Revenue was.
<unk>, 8% year over year with.
With growth across all verticals and geographies.
We experienced record levels of product orders during the second quarter with significant strength across all verticals and customer solutions.
We believe some of this strength is attributable to industry.
Up supply chain challenges that are causing certain customers to place orders early in an effort to secure supply and when needed.
These early orders resulted in an increase in backlog and provide us with improved visibility into the second half of 2021.
Even after adjusting.
So for these early orders total product orders are estimated to have grown mid teens year over year exceeding our expectations.
With year over year growth across all verticals and customer solutions.
Looking at our revenue by vertical on a year over year basis service.
Provider grew 2% cloud grew 12% and enterprise grew 12%.
All verticals grew on a sequential basis.
From a customer solution perspective, automated land solutions declined 3% year over year.
While Pts product family posted year over year.
Growth.
Our index offerings declined year over year.
While our automated Wan revenue declines due to the timing of shipments orders grew year over year.
Cloud ready data center revenue increased 28% year over year.
We experienced strong demand.
<unk> for our <unk> product family across all customer verticals and geographies.
And finally, AI driven enterprise revenue increased 28% versus last year.
Our mist and <unk> product families both grew year over year.
As Rami mentioned total software and related.
Related services revenue was $173 million, an increase of 59% year over year.
And our annual recurring revenue or <unk>.
<unk> grew 32% year over year.
Total security revenue, which includes security products as well as services.
And related to our security solutions was $172 million, an increase of 11% year over year.
Security product sales grew 21% year over year.
In reviewing our top 10 customers for the quarter 4 were cloud 5 were service.
Services and 1 was in enterprise.
Our top 10 customers accounted for 33% of our total revenue as compared to 30% in Q2.2020.
Non-GAAP gross margin was 60%, which was above the midpoint of our guidance primarily due to higher revenue.
Provider lower service delivery costs.
If it werent for elevated logistics and other supply chain related costs.
Have posted non-GAAP gross margin of approximately 65%.
Non-GAAP operating expenses increased 9% year over year and 2% sequentially.
Slightly above the high end of our guidance range, primarily due to higher variable compensation related to better than expected order momentum.
Non-GAAP operating margin was 15, 8% for the quarter, which exceeded our expectations and the midpoint of the guidance looking for 14, 6%.
And we exited the quarter with total cash cash equivalents and investments of $1.8 billion.
The sequential increase was due to strong free cash flow generation, which was partially offset by our capital return program.
Cash flow from operations was $257 million.
From a capital returns perspective, we paid $65 million on dividends, reflecting a quarterly dividend of <unk> 20 per share.
And repurchased $110 million worth of shares in the second quarter.
Turning to our guidance as I'm sure you are all aware there is a worldwide shortage of.
Doctors impacting many industries.
Similar to others, we are experiencing ongoing supply constraints, which had resulted in extended lead times and elevated costs.
We have invested to strengthen our supply chain and increased inventory purchase commitments over the course of the last year.
We continue.
Semi COVID-19 work closely with our suppliers to further enhance our resiliency and limit disruptions outside of our control to the best of our ability.
Despite these actions we believe extended lead times and elevated costs will likely persist for at least the next few quarters.
While the situation.
<unk> dynamic at this point in time, we believe we will have access to sufficient semiconductor supply to meet our full year financial forecast.
Looking specifically at the third quarter.
At the midpoint of guidance revenue is expected to be up 5.5% year over year.
We expect supply.
Apply constraints to be particularly tight in the third quarter, which has been factored into our guidance.
We expect our third quarter non-GAAP gross margins to be impacted by higher component costs related to supply constraints and higher expected service delivery costs.
At the midpoint of guidance earnings are expected to grow.
<unk> revenue in the period, despite the expected pressure from supply constraints.
Moving on to our expectations for 2021.
We have updated our full year revenue growth and profitability expectations to account for our better than expected Q2 results and current expectations for the second half of 2000.
Fast in 'twenty 1.
We now expect full year revenue growth of approximately 6%.
A point of which is expected to come from recently acquired assets.
Our revised top line outlook is 150 basis points higher than the midpoint of our previous expectation of 4% to 5%.
I mean, a vertical perspective for 2021 cloud is expected to grow faster than our long term range of 1% to 5%.
