Q3 2021 Juniper Networks Inc Earnings Call

Greetings and welcome to the Juniper Networks' Q3, 2021 financial results conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host just Bluebird you may begin.

Thank you operator, good afternoon, and welcome to our third 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.

Our forward looking statements speak only as of today and Juniper undertakes no obligation to update any forward looking statements.

Our discussion today will include non-GAAP financial results.

Reconciliation information can be found on the Investor Relations section of our website under financial reports.

Commentary on why we consider non-GAAP information a useful view of the company's financial results is included in today's press release.

Following our prepared remarks, we will take questions.

We ask that you. Please limit yourself to one question so that as many people as possible we would like to ask a question have a chance.

With that I will now hand, the call over to Rami.

Good afternoon, everyone and thank you for joining us on today's call to discuss our Q3 2021 results.

We experienced very strong demand during the September quarter, and delivered a fifth consecutive quarter of year over year growth, even though supply chain challenges impacted revenue in the period.

Orders saw another quarter of mid teens year over year growth when adjusted to account for extended lead times on an unadjusted basis orders grew by more than 50% year over year for a second consecutive quarter and our ending backlog has now increased by more than $1 billion.

As compared to year end 2020.

Order momentum was strong across vertical customer solution and geographies with each of these categories experiencing growth well into double digit territory.

Needless to say our team is executing extremely well our strategy is working and the investments we have made in technologies that enhance customer operation and improve the end user experience, what we call experience versus networking.

Having us to differentiate across the markets we serve.

This tactical differentiation along with the investments we've made in our go to market organization are paying off and enabling us to take share and capitalize on some of the big market transitions that are beginning to unfold across the verticals we serve.

This is particularly true in the enterprise market, where customers are increasingly recognizing the value delivered by platform such as MIT and Astra that dramatically reduce deployment time eliminate trouble ticket and reduce mean time to resolution for network problem.

<unk> platforms are not only enabling us to win new logos in the campus and the data center, but also to pull through other juniper products present meaningful opportunities to expand with customers over time.

In the cloud and service provider verticals, we're seeing strong early adoption of our 400 gig capable platform due to the strength of our <unk> operating system, our differentiated silicon capability and the deep engagement, we maintained with decent important customers.

These factors are not only enabling us to maintain our core franchises, but also to secure new footprint, including a large new hyperscale Wan deployment that should present, a tailwind for our business over the next few years.

I'm also encouraged by the early customer interest in our metro routing portfolio, which addresses a large and fast growing market, where historically we have in place.

We expect this opportunity to steadily ramp through the course of next year.

New products come to market and service provider by G investments steadily increase.

The Bottomline is that I remain very optimistic regarding our future prospects. Despite the supply chain challenges. We are currently navigating I believe these challenges are likely to prove transitory in nature and the strong order momentum, we're seeing and the backlog we have developed sets us up.

Extremely well to deliver improved growth and profitability in 2022 and beyond.

While it remains early and we will provide a more detailed 2022 outlook. When we report our Q4 results based on current backlog and the order strength, we're continuing to see in the market.

We currently expect to deliver at least mid single digit sales growth and at least eight point of operating margin expansion in 2022, our expectations for 2022 do not assume a material improvement in supply chain constraints.

Now I'd like to provide some additional insights into the quarter and address some key developments, we're seeing from our customer solutions perspective.

Starting with our automated Wan solution, while revenue declined year over year due entirely to supply chain constraints, we experienced another quarter of strong order growth with solid momentum in both our service provider and cloud segment, we saw healthy demand across both our <unk> and <unk> product families.

And strong adoption of our newer products as well as our automation software portfolio.

Our 400 gig solutions are performing well and enabled us to not only protect our existing footprint, but also to secure new wins that includes several large opportunities with our cloud customers, including the hyperscale opportunity I previously referenced.

Driven in part by these opportunities are cloud orders saw a second consecutive quarter of triple digit growth year over year.

While we are continuing to see strong customer demand for our automated Wan solution. These products are currently the most impacted by supply chain challenges as a result, we continue to expect revenue from this segment to be within the range of our long term model, calling for a 1% decline towards three.

3% growth this year, despite the strong demand we are seeing.

Our cloud ready data center solutions experienced 26% year over year revenue growth in Q3, and another quarter of encouraging order trends from our cloud enterprise and service provider customers.

We continued to see strong momentum with new logos and deals greater than $1 million.

As I mentioned last quarter Astra is creating a significant buzz in the market, which is not only leading to more software opportunities, but also full stack data center wins.

Customer interest in our cloud ready data center portfolio is high and we continue to be optimistic about the outlook of this business base.

Based on the momentum we're seeing our cloud ready data center business is now tracking to meet or exceed the high end of our long term model looking for 5% to 9% growth year over year.

Finally, our AI driven enterprise solutions significantly outpaced the market and grew 35% year over year, our mist AI differentiation continues to win in the market as wireless orders experienced another record quarter with triple digit growth.

And a record number of deals greater than $1 million.

