- Revenue: $1,120.5 million, up 15% from Q2’10 and up 2% from Q1’11
- Operating Margin: 15.3% GAAP; 21.6% non-GAAP
- GAAP Net Income Per Share: $0.21 diluted
- Non-GAAP Net Income Per Share: $0.31 diluted, up 3% from Q2’10 and down 3% from Q1’11
SUNNYVALE, Calif., July 26, 2011 — Juniper Networks (NASDAQ:JNPR, news, filings) today reported preliminary financial results for the three and six months ended June 30, 2011, and provided its outlook for the three months ending September 30, 2011.
Net revenues for the second quarter of 2011 increased 15% on a year-over-year basis, and increased 2% sequentially, to $1,120.5 million.
The Company posted GAAP net income of $115.6 million, or $0.21 per diluted share, and non-GAAP net income of $167.2 million, or $0.31 per diluted share, for the second quarter of 2011.
Non-GAAP net income per diluted share increased 3% compared to the second quarter of 2010 and decreased 3% compared to last quarter. The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Share-Based Compensation Related Payroll Tax by Category table below.
“Juniper’s results reflect momentum in our routing business and a return to solid performance in switching. A number of factors, however, including mixed signals in the macro economy, impacted our performance this quarter,” said Kevin Johnson, chief executive officer at Juniper Networks. “We are confident that our investment in innovation is generating a wave of great products that positions us well to deliver on our multi-year growth agenda.”
Juniper’s operating margin for the second quarter of 2011 decreased to 15.3% on a GAAP basis from 16.1% in the first quarter of 2011, and from 18.9% in the prior year second quarter. Non-GAAP operating margin for the second quarter of 2011 decreased to 21.6% from 22.3% in the first quarter of 2011 and from 23.9% in the prior year second quarter.
“We delivered solid year-over-year growth in the June quarter. However, we saw some moderation in certain areas of the business, which resulted in revenues coming in below our expectations. I’m pleased with our diligent expense control, which enabled us to generate earnings within our guidance range,” said Robyn Denholm, chief financial officer at Juniper Networks. “We have taken decisive steps to ensure our cost structure takes into account the near-term revenue environment while preserving investments that support our multi-year growth agenda.”
Other Financial Highlights
Total cash, cash equivalents and investments as of the second quarter of 2011 was $4,220.5 million, compared to $4,083.5 million as of the first quarter of 2011 and $2,736.2 million as of the same quarter of the prior year.
Juniper generated net cash from operations for the second quarter of 2011 of $318.3 million, compared to net cash provided by operations of $239.7 million, in the first quarter of 2011, and $221.3 million in the same quarter of the prior year.
Days sales outstanding in accounts receivable (“DSO”) was 39 days in the second quarter of 2011, compared to 38 days in the prior quarter and 36 days in the same quarter of the prior year.
Juniper repurchased approximately 3.9 million shares in the second quarter of 2011, at an average price of $38.94 per share, or approximately $150 million dollars.
Capital expenditures, as well as depreciation and amortization of intangible assets expense during the second quarter of 2011, were $62.0 million and $41.9 million, respectively.
Outlook
While the long-term fundamentals driving demand for networking solutions are healthy, our outlook for the September quarter reflects some near-term market weakness due primarily to the timing of certain Service Provider deployments. Our overall pipeline is strong and we anticipate many of our recent design wins will begin translating to revenue late in 2011.
- Juniper estimates revenue for the third quarter ending September 30, 2011, to be in the range of $1.070 billion to $1.120 billion.
- Juniper estimates that its non-GAAP gross margin will be in the range of between 65% and 67% in the third quarter.
- Juniper expects its non-GAAP operating margin for the third quarter will be in the range of 19% to 21%
- Juniper estimates that its non-GAAP net income per share will range between $0.26 and $0.30 on a diluted basis, assuming a flat share count and estimated non-GAAP tax rate of 27%. The non-GAAP EPS estimate includes a dilutive impact of approximately $0.02 per share due to net interest expense from our debt.
All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition related charges, restructuring charges, litigation settlement charges, gain or loss on equity investments, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and income tax effect of non-GAAP exclusions. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.
