SOURCE: Juniper Networks

Juniper Networks

October 23, 2012 16:05 ET

Juniper Networks Reports Preliminary Third Quarter 2012 Financial Results

SUNNYVALE, CA--(Marketwire - Oct 23, 2012) - Juniper Networks (NYSE: JNPR)

  • Revenue: $1,118 million, up 4% from Q2'12 and up 1% from Q3'11
  • Operating Margin: 3.8% GAAP; 16.9% non-GAAP
  • GAAP Net Income Per Share: $0.03 diluted, includes $0.16 impact from restructuring and other charges
  • Non-GAAP Net Income Per Share: $0.22 diluted, up 16% from Q2'12 and down 21% from Q3'11

Juniper Networks (NYSE: JNPR), the industry leader in network innovation, today reported preliminary financial results for the three and nine months ended September 30, 2012, and provided its outlook for the three months ending December 31, 2012.

Net revenues for the third quarter of 2012 increased 4% sequentially, and increased 1% on a year-over-year basis, to $1,118 million.

The Company posted GAAP net income of $17 million, or $0.03 per diluted share for the third quarter. The GAAP diluted income per share includes $0.16 impact from restructuring and other charges. Non-GAAP net income was $118 million, or $0.22 per diluted share, for the third quarter of 2012.

Non-GAAP net income per diluted share increased 16% compared to the second quarter of 2012 and decreased 21% compared to the third quarter of 2011. 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 operating margin for the third quarter of 2012 decreased to 3.8% on a GAAP basis from 8.1% in the second quarter of 2012, and from 12.4% in the third quarter 2011. Non-GAAP operating margin for the third quarter of 2012 increased to 16.9% from 15.0% in the second quarter of 2012 and decreased from 20.0% in the third quarter of 2011.

"Juniper delivered top line revenue growth in the third quarter as we focus on excellence in execution throughout our business," said Kevin Johnson, chief executive officer of Juniper Networks. "Our new products continue to gain traction in the marketplace, and we're aligning our organization to sharpen our focus, enable agility and drive efficiency as we position for 2013."

"Our third quarter results demonstrated a return to year-over-year revenue growth and improved operational performance," said Robyn Denholm, chief financial officer of Juniper Networks. "Long-term demand fundamentals for high-performance networking continue to be positive, yet customers remain cautious in the near-term environment. We remain focused on executing our strategy to drive revenue growth, and with our workforce restructuring largely complete, we're well prepared to capture the market opportunity ahead."

Other Financial Highlights
Total cash, cash equivalents and investments as of September 30, 2012 were $4,048 million, compared to $4,272 million as of the second quarter of 2012 and $4,130 million as of the third quarter of 2011.

Juniper generated net cash from operations for the third quarter of 2012 of $173 million, compared to net cash provided by operations of $212 million in the second quarter of 2012, and $185 million in the third quarter of 2011.

Days sales outstanding in accounts receivable ("DSO") was 32 days in the third quarter of 2012, compared to 34 days in the prior quarter and 36 days in the third quarter of 2011.

Juniper repurchased approximately 14 million shares in the third quarter of 2012, at an average price of $18.00 per share, or approximately $250 million.

Capital expenditures, as well as depreciation and amortization of intangible assets expense during the third quarter of 2012 were $87 million and $48 million, respectively.

Outlook
Long-term fundamentals driving demand for networking solutions are positive, and we are making good progress toward our revenue targets for our new products. Our outlook for the December quarter reflects our customers' continued caution in their investment decisions in what continues to be a challenging environment. 

  • Juniper estimates revenue for the fourth quarter ending December 31, 2012 to be in the range of $1,100 million to $1,130 million. 

  • Juniper estimates that its non-GAAP gross margin will be in the range of 63.5% to 64.5% for the fourth quarter.

  • Juniper estimates that its non-GAAP operating expenses will be flat compared to the September quarter.

  • Juniper expects its non-GAAP operating margin for the fourth quarter will be in the range of 14% to 16%.

  • Juniper estimates that its non-GAAP net income per share will range between $0.19 and $0.22 on a diluted basis, assuming a flat share count and estimated non-GAAP tax rate of 32%.

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 Webcast

Juniper Networks will host a conference call webcast today, October 23, 2012, 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 10 minutes prior to the scheduled conference call time. The webcast replay of the conference call will be archived on the Juniper Networks website.

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) or connect with Juniper on Twitter and Facebook.

