Form 8-K JUNIPER NETWORKS INC For: Oct 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) October 25, 2016
Juniper Networks, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-34501 | 770422528 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
| 1133 Innovation Way, Sunnyvale, California |
94089 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code (408) 745-2000
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On October 25, 2016, Juniper Networks, Inc. (“we”, “us”, “our” or “the Company”) issued a press release in which we announced preliminary financial results for the quarter ended September 30, 2016. The Company also posted on the Investor Relations section of its website (www.juniper.net) prepared remarks with respect to the quarter ended September 30, 2016. Copies of the press release and prepared remarks by the Company are furnished as Exhibits 99.1 and 99.2, respectively, to this report. Information on our website is not, and will not be deemed, a part of this report or incorporated into any other filings the Company makes with the Securities and Exchange Commission.
The information furnished pursuant to this Item 2.02, including Exhibits 99.1 and 99.2, shall not be deemed as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | |
| 99.1 | Press release issued by Juniper Networks, Inc. on October 25, 2016 | |
| 99.2 | Prepared remarks by Juniper Networks, Inc. dated as of October 25, 2016 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Juniper Networks, Inc. | ||||||
| October 25, 2016 | By: | /s/ Brian M. Martin | ||||
| Name: Brian M. Martin | ||||||
| Title: Senior Vice President and General Counsel | ||||||
Exhibit Index
| Exhibit No. |
Description | |
| 99.1 | Press release issued by Juniper Networks, Inc. on October 25, 2016 | |
| 99.2 | Prepared remarks by Juniper Networks, Inc. dated as of October 25, 2016 | |
Exhibit 99.1
Investor Relations:
Kathleen Nemeth
Juniper Networks
(408) 936-8687
Media Relations:
Leslie Moore
Juniper Networks
(408) 936-5767
JUNIPER NETWORKS REPORTS PRELIMINARY THIRD QUARTER 2016 FINANCIAL RESULTS
Company delivers sequential and year-over-year revenue growth
SUNNYVALE, Calif., Oct. 25, 2016 - Juniper Networks (NYSE: JNPR), an industry leader in automated, scalable and secure networks, today reported preliminary financial results for the three months ended Sept. 30, 2016 and provided its outlook for the three months ending Dec. 31, 2016.
Net revenues for the third quarter of 2016 were $1,285.3 million, an increase of 3% year-over-year and an increase of 5% sequentially.
Juniper’s GAAP operating margin for the third quarter of 2016 was 19.5%, a decrease from 20.7% in the third quarter of 2015, and an increase from 16.7% in the second quarter of 2016. Non-GAAP operating margin for the third quarter of 2016 was 24.4%, a decrease from 25.5% in the third quarter of 2015, and an increase from 22.5% in the second quarter of 2016.
Juniper posted GAAP net income of $172.4 million, a decrease of 13% year-over-year and an increase of 23% sequentially. GAAP diluted earnings per share for the third quarter of 2016 was $0.45. Non-GAAP net income was $222.0 million, flat year-over-year and an increase of 16% sequentially. Non-GAAP diluted earnings per share for the third quarter of 2016 was $0.58.
The reconciliation between GAAP and non-GAAP results of operations is provided in a table immediately following the Preliminary Net Revenues by Market table below.
“I am pleased to report a solid quarter of revenue growth and operating performance. We are executing well on our strategy, with a product and innovation pipeline that has never been stronger,” said Rami Rahim, chief executive officer at Juniper Networks. “One of the most important trends happening around us is the shift to the cloud, which is shaping our strategy and plays to Juniper’s core competencies in building high-performance networks. I am optimistic with where we are headed as a company and our ability to continue to innovate, deliver value to our customers and expand our business opportunities.”
“We delivered solid profitability and continued to generate strong cash flow from operations, with meaningful sequential improvements across key performance metrics: earnings per share, operating margin and operating income,” said Ken Miller, chief financial officer at Juniper Networks. “We believe our strategy, products and ongoing investments will enable us to drive top-line growth and grow shareholder value for the long-term.”
