Q1 2022 Juniper Networks Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Juniper networks first quarter 2022 financial results Conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is not my pleasure to turn the floor over to your host Jetblue Baird, Sir the floor is yours.
Thank you operator, good afternoon, and welcome to our first quarter 2022 conference call.
Joining me today are Rami Rahim, Chief Executive Officer, and Ken Miller, Chief Financial Officer.
Today's call contains certain forward looking statements based on our current expectations.
These statements are subject to risks and uncertainties and actual results might differ materially.
These risks are discussed in our most recent 10-K, 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 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 who 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 Q1 2022 results before I begin I'd like to provide a brief statement on the Russian invasion of Ukraine. My thoughts are with all those affected by this tragic.
Particularly our colleagues in the region and those with loved ones who have been impacted.
When the war began we quickly suspended all sales and services within Russia, and Belarus, given the complexity of the events, we're continuing to closely monitor the situation and hope for the restoration of peace and safety.
In the meantime, juniper and its employees made contributions to support humanitarian efforts in Ukraine, and the Juniper Foundation made a donation to UNICEF to help its vital work in the region.
Turning to the quarter, we delivered strong Q1 results revenue growth accelerated year over year, and we met the midpoint of our non-GAAP earnings per share guidance. Despite continued challenges from a supply chain perspective.
Our teams continue to execute extremely well and are focused on delivering solutions that simplify the life of network, operator, and delight network users what we call experienced first networking continues to resonate across each of the markets we serve.
This is evidenced in our Q1 results, which not only benefited from a fourth consecutive quarter of double digit year over year growth in cloud, but also an exceptional performance by our enterprise business, which saw revenue grow nearly 20% year over year.
Enterprise performance is particularly noteworthy as it was.
The first quarter in <unk> history, the enterprise was the company's largest customer vertical.
Cloud and enterprise strength more than offset a modest decline in our service provider vertical which was due entirely to the timing of shipments as a result of supply chain challenges.
Demand remained strong in the March quarter with orders estimated to have seen double digit year over year growth when adjusted to account for certain large customers, placing orders ahead of their normal order rate to account for extended lead times.
On an unadjusted basis orders grew by more than 35% year over year, and our ending backlog increased meaningfully.
On a sequential and year over year basis.
Order momentum was strong across all customer verticals and all customer solution with each of these categories experiencing strong double digit order growth year over year.
While some of this strength reflects healthy customer spending patterns across each of our core customer verticals, where the importance of the network has never been more clear. We believe much of this demand is attributable to our strong execution across our product management engineering and go.
To market organization, which is enabling us to capitalize on significant customer initiatives.
Examples of these initiatives that continue to see strong investment include enterprise digital transformation and office reopening project.
400 gig upgrade at cloud and service provider customers and the broad adoption of cloud based services and associated network architectures.
As we entered the June quarter momentum is strong and I remain optimistic regarding our prospects for the year. Despite the various supply chain challenges we are facing.
I continue to believe these challenges are likely to prove transitory and the strong order momentum, we're seeing and the backlog we have developed.
US extremely well to deliver solid growth and improved profitability in the 2022 timeframe and beyond.
Based on our recent order momentum.
Current backlog levels and our assumptions regarding supply, we still expect to deliver 7% to 9% sales growth and still are targeting at least eight point of non-GAAP operating margin expansion in 2022.
Our expectations for 2020 to assume current supply chain challenges persist and we are unable to work down backlog during the year potentially creating long term tailwind for our business once the supply chain situation improved and backlog returns to more normal levels.
Now I'd like to provide some additional insight into the quarter and address some key developments, we're seeing from a customer solutions perspective.
Starting with automated when wireless solutions that experienced only modest Q1 revenue growth year over year due entirely to the timing of shipment demand for these solutions remained exceptionally strong as we experienced at least double digit order growth across all customer verticals.
And all major product families, including our annex Pts and <unk> offerings.
We are continuing to see strong 400 gig momentum with our cloud and service provider customers, which should present building tailwind for our business over the next several years.
In this most recent quarter I was particularly encouraged to see strong early interest in several of our newer automated way and solution.
To this point, our Amex 10-K product family experienced a record quarter and our new healthy 9600, programmable 10, Terabits 400 gig capable line card, which leverages, our latest trios fixed silicon experienced the strongest adoption at any automate.
<unk> web product launch over the last five years.
We also saw another quarter of triple digit order growth for our ACX metro portfolio and growing demand for our Paragon automation software.
With additional trio sticks based amex products, and new ACX Metro offerings expected to launch over the next several quarters and new <unk> products leveraging our next generation Express five silicon also coming to market next year I'm optimistic regarding the law.
Long term growth potential of our automated win solution and our ability to capitalize on our customers' core edge and metro requirements.
Our cloud ready data center solutions experienced 20% year over year revenue growth during the March quarter, due to broad based strength across customer verticals and geographies.
Orders were exceptionally strong in Q1 due to the momentum we're seeing with cloud major customers as well as certain service provider accounts.