Enterprise is expected to grow towards the high end of our long term model range of 5% to 9%.
And service provider is expected to be flat to slightly up versus last year toward the high end of our guidance range.
While non-GAAP gross margin can be difficult to predict we now expect non-GAAP gross margin to be approximately 59, 5% for 2021.
Down from our previous expectation of approximately 60% due to the elevated freight and cost related to supply constraints. We are now experiencing.
Turning to expect full year non-GAAP operating margin to be flat to slightly up versus 2020 levels.
On a full year basis, we expect non-GAAP earnings to grow faster than revenue.
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.
We'll now be conducting a question and answer session.
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Yes.
Our first question is from <unk> Chatterji from J P. Morgan. Please proceed.
Hi.
Thanks.
This is Joe Cardoso on for Sonic.
So my first question here is on the guide you reiterated your guide for service provider revenue to be flat to slightly up for the full year, which implies revenue for that vertical is likely to be day are likely to decline or to be flat in the second half of the year, which publicly would appear.
So the conservative given the expectations for service providers to ramp spending into the second half of this year can you help bridge that variance there and maybe how that thinking is wrong and then I have a follow up thank you.
Yes, let me start Joe and then maybe Ken we'd like to win so.
Had a solid first half.
Half of the year for service provider.
Q1 performance was exceptional Q2 was also I think in line with expectations.
We're entering the second half of the year with solid backlog, we're encouraged by the momentum that we're seeing across the business internationally.
And also tier 1 service provider strength.
In this country in the U S.
So encouraged by the number of wins 400 gig wins, which arent really contributing to revenue in a very meaningful way, yet, but I expect that to change in the second half of the year.
Technology strong new product, both amex and Pts routing products are performing very well.
So I like the trends that we're seeing in SP all up.
Secondly, a great start of the year there are a lot of dynamics around the second half of the year supply being 1 element of that dynamic that we just have to keep a watchful eye on.
All of that has fed into the outlook that we provided for the SP segment, Ken do you want to.
I would just reiterate that supply constraints are factored into the on a full year guide to your point show. The full year guide is unchanged, we are seeing stronger than expected bookings. So the momentum is quite strong that the resulting in improved visibility improved backlog levels.
That said because of the supply constraints, we feel at this time keeping.
Yes, I would just kind of where it wasn't a full year basis is the most prudent thing to do that visibility and increased backlog will ultimately result in revenue for us, but at this point, we see that perhaps beyond this year.
Got it appreciate the color and then my second question's on the supply shortages.
Given that the supply shortages the periods.
The guy who appear to be here to stay for a couple of quarters curious to hear if you guys are pulling on any levers to offset it like price increases or if you plan on.
Passing on any pricing to customers and whether any of that is baked into the better top line, we're seeing here.
Yeah. So we have recently adjusted some price.
Some price lift price changes for our products, we do that periodically we did a pretty significant uplift to many of our product in the Q2 timeframe that will take some time to play through as you know we do have a fair amount of backlog that was on previous pricing levels that still need to kind of ship, but as we continue to increase our bookings going forward, we should see a positive.
So from a recent pricing changes it wasn't across the board for all products, but it was a good percentage of our products.
In an attempt to offset some of the pressures, we're seeing but it will play out over over a fair period of time.
You know something we do periodically making sure we have the right price for the right value that we deliver to our customers is something we're very focused on and something that we expect to play.
<unk> out in the form of improved profitability over time. It didn't have an impact on Q2 results. The price change came towards the end of the second quarter I'm on it really will play out over the next several quarters rather than have any impact on Q2.
Thank you.
Impact. Our next question is from Jeff <unk> with Wolfe Research. Please proceed.
Thank you I was hoping to unpack the gross margin dynamics.
Little bit it sounds as though we should be thinking $59.5 for growth third quarter and fourth quarter.
At the same time it also sounded like the intensity of the supply constraints was most acute in the third quarter. So you know maybe a little pricing increase plus that's the future.
Higher volume in the fourth quarter ought to be at would be higher.
Yeah, So Q3, we definitely.
Definitely think that supply constraints are particularly tight and we mentioned that on on the prepared remarks, and obviously factored that into our guidance both our top line guidance as well as our gross margin guidance Q4, while we haven't given specific Q4 gross margin guidance. We have provided the full year and I think your math is pretty pretty Directionally, correct, where it applies.