Conference Call Web Cast
Juniper Networks will host a conference call web cast today, July 26, 2011 at 2:00 p.m. (Pacific Time), to be broadcast live over the Internet at: http://www.juniper.net/company/investor/conferencecall.html.
To participate via telephone, in the U.S. the toll free dial-in number is 877-407-8033; outside of the U.S. dial +1-201-689-8033. Please call ten minutes prior to the scheduled conference call time. The webcast replay of the conference call will be archived on the Juniper Networks website until September 13, 2011.
About Juniper Networks
Juniper Networks is in the business of network innovation. From devices to data centers, from consumers to cloud providers, Juniper Networks delivers the software, silicon and systems that transform the experience and economics of networking. Additional information can be found at Juniper Networks (www.juniper.net).
Juniper Networks and Junos are registered trademarks of Juniper Networks, Inc. in the United States and other countries. The Juniper Networks and Junos logos are trademarks of Juniper Networks, Inc. All other trademarks, service marks, registered trademarks, or registered service marks are the property of their respective owners.
Statements in this release concerning Juniper Networks’ business outlook, economic and market outlook, future financial and operating results, and overall future prospects are forward-looking statements that involve a number of uncertainties and risks. Actual results or events could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including: general economic conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication service providers; the network capacity requirements of communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of competition; the timing of orders and their fulfillment; manufacturing and supply chain constraints; ability to establish and maintain relationships with distributors, resellers and other partners; variations in the expected mix of products sold; changes in customer mix; changes in geography mix; customer and industry analyst perceptions of Juniper Networks and its technology, products and future prospects; delays in scheduled product availability; market acceptance of Juniper Networks products and services; rapid technological and market change; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the ability to successfully acquire, integrate and manage businesses and technologies; product defects, returns or vulnerabilities; the ability to recruit and retain key personnel; significant effects of tax legislation and judicial or administrative interpretation of tax regulations; currency fluctuations; litigation; and other factors listed in Juniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission. All statements made in this press release are made only as of the date set forth at the beginning of this release. Juniper Networks undertakes no obligation to update the information in this release in the event facts or circumstances subsequently change after the date of this press release.
Juniper Networks believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the company’s financial condition and results of operations. For further information regarding why Juniper Networks believes that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the discussion below.
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Net revenues:
Product $ 891,428 $ 774,058 $ 1,768,868 $ 1,495,259
Service 229,116 204,242 453,288 395,659
----------- ----------- ----------- -----------
Total net revenues 1,120,544 978,300 2,222,156 1,890,918
Cost of revenues:
Product 292,391 231,752 558,137 454,133
Service 105,987 86,610 205,968 164,826
----------- ----------- ----------- -----------
Total cost of
revenues 398,378 318,362 764,105 618,959
----------- ----------- ----------- -----------
Gross margin 722,166 659,938 1,458,051 1,271,959
Operating expenses:
Research and
development 257,250 224,768 519,229 431,762
Sales and marketing 246,635 202,303 492,926 394,678
General and
administrative 44,260 45,880 89,184 89,018
Amortization of
purchased intangible
assets 1,332 1,204 2,876 2,341
Restructuring (916) 264 (1,263) 8,369
Acquisition-related
charges 2,685 541 6,786 541
----------- ----------- ----------- -----------
Total operating
expenses 551,246 474,960 1,109,738 926,709
----------- ----------- ----------- -----------
Operating income 170,920 184,978 348,313 345,250
Other (expense) income,
net (13,688) 4,065 (20,150) 5,524
----------- ----------- ----------- -----------
Income before income
taxes and
noncontrolling interest 157,232 189,043 328,163 350,774
Income tax provision 41,714 58,700 82,985 55,821
----------- ----------- ----------- -----------
Consolidated net income 115,518 130,343 245,178 294,953
Adjust for net loss
(income) attributable
to noncontrolling
interest 42 168 132 (1,327)
----------- ----------- ----------- -----------
Net income attributable
to Juniper Networks $ 115,560 $ 130,511 $ 245,310 $ 293,626
=========== =========== =========== ===========
Net income per share
attributable to Juniper
Networks common
stockholders:
Basic $ 0.22 $ 0.25 $ 0.46 $ 0.56
=========== =========== =========== ===========
Diluted $ 0.21 $ 0.24 $ 0.45 $ 0.55
=========== =========== =========== ===========
Shares used in computing
net income per share:
Basic 532,909 524,463 531,827 522,812
=========== =========== =========== ===========
Diluted 546,452 538,947 547,729 537,989
=========== =========== =========== ===========
Juniper Networks, Inc.