Our mystified revenue of wireless Lan Wired access Marvin virtual network assistant and associated pull through nearly doubled year over year, and we experienced record <unk> pull through in the period with this pull through revenue growing more than 200% year over year.

This momentum enabled <unk> to achieve the highest level of sales in 2014.

We expect this momentum to continue in future quarters as customers increasingly recognize the value of AI, driven cloud operation, including new and innovative features such as EVP and VX Lan fabric management in the midst cloud, which has launched this quarter.

On a year to date basis, our mystified revenue has more than doubled year over year.

We're also seeing very positive results with our AI, driven SD Wan solution, which earn juniper distinction as the only visionary in the Gartner Wan edge Magic quadrant published last quarter.

We saw a record quarter for our session Smart router portfolio acquired from $1 28 technology with triple digit year over year growth.

Wins in various sectors like retail and banking, plus especially strong traction with the federal government.

In addition brand chefs Rx sales last quarter hit a two year high the pipeline for our AI driven SD Wan as strong as both prospects and partners are gravitating towards that unique benefits provided by juniper AI ops with assured client to cloud experiences.

We are particularly encouraged by the number of both that multimillion dollar wins, we're seeing in the campus and branch where companies are turning to juniper for a combination of their wired access wireless access and Wan edge needs. Examples include a prominent retail chain in North America a multinational.

National Energy company, a European multinational retailer and leading international construction company in Europe, and managed services providers in North America and Europe.

This highlights the value of our AI, driven enterprise offerings to customers and partners across all vertical and all Geos. We believe AI continues to offer unique.

<unk> market, leading differentiation, including self driving operation and predictive actions driven by our virtual network the system Marvin resulting in the best user and operator experiences.

I am very pleased with the momentum we're seeing in this business and now expect our AI driven enterprise solutions to see at least 20% growth in 2021.

Our security revenue experienced strong results in Q3 with total revenue growing 9% year over year and product revenue, increasing by 16% year over year, which marks a third consecutive quarter of double digit product growth.

<unk> was broad based across our high end mid range and branch, that's Rx product as well as our virtual at direct offerings.

Our connected security strategy is gaining traction in the market because the convergence of networking and security provides us with a competitive advantage and we continue to receive third party accolades on our solution from organizations, such as ICSC and netback open often besting all competitors.

In head to head tests.

We believe our technical strength in both security and networking will continue to provide tailwind in future quarters and should enable us to grow our security business during the current year.

Our software momentum accelerated in Q3.

Software related services revenue grew 67% year over year as we experienced growth with ratable subscription solid uptake of our flex software licenses and strong sales of certain perpetual on box licenses.

<unk> grew 34% year over year, driven by a combination of mid subscription ratable security software offerings and the related services associated with these software offerings.

We experienced record software orders in the quarter due to broad based strength across verticals and customer solutions.

<unk> is strong in both ratable subscriptions offering as well as on blocks flex licenses based on the momentum. We're seeing we're currently tracking ahead of the long term total software and <unk> targets, we presented at our recent Investor day.

I'd like to mention that our services team delivered another solid quarter and continued to grow on a year over year basis due to strong renewal and service attach rate.

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 and confidence in juniper I, especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders I will now turn the call over to Ken who will discuss our quarterly financials.

Adult in more detail.

Thank you Rami and good afternoon, everyone.

I will start by discussing our third quarter results and end with some color on our outlook.

We ended the third quarter of 2021 at $1.189 billion in revenue slightly below the midpoint of our guidance, but up 4% year over year and 1% sequentially.

The modest revenue shortfall as compared to our guidance was due to the negative impact of supply chain constraints.

Non-GAAP earnings per share was <unk> 46 cents in line with our guidance.

During the third quarter momentum in product orders remained strong.

Showing exceptional year over year growth for the second consecutive quarter.

We saw significant order growth across all verticals, all geographies and all customer solutions.

Some of this order strength continues to be attributable to industry supply chain challenges that are causing certain customers to place orders early in an effort to secure supply when needed.

Even after adjusting for these early orders total product orders are estimated to up grown in the mid teens year over year.

This is the third consecutive quarter of mid teens bookings growth after adjusting for early orders.

It's important to mention that our backlog has increased by more than $1 billion relative to the start of the year.

Looking at our revenue by vertical on a year over year basis cloud grew 20%.

Enterprise grew 7% and service provider declined 6%.

We saw double digit year over year order growth in service provider. However, the timing of shipments due to supply constraints impacted revenue.

Turning to customer solutions on a year over year basis.

<unk> ready data center increased 26%.

And AI driven enterprise increased 35%.

Automated WAF solutions revenue was negatively impacted by supply constraints and declined 12% year over year. However, orders grew double digits versus the last year.

Total software and related services revenue was $204 million, which was an increase of 67% year over year.

<unk> grew 34% year over year.

As Rami mentioned, we are pleased that our software related metrics were at record levels in the third quarter and are tracking ahead of the targets we shared at our Investor day in February.

Total security revenue was $160 million growing 9% year over year.

Security product revenue grew 16% year over year.

In reviewing our top 10 customers for the quarter six were cloud three of our service provider and one was in enterprise.