Our 400 gig solutions are resonating in the market and we have now secured more than 70 data center switching opportunities that span across cloud major enterprise and service provider accounts.
One opportunity, which I believe speaks to the strength of our data center switching systems and software capabilities is a meaningful new data center win with a top 10 cloud provider. This deal is already generating quarters and is likely to drive meaningful revenue over the next few years.
<unk>.
Customer interest in our cloud ready data center portfolio remains high and given the wins we've already secured we are increasingly optimistic regarding our ability to capitalize on the attractive growth within this market over the next several years.
Our AI driven enterprise revenue continue to materially outpace the market growing 33% year over year.
This strength was led by our <unk> portfolio, which surpassed $400 million annualized revenue run rate in Q1, as both the wireless business and the related <unk> wired switching pull through more than doubled year over year to record levels.
Mr. <unk> revenue grew at 135% year over year, and we continue to see exceptional order momentum due to the success with existing customers and new logos.
As a reminder, juniper leverages the industry, leading mist AI engine, a modern micro services cloud and a proven AI driven virtual network consistent market to improve customer operations across the smallest to the largest customer environments.
The ability to scale cost effectively to reduce it help desk tickets to quickly remediate problems and to rapidly introduce new business enhancing services are among the reasons customers of all sizes are swapping out the competition and standardizing on <unk>.
AI.
While many of these capabilities are well known Juniper also delivered industry, leading location based services based on mist, AI, which is incredibly important to certain verticals such as retail.
We're also seeing strong interest from enterprises as they ready their offices for return to work.
Recognizing this point that critical differentiation Gartner recently listed juniper admit as a magic quadrant leader for location based services, making us the only vendor to make the leaders quadrant for both wired and wireless access and location based services, which.
As an important validation that we believe is likely to further benefit demand.
Despite our lead we are continuing to invest in our mist AI differentiation in Q4 of 2021, we acquired <unk>, a small private company with exceptional talent that will accelerate our development of it.
Cloud Native network access control solution.
We believe this solution will prove highly attractive to many customers, which had grown frustrated by existing on prem solution, which are expensive and difficult to both deploy and manage.
Not to be overlooked we continued to make progress missed defying our $1 28 technology SD Wan solution.
The completion of this process is expected to further cement our ability to provide the industry's best assured and secure connectivity experience from client to cloud.
We continue to be encouraged by the momentum the 128 technology are experiencing with the recent win with Fortune 200 enterprises in the U S and the large financial services organization in Europe .
Based on our recent order momentum third party validation and the technical superiority of our AI driven enterprise portfolio I remain highly confident regarding the outlook of our AI driven enterprise business.
Our security revenue slightly declined in Q1 year over year, but I continue to expect growth for this business Mike.
My confidence is fueled by the efficacy with performance of our firewall product, which were recently ranked number one by ICF date, a leading third party independent security testing company.
Fifth consecutive quarter with 100% detection rate against cyber threats.
Top result achieved but all other security peers.
Customers are telling us that in light of ongoing geopolitical difficulties, 100% security effectiveness is more important than ever and gift juniper a unique competitive advantage.
I believe the convergence of networking and security will only increase across the markets, we serve and I am confident that this will present, a competitive advantage in all of our strategic customer use cases.
Importantly, we continued to make progress transitioning our business to a more software centric model.
By transforming more of our perpetual offerings to term based licenses introducing more ratable subscription offerings and training our sales organization to better monetize the value of our software stack.
While these efforts remain in the early innings, we experienced another quarter of encouraging momentum in the Q1 timeframe, which saw total software and related services revenue grew by 60% year over year to account for 20% of our total revenue.
Software orders were also strong in the period, increasing by more than 80% year over year.
Our annualized recurring revenue, which solely consists of truly ratable software subscriptions and related services increased 30% year over year due to the strong demand for mist and security subscriptions.
We are encouraged by the progress we're making in our effort to capture more software revenue, which we view as critical to not only accelerating growth but.
Also improving customer stickiness and margin.
Our services team delivered another impressive quarter due to strong services renewal.
And attach rates.
<unk> strong revenue, we also delivered record service margin.
Our services organization continues to execute extremely well and it's focused on driving innovation through automation and cloud delivered insights that not only create new revenue opportunities, but also benefit margins and the customer experience.
Now I'd like to provide an update on our silicon photonics efforts, which have been focused on disrupting the optical component market through unmatched optical integration that would result in lower cost and superior power efficiency as compared to traditional solutions in the market.
Through our investment and working closely with customers and partners.
We validated the advantages of our integrated hybrid laser technology, and the broad market opportunity with applications and networking data center disaggregation, AI Lidar and beyond.
However, we learned that the full potential of this opportunity would be best realized if we could enable a large ecosystem of partners to design of the technology and drive volume economics.
In order to capitalize on this broader opportunity set we have created a new company that has launched the first open foundry platform for integrated Silicon Photonics.