Preliminary Net Revenues by Reportable Segment
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Infrastructure:
Routers - Product $ 620,928 $ 502,227 $ 1,230,468 $ 984,746
Routers - Service 140,653 125,829 280,028 244,774
----------- ----------- ----------- -----------
Infrastructure
Revenue - Routers 761,581 628,056 1,510,496 1,229,520
----------- ----------- ----------- -----------
Switches - Product 115,207 87,985 214,244 161,593
Switches - Service 7,278 4,315 14,055 7,939
----------- ----------- ----------- -----------
Infrastructure
Revenue - Switches 122,485 92,300 228,299 169,532
----------- ----------- ----------- -----------
Total Infrastructure
Revenue $ 884,066 $ 720,356 $ 1,738,795 $ 1,399,052
=========== =========== =========== ===========
Service Layer Technologies:
Service Layer
Technologies -
Product $ 155,293 $ 183,846 $ 324,156 $ 348,920
Service Layer
Technologies -
Service 81,185 74,098 159,205 142,946
----------- ----------- ----------- -----------
Total Service Layer
Technologies
Revenue $ 236,478 $ 257,944 $ 483,361 $ 491,866
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Total Revenue $ 1,120,544 $ 978,300 $ 2,222,156 $ 1,890,918
=========== =========== =========== ===========
Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Americas $ 578,704 $ 494,221 $ 1,160,319 $ 982,689
Europe, Middle East,
and Africa 329,061 289,521 628,912 553,578
Asia Pacific 212,779 194,558 432,925 354,651
----------- ----------- ----------- -----------
Total $ 1,120,544 $ 978,300 $ 2,222,156 $ 1,890,918
=========== =========== =========== ===========
Juniper Networks, Inc.
Preliminary Net Revenues by Market
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Service Provider $ 729,340 $ 620,398 $ 1,471,517 $ 1,213,647
Enterprise 391,204 357,902 750,639 677,271
----------- ----------- ----------- -----------
Total $ 1,120,544 $ 978,300 $ 2,222,156 $ 1,890,918
=========== =========== =========== ===========
Juniper Networks, Inc.
Share-Based Compensation by Category
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Cost of revenues -
Product $ 1,211 $ 997 $ 2,159 $ 2,102
Cost of revenues -
Service 4,486 3,242 8,405 6,736
Research and development 26,583 18,679 48,913 35,665
Sales and marketing 19,171 13,853 32,397 25,581
General and administrative 8,675 7,832 17,291 15,080
----------- ----------- ----------- -----------
Total $ 60,126 $ 44,603 $ 109,165 $ 85,164
=========== =========== =========== ===========
Juniper Networks, Inc.