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 September 30,     Nine Months Ended September 30,  
    2012     2011     2012     2011  
Net revenues:                                
  Product   $ 838,179     $ 861,935     $ 2,414,714     $ 2,630,803  
  Service     280,132       243,861       809,854       697,149  
    Total net revenues     1,118,311       1,105,796       3,224,568       3,327,952  
Cost of revenues:                                
  Product     334,645       286,609       907,863       844,746  
  Service     109,835       107,583       340,946       313,551  
    Total cost of revenues     444,480       394,192       1,248,809       1,158,297  
Gross margin     673,831       711,604       1,975,759       2,169,655  
Operating expenses:                                
  Research and development     288,178       257,096       826,514       776,325  
  Sales and marketing     261,026       254,933       778,200       747,859  
  General and administrative     49,442       44,455       152,883       133,639  
  Amortization of purchased intangible assets     1,148       1,263       3,562       4,139  
  Restructuring and other charges     31,018       16,813       36,218       15,550  
  Acquisition-related and other charges     250       18       1,186       6,804  
    Total operating expenses     631,062       574,578       1,798,563       1,684,316  
Operating income     42,769       137,026       177,196       485,339  
Other expense, net     (3,956 )     (15,957 )     (25,617 )     (36,107 )
Income before income taxes and noncontrolling interest     38,813       121,069       151,579       449,232  
Income tax provision     21,999       37,398       60,776       120,383  
Consolidated net income     16,814       83,671       90,803       328,849  
Adjust for net loss attributable to noncontrolling interest     --       (8 )     --       124  
Net income attributable to Juniper Networks   $ 16,814     $ 83,663     $ 90,803     $ 328,973  
                                 
Net income per share attributable to Juniper Networks common stockholders:                                
  Basic   $ 0.03     $ 0.16     $ 0.17     $ 0.62  
  Diluted   $ 0.03     $ 0.16     $ 0.17     $ 0.60  
Shares used in computing net income per share:                                
  Basic     521,178       529,286       525,419       530,994  
  Diluted     524,537       536,583       530,343       544,086  
 
 
Juniper Networks, Inc.
Preliminary Net Revenues by Reportable Segment
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Platform Systems Division:                        
  PSD Products:                        
    Routing   $ 488,112   $ 524,211   $ 1,433,049   $ 1,687,587
    Switching     145,616     122,172     409,033     339,937
    Security/Other     47,822     53,393     135,907     158,557
      Total PSD Products   $ 681,550   $ 699,776   $ 1,977,989   $ 2,186,081
  PSD Services     211,400     180,018     610,608     509,233
    Total Platform Systems Division Revenue   $ 892,950   $ 879,794   $ 2,588,597   $ 2,695,314
                         
Software Solutions Division:                        
  SSD Products                        
    Security/Other   $ 129,848   $ 137,933   $ 369,515   $ 359,793
    Routing     26,781     24,226     67,210     84,929
      Total SSD Products   $ 156,629   $ 162,159   $ 436,725   $ 444,722
  SSD Services     68,732     63,843     199,246     187,916
    Total Software Solutions Division Revenue   $ 225,361   $ 226,002   $ 635,971   $ 632,638
Total   $ 1,118,311   $ 1,105,796   $ 3,224,568   $ 3,327,952
 
 
Juniper Networks, Inc.
Preliminary Net Revenues by Product
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Routing   $ 514,893   $ 548,437   $ 1,500,259   $ 1,772,516
Switching     145,616     122,172     409,033     339,937
Security/Other     177,670     191,326     505,422     518,350
Services     280,132     243,861     809,854     697,149
Total   $ 1,118,311   $ 1,105,796   $ 3,224,568   $ 3,327,952
 
 
Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Americas   $ 560,258   $ 556,573   $ 1,678,912   $ 1,716,892
Europe, Middle East, and Africa     321,331     311,255     927,650     940,167
Asia Pacific     236,722     237,968     618,006     670,893
Total   $ 1,118,311   $ 1,105,796   $ 3,224,568   $ 3,327,952
 
 
Juniper Networks, Inc.
Preliminary Net Revenues by Market
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Service Provider   $ 705,257   $ 685,013   $ 2,071,837   $ 2,156,530
Enterprise     413,054     420,783     1,152,731     1,171,422
Total   $ 1,118,311   $ 1,105,796   $ 3,224,568   $ 3,327,952
   