Synopsys has acquired a majority interest in this new company. They are an ideal partner to launch this company as they bring deep expertise and customer presence as a leader in intellectual property licensing and semiconductor design.
We believe this new entity will be better equipped to target the broad array of silicon photonics opportunity. The technology can address through both discrete component sales and licensing model.
We will also maintain an ownership interest in the new entity that will allow us to benefit from its product as well as the businesses future financial success.
Finally, you may have noticed our announcement that our chief revenue officer markets fuel has decided to leave juniper for a new opportunity.
James Executive Vice President of customer experience will assume the role on an interim basis.
I'd like to thank markets for its services and the contributions he has made to the company over the last few years.
Markets leaves our sales organization in excellent shape and I am confident we have the talent and the organizational tools to navigate this transition and maintain our momentum without any disruption.
I would like to extend my thanks to our customers partners and shareholders for their continued support and confidence in juniper I, especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders.
I will now turn the call over to Ken who will discuss our quarterly financial results in more detail.
Thank you Rami and good afternoon, everyone I will start by discussing our first quarter results and end with some color on our outlook.
We ended the first quarter of 2022 at $1.168 billion in revenue.
Above the midpoint of our guidance and up 9% year over year.
non-GAAP earnings per share was 31.
In line with our guidance and increased 3% year over year.
Product orders remained strong in the first quarter, posting greater than 35% year over year growth and.
And we again saw double digit order growth year over year across all verticals and customer solutions.
Some of this order strength continues to be attributable to industry supply chain challenges.
Thing and customers, placing orders ahead of their normal order rate to account for the extended lead time.
After adjusting for these early orders for certain large customers total product orders are estimated to have grown double digits versus last year.
Our backlog increased more than $300 million on a sequential basis.
Looking at our revenue by customer solution, we saw revenue growth in all areas on a year over year basis.
Automated Wan solutions revenue increased 1% versus the first quarter of 2021.
Cloud ready data center revenue increased 20% year over year.
And AI, driven enterprise revenue increased 33% year over year.
Turning to revenue by vertical momentum in our enterprise business continued and grew 19% versus the first quarter of last year.
For the first time in our history. It represented our largest customer vertical.
Our cloud business grew 13% year over year, our fourth consecutive quarter of double digit growth.
While service provider revenue declined 2% year over year due to the timing of shipments orders increased double digits versus the first quarter of last year.
Total software and related services revenue was $228 million, which was an increase of 60% year over year.
Annual recurring revenue or <unk> grew approximately 30% year over year.
Total security revenue was $161 million down 1% versus the first quarter of last year.
In reviewing our top 10 customers for the quarter three were cloud six were service provider and one was in enterprise.
Our top 10 customers accounted for 32% of total revenue as compared to 31% in the first quarter last year.
In the quarter, we had one cloud customer that accounted for more than 10% of our total revenue.
non-GAAP gross margin was 57, 5%, which was below the midpoint of our guidance, primarily due to the unfavorable product and customer mix, partially offset by an increase in service margin.
As expected COVID-19 related supply cost continue to be elevated and if not for these costs. We estimate that we would have posted non-GAAP gross margin of approximately 60%.
Operating expenses on a non-GAAP basis increased 5% year over year and was essentially flat sequentially.
non-GAAP operating margin was 11, 8% for the quarter, which was in line with our expectations.
Cash flow from operations was $193 million for the quarter.
We paid $68 million in dividends, reflecting a quarterly dividend of 21 per share.
We also repurchased $112 million worth of shares in the quarter.
Total cash cash equivalents and investments at the end of the first quarter of 2022 was $1 7 billion.
I'm very pleased with the financial performance in the first quarter.
Performance is a testament to our team's dedication and resiliency through these challenging and dynamic times.
Now I'd like to provide some color on our guidance, which you could find detailed in the CFO commentary available on our Investor Relations website.
We expect second quarter revenue of $1.255 billion, plus or minus $50 million.
Which is growth of 7% year over year.
We continue to experience significant supply chain related headwinds associated with elevated component.
And logistics costs, which are expected to continue throughout the year.
We also expect to see a decrease in service margin on a sequential basis.
Therefore, we expect second quarter non-GAAP gross margin of approximately 58% plus or minus 8%, which is up sequentially at the midpoint.
Our non-GAAP earnings per share is expected to be approximately 45.
Lesser minus five assuming a share count of approximately 330 million shares.
Turning to our expectation for the full year of 2022.
I'd like to Echo Rami sentiment with respect to the war between Russia and Ukraine.
In addition, I'd like to point out that we do not expect this ongoing conflict to have a material impact on our business.
Given the strong order momentum and current backlog, we continue to expect 7% to 9% revenue growth for the full year.
This assumes the supply chain environment remains constrained throughout the year.
Similar to current levels.
And does not further deteriorate.
We expect revenue to grow sequentially through the remainder of the year.
We expect supply chain constraints to be particularly tight during the second quarter and remained challenged throughout the year.