Share-Based Compensation Related Payroll Tax by Category
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Cost of revenues -
Product $ 24 $ 40 $ 295 $ 111
Cost of revenues -
Service 94 152 929 317
Research and development 276 430 3,350 1,185
Sales and marketing 583 1,150 3,969 1,582
General and administrative 66 111 485 208
----------- ----------- ----------- -----------
Total $ 1,043 $ 1,883 $ 9,028 $ 3,403
=========== =========== =========== ===========
Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
GAAP Cost of
revenues - Product $ 292,391 $ 231,752 $ 558,137 $ 454,133
Share-based
compensation
expense C (1,211) (997) (2,159) (2,102)
Share-based
compensation
related payroll tax C (24) (40) (295) (111)
Amortization of
purchased
intangible assets A (5,438) (308) (10,636) (333)
Acquisition-related
charges A (1,527) -- (2,487) --
---------- ---------- ---------- ----------
Non-GAAP Cost of
revenues - Product 284,191 230,407 542,560 451,587
========== ========== ========== ==========
GAAP Cost of
revenues - Service 105,987 86,610 205,968 164,826
Share-based
compensation
expense C (4,486) (3,242) (8,405) (6,736)
Share-based
compensation
related payroll tax C (94) (152) (929) (317)
---------- ---------- ---------- ----------
Non-GAAP Cost of
revenues - Service 101,407 83,216 196,634 157,773
========== ========== ========== ==========
GAAP Gross margin -
Product 599,037 542,306 1,210,731 1,041,126
Share-based
compensation
expense C 1,211 997 2,159 2,102
Share-based
compensation
related payroll tax C 24 40 295 111
Amortization of
purchased
intangible assets A 5,438 308 10,636 333
Acquisition-related
charges A 1,527 -- 2,487 --
---------- ---------- ---------- ----------
Non-GAAP Gross
margin - Product 607,237 543,651 1,226,308 1,043,672
========== ========== ========== ==========
GAAP Product gross
margin as a % of
product revenue 67.2% 70.1% 68.4% 69.6%
Share-based
compensation
expense as a % of
product revenue C 0.1% 0.1% 0.1% 0.2%
Share-based
compensation
related payroll
tax as a % of
product revenue C --% --% --% --%
Amortization of
purchased
intangible assets
as a % of product
revenue A 0.6% --% 0.6% --%
Acquisition-related
charges as a % of
product revenue A 0.2% --% 0.2% --%
---------- ---------- ---------- ----------
Non-GAAP Product
gross margin as a
% of product
revenue 68.1% 70.2% 69.3% 69.8%
========== ========== ========== ==========
GAAP Gross margin -
Service 123,129 117,632 247,320 230,833
Share-based
compensation
expense C 4,486 3,242 8,405 6,736
Share-based
compensation
related payroll
tax C 94 152 929 317
---------- ---------- ---------- ----------
Non-GAAP Gross
margin - Service $ 127,709 $ 121,026 $ 256,654 $ 237,886
========== ========== ========== ==========
GAAP Service gross
margin as a % of
service revenue 53.7% 57.6% 54.6% 58.3%
Share-based
compensation
expense as a % of
service revenue C 2.0% 1.6% 1.9% 1.7%
Share-based
compensation
related payroll
tax as a % of
service revenue C --% 0.1% 0.1% 0.1%
---------- ---------- ---------- ----------
Non-GAAP Service
gross margin as a
% of service
revenue 55.7% 59.3% 56.6% 60.1%
========== ========== ========== ==========
Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
GAAP Gross margin $ 722,166 $ 659,938 $1,458,051 $1,271,959
Share-based
compensation
expense C 5,697 4,239 10,564 8,838
Share-based
compensation
related payroll tax C 118 192 1,224 428
Amortization of
purchased
intangible assets A 5,438 308 10,636 333
Acquisition-related
charges A 1,527 -- 2,487 --
---------- ---------- ---------- ----------
Non-GAAP Gross
margin 734,946 664,677 1,482,962 1,281,558
========== ========== ========== ==========
GAAP Gross margin
as a % of revenue 64.4% 67.5% 65.6% 67.3%
Share-based
compensation
expense as a % of
revenue C 0.5% 0.4% 0.5% 0.5%
Share-based
compensation
related payroll
tax as a % of
revenue C --% --% --% --%
Amortization of
purchased
intangible assets
as a % of revenue A 0.6% --% 0.5% --%
Acquisition-related