Our top 10 customers accounted for 31% of our total revenue consistent with the third quarter of 2020.

Non-GAAP gross margin was 61%.

Which was above our guidance midpoint, primarily driven by favorable product and customer mix.

If not for elevated supply chain costs due to COVID-19, we would have posted non-GAAP gross margin of approximately 61, 5%.

Non-GAAP operating expense increased 8% year over year that was essentially flat sequentially slightly below our guidance midpoint.

Non-GAAP operating margin was 16, 6% for the quarter, which slightly exceeded our expectations.

We exited the third quarter with total cash cash equivalents and investments of $1.8 billion.

Cash flow from operations was $137 million in the third quarter.

From a capital return perspective, we paid $65 million in dividends, reflecting a quarterly dividend of <unk> 20 per share and.

And repurchased $50 million worth of shares in the third quarter.

Now I'd like to provide some color on our guidance, which you can find detailed that Mr. CFO commentary available on our Investor Relations website.

Consistent with prior quarters in 2021.

A worldwide shortage of semiconductors and other components, it's impacting many industries caused in part by the continuation of the COVID-19 pandemic.

Similar to others, we are experiencing ongoing component shortages, which has resulted in extended lead times and elevated costs of certain products.

We continue to work to resolve the effect of the supply chain challenges and have increased inventory levels and purchase commitments.

We are working closely with our suppliers to further enhance our resiliency and mitigate the effects of recent disruptions outside of our control.

We believe that even with these actions extended lead times and elevated costs will likely persist for at least the next few quarters.

While the situation is dynamic at this point in time, we believe we will have access to sufficient supplies of semiconductors and other components to meet our financial forecast.

At the midpoint of our guidance revenue is expected to grow three 5%.

This would be the sixth consecutive quarter of year over year revenue growth.

We expect our fourth quarter non-GAAP gross margin to decline sequentially due to higher costs related to supply constraints and product mix.

Not for the elevated supply chain costs went up or cast at non-GAAP gross margin of approximately 61%.

We believe these elevated supply chain cost will prove to be transitory overtime, but will likely remain elevated for the next several quarters.

I'd like to point out that despite an expected sequential decline in non-GAAP gross margin in Q4 on a full year basis, our guidance remains approximately 59, 5%, which is in line with what we provided previously.

Well there was a lot unknown about the future due to the pandemic and other macroeconomic uncertainty we would like to provide a few comments on our outlook for 2022.

Presuming no further COVID-19 related economic deterioration.

Based on the current order momentum, we're seeing and the anticipated Q4 of 2021 any backlog, we expect at least mid single digit revenue growth on a full year basis in 2022.

In addition, we expect to see at least 100 basis points of non-GAAP operating margin expansion on a full year basis.

This guidance is not dependent on improvement in lead times or do you think that the industry supply chain constraints.

We expect to see seasonal patterns from our revenue non-GAAP gross margin and non-GAAP operating expense perspective.

As a reminder, our non-GAAP gross margin tends to be sequentially lower in the first quarter with gradual volume related improvements throughout the course of the year.

In addition, operating expenses typically sequentially higher in the first quarter due to the reset of variable compensation and fringe costs.

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.

Yes.

At this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

I'll remind everyone to limit themselves to only one question.

One moment, please while we poll for questions.

And our first question is from Rod Hall with Goldman Sachs. Please proceed with your question.

Yeah, Hi, guys. Thanks for the question I guess I wanted to check the.

Yeah, the number on automated whether that was a down year over year in the quarter, but then it seems like you've got a lot of opportunity as you head into next year and I just wanted to see kind of what Youre thinking you know happened in the quarter, maybe you can give us a little bit more color. But also was it you know was that supply mainly and you.

How does that look for you next year as you look out the next 12 months. Thanks.

Thanks for the question Rod So the short answer is it's absolutely supply chain limited. It just so happens that as you might imagine for automated when the predominant product as routing routing is what I'm more complex products that we need to build.

They use the most amount of sophisticated semiconductor components and for that reason the discrepancy between revenue and orders is going to be greater for automated win and by.

By connection also for the service provider.

Having said that I'm very pleased with both our service provider and our automated win momentum.

Especially from a booking standpoint.

You had mentioned every solution area automated win.

<unk> cloud data center, and the AI driven enterprise had order growth of over 50%. It's just that the automated Wan had a biggest impact from when it came to supply chain challenges I really liked the fact that.

Our newer product that we've introduced into the market line cards for the <unk> line cards for the P. T X are performing very well. So that's something that we monitor closely we've talked a lot about the metro opportunity, which in large part hasn't really positively helped us in any significant way that really I think next year and year. After is when it kicked in.

But nonetheless, we're seeing very solid early momentum with record orders for our ACX product line, which is predominantly used in that metro opportunity and the last thing I'll say about automated win which is very encouraging is our 400 gig win rate. So while we don't necessarily see a ton of revenue yeah.

With 400 gig deployment, we are looking at very solid wins and also the growing orders at this point, which is reflected in the automated way and order growth.