We also anticipate backlog to remain at elevated levels throughout the course of the year.
Moving onto non-GAAP gross margin, which can be difficult to predict due to the uncertain macroeconomic environment.
We expect to see sequential improvement through the year.
However, given our current view of freight costs and other pressures on supply chain costs. We now expect full year non-GAAP gross margin to be below the midpoint of our 58% to 60% range.
We remain committed to disciplined expense management and will target full year non-GAAP operating margin expansion of at least 100 basis points versus 2021.
That said, we will continue to invest to take advantage of market opportunities and non-GAAP operating expense is expected to be up on a full year basis consistent with the guidance we provided previously.
Our non-GAAP tax rate on worldwide earnings is expected to be 20% plus or minus 1%.
Our non-GAAP EPS is expected to grow faster than revenue on a full year basis.
In closing I would like to thank our team for their continued dedication and commitment to juniper success.
Actually in this challenging environment.
Now like open the call for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We do ask that while posing your question. Please pick up your handset if you're listening on speaker phone to provide optimal sound quality.
Again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Simon Leopold from Raymond James Your line is live.
Thanks for taking the question.
Just wanted to see if maybe you could unpack a little bit about what's going on with your cloud customers. So notable that you've talked about a 10% customer breaking in but I wanted to see if you could dig into the patterns or behaviors of the cloud majors and what's going on with that group in terms of what are they buying and how.
Do you see them growing and their contributions to your cloud vertical. Thank you.
Yes. Thanks for the question, what I am seeing within the cloud vertical is strength and momentum in ordering and just our ability to compete and win net new opportunity I think that strength is broad based we're capitalizing on existing footprint that we have in both our tier one.
One as well as our cloud major space most of that footprint as you know in the Hyperscale is in routing, but beyond that it's in both routing and switching so where we have footprint I think the fact that this customer class continues to invest is something thats boat bodes very well for our business and continues to do so.
But then the other thing Thats really notable that I.
I think we provided several updates on key wins that we've had net new footprint.
In the cloud provider space.
And there was one notable one that I mentioned in my prepared remarks. This is a top 10 cloud provider we were already a.
The routing supplier for this customer and then we had an opportunity and essentially one net new data center footprint, that's quite meaningful from an order standpoint, thus far but eventually it will become a revenue standpoint, and I think we won based on the strength of our engagement in routing but essentially.
Translated to an opportunity in switching.
Based on the strength of our sales engagement and also our ability to provide equipment.
Equipment in a timely manner, which was very important for this.
This project as well so it's a combination of real goods solid industry tailwind coupled with excellent execution on the part of our sales and engineering teams.
Thank you.
Thank you. Your next question is coming from David vote from UBS. Your line is live.
Great. Thanks for taking my question guys. So just quickly on service provider and cloud ready datacenter growth it looks like the timing of the shipments due to supply chain had a impact in Q4, and then a snapback this quarter, how should we think about normalized growth rate for cloud ready data center going forward given sort of the volatility.
And the supply chain is sort of a 5% to 9% CAGR is still the right way to think about it and then along the same lines. It looks like S. T was impacted by similar dynamics. This quarter that also hurt automated when should we expect a similar recovery next quarter like what we saw in this quarter in cloud data.
And I'll stop there thanks.
Okay. Let me start and then maybe Ken you can jump in as well on this one so I'll start with service provider.
From an orders standpoint, I think we performed exceptionally well the slight decline in revenue is entirely due to the timing of shipments and when we were basically able to.
Provide product to our customer then this after the Q4 timeframe, where we actually saw strong service provider.
Road revenue performance, primarily again, there because of the timing of shipments in that timeframe.
All in all I feel very good about where we are with our service provider customers the strength of our solutions.
Pick up net new technologies that we've just recently introduced into the market I mentioned in my prepared remarks, a new Amex line card based on our latest generation Silicon technology that we recently introduced into the market and are seeing the fastest adoption of any new amex product in the lab.
Five years, I think that speaks again to the health of the market as well as to the strength of the technology that we're offering so.
Uh huh.
I still think that in terms of the long term outlook for this particular vertical minus two to plus 2% we're at if.
If not better than that going forward I think the other part of the question was around the cloud ready data center there from a revenue standpoint, we did very well, 20% year over year growth and from an order perspective, even better.
And I think there again, it's a combination of good industry tailwind solid execution I talked about the cloud provider data center wins in the top 10.
Net new for US Thats, just an example of the kind of wins that we're able to achieve these days rapid adoption of new merchant silicon technologies, and our product offerings <unk>.
A key piece of the end to end differentiation that brings industry, leading automation intent based networking to our solution. So there's a lot we have going for us.
In the cloud ready data center vertical right now and again there the our long term view is 5% to 9% I think we will do at if not better than that long term view kind of anything else you'd like to add I mean, I would just reiterate I think for all of our verticals, including service provider in all of our customer solutions, including CIBC, we havent given specific FY <unk>.