charges as a % of
revenue A 0.1% --% 0.1% --%
---------- ---------- ---------- ----------
Non-GAAP Gross
margin as a % of
revenue 65.6% 67.9% 66.7% 67.8%
========== ========== ========== ==========
GAAP Research and
development
expense 257,250 224,768 519,229 431,762
Share-based
compensation
expense C (26,583) (18,679) (48,913) (35,665)
Share-based
compensation
related payroll tax C (276) (430) (3,350) (1,185)
---------- ---------- ---------- ----------
Non-GAAP Research
and development
expense 230,391 205,659 466,966 394,912
========== ========== ========== ==========
GAAP Sales and
marketing expense 246,635 202,303 492,926 394,678
Share-based
compensation
expense C (19,171) (13,853) (32,397) (25,581)
Share-based
compensation
related payroll tax C (583) (1,150) (3,969) (1,582)
---------- ---------- ---------- ----------
Non-GAAP Sales and
marketing expense 226,881 187,300 456,560 367,515
========== ========== ========== ==========
GAAP General and
administrative
expense 44,260 45,880 89,184 89,018
Share-based
compensation
expense C (8,675) (7,832) (17,291) (15,080)
Share-based
compensation
related payroll tax C (66) (111) (485) (208)
---------- ---------- ---------- ----------
Non-GAAP General
and administrative
expense 35,519 37,937 71,408 73,730
========== ========== ========== ==========
GAAP Operating
expense 551,246 474,960 1,109,738 926,709
Share-based
compensation
expense C (54,429) (40,364) (98,601) (76,326)
Share-based
compensation
related payroll tax C (925) (1,691) (7,804) (2,975)
Amortization of
purchased
intangible assets A (1,332) (1,204) (2,876) (2,341)
Restructuring B 916 (264) 1,263 (8,369)
Acquisition-related
charges A (2,685) (541) (6,786) (541)
---------- ---------- ---------- ----------
Non-GAAP Operating
expense $ 492,791 $ 430,896 $ 994,934 $ 836,157
========== ========== ========== ==========
Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except percentages)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
GAAP Operating income $ 170,920 $ 184,978 $ 348,313 $ 345,250
Share-based
compensation
expense C 60,126 44,603 109,165 85,164
Share-based
compensation
related payroll tax C 1,043 1,883 9,028 3,403
Amortization of
purchased
intangible assets A 6,770 1,512 13,512 2,674
Restructuring B (916) 264 (1,263) 8,369
Acquisition-related
charges A 4,212 541 9,273 541
---------- ---------- ---------- ----------
Non-GAAP Operating
income 242,155 233,781 488,028 445,401
========== ========== ========== ==========
GAAP Operating
margin 15.3% 18.9% 15.7% 18.3%
Share-based
compensation
expense as a % of
revenue C 5.4% 4.6% 4.9% 4.5%
Share-based
compensation
related payroll
tax as a % of
revenue C 0.1% 0.2% 0.4% 0.2%
Amortization of
purchased
intangible assets
as a % of revenue A 0.5% 0.2% 0.7% 0.2%
Restructuring as a
% of revenue B (0.1)% --% (0.1)% 0.4%
Acquisition-related
charges as a % of
revenue A 0.4% --% 0.4% --%
---------- ---------- ---------- ----------
Non-GAAP Operating
margin 21.6% 23.9% 22.0% 23.6%
========== ========== ========== ==========
GAAP Other (expense)
income, net E (13,688) 4,065 (20,150) 5,524
Gain on equity
investments B (72) (3,232) (134) (3,232)
---------- ---------- ---------- ----------
Non-GAAP Other
(expense) income,
net E (13,760) 833 (20,284) 2,292
========== ========== ========== ==========
GAAP Income tax
provision 41,714 58,700 82,985 55,821
Non-recurring
income tax
adjustment B -- -- -- 54,069
Income tax effect
of non-GAAP
exclusions B 19,487 12,130 40,145 26,107
---------- ---------- ---------- ----------
Non-GAAP Provision
for income tax 61,201 70,830 123,130 135,997
========== ========== ========== ==========
Non-GAAP Income tax
rate 26.8% 30.2% 26.3% 30.4%
========== ========== ========== ==========
Non-GAAP Income before
income taxes and
noncontrolling
interest* $ 228,395 $ 234,614 $ 467,744 $ 447,693
========== ========== ========== ==========
*Consists of non-GAAP operating income plus non-GAAP net other income and
expense.
Juniper Networks, Inc.