Okay. Thanks for that Rami and can I, just just following that up could you comment on the backlog as long as I know you said, it's a $1 billion increase I think year to date is most of that backlog increase in this quarter or in the in the automated way an area where you know.

Are you seeing that across the board I'm, just curious about the composition of the backlog.

Yes, so we've been building backlog throughout the year and good grow quite healthy Q3, as well as you noted a rod it is really across the board I mean backlog is up across all customer solutions.

I would say that the automated Wan is up a little.

More than the others, but it's really isn't across the board backlog build with a little bit more slanted towards automated way and so we are entering the fourth quarter and I believe next year with a very healthy backlog across all products, but automated when it is I would say the most healthy if you will.

Great. Okay, guys. Thank you very much.

Sure. Thank you.

And our next question is from Cemig Chatterji with J P. Morgan. Please proceed with your question.

Hi, Thanks for taking the question I guess I just wanted to start off by asking one pricing.

What kind of actions have you taken on.

That front, if you can just break that down in terms of the different political and say where are you finding it easier to take pricing, where it's been more difficult.

In relation to these life changing of any headwinds on gross margin when do we get to a point, where you can be more net new creative at the price that you pay.

The actual amount of fall.

Please.

Yeah, So I'll take that thanks for the question <unk>. So we are expecting the supply chain cost to remain elevated throughout next year I still believe they are transitory and I could be positively surprised when we might see some of that reduction maybe late next year, but at this point, we're presuming that it is going to remain elevated on the cost side on the pricing side, we were absolutely taking.

Pricing actions to try to protect our gross margin.

At this point I feel that we are going to be able to protect much of our gross margins a little bit too early to call exactly how that's going to play out. The other thing I would also add as the timing I do expect that the cost to hit us a little earlier as you can see from the results our cost are already starting to hit us and the pricing actions will take some time to feather in particularly because we have such a large backlog.

Look at the old prices, so we need to burn through the backlog and kind of like legacy pricing. If you will and as we make pricing actually going forward, we'll realize that benefit in 2022, but it might not be evenly throughout the throughout the year.

Okay. Good.

Just sort of follow up.

You are guiding to cycles and revenue growth of mixing them is just as high quality revenue growth and claim phase two.

In the past you've given some color about growth expectations by four.

Just wondering I mean, I can see different grade was your cloud you'd hope you'd benefit of 400 gig this kind of movement amongst service providers versus if you can help us think about direction, even if political is probably going to be your strongest growth vertical and kind of rank order them in subsequent growth expectations for next year.

Yeah, let me take that and maybe Kent would add some more to it first I would say, we're not really guiding to mid single digit or a 5% growth as you mentioned, we our guidance we are providing an outlook of at least mid single digit growth and just keep in mind that we are supply chain limited right now so that outlook that we provided.

<unk> assumes no meaningful improvement to the supply chain situation, if the supply chain situation does start to.

Materially improve next year, then I think there is upside to that number.

I would just start with that in terms of where that.

That growth comes it comes in every vertical is performing extremely well and every solution area is performing extremely well.

Enterprise I'd say, it's going to be a significant growth driver for us. So assuming again supply chain goes our way I think the differentiation that we have in the market.

Win rate the net new wins, we're getting sets us up to perform extremely well.

Service provider I think could actually do it exceptionally well and even compete with an enterprise that from would the enterprise vertical just from the standpoint of the significant backlog that we've built thus far so it's going to be very difficult to predict exact.

Stack ordering.

Contributors to that growth, primarily because it's going to be very much determinant determined by the supply chain situation.

Yeah, Let me thing I'll add I will provide more color in our next call as we typically do in the beginning of 2022. So our Q4 call we'll provide more color on in FY 'twenty two at that time.

Okay. Thank you both.

Remarks on me and thank you Ben Thank you.

Alright.

And our next question is from James Fish with Piper Sandler. Please proceed with your question.

Hey, guys. This is clinton on for Jim. Thanks for taking our question, maybe kind of touching base again on the enterprise side, we've seen some really strong quarters, especially within the MS business. How should we think about the puts and takes of the enterprise strength is it driven more by kind of delayed projects, returning or our routine juniper gaining more.

There are winning more against the incumbents.

Yes. Thanks for the good question, so I'm very confident that we're taking share in the enterprise space.

You saw our enterprise routing performance, 7% year over year, but I think the big difference between.

Our our revenue and I think I said, the enterprise routing performance I mean enterprise revenue performance, 7% year over year order performance is actually significantly more than that and the difference is driven primarily by the fact that we had some weakness in enterprise routing due entirely to the federal space, where there is still uncertain.

T about budget. So if you remove that our strength in the enterprise is phenomenal we're seeing significant wins of net new opportunities and there are two things that are driving that today. One is our AI driven enterprise solution campus and branch that includes the mist for wireless.

Wired and win.

That's achieving new records every single quarter.

Triple digit revenue growth for mist.

The first triple digit bookings quarter for mist wireless significant E X wired switching pull through of the MS portfolio. All of these are contributing to that.

That portion of the enterprise business, the second vector of growth within the enterprise as a data center, there is well over 50% year over year order growth Cigna.