Somewhat flattish Q4, op as compared to Q3.
That said, it's a little bit too early to call with any more specificity than that I mean, we do expect volume to be up our software mix should be up which would be obviously <unk> and potentially a positive drivers to gross margin improvement potential gross margin improvement however, given the supply dynamics.
Immix and quite honestly the.
Unknown aspects as we continue to work through this and we think it's prudent to kind of keep the guidance, where we have it on a full year basis.
Okay. Thank you.
And my second question would be on the visibility that you have.
Nice to be in a position of having a little bit of additional.
Visibility than unusual on the other hand on advice questions like this 1.
How durable do you think the realm.
Relative strength in your revenues are for this year.
These trends that should persist into 2022 and beyond or do you think that this.
As a little bit of a cyclical uptick for us all.
Yeah, let me start.
Question on.
Now we're entering the second half of this year with really strong momentum.
I like about this momentum is that it is really diverse it cuts across geos.
Okay.
Across our customer solutions it cuts across the vertical segments. So we're firing on all cylinders on that front. There is definitely a COVID-19 related element where customers are.
Let's say, making sure that they're getting ahead of potential supply constraints, but even factoring that out we're seeing very.
Consolidated.
Order momentum with new projects that are starting old projects that were paused that are starting to resume again the need to build out capacity to keep ahead of customer support customer demands on the networks are all coming to fruition I think we're executing well so were essentially.
They're easing ourselves up to benefit from that recovery.
In the market.
So those that improved market condition is something that I think is going to be very good for us going forward. So I don't think this.
The the demand strength.
Is not a short lived thing.
Separate spectrum I have confidence that the combination of market dynamics and our own execution product differentiation.
Go to market strength is all going to work for us on a sustainable basis, yes, I mean from a revenue perspective, I would I would say that our durability for revenue growth is actually having a stronger.
<unk> will lead that Thats going to happen then I would have had say a few quarters ago, given the bookings strength that we saw so clearly the bookings strength in the first half is setting us up well with an increase backlog increased visibility on second half, which gives me confidence that our revenue strength that we've seen in the first half of 8% growth is going to result in a very solid year, we've raised the year now to 6.
On a full year basis, it's the second time this year since February that we've raised our full year guidance on the revenue side and part of that confidence is the strength, we're seeing in the momentum that we have pretty much across the board.
Thank you.
Our next question.
<unk> is from Rod Hall with Goldman Sachs. Please proceed.
Hi, This is Bob out Eddie on for Rod Thanks for taking my questions.
Congrats on but quarter on guidance here.
I'll quickly touch on geography here now.
Emil has been strong the last few quarters back on.
6% on any Pos.
And then on there is been on that looks good here.
Could you maybe paid this thing.
On a tough too.
Different.
Sales and C C.
On <unk> expecting to see an improvement in.
So let me start over because of.
The strong telco capex guidance et cetera could you unpack a day and a half auto.
Yes, thanks for the question so the.
The strength that we've seen in Q2 as broad base that cuts across every geography, Americas, EMEA and Asia Pacific You're right EMEA has been especially.
Hello Rong.
Growing 10% year over year in the Q2 timeframe.
And that is true we saw growth across all verticals and all solution areas in EMEA, but even in the Americas, we saw growth in every vertical.
We saw a special strength in data center opportunities and AI driven enterprise opportunities.
<unk> verticals and in Asia Pacific I think we're executing extremely well there as well with growth in the cloud vertical and the enterprise.
And strength in data center, AI, driven enterprise solutions. So.
I'm very encouraged as I, just mentioned earlier with the diversity.
The strength that we're seeing across geographies. There is definitely a market dynamic where things are working to our favor, but I think there's also this.
The fact that we are executing extremely well to capture that market opportunity.
Okay.
And secondly.
Upon the mentor.
Net author planting in the cervix, Florida, So you've talked about ethics products on them.
Looks like but more product that you plan to launch.
And then the outcome.
Could you talk about the interest level that you are seeing there I know the Hughes on a locally.
Sure.
It is in Italy, and you'll have juniper, so could you maybe.
Some money type on a lot of the possible.
Yes, absolutely.
Quite frankly, very excited about the metro opportunity and the solutions that we're bringing to market today, we already have elements of that solution or available shipping with.