Reconciliation between GAAP and non-GAAP Financial Measures
(in thousands, except per share amounts and percentages)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
GAAP Net income
attributable to
Juniper Networks $ 115,560 $ 130,511 $ 245,310 $ 293,626
Share-based
compensation
expense C 60,126 44,603 109,165 85,164
Share-based
compensation
related payroll tax C 1,043 1,883 9,028 3,403
Amortization of
purchased
intangible assets A 6,770 1,512 13,512 2,674
Restructuring B (916) 264 (1,263) 8,369
Acquisition-related
charges A 4,212 541 9,273 541
Gain on equity
investments B (72) (3,232) (134) (3,232)
Non-recurring
income tax
adjustments B -- -- -- (54,069)
Income tax effect
of non-GAAP
exclusions B (19,487) (12,130) (40,145) (26,107)
---------- ---------- ---------- ----------
Non-GAAP Net income $ 167,236 $ 163,952 $ 344,746 $ 310,369
========== ========== ========== ==========
Non-GAAP Net income
per share:
Basic D $ 0.31 $ 0.31 $ 0.65 $ 0.59
========== ========== ========== ==========
Diluted D $ 0.31 $ 0.30 $ 0.63 $ 0.58
========== ========== ========== ==========
Shares used in
computing non-GAAP
net income per
share:
Basic D 532,909 524,463 531,827 522,812
========== ========== ========== ==========
Diluted D 546,452 538,947 547,729 537,989
========== ========== ========== ==========
GAAP Net income
attributable to
Juniper Networks
as a % of revenue 10.3 % 13.3 % 11.0 % 15.5 %
Share-based
compensation
expense as a % of
revenue C 5.4 % 4.6 % 4.9 % 4.5 %
Share-based
compensation
related payroll
tax as a % of
revenue C 0.1 % 0.2 % 0.4 % 0.2 %
Amortization of
purchased
intangible assets
as a % of revenue A 0.6 % 0.2 % 0.6 % 0.2 %
Restructuring as a
% of revenue B (0.1)% -- % (0.1)% 0.4 %
Acquisition-related
charges as a % of
revenue A 0.4 % 0.1 % 0.4 % -- %
Gain on equity
investments B -- % (0.3)% -- % (0.2)%
Non-recurring
income tax
adjustments as a %
of revenue B -- % -- % -- % (2.9)%
Income tax effect
of non-GAAP
exclusions as a %
of revenue B (1.8)% (1.3)% (1.7)% (1.3)%
---------- ---------- ---------- ----------
Non-GAAP Net income
as a % of revenue 14.9 % 16.8 % 15.5 % 16.4 %
========== ========== ========== ==========
Discussion of Non-GAAP Financial Measures
The table above includes the following non-GAAP financial measures derived from our Preliminary Condensed Consolidated Statements of Operations: cost of product revenue; cost of service revenue; product gross margin, product gross margin as a percentage of product revenue; service gross margin; service gross margin as a percentage of service revenue; gross margin; gross margin as a percentage of revenue; research and development expense; sales and marketing expense; general and administrative expense; operating expense; operating income; operating margin; net other income and expense; income before income taxes and noncontrolling interest; provision for income taxes; income tax rate; net income; net income per share and net income as a percentage of revenue. These measures are not presented in accordance with, nor are they a substitute for U.S. generally accepted accounting principles or GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in the table above should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.
We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures presented above to be helpful in assessing the performance of the continuing operation of our business. By continuing operations we mean the ongoing revenue and expenses of the business excluding certain items that render comparisons with prior periods or analysis of on-going operating trends more difficult, such as expenses not directly related to the actual cash costs of development, sale, delivery or support of our products and services, or expenses that are reflected in periods unrelated to when the actual amounts were incurred or paid. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides such readers with useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. In addition, we have historically reported non-GAAP results to the investment community and believe that continuing to provide non-GAAP measures provides investors with a tool for comparing results over time. In assessing the overall health of our business for the periods covered by the table above and, in particular, in evaluating the financial line items presented in the table above, we have excluded items in the following three general categories, each of which are described below: Acquisition-Related Charges, Other Items, and Stock-Based Compensation Related Items. We also provide additional detail below regarding the shares used to calculate our non-GAAP net income per share. Notes identified for line items in the table above correspond to the appropriate note description below. Additionally, with respect to future financial guidance provided on a non-GAAP basis, we have excluded estimates for amortization of intangible assets, stock based compensation expenses, acquisition related charges, restructuring charges, litigation settlement charges, gain or loss on equity investments, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and income tax effect of non-GAAP exclusions.