Significant differentiation with Astra as the management solutions for the data center.

Very solid win rate. So I, just think that we are taking share because of the strength of our portfolio, which has never been this differentiated I mean at least in my time.

At Juniper.

I just want to add onto that a little bit so as Rami mentioned enterprise from a revenue perspective was up 7%, we're already talked about automated Wan and service provider being little bit stunted because of supply and I. Just wanted to make sure everyone is aware that all cuts, whether it's enterprise cloud recipe or automated wham cloud ready data center edge or the enterprise all numbers are actually.

Lower from a revenue perspective than we would otherwise expect if it were not for supply constraints.

We're not going to give you an absolute number but it could have been but one way to look at it is the difference between our adjusted bookings on a product perspective, which is 15% or mid teens.

Q3 year over year as compared to our revenue growth on a product perspective of 5%. So it's easily to imply that there is an extra 10% of revenue growth that did not happen due to supply constraints and that would have really lifted all boats enterprise cloud NSP.

Super helpful. Thank you.

And our next question is from Simon Leopold with Raymond James. Please proceed with your question.

Thanks for taking the question I wanted to see if you could talk about the general trend in your input costs and specifically what I'm pondering is the components, particularly chips that you're ordering now were ordered during the quarter are likely to show up in 40 50 weeks at.

Higher price points, so wanted to get a better understanding how to think about the impact of that particular headwind in 'twenty two gross margins.

That's something you could help us with.

Yes, so as you can see from we provided the actual reported gross margin of 61, this quarter, which was above the mid point due to product mix being favorable but we also talked about what it would have been if it weren't for the elevated cost which would have been closer to 61, 5%. So these elevated costs are hitting us now and and one thing I would say you know Simon.

Yes, we have purchase orders throughout all of next year in some cases out 50 weeks in other cases out 80 weeks in an attempt to secure supply and these are noncancelable committed purchase orders with pricing that said this pricing environment is kind of taking that and throwing it out the window. We are seeing costs going up despite the fact that we have.

There is in place. So we are expecting the orders we have in place are not necessarily the price we're going to pay whether it's disguised in the form of an expedite fee or a purchase price variance et cetera, we're seeing costs going up.

In advance of those orders are being fulfilled if that makes sense.

I think it does just just to clarify all else being equal your mix. The same customers. The same gross margins for products would be lower.

In 2022 than they are in right now is that fair.

Not providing 2022 specific gross margin guidance at this point, there's just too much theres just too much uncertainty you can count on is giving you better better understanding you know in 90 days from now on our next call I will say this.

We are not dependent on gross margin improvement next year for us to hit our commitment of at least 100 basis points improvement in operating margins. So we're very committed to expanding profitability next year.

And we are not dependent on gross margin to do that but we are very committed to expanding profits.

Okay. Thank you that's helpful.

Yep.

And our next question is from George Notter with Jefferies. Please proceed with your question.

Hi, guys. Thanks, very much I guess, a is as I listen to the call you guys have thrown out a lot of numbers.

Certainly some eye popping stats I think in terms of the additional $1 billion in backlog, a triple digit order rates across a number of your business lines and customer areas.

And yet we're talking about mid single digit growth for next year I can you know certainly I think the caveat to that is and you know at least mid single but.

I guess I'm trying to understand sort of the delta between all of these numbers I mean, it seems like at.

At some level you expect that some of your customers of double and Triple ordered with you.

I'm wondering like how you see that dynamic and how.

How does that play out going forward.

Yeah, Hi, George I'll start.

I mean, you sort of said it we're really not guiding or we're not providing an outlook of mid single digits, we're providing outlook of at least that number and.

We're doing it with the major assumption that supply.

Situation does not in fact get better if the supply situation in fact does it start to improve and it could by the second half of next year. Then I think you will see an upside to this outlook that we've provided.

That's really the the net of it at this point in time based on visibility, we felt that it would be prudent for us to provide you with.

Outlook.

Based on the supply situation not improving however, you know that could be.

This assumption things things could actually be better next year, absolutely I mean, there's no doubt that the limiting factor or the primary input into our guidance or outlook for next year is supply since it really has to do with how much supply. We think we're gonna have access to next year and that's where we came up with at least mid single digits. If it were purely a demand.

Equation, the number would be much greater than that and that was that that holds true denominator. You know next year, but also this year.

Got it okay. Thank you very much.

And our next question is from meta Marshall with Morgan Stanley. Please proceed with your question.

Great. Thanks.

I just wanted to see kind of where you were seeing the most traction with the apps business and was the enterprise.

Just where are you seeing kind of any attraction on the hyperscale side or on the cloud side.

And then maybe just a second question. If you could just remind us of how much of the Q3 year on year growth would be inorganic.

Yes.

Yeah, Let me start with your question about Armstrong. So first I'll, just say very quickly that we never anticipated the Astro would be a significant opportunity in the hyperscale space, primarily because the top five hyperscale customers tend to develop their own automation software that being said every.