Secondly, a very solid early interest despite the fact that the solution is not really fully complete we plan we plan to round out that solution over the next year year, and a half or so with more and more product that will enter into the market. I think we are laying the foundation with metro this year for growth next year. So this.
It would be a growth vector within the automated Wan and especially in the service provider segment for next year and again there is a very important element of our automated glass solution that is software.
And this is where our Paragon automation suite comes into the picture, we've recently rounded out.
That solution introduced new capabilities into the market and actually won a competitive win.
With a tier 1 telecom operator in Asia Pacific.
Just recently in fact, which I think speaks volumes to the strength of that software solution that.
We now have in the market and will only get stronger.
In time, so the net of it is I think it can be a wonderful opportunity for us and I'm quite bullish about it.
Thank you.
Our next question is from Amit <unk> with Evercore ISI. Please proceed.
Hi.
Thanks. This is irvin Liu on for Amit.
It also had a question and a follow up and on the topic of the constrained semiconductor supply environment. I was wondering if you can perhaps quantify what sort of impact. This had on your Q2 revenue and on your forward revenue guidance as well.
Essentially if you supply shortages impact your ability to fulfill orders.
And from a gross margin perspective, you see supply headwinds improving or deteriorating versus the 50 basis point headwind you saw it in June.
Yes, maybe I'll start and then Ken you can talk a little bit about.
Color, we can provide in terms of quantification.
It's clearly a worldwide shortage it's affecting.
Many industries not just on it and networking.
It has resulted in extended lead times, but quite frankly, all of our customers have now come to expect.
These challenges and as a result of that they are providing us with much better visibility into their future purchasing and thats a very good trend for us quite frankly, especially in this constrained environment and I just want to add I mean, our supply chain team has been doing a phenomenal job all things considered.
Navigating these challenges which change.
Consider it yeah. So from a revenue perspective, I don't believe it impacted our Q2 results materially I mean, we're very pleased with the results. We posted a 1 billion a $172 million, which is towards the high end of our range. Obviously the profitability metrics were also quite strong in Q2. So I don't believe it had an impact.
On our Q2 results that said it is something we're considering.
As we can.
Set the guidance for Q3 and the rest of the year, we did increase the full year revenue guidance again for the second time this year up to 6% full year year on year growth and previously we were at 4% to 5%. So we are able to secure the supply at least we believe we'll be able to secure the supply to go ahead and increase our revenue guidance. So it's not impacting us.
<unk>.
Very negatively however, it is it is part of that Guy we are definitely considering our ability to secure supply when we set our forward guidance.
From a gross margin perspective.
Whats happening as we talked on the last call and at this point in time, we clearly knew on the last call that there were going to be some pressures because of the supply.
Constraints.
But we also expected at that time to have some alleviating pressures coming back towards just on the Covid perspective. So we were expecting some reduction in freight cost towards the second half of the year. Our current expectation does not call for that anymore. So we're seeing freight costs remain elevated throughout the rest of the year, that's our current anticipation.
That coupled with this with the increased component costs that were seeing in expedite fees et cetera has resulted in us, bringing the full year guide down from 60% to 50.59, 5%. So I do believe these are temporary.
<unk> cost if you will they should we should recover from these that said I do think it will take at least a few quarters right its not.
Not something anticipate recovering from this quarter on <unk>, but I do think you'll book, we will recover this in the longer term and allow us to expand our gross margins and operating profit even more robustly than this year's level, where we do expect some operating margin expansion as well as earnings growth to be faster. The revenue. So the profitability metrics are quite strong.
Despite these pressures as these pressures alleviate it should just allow us to double down on our on our profitability goals.
Thank you our.
Our next question is from Tim long with Barclays. Please proceed.
Thank you.
2 if.
Long as well first.
I did want to go back to the kind of the Q4 implied revenue guidance I understand the complaint the supply chain.
Impacts, but it does seem like you guys were able to kind of beat numbers on the top line. The last 2 quarters, you were able to fight through that.
Somewhat it sounds like you have supply for the year and clearly the orders are there. So maybe what's changing with the ability to continue with mid single or mid to high single digit growth.
In Q4 compared to what you are able to do.
In the prior 2 quarters.
And then secondly, if we could.
Just dig a little bit more into the enterprise Rami you talked about the million dollar deals.