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Other Financial Highlights
Total cash, cash equivalents, and investments as of Sept. 30, 2016 were $3,480 million, compared to $3,491 million as of June 30, 2016, and $3,247 million as of Sept. 30, 2015.
Juniper’s net cash flow provided by operations for the third quarter of 2016 was $245 million, compared to net cash provided by operations of $354 million in the second quarter of 2016, and $293 million in the third quarter of 2015.
Days sales outstanding in accounts receivable, or “DSO,” was 53 in the third quarter of 2016, compared to 55 days in the second quarter of 2016, and 42 days in the third quarter of 2015.
Capital expenditures were $46 million and depreciation and amortization expense was $52 million during the third quarter of 2016.
Juniper’s Board of Directors has declared a quarterly cash dividend of $0.10 per share to be paid on Dec. 22, 2016 to shareholders of record as of the close of business on Dec. 1, 2016.
During the third quarter of 2016, the Company repurchased approximately $112 million of common stock and paid $38 million in dividends. Since the first quarter of 2014, inclusive of share repurchases and dividends, the Company has returned approximately $4.06 billion of capital to shareholders against its commitment to return a total of $4.1 billion by the end of 2016.
Outlook
Juniper Networks remains focused on executing to its strategy and capitalizing on the momentum of its new products, and expects continued strength with cloud providers and enterprise customers. While the Company continues to see pricing pressure and product mix fluctuations, it remains focused on cost improvements. The Company expects gross margin to remain approximately at their Q3 levels in the near-term.
Juniper’s guidance for the quarter ending Dec. 31, 2016 is as follows:
| • | Revenues will be approximately $1,350 million, plus or minus $30 million. |
| • | Non-GAAP gross margin will be approximately 63%, plus or minus 0.5%. |
| • | Non-GAAP operating expenses will be approximately $510 million, plus or minus $5 million. |
| • | Non-GAAP operating margin will be approximately 25% at the midpoint of revenue guidance. |
| • | Non-GAAP tax rate approximately flat from the third quarter. |
| • | Non-GAAP net income per share will range between $0.59 and $0.65 on a diluted basis. This assumes a flat share count from the third quarter. |
The outlook assumes that the exchange rate of the U.S. dollar to other currencies will remain relatively stable at current levels.
All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuring charges (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges, gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter. Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-
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looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. For example, share-based compensation expense is impacted by the Company’s future hiring needs, the type and volume of equity awards necessary for such future hiring, and the price at which the Company’s stock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.
Third Quarter 2016 Financial Commentary Available Online
A CFO Commentary reviewing the Company’s third quarter 2016 financial results, as well as fourth quarter 2016 financial outlook will be furnished to the SEC on Form 8-K and published on the Company’s website at http://investor.juniper.net. Analysts and investors are encouraged to review this commentary prior to participating in the conference call webcast.
Conference Call Webcast
Juniper Networks will host a conference call webcast today, Oct. 25, 2016, at 2:00 pm PT, to be broadcast live over the Internet at http://investor.juniper.net. To participate via telephone in the US, the toll free dial-in number is 1-877-407-8033. Outside the US, dial +1-201-689-8033. Please call 10 minutes prior to the scheduled conference call time. The webcast replay will be archived on the Juniper Networks website.
About Juniper Networks
Juniper Networks (NYSE: JNPR) challenges the status quo with products, solutions and services that transform the economics of networking. Our team co-innovates with our customers and partners to deliver automated, scalable and secure networks with agility, performance and value. Additional information can be found at Juniper Networks (www.juniper.net) or connect with Juniper on Twitter and Facebook.