   
Juniper Networks, Inc.  
Segment Operating Results  
(in thousands)  
(unaudited)  
   
      Three Months Ended September 30,     Nine Months Ended September 30,  
      2012     2011     2012     2011  
Platform Systems Division:                                  
  Product revenue     $ 681,550     $ 699,776     $ 1,977,989     $ 2,186,081  
  Service revenue       211,400       180,018       610,608       509,233  
    Total PSD revenue       892,950       879,794       2,588,597       2,695,314  
    Non-GAAP PSD contribution margin $       356,144       381,802       1,011,877       1,214,346  
    Non-GAAP PSD contribution margin %       39.9 %     43.4 %     39.1 %     45.1 %
                                   
Software Solutions Division:                                  
  Product revenue       156,629       162,159       436,725       444,722  
                                     
  Services revenue       68,732       63,843       199,246       187,916  
    Total SSD revenue       225,361       226,002       635,971       632,638  
                                       
    Non-GAAP SSD contribution margin $       99,776       94,549       256,165       250,339  
    Non-GAAP SSD contribution margin %       44.3 %     41.8 %     40.3 %     39.6 %
Total revenue       1,118,311       1,105,796       3,224,568       3,327,952  
                                   
Non-GAAP Segment contribution margin $       455,920       476,351       1,268,042       1,464,685  
Non-GAAP Segment contribution margin %       40.8 %     43.1 %     39.3 %     44.0 %
                                   
Corporate unallocated expenses       266,505       255,190       794,188       755,496  
                                   
Non-GAAP Total segment operating margin $       189,415       221,161       473,854       709,189  
Non-GAAP Total segment operating margin %       16.9 %     20.0 %     14.7 %     21.3 %
    Amortization of purchased intangible assets   A   (9,041 )     (6,701 )     (25,081 )     (20,213 )
    Share-based compensation expense   A   (59,115 )     (60,468 )     (186,002 )     (169,633 )
    Share-based payroll tax expense   A   (103 )     (135 )     (1,052 )     (9,163 )
    Restructuring and other charges   B   (83,418 )     (16,813 )     (88,618 )     (15,550 )
    Acquisition-related and other charges   A,B   (250 )     (18 )     (1,186 )     (9,291 )
    Other   B   5,281       --       5,281       --  
GAAP Operating income     $ 42,769     $ 137,026     $ 177,196     $ 485,339  
 
 
Juniper Networks, Inc.
Share-Based Compensation by Category
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Cost of revenues - Product   $ 1,162   $ 1,241   $ 3,499   $ 3,400
Cost of revenues - Service     3,872     3,705     13,217     12,110
Research and development     26,039     26,540     80,316     75,453
Sales and marketing     21,382     20,572     64,315     52,969
General and administrative     6,660     8,410     24,655     25,701
Total   $ 59,115   $ 60,468   $ 186,002   $ 169,633
 
 
Juniper Networks, Inc.
Share-Based Compensation Related Payroll Tax by Category
(in thousands)
(unaudited)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2012   2011   2012   2011
Cost of revenues - Product   $ 3   $ 4   $ 27   $ 299
Cost of revenues - Service     15     9     102     938
Research and development     29     35     277     3,385
Sales and marketing     51     79     556     4,048
General and administrative     5     8     90     493
Total   $ 103   $ 135   $ 1,052   $ 9,163
   
   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except percentages)  
(unaudited)  
   
        Three Months Ended     Nine Months Ended  
        September 30,   June 30,     September 30,     September 30,   September 30,  
        2012   2012     2011     2012   2011  
GAAP Cost of revenues - Product       $ 334,645   $ 292,589     $ 286,609     $ 907,863   $ 844,746  
Share-based compensation expense   C     (1,162 )   (1,220 )     (1,241 )     (3,499 )   (3,400 )
Share-based compensation related payroll tax   C     (3 )   (12 )     (4 )     (27 )   (299 )
Amortization of purchased intangible assets   A     (7,893 )   (7,531 )     (5,438 )     (21,519 )   (16,074 )
Restructuring and other charges   B     (52,400 )   --       --       (52,400 )   --  
Other   B     5,281     --       --       5,281     --  
Acquisition-related and other charges   A,B     --     --       --       --     (2,487 )
Non-GAAP Cost of revenues - Product         278,468     283,826       279,926       835,699     822,486  
                                         