Can you kind of just give us an update there maybe scale that a little bit talk a little bit about win rates and where you are with the sales force is this more.
To grow from here or is it also getting more at bats, if you can give us an update.
On enterprise thanks.
Yes, maybe I'll start with the second question first and then Ken I'll pass it to you to talk a little bit more about the supply.
Related question, So enterprise I'm very pleased with our performance and we have been doing well performing well through.
Late on getting of the onset of the pandemic despite end market disruptions that our industry has faced.
There is no doubt the economic uncertainty as a result of Covid persist, but it's getting better and elements of the enterprise market that have essentially shut down like take for example, a traditional.
On the enterprise are starting to recover again that projects are starting to emerge and that will open up net new opportunities for us and it's a good time, because our differentiation in this space has never been better quite frankly.
We're seeing.
Great growth in the AI.
Current apprised of course, Miss being a very important component of that but I also want to emphasize that there is another leg to the enterprise stool and that is a data center and we've always done quite well in the data Center data center space on the enterprise, but I think now with the addition of the Astra team the technology we.
I drove and exited some.
Real lift to.
Our solution to the differentiation in that space, so from a mixed standpoint.
The phenomenal growth and momentum just continues mid solution revenue.
Which includes wireless includes wired.
It includes software grew at nearly 2 X year over year. If you think about mist all up in terms of annualized order run rate were now over $400 million. So it's a pretty significant component of the total juniper business and then add to that although it's early days with Astra.
<unk>.
The initial feedback from customers the initial win rate.
Has exceeded our expectations and quite frankly, the pipeline that we built has been absolutely phenomenal so I think that.
Astra and the data center opportunities have a lot of the early signals that we got from mist.
Shortly after we made that acquisition in 2019.
Yeah and on the Q4 guide perspective, as you mentioned, Tim we had a very solid first half.
Our midpoint of guidance both in Q1, and Q2 raised guidance in Q2 and it raised again in Q3 here on this call.
And raise the full year at 6%. So we're pleased with the execution and the momentum.
We are seeing on the revenue side.
That said supply constraints are tighter now than they were in the first half I mean, a lot of this has to do with just our own inventory levels and clearly we are anticipating some of the shortages and some of the buffer stock some of the resiliency efforts, we put into place starting last year really helped us in the first half and are going to continue to help us.
In the second half however.
Material is getting tighter so it is something thats going to impact.
Practice, a bit and we wanted to make sure we factor that into our to our second half guide, which again is up from where we were earlier in the year on a full year basis in Q3, So I'm pretty pleased with the result, and I think given the strength of the bookings and the backlog we built non.
Normally every set up for a good second half a good full year FY 'twenty, 1, but it is likely to leak into FY 'twenty 2 as well. So I think it gives us a good head start this bookings growth that we're seeing and the momentum that we have now is allowing for a solid.
6% revenue growth well above or at least low single digit guidance range.
Range for this year and actually sets us up pretty favorably as we enter into 2022.
Thank you. Our next question is from Alex Henderson with Needham. Please proceed.
Alright, Thank you very much.
To clarify a few things.
You just stated earlier question that.
You haven't seen you didn't see any impact to your numbers from.
The supply chain and I think that that's kind of a miss statement clearly you did but.
It may have been in line with what you would expected therefore.
For you are saying, we didn't see a variance from our expectations and I don't think that was the question that was asked I think your.
A question was asked was if you had no supply constraints how much.
<unk> what it is how much.
Larger where the revenues have been so could you clarify that point because.
You're answering a different question than what he was asking on what analysts probably heard.
Relative to our to that key question.
The other thing I wanted to clarify as you gave a growth rates in software both on revenues.
Or are you also gave a revenue growth in security products can you give us.
What the organic growth rates were on those 2 things.
Yeah. So I'll take this 1 so from a yes just to clarify.
The comment about supply constraints on the effect. It had on Q2 was with our own guidance from where we expected the quarter to land. So we did factor in some.
On comply constraints when we set our Q2 guidance and you are right in that the quarter played out actually a little bit more favorably than we expected, but largely in line and it did not negatively impact our ability to hit our results in Q2.
1 area that it is impacting the result, and we called that out in the prepared remarks was on gross margin, which was negatively impacted by about 50.
Points gross margin was quite solid.