Investors and others should note that the Company announces material financial and operational information to its investors using its Investor Relations website, press releases, SEC filings and public conference calls and webcasts. The Company also intends to use the Twitter account @JuniperNetworks and the Company’s blogs as a means of disclosing information about the Company and for complying with its disclosure obligations under Regulation FD. The social media channels that the Company intends to use as a means of disclosing information described above may be updated from time to time as listed on the Company’s Investor Relations website.
Juniper Networks, the Juniper Networks logo, and Junos are registered trademarks of Juniper Networks, Inc. and/or its affiliates in the United States and other countries. Other names may be trademarks of their respective owners.
Safe Harbor
Statements in this release concerning Juniper Networks’ business outlook, economic and market outlook, future financial and operating results, expectations with respect to market trends, future strategy, strength of certain customer segments, ability to expand business opportunities, the contribution of new products to our revenues and momentum of new products, ability to enable top line growth and grow shareholder value, expectations with respect to near term gross margins, focus on cost improvements, and overall future prospects are forward-looking statements within the meaning of the Private Securities Litigation Reform Act 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 several factors, including: general economic and political conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication service providers and major customers; the network capacity requirements of communication service providers; contractual terms that may result in the deferral of revenue; increases in and the effect of
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competition; the timing of orders and their fulfillment; issues resulting from the transition to our new ERP system; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; 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 settlements and resolutions; the potential impact of activities related to the execution of capital return and product rationalization; 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. The following tables and reconciliations can also be found on our Investor Relations website at http://investor.juniper.net.
Page 4 of 12
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Operations
(in millions, except per share amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net revenues: |
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| Product |
$ | 928.2 | $ | 925.4 | $ | 2,543.3 | $ | 2,589.2 | ||||||||
| Service |
357.1 | 323.2 | 1,061.2 | 949.0 | ||||||||||||
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| Total net revenues |
1,285.3 | 1,248.6 | 3,604.5 | 3,538.2 | ||||||||||||
| Cost of revenues: |
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| Product |
349.6 | 322.6 | 955.8 | 923.1 | ||||||||||||
| Service |
136.2 | 128.6 | 401.9 | 378.9 | ||||||||||||
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| Total cost of revenues |
485.8 | 451.2 | 1,357.7 | 1,302.0 | ||||||||||||
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| Gross margin |
799.5 | 797.4 | 2,246.8 | 2,236.2 | ||||||||||||
| Operating expenses: |
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| Research and development |
251.8 | 247.0 | 750.7 | 747.3 | ||||||||||||
| Sales and marketing |
242.9 | 235.3 | 718.4 | 687.9 | ||||||||||||
| General and administrative |
54.0 | 57.1 | 172.0 | 168.6 | ||||||||||||
| Restructuring charges (benefits) |
0.8 | — | 3.2 | (0.5 | ) | |||||||||||
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| Total operating expenses |
549.5 | 539.4 | 1,644.3 | 1,603.3 | ||||||||||||
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| Operating income |
250.0 | 258.0 | 602.5 | 632.9 | ||||||||||||
| Other expense, net |
(13.4 | ) | (8.4 | ) | (47.2 | ) | (41.3 | ) | ||||||||
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| Income before income taxes |
236.6 | 249.6 | 555.3 | 591.6 | ||||||||||||
| Income tax provision |
64.2 | 51.9 | 151.5 | 155.7 | ||||||||||||
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| Net income |
$ | 172.4 | $ | 197.7 | $ | 403.8 | $ | 435.9 | ||||||||
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| Net income per share: |
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| Basic |
$ | 0.45 | $ | 0.52 | $ | 1.06 | $ | 1.11 | ||||||||
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| Diluted |
$ | 0.45 | $ | 0.51 | $ | 1.04 | $ | 1.09 | ||||||||
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| Shares used in computing net income per share: |
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| Basic |
381.0 | 382.8 | 382.3 | 393.2 | ||||||||||||
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| Diluted |
384.5 | 389.2 | 387.9 | 401.2 | ||||||||||||