22 revenue guidance, but I do believe all verticals, all customer solutions could be at or better than the long term model that we put out there and.
In any given quarter youre going to see a little bit of anomalies, which is really going to be shipment based or supply chain based in and you mentioned a couple of you saw last quarter and in this Q4 and that will continue but for the long run because we feel very good about all verticals all customer solutions.
Alright, Thanks, Ken Thanks Rami.
Yep.
Thank you. Your next question is coming from Rod Hall from Goldman Sachs. Your line is live.
Yeah, Hey, guys. Thanks for the question.
Wanted to check back on.
The sequential product gross margin weakness I know you guys talked a little bit about.
Customer mix and also the cost, but I wonder if you could dig into the mix side of it a little bit.
Talk about how much of that is temporary or give us any more color you can give us on the mix and how that affected the margins.
Absolutely and if you go back if you look at your on a trend basis. The biggest impact of product gross margin by far are going to be these kind of COVID-19 related supply constraint related costs that we've been talking about for a while even in Q1. This most recent quarter here, we posted 57, 5% gross margin would have been.
Approximately 150 250 basis points higher nearly 60% so more for some of these costs that we do believe will be transitory, but if you compare it to the guidance I mean, obviously, we knew about much of that cost that we set our guidance at 58, and we came in at 57 and a half that is a systems mix or kind of a hardware mix issue and in particular.
And Max.
It's down a bit and this is from a shipping perspective, obviously it has to do with our ability to procure the components and ship the product. We don't have the demand issue with IMAX. It was actually very strong and we're building a lot of backlog, but from what we shipped in Q1, we shipped a little bit less in Mexico, we anticipated and we shipped a little bit more Mr access points, which at the time of shipment carries.
Relatively low margin compared to the rest of our portfolio, but obviously as we sell more software and we recognize that software, which which happens over time. It is margin positive over over the long run, but in Q1, specifically a little little less amex and we expected to ship in a little more access points and that was really the primary driver in the 50 basis points Miss from our guidance.
And then maybe follow that up with just additional question on that same topic do you guys have.
Any line of sight to that supply or is it just you know all these disruptions just making it impossible to know when.
When supply there gets a little bit better I know that's been kind of an ongoing supply issue for you.
So just wondering what the visibility looks like here.
Yes, it's difficult to predict in any given 90 days, what we're going to ship more of or less of it's even difficult to predict beyond that I'm not I wouldn't say for several quarters now we've seen it kind of a series of continuous disruptions, whether it's COVID-19 related shutdowns are material shortages logistics bottlenecks, even the war on Ukraine.
And we've even had some system outages with some of our suppliers and partners. We continue to navigate through these disruptions to the best of our ability.
At this point in time I think it is prudent to presume we'll have more on <unk>.
Predictable disruptions for the next couple of quarters.
I have to admit I was a little more bullish on potentially seeing improvements in the second half of 'twenty two at the beginning of the year than I am now I know don't anticipate significant improvements throughout the entire year and I do think we will see improvements in 2023.
Still feel we'll get the supply necessary, obviously to get to our revenue goals of 7% and 9% this year and that will be up year on year, we will grow revenue faster this year than last year. As an example, so supply will be more plentiful in absolute but it will still be very constrained as compared to what our demand signals are in our ability to ship even more.
Are you guys given that change are you guys expecting.
The $1 8 billion of backlog I know you said you.
It kind of exit the year with that amount is their upward pressure on that now do you think maybe the backlog exit with a little bit higher than that or are you still thinking that you can kind of addicted out I guess it was one eight if I'm remembering right.
Yes. It was one eight we did grow at greater than 300 million. This last quarter, it's hard to predict rod with any certainty, where we're going to land, but I'll tell you. This it will be significantly elevated whether its one eight or 2.1.
More than that in that order of magnitude would be my expectation as we exit the year. So.
If supply does not get better later this year, obviously that will result in even more opportunity in 2023 and beyond as we exit the year with significantly elevated backlog.
Thank you. Your next question is coming from Aaron Rakers from Wells Fargo. Your line is live.
Yeah. Thanks, just following up on that last question first just curious I think in your 10-K filings you note that the backlog that you are carrying definitely extends out 12 months that $2 1 billion plus that you're carrying now how would you characterize the duration of that relative to what maybe you saw coming out of last quarter.
I have a quick follow up if I can as well.
Yeah, I would say the duration to similar to what we saw last quarter just to clarify I mean customers are largely looking for the product sooner than we're able to supply so that kind of 12 months horizon has unfortunately.
Because of the supply constraints, we're seeing in the lead times that we're dealing with.
Customers are actually interested in getting product sooner than we're able to deliver.
And then as a quick follow up on the going back to Simon's question on the data center footprint win it sounds like a big deal I think Ken in the past you've been reluctant to think about data center switching wins is a big opportunity for juniper inside some of the major cloud vendors has your opinion changed on that and how would you characterize or what was the.