Note A: Acquisition-Related Charges. We exclude certain expense items resulting from acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions; (ii) compensation related to acquisitions; and (iii) acquisition-related charges. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. For example, we have incurred deferred compensation charges related to assumed options and transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.
Note B: Other Items. We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) restructuring and related costs; (ii) impairment charges; (iii) gain or loss on legal settlement, net of related transaction costs; (iv) retroactive impacts of certain tax settlements; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations; (vi) gain or loss on equity investments; and (vii) the income tax effect on our financial statements of excluding items related to our non-GAAP financial measures. It is difficult to estimate the amount or timing of these items in advance. Restructuring and impairment charges result from events, which arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. In the case of legal settlements, these gains or losses are recorded in the period in which the matter is concluded or resolved even though the subject matter of the underlying dispute may relate to multiple or different periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. Similarly, the retroactive impacts of certain tax settlements and significant effects of retroactive tax legislation are unique events that occur in periods that are generally unrelated to the level of business activity to which such settlement or legislation applies. We believe this limits comparability with prior periods and that these expenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. Whether we realize gains or losses on equity investments is based primarily on the performance and market value of those independent companies. Accordingly, we believe that these gains and losses do not reflect the underlying performance of our continuing operations. We also believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the on-going performance and future liquidity of our business. Because of these factors, we assess our operating performance both with these amounts included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.
Note C: Stock-Based Compensation Related Items. We provide non-GAAP information relative to our expense for stock-based compensation and related payroll tax. We began to include stock-based compensation expense in our GAAP financial measures in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“FASB ASC Topic 718”), in January 2006. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of stock-based compensation, we believe that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Further, we believe that excluding stock-based compensation expense allows for a more accurate comparison of our financial results to previous periods during which our equity-based awards were not required to be reflected in our income statement. Stock-based compensation is very different from other forms of compensation. A cash salary or bonus has a fixed and unvarying cash cost. For example, the expense associated with a $10,000 bonus is equal to exactly $10,000 in cash regardless of when it is awarded and who it is awarded by. In contrast, the expense associated with an award of an option for 1,000 shares of stock is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time and that does not reflect any cash expenditure by the company because no cash is expended. Furthermore, the expense associated with granting an employee an option is spread over multiple years unlike other compensation expenses which are more proximate to the time of award or payment. For example, we may be recognizing expense in a year where the stock option is significantly underwater and is not going to be exercised or generate any compensation for the employee. The expense associated with an award of an option for 1,000 shares of stock by us in one quarter may have a very different expense than an award of an identical number of shares in a different quarter. Finally, the expense recognized by us for such an option may be very different than the expense to other companies for awarding a comparable option, which makes it difficult to assess our operating performance relative to our competitors. Similar to stock-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing and exercise by employees of our stock-based compensation, over which our management has little control, and as such does not correlate to the operation of our business. Because of these unique characteristics of stock-based compensation and the related payroll tax, management excludes these expenses when analyzing the organization’s business performance. We also believe that presentation of such non-GAAP information is important to enable readers of our financial statements to compare current period results with periods prior to the adoption of FASB ASC Topic 718.
Note D: Non-GAAP Net Income Per Share Items. We provide basic non-GAAP net income per share and diluted non-GAAP net income per share. The basic non-GAAP net income per share amount was calculated based on our non-GAAP net income and the weighted-average number of shares outstanding during the reporting period. The diluted non-GAAP income per share included additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive.
Note E: Other Income and Expense. GAAP and non-GAAP other (expense) income, net, consist primarily of interest income, interest expense and other non-operational income and expense items. As noted in Note B above, we exclude gains or losses from equity investments in our computation of non-GAAP other (expense) income.
Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, December 31,
2011 2010
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,838,066 $ 1,811,887
Short-term investments 631,781 474,514
Accounts receivable, net of allowances 488,037 596,622
Deferred tax assets, net 152,858 161,535
Prepaid expenses and other current assets 175,201 169,812
----------- -----------
Total current assets 4,285,943 3,214,370
Property and equipment, net 544,389 493,881
Long-term investments 750,603 535,178
Restricted cash 93,173 119,346
Purchased intangible assets, net 136,736 121,803
Goodwill 3,927,883 3,927,807
Other long-term assets 54,390 55,466
----------- -----------
Total assets $ 9,793,117 $ 8,467,851
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 250,068 $ 292,270
Accrued compensation 216,490 256,746
Accrued warranty 38,066 35,931
Deferred revenue 707,422 660,264
Income taxes payable 32,248 25,000
Other accrued liabilities 185,054 201,765
----------- -----------
Total current liabilities 1,429,348 1,471,976
Long-term debt 998,960 --
Long-term deferred revenue 222,802 224,165
Long-term income tax payable 106,261 103,823
Other long-term liabilities 73,816 59,087
----------- -----------
Total liabilities 2,831,187 1,859,051
Total equity 6,961,930 6,608,800
----------- -----------
Total liabilities and equity $ 9,793,117 $ 8,467,851
=========== ===========
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30,
------------------------
2011 2010
----------- -----------
Cash flows from operating activities:
Consolidated net income $ 245,178 $ 294,953
Adjustments to reconcile consolidated net income
to net cash from operating activities:
Depreciation and amortization 82,649 72,748
Non-cash portion of share-based compensation 106,243 85,164
Gain on equity investments -- (3,232)
Excess tax benefits from share-based
compensation (43,331) (28,287)
Deferred income taxes 8,677 (25,594)
Amortization of debt issuance costs 273 --
Changes in operating assets and liabilities:
Accounts receivable, net 107,982 67,168
Prepaid expenses and other assets 6,408 (15,712)
Accounts payable (34,051) (6,331)
Accrued compensation (38,756) 29,977
Accrued litigation settlements -- (169,330)
Income tax payable 51,220 (683)
Other accrued liabilities 19,670 (4,987)
Deferred revenue 45,795 14,035
----------- -----------
Net cash provided by operating activities 557,957 309,889
Cash flows from investing activities:
Purchases of property and equipment, net (115,941) (83,157)
Purchases of trading investments (3,127) (1,690)
Purchases of available-for-sale investments (1,293,670) (932,004)
Proceeds from sales of available-for-sale
investments 685,258 354,890
Proceeds from maturities of available-for-sale
investments 238,000 557,363
Payment for business acquisition, net of cash and
cash equivalents acquired (31,073) (64,215)
Changes in restricted cash (1,236) (12,296)
Purchases of privately-held equity investments,
net (8,643) (727)
----------- -----------
Net cash used in investing activities (530,432) (181,836)
Cash flows from financing activities:
Proceeds from issuance of common stock 303,874 176,662
Purchases and retirement of common stock (355,171) (253,672)
Issuance of long-term debt 991,556 --
Change in customer financing arrangements 15,064 (20,967)
Excess tax benefits from share-based compensation 43,331 28,287
Return of capital to noncontrolling interest -- (3,000)
----------- -----------
Net cash provided by financing activities 998,654 (72,690)
----------- -----------
Net increase in cash and cash equivalents 1,026,179 55,363
Cash and cash equivalents at beginning of period 1,811,887 1,604,723
----------- -----------
Cash and cash equivalents at end of period $ 2,838,066 $ 1,660,086
=========== ===========
Juniper Networks, Inc.
Cash, Cash Equivalents, and Investments
(in thousands)
(unaudited)
June 30, December 31,
2011 2010
----------- -----------
Cash and cash equivalents $ 2,838,066 $ 1,811,887
Short-term investments 631,781 474,514
Long-term investments 750,603 535,178
----------- -----------
Total $ 4,220,450 $ 2,821,579
=========== ===========
Contact:
Investor Relations: Kathleen Nemeth Media Relations: David Shane
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