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| Cash dividends declared per common stock |
$ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Product and Service
(in millions)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Routing |
$ | 620.2 | $ | 604.4 | $ | 1,699.0 | $ | 1,711.6 | ||||||||
| Switching |
222.5 | 201.4 | 607.2 | 558.1 | ||||||||||||
| Security |
85.5 | 119.6 | 237.1 | 319.5 | ||||||||||||
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| Total product |
928.2 | 925.4 | 2,543.3 | 2,589.2 | ||||||||||||
| Total service |
357.1 | 323.2 | 1,061.2 | 949.0 | ||||||||||||
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| Total |
$ | 1,285.3 | $ | 1,248.6 | $ | 3,604.5 | $ | 3,538.2 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Geographic Region
(in millions)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Americas |
$ | 745.0 | $ | 712.8 | $ | 2,093.2 | $ | 2,037.6 | ||||||||
| Europe, Middle East, and Africa |
338.0 | 355.0 | 923.5 | 975.1 | ||||||||||||
| Asia Pacific |
202.3 | 180.8 | 587.8 | 525.5 | ||||||||||||
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| Total |
$ | 1,285.3 | $ | 1,248.6 | $ | 3,604.5 | $ | 3,538.2 | ||||||||
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Juniper Networks, Inc.
Preliminary Net Revenues by Market
(in millions)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Service Provider |
$ | 854.1 | $ | 804.3 | $ | 2,474.0 | $ | 2,356.6 | ||||||||
| Enterprise |
431.2 | 444.3 | 1,130.5 | 1,181.6 | ||||||||||||
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| Total |
$ | 1,285.3 | $ | 1,248.6 | $ | 3,604.5 | $ | 3,538.2 | ||||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||||||
| September 30, 2016 |
June 30, 2016 |
September 30, 2015 |
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| GAAP operating income |
$ | 250.0 | $ | 203.8 | $ | 258.0 | ||||||||||
| GAAP operating margin |
19.5 | % | 16.7 | % | 20.7 | % | ||||||||||
| Share-based compensation expense |
C | 55.6 | 55.6 | 56.5 | ||||||||||||
| Share-based payroll tax expense |
C | 0.2 | 1.6 | 0.7 | ||||||||||||
| Amortization of purchased intangible assets |
A | 4.8 | 4.8 | 5.6 | ||||||||||||
| Restructuring charges (benefits) |
B | 0.8 | 2.4 | (3.5 | ) | |||||||||||
| Acquisition/divestiture and other charges |
A,B | 2.8 | 6.4 | 0.5 | ||||||||||||
| Non-GAAP operating income |
$ | 314.2 | $ | 274.6 | $ | 317.8 | ||||||||||
| Non-GAAP operating margin |
24.4 | % | 22.5 | % | 25.5 | % | ||||||||||
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| GAAP net income |
$ | 172.4 | $ | 140.0 | $ | 197.7 | ||||||||||
| Share-based compensation expense |
C | 55.6 | 55.6 | 56.5 | ||||||||||||
| Share-based payroll tax expense |
C | 0.2 | 1.6 | 0.7 | ||||||||||||
| Amortization of purchased intangible assets |
A | 4.8 | 4.8 | 5.6 | ||||||||||||
| Restructuring charges (benefits) |
B | 0.8 | 2.4 | (3.5 | ) | |||||||||||
| Acquisition/divestiture and other charges (income) |
A,B | 2.8 | 6.4 | (1.6 | ) | |||||||||||
| Loss (gain) on equity investments |
B | 0.3 | (3.3 | ) | (7.3 | ) | ||||||||||
| Gain on contract settlement |
B | — | — | (4.0 | ) | |||||||||||
| Income tax effect of non-GAAP exclusions |
B | (14.9 | ) | (15.9 | ) | (22.4 | ) | |||||||||
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| Non-GAAP net income |
$ | 222.0 | $ | 191.6 | $ | 221.7 | ||||||||||
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| GAAP diluted net income per share |
$ | 0.45 | $ | 0.36 | $ | 0.51 | ||||||||||
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| Non-GAAP diluted net income per share |
D | $ | 0.58 | $ | 0.50 | $ | 0.57 | |||||||||
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| Shares used in computing diluted net income per share |
384.5 | 386.3 | 389.2 | |||||||||||||
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Discussion of Non-GAAP Financial Measures
This press release, including the tables above, includes the following non-GAAP financial measures derived from our Preliminary Condensed Consolidated Statements of Operations: gross margin; operating expenses; operating income; operating margin; tax rate; net income; and diluted net income per share. 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, certain 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 (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges, gain or loss on equity investments, the retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter. Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. For example, share-based compensation expense is impacted by the Company’s future hiring needs, the type and volume of equity awards necessary for such future hiring, and the price at which the Company’s stock will trade in those future periods. Amortization of intangible assets is significantly impacted by the timing and size of any future acquisitions. The items that are being excluded are difficult to predict and a reconciliation could result in disclosure that would be imprecise or potentially misleading. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.