GAAP Cost of revenues - Service         109,835     113,297       107,583       340,946     313,551  
Share-based compensation expense   C     (3,872 )   (4,125 )     (3,705 )     (13,217 )   (12,110 )
Share-based compensation related payroll tax   C     (15 )   (53 )     (9 )     (102 )   (938 )
Non-GAAP Cost of revenues - Service         105,948     109,119       103,869       327,627     300,503  
                                         
GAAP Gross margin - Product         503,534     512,073       575,326       1,506,851     1,786,057  
Share-based compensation expense   C     1,162     1,220       1,241       3,499     3,400  
Share-based compensation related payroll tax   C     3     12       4       27     299  
Amortization of purchased intangible assets   A     7,893     7,531       5,438       21,519     16,074  
Restructuring and other charges   B     52,400     --       --       52,400     --  
Other   B     (5,281 )   --       --       (5,281 )   --  
Acquisition-related and other charges   A,B     --     --       --       --     2,487  
Non-GAAP Gross margin - Product         559,711     520,836       582,009       1,579,015     1,808,317  
GAAP Product gross margin as a % of product revenue         60.1 %   63.6 %     66.7 %     62.4 %   67.9 %
Share-based compensation expense as a % of product revenue   C     0.1 %   0.2 %     0.1 %     0.1 %   0.1 %
Share-based compensation related payroll tax as a % of product revenue   C     -- %   -- %     -- %     -- %   -- %
Amortization of purchased intangible assets as a % of product revenue   A     0.9 %   0.9 %     0.7 %     0.9 %   0.6 %
Restructuring and other charges as a % of product revenue   B     6.3 %   -- %     -- %     2.2 %   -- %
Other as a % of product revenue   B     (0.6 )%   -- %     -- %     (0.2 )%   -- %
Acquisition-related and other charges as a % of product revenue   A,B     -- %   -- %     -- %     -- %   0.1 %
Non-GAAP Product gross margin as a % of product revenue         66.8 %   64.7 %     67.5 %     65.4 %   68.7 %
                                         
GAAP Gross margin - Service         170,297     155,800       136,278       468,908     383,598  
Share-based compensation expense   C     3,872     4,125       3,705       13,217     12,110  
Share-based compensation related payroll tax   C     15     53       9       102     938  
Non-GAAP Gross margin - Service       $ 174,184   $ 159,978     $ 139,992     $ 482,227   $ 396,646  
GAAP Service gross margin as a % of service revenue         60.8 %   57.9 %     55.9 %     57.9 %   55.0 %
Share-based compensation expense as a % of service revenue   C     1.4 %   1.5 %     1.5 %     1.6 %   1.8 %
Share-based compensation related payroll tax as a % of service revenue   C     -- %   -- %     -- %     -- %   0.1 %
Non-GAAP Service gross margin as a % of service revenue         62.2 %   59.4 %     57.4 %     59.5 %   56.9 %
   
   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except percentages)  
(unaudited)  
   
      Three Months Ended     Nine Months Ended  
      September 30,     June 30,     September 30,     September 30,   September 30,  
      2012     2012     2011     2012   2011  
GAAP Gross margin     $ 673,831     $ 667,873     $ 711,604     $ 1,975,759   $ 2,169,655  
Share-based compensation expense   C   5,034       5,345       4,946       16,716     15,510  
Share-based compensation related payroll tax   C   18       65       13       129     1,237  
Amortization of purchased intangible assets   A   7,893       7,531       5,438       21,519     16,074  
Restructuring and other charges   B   52,400       --       --       52,400     --  
Other   B   (5,281 )     --       --       (5,281 )   --  
Acquisition-related and other charges   A,B   --       --       --       --     2,487  
Non-GAAP Gross margin       733,895       680,814       722,001       2,061,242     2,204,963  
                                         
GAAP Gross margin as a % of revenue       60.3 %     62.2 %     64.4 %     61.3 %   65.2 %
Share-based compensation expense as a % of revenue   C   0.5 %     0.5 %     0.4 %     0.5 %   0.5 %
Share-based compensation related payroll tax as a % of revenue   C   -- %     -- %     -- %     0.1 %   -- %
Amortization of purchased intangible assets as a % of revenue   A   0.7 %     0.7 %     0.5 %     0.6 %   0.5 %
Restructuring and other charges as a % of revenue   B   4.6 %     -- %     -- %     1.6 %   -- %
Other as a % of revenue   B   (0.5 )     -- %     -- %     (0.2 )%   -- %
Acquisition-related and other charges as a % of revenue   A,B   -- %     -- %     -- %     -- %   0.1 %
Non-GAAP Gross margin as a % of revenue       65.6 %     63.4 %     65.3 %     63.9 %   66.3 %
                                         