Outside of Hyperscale Enterprise service provider, even cloud majors is an opportunity where we have thus far seen the quickest win rates. The biggest pipeline build is in the enterprise large to mid size enterprise companies.

And as I mentioned earlier, it's extremely encouraging.

At which we are taking down new opportunities. There is absolutely a demand for this kind of automation technology for the data center space and there are some very unique aspects to our Astra software offerings first and foremost it's the only open solution in the market today.

No none of our peer automation solutions work on anything but their own switching infrastructure Astro works on our own switching as well as sonic as well as our competitor switches that turns out to be a highly desirable feature of the technology. After his design ground up.

To scale to the largest data centers, that's very meaningful for large enterprises, especially in financial services and manufacturing and other similar verticals and abstract invented pioneered the concept of intent based networking. So from an operational experience standpoint, there really is nothing as good as it's in the March.

So.

Very very pleased with the performance, thus far and I think this is gonna be a great growth driver for us in the future. Yeah on your second question on organic versus inorganic when we started the year, we called out that we believe the inorganic acquisitions in aggregate all three of them went out about 1% of revenue growth to juniper, we'd go it's about $50 million and that's holding exactly as we expected.

You could take that 50 million I'm not going to give you. The exact number in Q3, but if you start with a $50 million for the year and kind of quarter is that it gives you some indication of the inorganic revenue in Q3.

Great. Thanks, guys.

Sure.

Our next question is from Amit Dayal.

Core ISI. Please proceed with your question.

Okay.

Hey, guys. This is Michael Fisher on for Amit.

I was curious on one of the comments on the AI driven enterprise revenue growth you mentioned, both missed and Dx product families grew year over year.

Curious if you can give some more color on the trajectory trajectory. There you know and why their growth rates are accelerating decelerating not moving around too much for each of those product families.

Yeah, sorry, your glitch there for a second I think you were asking about mist Wi Fi and then also the Pis and <unk> got it. Thank you. So you.

First I think by any measure mist has been an incredible acquisition for Juniper networks and it really has put our enterprise business on a significant growth and take share trajectory.

Q3 was no difference in terms of the.

Quarter over quarter Records, we continue to make this was a record.

Driven enterprise orders quarter, and a record AI driven revenue quarter for us.

Order growth as well into double digits.

Growth in all customer verticals SP enterprise and cloud providers that are all bracing that technology.

And I think I did mention that it's not just about Wifi, although Wi Fi in and of itself was a record and hit triple digit bookings for the first time in the Q3 timeframe. We saw a record number of E X pull through both in units, but in also in.

In revenue as well so that has always been the strategy or missed not just by Wi Fi it's that entire clients to cloud connection that includes Wi Fi wired and when we're seeing the full benefit in wireless and wired as we integrate <unk> technology into the win which is really going to happen by the end of this year in the first.

Part of next year, I think we will see a similar type of pull.

Pull through effect happening on that side as well. So the momentum has just been really strong and I expect that to continue for sure.

Great. Thanks for taking my question.

Okay.

Our next question is from David <unk> with UBS. Please proceed with your question.

Great Hi, guys. Thanks for the question. So can I just go back to the commentary about product order growth versus actual product revenue.

You're suggesting that in three Q, there was roughly $70 million of deferred product revenue that shows up in your product backlog that youre going to recognize next year and if I do that same math in the June quarter, its probably about $60 million or maybe $55 million. So is that revenue that you think you'll be recognized next year is that the right way.

Think about it and then I have a quick follow ups.

Yeah. So I think those numbers, you're referring to are in the ballpark from an adjusted bookings perspective, our actual backlog is growing much faster than that we've talked about greater than 1 billion. So much bigger numbers, but if you just go to our adjusted bookings number which is that mid teens number that delta to revenue where the numbers you just quoted and those are the those are the <unk>.

That we could ever arguably should have recognized already right in Q3 that that plus 10% that's $70 million, you're referring to that if there were not supply constraints, we would have recognized.

With me that much more revenue is really the math I wanted to understand from a backlog build it's much greater than that because customers are placing orders at a faster rate.

So then maybe just as a quick follow up so that $70 million given your backlog I guess would be recognized in calendar 2022. So when I think about your commentary about at least mid single digit revenue growth that sounds like about a point and a half of that growth comes from the backlog pushed from let's say <unk>, what I would imagine you're expecting something similar in Q4 is that the right way to think about your <unk>.

Q2 revenue outlook, there's some pushout. Unfortunately, that's kind of benefit in 2022.

I do think that the backlog build whether it's the adjusted bookings backlog build or even the unadjusted for that matter is going to ship essentially right. So I think that gives us confidence in our revenue outlook of at least mid single digit revenue growth. The the reason why.

We're not.

Got him more than at least single digits as supply constraints. So we're supply constrained today and we're expecting to be supply constraints next year as well so how much of that backlog and how quickly we're able to ship. It is still uncertain at this point, but we feel very good about at least mid single digit growth due to the strength of our backlog due to the strength of the momentum we're seeing.

On the bookings side quite honestly the execution, we have in the field and the product differentiation, we enjoy so theres a lot of reasons to be more bullish. The one reason to be somewhat prudent is supply and that's something that's keeping us kind of at least mid single digit level at this point.