Note A: Acquisition-Related Charges. We exclude certain expense items resulting from acquisitions including amortization of purchased intangible assets associated with our acquisitions. 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. 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 charges (benefits); (ii) gain or loss on contract settlements (iii) gain or loss on equity investments; (iv) professional fees and other income and expenses associated with the sale of Junos Pulse; (v) significant effects of tax legislation and judicial or administrative interpretation of tax regulations; (vi) valuation allowance on deferred tax assets; 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. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. Restructuring charges result from events that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. These expenses do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred. In the case of contract 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 gains or losses 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
Page 8 of 12
gains and losses do not reflect the underlying performance of our continuing operations. In the case of professional fees and other income and expenses associated with the sale of Junos Pulse, we believe these are unique transactions that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Similarly, the significant effects of tax legislation and judicial or administrative interpretation of tax regulations and the valuation allowance on deferred tax assets are as a result of unique events that occur in periods that are generally unrelated to the level of business activity. 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. 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 with these amounts both 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 stock 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 diluted non-GAAP net income per share. The diluted non-GAAP income per share includes additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive.
Page 9 of 12
Juniper Networks, Inc.
Preliminary Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
| September 30, 2016 |
December 31, 2015(*) |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,689.0 | $ | 1,420.9 | ||||
| Short-term investments |
632.7 | 527.1 | ||||||
| Accounts receivable, net of allowances |
753.6 | 780.7 | ||||||
| Prepaid expenses and other current assets |
354.1 | 183.7 | ||||||
|
|
|
|
|
|||||
| Total current assets |
3,429.4 | 2,912.4 | ||||||
| Property and equipment, net |
1,067.0 | 1,021.0 | ||||||
| Long-term investments |
1,158.4 | 1,244.2 | ||||||
| Purchased intangible assets, net |
113.2 | 33.9 | ||||||
| Goodwill |
3,048.4 | 2,981.3 | ||||||
| Other long-term assets |
328.8 | 415.1 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 9,145.2 | $ | 8,607.9 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Short-term debt |
$ | — | $ | 299.9 | ||||
| Accounts payable |
208.4 | 159.3 | ||||||
| Accrued compensation |
174.3 | 269.5 | ||||||
| Deferred revenue |
918.5 | 822.9 | ||||||
| Other accrued liabilities |
207.2 | 250.3 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
1,508.4 | 1,801.9 | ||||||
| Long-term debt |
2,133.1 | 1,637.5 | ||||||
| Long-term deferred revenue |
385.6 | 345.2 | ||||||
| Long-term income taxes payable |
205.1 | 187.3 | ||||||
| Other long-term liabilities |
140.5 | 61.6 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
4,372.7 | 4,033.5 | ||||||
| Total stockholders’ equity |
4,772.5 | 4,574.4 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 9,145.2 | $ | 8,607.9 | ||||