GAAP Research and development expense       288,178       268,734       257,096       826,514     776,325  
Share-based compensation expense   C   (26,039 )     (28,486 )     (26,540 )     (80,316 )   (75,453 )
Share-based compensation related payroll tax   C   (29 )     (122 )     (35 )     (277 )   (3,385 )
Non-GAAP Research and development expense       262,110       240,126       230,521       745,921     697,487  
                                         
GAAP Sales and marketing expense       261,026       259,455       254,933       778,200     747,859  
Share-based compensation expense   C   (21,382 )     (21,022 )     (20,572 )     (64,315 )   (52,969 )
Share-based compensation related payroll tax   C   (51 )     (329 )     (79 )     (556 )   (4,048 )
Non-GAAP Sales and marketing expense       239,593       238,104       234,282       713,329     690,842  
                                         
GAAP General and administrative expense       49,442       48,775       44,455       152,883     133,639  
Share-based compensation expense   C   (6,660 )     (7,027 )     (8,410 )     (24,655 )   (25,701 )
Share-based compensation related payroll tax   C   (5 )     (54 )     (8 )     (90 )   (493 )
Non-GAAP General and administrative expense       42,777       41,694       36,037       128,138     107,445  
                                         
GAAP Operating expense       631,062       581,155       574,578       1,798,563     1,684,316  
Share-based compensation expense   C   (54,081 )     (56,535 )     (55,522 )     (169,286 )   (154,123 )
Share-based compensation related payroll tax   C   (85 )     (505 )     (122 )     (923 )   (7,926 )
Amortization of purchased intangible assets   A   (1,148 )     (1,236 )     (1,263 )     (3,562 )   (4,139 )
Restructuring and other charges   B   (31,018 )     (3,161 )     (16,813 )     (36,218 )   (15,550 )
Acquisition-related and other charges   A,B   (250 )     206       (18 )     (1,186 )   (6,804 )
Non-GAAP Operating expense     $ 544,480     $ 519,924     $ 500,840     $ 1,587,388   $ 1,495,774  
   
   
Juniper Networks, Inc.  
Reconciliation between GAAP and non-GAAP Financial Measures  
(in thousands, except percentages)  
(unaudited)  
   
      Three Months Ended     Nine Months Ended  
      September 30,   June 30,     September 30,     September 30,   September 30,  
      2012   2012     2011     2012   2011  
GAAP Operating income     $ 42,769   $ 86,718     $ 137,026     $ 177,196   $ 485,339  
Share-based compensation expense   C   59,115     61,880       60,468       186,002     169,633  
Share-based compensation related payroll tax   C   103     570       135       1,052     9,163  
Amortization of purchased intangible assets   A   9,041     8,767       6,701       25,081     20,213  
Restructuring and other charges   B   83,418     3,161       16,813       88,618     15,550  
Other   B   (5,281 )   --       --       (5,281 )   --  
Acquisition-related and other charges   A,B   250     (206 )     18       1,186     9,291  
Non-GAAP Operating income       189,415     160,890       221,161       473,854     709,189  
                                       
GAAP Operating margin       3.8 %   8.1 %     12.4 %     5.5 %   14.6 %
Share-based compensation expense as a % of revenue   C   5.3 %   5.8 %     5.5 %     5.9 %   5.1 %
Share-based compensation related payroll tax as a % of revenue   C   -- %   0.1 %     -- %     -- %   0.3 %
Amortization of purchased intangible assets as a % of revenue   A   0.8 %   0.7 %     0.6 %     0.8 %   0.6 %
Restructuring and other charges as a % of revenue   B   7.5 %   0.3 %     1.5 %     2.7 %   0.5 %
Other as a % of revenue   B   (0.5 )%   -- %     -- %     (0.2 )%   -- %
Acquisition-related and other charges as a % of revenue   A,B   -- %   -- %     -- %     -- %   0.3 %
Non-GAAP Operating margin       16.9 %   15.0 %     20.0 %     14.7 %   21.4 %
                                       