<unk> was it a competitive displacement.
Any any kind of further additional color on that seemingly large cloud win.
Yeah, Aaron Thats a good question. So we have been reluctant to call a hyperscale data center win because there are very few number of hybrid hyperscale customers.
Our that use Oems for their datacenters. So, let's just say, there's very few at best which we are.
Clearly continuing to compete for.
But at this point in time, we're just not announcing any that said, we all along said that the opportunity beyond Hyperscale is large with many assets.
And we absolutely saw that as a strategic opportunity for us to go in to compete for to take more than our fair share and we're doing just that so this net new is a perfect example of a non hyperscale top 10 very meaningful in terms of orders and revenue where we.
Computed on the strength of our switching technology the engagement that we already have with the customer in the routing side that we were able to translate into the switching side the ability for us to do when necessary.
Achieved pretty difficult.
<unk>.
Getting the supply when it was in fact required and requested by the customer.
So all of the above led to a sizable win and I want to be clear that we continue to see large net new opportunities before us both in Hyperscale and in cloud majors beyond Hyperscale in routing and switching that we're competing for and I am I feel very good.
About our opportunity to win more of these types of really lucrative deals just based on all of what I've mentioned.
Great. Congrats thank you.
Thank you.
Thank you. Your next question is coming from George Notter from Jefferies. Your line is live.
Hi, Thanks, a lot I guess I wanted to ask you about pricing I think you guys looking back have taken a couple of pricing actions, but could you give us an update on where you stand there.
How much extra price.
Have you embedded into the price list and.
Maybe talk about when that flows into the model.
Is there some potential for additional pricing increases going forward.
Yes, we have taken a couple of actions are pretty significant actions last year.
It will take some time for that flow into the model given that the strength of our backlog, but we do expect to see some benefit of last year's actions in the second half of this year. So it will start to realize some of that here in a few quarters as far as future actions. We are always looking at opportunities that we think makes sense for us to take advantage of nothing to announce.
On this call, but you can count on us continuing to look at all options and making pricing decisions that we think makes the best sense for juniper moving forward and we haven't quantified the previous actions but.
Really our intent here is to offset some of the gross profit dollars that we are going to be we're losing due to the cost increases that we're seeing.
There is a timing lag here, where we're seeing the cost increases hit much sooner.
And some of these pricing actions are going to take a few quarters to materialize.
Got it and then also.
One of the thing I noticed you guys seem to be hiring pretty aggressively just looking at your head count numbers I know there was a little acquisition in here also but.
Can you talk about where the sales and marketing investments are.
Going and when do you expect to start to see the you know the yield out of those investments. Thanks.
Yeah, no. It's a great question I mean head count is up and we've talked about this year Opex, we expect to be up as well on a full year basis compared to last year. We do absolutely expect to remain very prudent in our opex spending and we absolutely expect to outpace revenue to outpace Opex. This year, which is why we feel confident we can expand our operating margin and we continue to target a 100 basis.
Points improvement in operating margin from a head count perspective, and where are we investing in general the majority of it is go to market. The majority of it is in the enterprise space, where we believe we have an opportunity to really take advantage of the portfolio differentiation that we have and we want to make sure that we're thinking beyond this current quarter next quarter and thank them for the next several years.
To make sure we take advantage of the opportunity that we see in the marketplace.
These do take when you hire sales folks obviously, there was a learning curve and a productivity ramp in.
We model out of it in and we feel very good that we should continue to outpace the market and the enterprise like we have been.
Turning to invest everything could just give us years of revenue momentum to come.
Got it thank you.
Yes.
Thank you. Your next question is coming from Amit <unk> from Evercore. Your line is live.
Yeah.
Yep. Thanks, a lot for taking my question.
Just full stop is always the benefit debated on the durability of demand that you're seeing some money. If you look at your backlog, which you know north of 2 billion I think what you said can you just talk about the quality of this backlog and your comfort and confidence around that.
If I look at the trajectory of how this backlog is built up.
Should imply modeling do you see high single digit top line growth in 'twenty, two but perhaps even put the years after that so.
Walk me through the puts and takes around in terms of does this enable you to see high single digit growth on a multiyear basis versus just the one year.
Yeah.
Yes, so we're not prepared to provide specifics on 2023 I will say this last year, we did six 5% revenue growth on a full year basis. This year, we're expecting 7% to 9% growth on a full year basis, and we are expecting to exit the year with significantly elevated backlog. So that does give us a lot of confidence in 2023.
We've been outperforming our model and I think there's really no reason to believe we wanted to continue to outperform in 2023, especially if supply chain starts to normalize because we do have the backlog built up.
And the opportunity to turn into revenue I think it will be with us for not just 2023, but quite honestly a few years to come.
Right.
If I could just kind of follow up on this.
Think about this outperformance it almost seems like it's accelerating over here right now for you what do you attribute that to because I don't think that I mean.
After doing something but I'm guessing.