|
|
|
|
|
|||||
| (*) | In 2016, the Company adopted the new accounting pronouncement on Simplifying the Presentation of Debt Issuance Costs, requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Certain amounts in the prior-year Condensed Consolidated Financial Statements contained in this press release have been retrospectively adjusted to conform to the current-year presentation. |
Page 10 of 12
Juniper Networks, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 403.8 | $ | 435.9 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Share-based compensation expense |
162.1 | 161.3 | ||||||
| Depreciation, amortization, and accretion |
151.9 | 131.5 | ||||||
| Restructuring and non-cash acquisition charges (benefits) |
6.0 | (4.0 | ) | |||||
| Deferred income taxes |
41.5 | 10.0 | ||||||
| (Gain) loss on investments and fixed assets, net |
1.6 | (6.4 | ) | |||||
| Excess tax benefits from share-based compensation |
(5.8 | ) | (7.4 | ) | ||||
| Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||
| Accounts receivable, net |
36.6 | (15.7 | ) | |||||
| Prepaid expenses and other assets |
(66.5 | ) | 8.8 | |||||
| Accounts payable |
52.1 | (21.8 | ) | |||||
| Accrued compensation |
(77.0 | ) | (29.0 | ) | ||||
| Income taxes payable |
(7.5 | ) | 108.2 | |||||
| Other accrued liabilities |
(51.3 | ) | (45.0 | ) | ||||
| Deferred revenue |
124.7 | 49.1 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
772.2 | 775.5 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(162.9 | ) | (154.9 | ) | ||||
| Proceeds from sales of available-for-sale investments |
985.1 | 625.9 | ||||||
| Proceeds from maturities of available-for-sale investments |
232.4 | 197.4 | ||||||
| Purchases of available-for-sale investments |
(1,251.9 | ) | (1,147.6 | ) | ||||
| Purchases of trading investments |
(4.3 | ) | (3.8 | ) | ||||
| Proceeds from sales of privately-held investments |
9.5 | 10.3 | ||||||
| Purchases of privately-held investments |
(17.1 | ) | (5.4 | ) | ||||
| Payments for business acquisitions, net of cash and cash equivalents acquired |
(96.7 | ) | (3.5 | ) | ||||
| Changes in restricted cash |
(2.4 | ) | 11.6 | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(308.3 | ) | (470.0 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
59.7 | 97.0 | ||||||
| Purchases and retirement of common stock |
(323.9 | ) | (1,056.8 | ) | ||||
| Issuance of long-term debt, net |
494.0 | 594.6 | ||||||
| Payment of long-term debt |
(300.0 | ) | — | |||||
| Payment under lease obligations |
(1.7 | ) | (0.4 | ) | ||||
| Payment of assumed debt |
(15.5 | ) | — | |||||
| Excess tax benefits from share-based compensation |
5.8 | 7.4 | ||||||
| Payment of cash dividends |
(114.4 | ) | (118.0 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(196.0 | ) | (476.2 | ) | ||||
|
|
|
|
|
|||||
| Effect of foreign currency exchange rates on cash and cash equivalents |
0.2 | (15.4 | ) | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
268.1 | (186.1 | ) | |||||
| Cash and cash equivalents at beginning of period |
1,420.9 | 1,639.6 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | 1,689.0 | $ | 1,453.5 | ||||
|
|
|
|
|
|||||
Page 11 of 12
Juniper Networks, Inc.
Preliminary Cash, Cash Equivalents, and Investments
(in millions)
(unaudited)
| September 30, 2016 |
December 31, 2015 |
|||||||
| Cash and cash equivalents |
$ | 1,689.0 | $ | 1,420.9 | ||||
| Short-term investments |
632.7 | 527.1 | ||||||
| Long-term investments |
1,158.4 | 1,244.2 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 3,480.1 | $ | 3,192.2 | ||||
|
|
|
|
|
|||||
Page 12 of 12
Exhibit 99.2
Juniper Networks, Inc.