Above the midpoint of Q2 at 60%, but it would have been 65% were it not for some of these transitory costs. Both have kind of a carryover from last year's COVID-19 related freight costs as well as some of the supply constraints that are starting up that Q2. So yes to clarify that that is what we intended to say.
On the on the organic I mean, we don't we don't break out the organic versus Nonorganic I'm trying to understand when you say non organic or you're really referring to the most recent acquisitions.
The last 3 quarters or so and I can tell you. Those are on track. We're very excited about the momentum were seeing there we expect them to add a point of revenue growth. So.
[noise] basis in the $45 million to $50 million area on a full year basis, those numbers on a quarterly basis arent that impactful really to our overall software growth and our security growth. There there are a significant minority as compared to the strength, we have on our security business and our software business. They are a big part of our future both software as.
Well as security, but to date, our Q2 results were not significantly impacted by those most recent acquisitions clearly if you go back to the mist acquisition days, there was a significant impact on our on our growth due to missed on the software side in particular, a zero impact to security, but on the software side on mist is a big driver for our software business, particularly.
There are software as a service business, which is embedded in that number.
Yeah.
Thank you.
Our next question is from Simon Leopold with Raymond James. Please proceed.
Great. Thank you for taking the question I wanted to firstly ask about.
Cloud vertical in particular and essentially the group that we often refer to as the tier 2 tier 3 cloud builders and just for illustrative purposes, I'm thinking of operators like Oracle and IBM. So not the hyper scaler I wanted to confirm first of all that you would put those kinds of.
On the operators in your cloud segment, that's not as opposed to your enterprise or service provider segment and then.
Regardless of where you put them how do you see that group up sort of the smaller cloud builders behaving for you how material are they on your business and how are they spending with you and then I've got a follow up.
Oh I mean, let me start so first you know we had a phenomenal cloud quarter in Q2 it was <unk>.
A record quarter.
For us in that timeframe are cloud orders in fact, we're up over 100% year over year.
So we're seeing real great strength there.
Sure she is broad based.
We indicated in the last quarter that there has been a resumption of spend by our largest cloud provider customer that continued into the Q2 timeframe.
But it also is true for the rest of the hyperscale customers as well as what we define.
And Bob majors, so tier 2 tier 3 cloud providers, where the defined as customers, whose businesses depend on deliberate delivering some sort of cloud services.
It continues from there.
Mentum and strength.
Double digit well into double digit territory in terms of both switching.
Fine.
And routing Wan and data Center, and then 400 gig wins the momentum we're seeing in 400 gig wins across.
Large tier 1 hyperscale customers as well as the broader.
Cloud major customers is very very.
<unk>.
And there I would say that the differentiation that we have introduced into the market with our products across the full stack of technology from our network operating system Juno's evolved to our silicon technology.
We have inserted silicon capabilities that are now in the market.
Incur anticipated would be differentiator things around security for example that have now resulted in wins for us and that gives us a lot of confidence that what the design point that we have chosen we have decided on or actually.
Paying off for us. So this is why hold up we're now anticipating that.
We had growth faster than the full year guide that we provided for a cloud provider in the last analyst day.
Thanks, and then just my follow up is on the surface.
Product mix this quarter was unfavorable relative to what we would expect in terms of gross margin is normally routing has the better than average gross.
Margin so.
Imagining that your software business is contributing more favorably or disproportionately to datacenter and enterprise segments and thats, helping those segments have better gross margin than they have historically.
I don't know if they need to complete.
Complete breakdown.
We're going to software by segment, but could you help us understand the distribution of software in the reported segments.
Yeah. So I do you are right in that our software mix absolutely did help overall gross margin mix is the biggest determinant product <unk> vertical is a highly.
Down the correlation however, even within vertical sometimes you might have some customer mix, where your more advantaged than other periods of time, maybe their geographic as an example, where we do have a higher margin and say the U S tier ones than we might have some parts of Asia. As an example, so theres a lot of mixed to consider.
Generally speaking you're correct in that the verticals slash product.
Hi, Rick aggregate was unfavorable we offset some of that with some software growth, which is a little more slanted, particularly the off box higher margin software is a little more.
As a percentage a little higher than our enterprise, our cloud ready data center AI driven enterprise businesses than it is our traditional kind of service provider routing.