Great. Thanks for the color.

Sure.

And our next question is from Budd <unk>.

With MGM partners. Please proceed with your question.

Thank you for squeezing me in I apologize I missed much of the call. So if I am repeating I apologize.

But I just wanted to get a better sense on on your gross margin trend in terms of can you give us some color on.

Pricing environment and how much of a.

Puts and takes does that offset to a degree the component and freight costs that are impacting your near term gross margin and.

How do you think the pricing environment plays out next year I suspect, it's probably favorable and if anything if I look at some of them.

Your peers like Cisco, who highlighted significantly you know.

<unk> benefited the fourth quarter for that.

Pricing environment I suspect you're also likely to benefit from that so can you give us a color on how that plays out versus component.

<unk> costs.

Yes, so we already are seeing some of the elevated costs related to component shortages.

Et cetera, and we expect those costs to remain elevated throughout next year.

Some cases, perhaps get a little worse other cases, perhaps get a little better, but we expect elevated costs throughout all of next year and we're already experiencing those you've given your nanometer gross margin reported but the adjusted gross margin just to account for that those extra costs, which we do believe are transitory. However at this point, we're assuming it's not going to go away in 2022 would be it would be beyond that.

On the pricing side, we are taking actions I think many of our competitors are taking similar actions will take some time for us to for those actions to really hit our P&L I do expect them to be beneficial to 2022, but the timing will be a little more back end loaded because we are carrying such a large backlog right. We have you know.

Nearly one $5 billion of backlog, we talked about growing at over $1 billion. We started the year with $420 million. So we're nearly at $1 5 billion that takes some time to burn through and that's not going to be impacted by the pricing actions as much as the future of orders will be so youll start to see some benefit how that all plays out is something where it's just too early.

And for us to quantify and provide outlook on but what I am confident on as our profitability will grow next year in op margin will expand by at least 100 basis points.

Can you share how the customer feedback has been on.

Price hikes.

Especially like are you getting a lot of pushback.

With some color on the discounting environment is it more discipline across the market and should should that all else being equal if you have a favorable discounting environment.

Wow.

Good degree significantly offset the component headwinds.

I'm glad I did.

Yeah. So we are taking the pricing actions with that Goldman minds right to protect our gross margin and I think to a degree as well.

How much degrees, what we're still working through and not willing to provide an outlook at this point, but absolutely it should help offset and protect our gross margin. That's why we're taking the actions.

From a customer acceptance perspective, I think overall I would summarize it as theyre not surprised they are seeing it across the board across most of their suppliers were seeing it across our suppliers. This is something that is upstream and not surprising obviously I don't think that they are necessarily jumping up for joy. When we talk about price increases, but I think they are under.

Standing of it and we feel that we will be able to capture much of that price increase and you'd be able to protect margins to the best of our ability.

I appreciate the answer thank you.

Yes.

And our next question is from Jim Suva with Citigroup. Please proceed with your question.

Thank you very much my question is your outlook for next year is very encouraging I think you said at least mid single digits can you just recap this year and next year the amount of organic versus inorganic because I think sometimes the.

I mean layers in a little bit of organic versus inorganic and I would just assume but maybe you can answer next year's outlook is not including anything not announced our pending or things like that for acquisitions. Thank you.

Yeah. So next year's outlook does not assume any new acquisitions I mean, the acquisitions. We made approximately 12 months ago are now baked into our run rate and baked into next year's outlook of those businesses are growing and so you would see a year on year improvement. If we were to break that out which we're not but we have factored that into our at least mid single.

Digit growth, but yeah. This is an organic juniper as today outlook for next year does not require any additional M&A.

Thank you so much.

Yes.

Your next question is from Paul Silverstein with Cowen. Please proceed with your question.

Appreciate your squeezing me in at all so apologize if this has already been asked and answered first off with respect to web scale customers I know six of your top 10 customers were cloud.

I know that's been fruitful for both preceding quarters, but all four of the web skill Johnson among those six.

Are all four of the of the Hyperscale or web Giants amongst those <unk>. We don't we don't break out that little detail as you know Paul I mean, I think it's a fair assumption that where the capex is where youre going to see our biggest customers. So where the spend is likely going to be where our top 10 customers are but I'm not going to get into any more detail then.

Six six of our top 10 are cloud customers I do want to add just pull that.

Our our.

Cloud provider business is performing incredibly well second quarter of triple digit order growth and I love the broad based strength that we're seeing so we're seeing an expansion within hyperscale of opportunities and diversity crossed the four or five big Hyperscale customer.

<unk>.

So it's not just our traditionally largest cloud provider customer thats driving that growth is also other hyperscale hyperscale customers and add to that the cloud major tier two tier three cloud providers that are also performing very well there is an additional element of strength and broad based.

Diversity and that is in the technology space, So routing switching and security are all performing really well within the cloud provider segment.

So rami to upstream and I assume I recognize.