Juniper perspective, do you think share gains or is it you are just able to get somewhat better supply than some of your peers are not someone helping you out. So I'm just curious what do you think the components, enabling the share gain for you right now.
Yes, it's a good question I do think you know.
We have done a really good job of managing what is a difficult supply situation, but I don't think thats. The primary factor I think the primary factor is.
A number of things one is healthy demand dynamics in the market.
Really strong.
Product differentiation solution differentiation in the use cases that we are maniacally focused on and have been focused on for the last several years and then solid execution I mean take for example, our AI driven enterprise business grew 33% year over year.
In terms of revenue and also exceptional order growth that's driven by what is a market leading very differentiated.
No longer just Wi Fi, it's really an enterprise architecture, that's cloud delivered AI driven solution based on the mist acquisition, but expanded to include <unk> switching and SD Wan. It really is the best solution in the market I can also say the same thing about our data center now with the combination of abstract for automation.
And our underlay switching technology. The differentiation is solid addresses the key pain points for our customers and it's working and then even in automated win.
Where we have these new product introductions and the amex.
Brand, new Silicon technology, so essentially starting just now a new product cycle associated with the Amex and Pts continuing to perform I think the strength of that solution is helping us tremendously in winning net new opportunities in the market.
Thank you. Your next question is coming from Jim Suva from Citigroup. Your line is live.
Thank you in your prepared comments Rami you mentioned some new wins.
And I think you'd mentioned the word they could be significant or material.
Those new wins.
After you gave your full year 2022 guidance or are they kind of knew since then.
I'm just trying to get a view when you say significant are you talking like top 10 customer just any quick clarity to help US you know I guess calibrate the excitement and optimism around that that'd be great. Thank you.
Yes, so I'll take the question I mean, we're very excited about the about the win and the opportunity. It absolutely has been meaningful to our order strength and it will soon be meaningful to our revenue.
Going forward from a size of customer perspective that said, Jim honestly, our revenue guide to seven to nine is more based on supply than anything else.
And our supply picture has not changed if anything I would say.
My optimism that might get better in the second half is probably a little lessons today than it was 90 days ago. So it's really a matter of who gets the supply not so much incremental customers and incremental demand can be can be upside or revenue because the supply is kind of fixed at what it is but this customer has the potential to be a very meaningful customer for us I would say yes.
The top 10 customer for us in certain quarters, depending on when products ship and just to add Jim.
I am excited.
Cloud ready data center grew 20% year over year I don't think that the market is growing that fast at this point in time and I am excited not just by this specific win but what this win in addition to the ones. Prior to this one that we've also talked about.
Means for us in our ability to win even more going forward now we're now competing with new technology. That's in the market cutting technology that we have been working with our teams together on four years. That's now in the market and so we have a much better understanding of the competitive landscape what were up.
In terms of pure technologies and the fact that we are able to win these new solutions in a competitive space is gives us a lot of confidence in our ability to do even more going forward.
Thank you so much.
You bet.
Thank you. Your next question is coming from meta Marshall from Morgan Stanley . Your line is live.
Great. Thanks.
Couple of questions for me one just any additional context, you could give on.
What youre seeing as far as supply chain constraints on.
Or maybe more of a specialized networking chips versus some of the general componentry and just if there's any different trends there and then the second question maybe builds upon that of last quarter. You guys had had some availability kind of free up on the service provider side and so just kind of wondering is it.
Some of the constraints on the service provider side, just coming from that new products or just what has kind of changed from maybe categories of semiconductors that you're waiting for.
Yeah. So when it comes to kind of chips versus general components I really.
The answer is unfortunately, it's a bit of a whack a mole game I mean, it really does kind of go back and forth a bit depending on the situation depending on the quarter.
Right now I would say, we're constrained pretty much across the board I would say relatively equally between some of our higher and Asics and some of those lower end transistors. If you will.
We are scouring the market and like like everybody to try to picture as many parts as we can across a broad spectrum of components.
It's.
Yes, we were able to ship more in Q4, but kind of a higher end routing portfolio as compared to say Q1, and our Q1 expectations, but that's really just it's just the timing of shipments thing I don't think theres been a material change I mean, we've been we would've liked to ship more in Q4 than we did right I would I would still argue we were short supply in Q4.
Perhaps a little bit more short in Q1.
The shortages are persistent and assisted really matter, what we could build when we can ship and thats going to kind of fluctuate quarter to quarter.
Got it thanks.
Yes.
Thank you. Your next question is coming from Paul Silverstein from Cowen Your line is live.
Two quick questions if I may.
It doesn't recognize that missed in and of itself seems to be a significant differentiator for juniper and your product portfolio and enterprises far larger.
And when you insert enterprises, if I recall back in 2008.
But my question is.
When you introduce Reprised way back when in 2008, you had a seven or an easier spin when you took that busy.
And this from ground zero to if I recall about $850 million of revenue was phenomenally successful product launch was extremely exciting at the time.
Recognized it was just campus switching but it didn't pursue to flat line. When you hit 2015 2016. My question for you is.