Mixing domain, where we do have a fair amount of software, but its more on box and is less margin impact overall, so that is that as part of the mix going forward and the last thing I'd call out Q2, we saw a very strong services gross margin in Q2, which was the primary reason why our gross margin was beyond the midpoint of our guidance.
Product margin came in largely in line with our expectations.
Even with the mix shift that you are talking about but services exceeded our expectations, which resulted in the overall increased from midpoint.
Operator, we're going to take 2 more questions.
Okay.
Our next question.
<unk> is from Sami Badri with credit Suisse. Please proceed.
Hi, Thank you.
The first thing I just wanted to.
To ask was regarding some of the orders that some of your customers are submitting earlier than they normally would I think you made that comment rami.
Most.
Consumer has been doing this with most of the networking equipment vendor base and kind of a follow up to that is is there any kind of optionality the customers have to potentially.
Postpone or.
Paul on cancel their order and the event on another vendor's able.
Of your quite a lever on any kind of routing on networking equipment.
Yes, hi, Sammy thanks for the question.
I think the first question sorry.
Now I'd forgotten the first question our other getting early yes.
It's very difficult for me to comment on sort of what is what.
But the customers are seeing from our peers in the industry.
All I know is it's very.
Very likely that the demand sorry, the the supply constraints and the challenges are broad based there felt across our peers are felt across.
The entire industry and many other industries, we have to understand that.
On the supply constraints are very high upstream in the overall supply chain all the way to the silicon fabrication.
Is that are around the world. So it's most likely the case that our customers are seeing very similar trends from all of our peers in.
The industry, yes.
And our orders or cancel a bowl however, most orders would come with the cancellation fee, if a customer reduced cancel and I would say that our history of cancellations is extremely low.
We're quite confident in the strength of our backlog, we do not expect that cancellation activity to increase.
In any sort of significant way and we feel that customers are just giving us advance.
Giving us better visibility to their true deployment needs as they are aware of our published lead times, obviously and they want to make sure they get their orders in our hands on time for us to deliver against those stated goals. So I don't expect there to be any sort of dish.
<unk> into our backlog or bookings from a cancellation perspective.
Thank you.
Our next question is from Paul Silverstein with Cowen. Please proceed.
I appreciate your squeezing me in a couple of clarifications.
I apologize if this is repetitive of what's been said before my lines come in and out on.
On the pricing on pricing any meaningful change Ken.
Yeah, we did change a fair amount of our products in Q2 timeframe late in Q2, we did increase those prices I don't want to say across the board Paul but in a majority of our products.
<unk>, we did see a price increase.
And in Q2, that's going to play out over the next couple of quarters, but it is something we did do we did do in Q2.
I appreciate that and then.
Rami if I understood you correctly, maybe I didn't put.
With respect to on.
With respect to the web.
Scalar.
Did I understand you to say that you have product wins with the web scale, there's I assume youre talking about other than intra data center switching and the related question was would be the primary driver not the only driver of the improved outlook.
So.
From an order standard.
Standpoint, I think that the trends and the momentum our broad base certainly they are very strong in the cloud provider space, but from an order standpoint double digit growth in service provider double digit growth in enterprise as well.
And then I just provided you with color of over 100.
5% growth in orders in the cloud provider segment. So I mean, clearly, it's broad based and it's very encouraging and it bodes well for future quarters in terms of revenue in terms of visibility that we have.
Youre right in terms of the specific wins in the used cases within Hyperscale <unk>.
Our wins are Wan and inter data center.
Not yet intra datacenter, although these continue to be opportunities that we pursue in the and the rest of the cloud provider space, we have wins across the board that includes Wan.
Datacenter interconnect edge.
As well as inside of the data center.
Okay. So I think that was our last question and maybe I would like to close with just a couple of thoughts.
I'm very encouraged by the momentum in the business I like the diversity and the strength that we're seeing.
It speaks to our strategy it speaks to the smart investments that we're making it speaks to the strong execution by the team, which I am very proud of I believe that our end markets are recovering and that we're set up to benefit from that recovery and I also think that the demand strength that we're building as well as the.
The backlog that we have now.
It allows it sets us up to deliver greater improvements in profitability next year, especially as some of the transitory supply chain related costs start to recede. So this remains a very important focus area for myself and my management team and with that I just want.
Thank you all for your time and the confidence in us. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation have a great day.
Okay.