As pointed out <unk> got more than just rounding, but I assume routing is a big portion of those laws of your business with those largest cloud offers we're really trying to go with us and I'm trying to be too clever by half clearly.

In light of Facebooks massive.

Was it 10% to $15 billion increase in calendar 'twenty two capex I'm, just trying to discern to what extent if any will leverage I assume you do have leverage, but I suspect youre not going to be willing to answer that.

You are right if not I'm going to ask you, let me pause and let you respond.

Quick follow up.

Well I am not going to answer a question that.

Specific to our customer however, I will say.

I'm looking at the hot off the press earnings results from.

The hype Hyperscale cloud providers looking at their capex rates.

And feeling.

Sealing very good about that because as long as their business is performing well they will need to invest in their infrastructure to maintain that strength to keep up with the demand that they're seeing and we will benefit from that as simple as that our footprint in routing within Hyperscale is phenomenal we've maintained that footprint.

Spike many attempts by competitors to take slices of it away from us.

And then as you get into the top 10 in the cloud. The major is it's not just about routing it's about routing and switching for us.

Understood a quick follow up I assume.

Assuming that an increasing number of customers are in fact, providing longer term forecast as I believe was booming because for you and most others I assume your forecast or outlook for 'twenty. Two is relatively more solid there's more knowledge underlined muscle relative to last year in preceding years synthetic does that.

Simply to give them.

Yeah, I think given the strength of our backlog and that's the most tangible way to look at it I mean, we have hard orders in place for a much greater percentage of next year's revenue than we normally would entering the year. So I think that absolutely gives us better visibility than we are accustomed to as we enter in future periods.

I appreciate the responses on Perceval.

Thanks, Paul.

And our last question would be from Alex Henderson with Needham. Please proceed with your question.

So I was hoping you could talk a little bit about the broader pricing environment.

No it's not.

Necessarily in context of what youre doing but rather what youre seeing from your competitors and to.

To what extent your actions are under an umbrella or are ahead of the umbrella and just can you talk about your price.

In your categories relative to what they're doing.

Thanks.

Yeah, I mean, I don't want to get Super specific on what others are doing individually, but I can tell you.

Pricing actions, whether they'd be list price actions discount controls or or other other types of actions are absolutely something that many companies I assume not just in our peer group, but even in other industries, where theyre getting input costs are rising pretty dramatically. Many companies are exploring and implementing and I can tell you that so far.

We've taken some actions will continue to look at opportunities going forward all in all in an effort to protect our gross margin.

Input costs are absolutely rising I think that's you know that's not a secret.

Upstream with it.

The wafers and the fast and then moves into our component suppliers and there we're seeing higher costs and are looking to pass those on to us and we're looking to pass those onto our customers and so far we feel that we feel confident we are going to benefit from the actions, we're taking but where it's just too early to commit to gross margin input.

Gross margin.

Outputs.

For next year, certainly I understand the mechanics of that.

I think everybody on the call does.

It shouldn't be any surprises there, but the real question is are you more aggressive in trying to push price or are you less aggressive versus your competition.

Not asking for you too.

Describe it on a per.

Specific person or company.

Other in general are you more aggressive or less aggressive on pricing than your.

Competition in the categories that you are competing in particularly can you focus a little bit on the.

The campus market, which is particularly important to your growth.

Yeah, Alex let me take a stab at it.

It's very difficult to sort of answer that quantitatively because we don't know in a lot of detail where everybody else is doing but to the extent that our peers are attempting to do what we're doing which is essentially to offset cost increases.

I think first order of magnitude theyre going to be all roughly in line with each other.

That's sort of how I would answer that question and then you know in the <unk>.

<unk> campus and branch in particular, yes, I mean, there are going to be cost pressures there just like anywhere else, but the thing about campus and branch that makes me feel very good is the level of differentiation and this is software led differentiation has never been stronger and it allows us to win to compete and win on.

Value. So you know there are opportunities that we are winning now fairly routinely where we are not price leaders and yet we're able to garner a greater.

Just because of the differentiation that we have with that solution.

And with all due respect I think there are large differences between the.

Locations, where price actions are being taken by your competitors and necessarily your exposure to them. So that there could be meaningfully different differentials between categories and my guess is that the campus is an area that prices have gone up more rapidly.

But I'd be interested if you if you have any thoughts on that point.

Yeah.

No additional thoughts at this time, thanks for that and put Alex I appreciate it. Thank you.

And because we have reached the end of the question and answer session now I'll turn the call back over to Rami Ryan for closing remarks.

Briefly I just wanted to thank everybody for participating on the call today and for the great questions.

Just leave you with a couple of thoughts first I remain very encouraged by the momentum that we're seeing in the business, especially the diversity of the strength that we're seeing across market segments and technologies and solution areas. I think the team is executing extremely well and I'm very proud of.

Our juniper team for doing that and last but not least I think the demand strength, we're seeing coupled with the backlog that we built right now sets us up for a great next year, both from the standpoint of achieving revenue growth, but then also our commitment to expanding profits as well. So I'll leave you with that thought thanks again.

And this concludes today's conference and you may disconnect your lines at this time.

Thank you for your participation.

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