Above and beyond the breadth and depth of the product portfolio today, which is very different from back when we're so assumes what's the risk that from a channel and go to market or other factors perspective members fruitful peers, what's the risk that notwithstanding the significant momentum you have in energy.
Price today.
Similar to what happened back when.
That you'll get a replay of that scenario and I realize the numbers would suggest it's far off.
But you know.
If you could address that question and then I've got a quick question about the oriented Synopsys JV.
Okay, Paul I'm going to take a crack at that I think the big difference today is three key things maybe for actually one.
Talent that we have leading the enterprise business that has that has unbelievable firsthand experience and what it takes to win all up from our solutions go to market channels. You name it really have talent with the right depth and breadth that can do it.
We did not just set out to solve the technology differentiation.
We know it's necessary to win but we set out to solve the go to market requirements that we understood based on the lessons that we have learned some painful ones in the past on what it takes to win and to win sustainably and this by the way includes not just the direct selling motion, but the channel is selling motion and keep in mind again new talent.
New leadership to understand what it takes to win and to create a fabulous channel motion.
To get this technology to continue to perform well.
In the market and then finally of course, it's the strength of the solution itself I think the level of differentiation that we enjoy right now in the AI driven enterprise in particular, but I would also include data center with Astra.
Is second to none I have not seen this magnitude of differentiation.
Qualified not just by internal analysis, but by our customers by third party independent analysts.
Ever in the history of Juniper, So I have utmost confidence that this is not a short term thing. This is a long term sustainable competitive advantage and growth vertical for the company.
I appreciate the response and then on the Synopsys JV those Oreo assets I assume theres, a decent amount of opex, you've been putting into that since new corridor around back to think it was in 16 or 17, but Ken is there going to be a benefit through opex now that I assume will be shown as a minority interest.
Income statement, you'll get rid of whatever R&D, and then sales and marketing that you put into that.
If you can respond to that and can any concerns from China lockdown.
I didn't catch the last part in terms of what channel, what China, China, Lockdowns I was trying to sorry.
So on the on the RF piece, Yes, if you look at just our silicon photonics spend it's going to be it's going to go to zero here. Since this transaction is closed so year on year, we would see less opex spent on silicon photonics internally than let's say last year that said this transaction was contemplated for a while we've been working on it for several months now.
It was factored into our plans for the year, so factored into our long term guidance, we talked about opex being up year on year in absolute total opex predominantly in go to market as we continue to invest to take advantage of the opportunities that Rami just mentioned earlier about our enterprise motion in particular, so it is factored into the long term targets Paul is the short answer.
On China.
We have not seen any real impact due to the more recent shutdowns COVID-19 related shutdowns, obviously, something we're watching very closely we have reduced our footprint and manufacturing footprint in China, but we still have some independents there, particularly on the components side, but for the most recent shutdowns.
We were so far on impacted.
Who knows what's going to happen tomorrow, but it is something we're watching very closely.
Thank you.
Thanks, Paul.
Thank you. Your next question is coming from Jim Fish from Piper Sandler Your line is live.
Yeah.
Hey, guys. This is quentin.
Thanks for taking our question.
Just thinking about the security business, we've seen some recent deflated growth. Despite the strong market demand, but you know the opportunity for growth kind of longer term here can you help us understand what you are seeing that makes you confident that we can return to some sort of security strength and then any color you can provide in terms of how sustainable this is.
Is it a one or two quarter bump or is it something that could kind of persist through 'twenty two into 'twenty three thank you.
Yes, it's a good question I'm actually glad you asked so I think first it's important to understand that the way we looked at our security business, primarily is that it's an attached business to our strategic solutions in particular, our AI driven enterprise and our cloud ready data Center solutions and it's already <unk>.
Absolutely, helping and contributing to the success and growth of those particular businesses.
Also security has a strong software attached that's good for gross margins. It's a profitable business. There is an element of our security business. That's high end that sells to a relatively fewer number of cloud and SP accounts and not just tends to be cyclical it really depends on the purchase.
<unk> and deployment patterns of these large accounts that tend to buy sort of in bulk orders every now and then that makes the security business. That's just somewhat lumpy. So based on the fact that we continue to see strength in our solutions that competitive.
Patch of security I think bodes well for us in the future and why I remain confident about this business.
Makes sense. Thank you.
Okay.
Thank you that concludes our Q&A session I will now hand, the conference back to CEO Rami Rahim for closing remarks. Please go ahead.
Thanks, very much I just wanted to say that I continue to be very encouraged by the strong momentum we're seeing in our business I believe that our end markets are performing well, they're healthy I think theyre, even recovering in areas that we are in fact affected by the pandemic I love the diversity of the strength that we are.
Seeing across solution areas across vertical market segments, and I believe that the demand strength, we're seeing as well as the execution sets us up well to do very well relative to our long term outlook that we've already provided so I want to thank everyone for the opportunity and the time today.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.