GAAP Other income (expense), net   E   (3,956 )   2,770       (15,957 )     (25,617 )   (36,107 )
(Gain) loss on equity investments   B   (5,842 )   (14,787 )     1,116       (6,629 )   982  
Non-GAAP Other income (expense), net   E   (9,798 )   (12,017 )     (14,841 )     (32,246 )   (35,125 )
                                       
GAAP Income tax provision       21,999     31,769       37,398       60,776     120,383  
Income tax effect of non-GAAP exclusions   B   39,735     13,980       19,152       75,835     59,297  
Non-GAAP Provision for income tax       61,734     45,749       56,550       136,611     179,680  
Non-GAAP Income tax rate       34.4 %   30.7 %     27.4 %     30.9 %   26.7 %
Non-GAAP Income before income taxes and noncontrolling interest*     $ 179,617   $ 148,873     $ 206,320     $ 441,608   $ 674,064  

*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   Nine Months Ended  
      September 30,   June 30,   September 30,   September 30,   September 30,  
      2012   2012   2011   2012   2011  
GAAP Net income attributable to Juniper Networks     $ 16,814   $ 57,719   $ 83,663   $ 90,803   $ 328,973  
Share-based compensation expense   C   59,115     61,880     60,468     186,002     169,633  
Share-based compensation related payroll tax   C   103     570     135     1,052     9,163  
Amortization of purchased intangible assets   A   9,041     8,767     6,701     25,081     20,213  
Restructuring and other charges   B   83,418     3,161     16,813     88,618     15,550  
Other   B   (5,281 )   --     --     (5,281 )   --  
Acquisition-related and other charges   A,B   250     (206 )   18     1,186     9,291  
(Gain) loss on equity investments   B   (5,842 )   (14,787 )   1,116     (6,629 )   982  
Income tax effect of non-GAAP exclusions   B   (39,735 )   (13,980 )   (19,152 )   (75,835 )   (59,297 )
Non-GAAP Net income     $ 117,883   $ 103,124   $ 149,762   $ 304,997   $ 494,508  
                                   
Non-GAAP Net income per share:                                  
Basic   D $ 0.23   $ 0.20   $ 0.28   $ 0.58   $ 0.93  
Diluted   D $ 0.22   $ 0.19   $ 0.28   $ 0.58   $ 0.91  
Shares used in computing non-GAAP net income per share:                                  
Basic   D   521,178     527,756     529,286     525,419     530,994  
Diluted   D   524,537     531,755     536,583     530,343     544,086  
                                   
GAAP Net income attributable to Juniper Networks as a % of revenue       1.5 %   5.4 %   7.6 %   2.8 %   9.9 %
Share-based compensation expense as a % of revenue   C   5.3 %   5.8 %   5.5 %   5.9 %   5.1 %
Share-based compensation related payroll tax as a % of revenue   C   -- %   0.1 %   -- %   -- %   0.3 %
Amortization of purchased intangible assets as a % of revenue   A   0.8 %   0.8 %   0.6 %   0.8 %   0.6 %
Restructuring and other charges as a % of revenue   B   7.5 %   0.3 %   1.5 %   2.7 %   0.5 %
Other as a % of revenue   B   (0.5 )%   -- %   -- %   (0.2 )%   -- %
Acquisition-related and other charges as a % of revenue   A,B   -- %   -- %   -- %   -- %   0.3 %
(Gain) loss on equity investments as a % of revenue   B   (0.5 )%   (1.4 )%   0.1 %   (0.2 )%   -- %
Income tax effect of non-GAAP exclusions as a % of revenue   B   (3.6 )%   (1.4 )%   (1.8 )%   (2.3 )%   (1.8 )%
Non-GAAP Net income as a % of revenue       10.5 %   9.6 %   13.5 %   9.5 %   14.9 %

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 Share-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, 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.

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: Share-Based Compensation Related Items. We provide non-GAAP information relative to our expense for share-based compensation and related payroll tax. We began to include share-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 share-based compensation, we believe that the exclusion of share-based compensation allows for more accurate comparisons of our operating results to our peer companies. Further, we believe that excluding share-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. Share-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 share is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on a share-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 share-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing and exercise by employees of our share-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 share-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 income (expense), 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 income (expense), net.

 
 
Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in thousands)
 
    September 30, 2012
(unaudited)
  December 31,
2011
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 2,707,940   $ 2,910,420
  Short-term investments     439,278     641,323
  Accounts receivable, net     397,082     577,386
  Deferred tax assets, net     229,374     154,310
  Prepaid expenses and other current assets     168,625     156,222
    Total current assets     3,942,299     4,439,661
Property and equipment, net     768,530     598,581
Long-term investments     900,769     740,659
Restricted cash and investments     102,661     78,307
Purchased intangible assets, net     118,655     123,114
Goodwill     3,987,073     3,928,144
Other long-term assets     140,607     75,354
    Total assets   $ 9,960,594   $ 9,983,820
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Accounts payable   $ 224,242   $ 324,843
  Accrued compensation     230,102     223,018
  Accrued warranty     29,776     28,276
  Deferred revenue     771,709     712,663
  Income taxes payable     66,996     12,545
  Other accrued liabilities     178,976     165,358
    Total current liabilities     1,501,801     1,466,703
Long-term debt     999,145     999,034
Long-term deferred revenue     221,217     254,364
Long-term income tax payable     116,929     108,471
Other long-term liabilities     41,622     65,590
Total liabilities     2,880,714     2,894,162
Total stockholders' equity     7,079,880     7,089,658
    Total liabilities and stockholders' equity   $ 9,960,594   $ 9,983,820
   
   
Juniper Networks, Inc.  
Preliminary Condensed Consolidated Statements of Cash Flows  
(in thousands)  
(unaudited)  
   
    Nine Months Ended September 30,  
    2012     2011  
Cash flows from operating activities:                
  Consolidated net income   $ 90,803     $ 328,849  
  Adjustments to reconcile consolidated net income to net cash provided by operating activities:                
    Non-cash portion of share-based compensation     186,002       165,236  
    Depreciation and amortization     137,855       125,986  
    Deferred income taxes     (75,064 )     (6,014 )
    Restructuring and other charges     88,618       15,550  
    Gain (loss) on investments, net     (7,810 )     982  
    Excess tax benefits from share-based compensation     (7,184 )     (44,524 )
    Amortization of debt issuance costs     708       509  
  Changes in operating assets and liabilities, net of effects from acquisitions:                
    Accounts receivable, net     180,368       152,019  
    Prepaid expenses and other assets     (54,089 )     14,103  
    Accounts payable     (114,020 )     (25,962 )
    Accrued compensation     5,608       (62,625 )
    Income tax payable     64,715       70,241  
    Other accrued liabilities     (24,838 )     7,759  
    Deferred revenue     15,899       1,012  
      Net cash provided by operating activities     487,571       743,121  
                 
Cash flows from investing activities:                
  Purchases of property and equipment     (256,753 )     (187,886 )
  Purchases of trading investments     (3,776 )     (4,575 )
  Purchases of available-for-sale investments     (1,009,076 )     (1,893,474 )
  Proceeds from sales of available-for-sale investments     625,119       1,050,936  
  Proceeds from maturities of available-for-sale investments     431,705       446,150  
  Payment for business acquisition, net of cash and cash equivalents acquired     (90,487 )     (31,101 )
  Proceeds from sales of privately-held investments     32,715       2,143  
  Purchases of privately-held investments     (11,123 )     (34,545 )
  Purchase of licensed software     (65,297 )     --  
  Changes in restricted cash     (20,820 )     (1,144 )
    Net cash used in investing activities     (367,793 )     (653,496 )
                 
Cash flows from financing activities:                
  Proceeds from issuance of common stock     88,225       341,063  
  Purchases and retirement of common stock     (400,070 )     (548,590 )
  Payment for capital lease obligation     (1,430 )     --  
  Issuance of long-term debt, net     --       991,556  
  Change in customer financing arrangements     (16,167 )     (7,616 )
  Excess tax benefits from share-based compensation     7,184       44,524  
    Net cash (used in) provided by financing activities     (322,258 )     820,937  
    Net (decrease) increase in cash and cash equivalents     (202,480 )     910,562  
Cash and cash equivalents at beginning of period     2,910,420       1,811,887  
Cash and cash equivalents at end of period   $ 2,707,940     $ 2,722,449  
 
 
Juniper Networks, Inc.
Cash, Cash Equivalents, and Investments
(in thousands)
(unaudited)
 
    September 30,
2012
  December 31,
2011
Cash and cash equivalents   $ 2,707,940   $ 2,910,420
Short-term investments     439,278     641,323
Long-term investments     900,769     740,659
  Total   $ 4,047,987   $ 4,292,402

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