1133 Innovation Way
Sunnyvale, CA 94089
October 25, 2016
CFO Commentary on Third Quarter 2016 Preliminary Financial Results
Related Information
The following commentary is provided by management and should be referenced in conjunction with Juniper Networks’ third quarter 2016 preliminary financial results press release available on its Investor Relations website at http://investor.juniper.net. These remarks represent management’s current views of the Company’s financial and operational performance and outlook and are provided to give investors and analysts further insight into its performance in advance of the earnings call webcast.
Q3 2016 Financial Results
GAAP
| (in millions, except per share amounts and percentages) | Q3’16 | Q2’16 | Q3’15 | Q/Q Change | Y/Y Change | |||||||||||||||
| Revenue |
$ | 1,285.3 | $ | 1,221.3 | $ | 1,248.6 | 5 | % | 3 | % | ||||||||||
| Product |
928.2 | 862.1 | 925.4 | 8 | % | — | % | |||||||||||||
| Service |
357.1 | 359.2 | 323.2 | (1 | )% | 10 | % | |||||||||||||
| Gross margin % |
62.2 | % | 61.9 | % | 63.9 | % | 0.3 | pts | (1.7 | )pts | ||||||||||
| Research and development |
251.8 | 247.9 | 247.0 | 2 | % | 2 | % | |||||||||||||
| Sales and marketing |
242.9 | 243.7 | 235.3 | — | % | 3 | % | |||||||||||||
| General and administrative |
54.0 | 58.6 | 57.1 | (8 | )% | (5 | )% | |||||||||||||
| Restructuring charges (benefits) |
0.8 | 2.4 | — | (67 | )% | N/A | ||||||||||||||
| Total operating expenses |
$ | 549.5 | $ | 552.6 | $ | 539.4 | (1 | )% | 2 | % | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Operating margin % |
19.5 | % | 16.7 | % | 20.7 | % | 2.8 | pts | (1.2 | )pts | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Net income |
$ | 172.4 | $ | 140.0 | $ | 197.7 | 23 | % | (13 | )% | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Diluted EPS |
$ | 0.45 | $ | 0.36 | $ | 0.51 | 25 | % | (12 | )% | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
N/A - Not applicable
Non-GAAP
| (in millions, except per share amounts and percentages) |
Q4’16 Guidance |
Q3’16 | Q2’16 | Q3’15 | Q/Q Change | Y/Y Change | ||||||||||||||||
| Revenue(1) |
$1,350 +/- $30 | $ | 1,285.3 | $ | 1,221.3 | $ | 1,248.6 | 5 | % | 3 | % | |||||||||||
| Product(1) |
928.2 | 862.1 | 925.4 | 8 | % | — | % | |||||||||||||||
| Service(1) |
357.1 | 359.2 | 323.2 | (1 | )% | 10 | % | |||||||||||||||
| Gross margin % |
63% +/- 0.5% | 62.9 | % | 63.0 | % | 64.3 | % | (0.1 | )pts | (1.4 | )pts | |||||||||||
| Research and development |
224.5 | 218.0 | 215.8 | 3 | % | 4 | % | |||||||||||||||
| Sales and marketing |
224.5 | 228.3 | 221.3 | (2) | % | 1 | % | |||||||||||||||
| General and administrative |
44.8 | 48.0 | 48.3 | (7) | % | (7) | % | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
| Total operating expenses |
$510 +/- $5 | $ | 493.8 | $ | 494.3 | $ | 485.4 | — | % | 2 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
| Operating margin % |
~25% | 24.4 | % | 22.5 | % | 25.5 | % | 1.9 | pts | (1.1 | )pts | |||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
| Net income |
$ | 222.0 | $ | 191.6 | $ | 221.7 | 16 | % | — | % | ||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
| Diluted EPS |
$0.59 - $0.65 | $ | 0.58 | $ | 0.50 | $ | 0.57 | 16 | % | 2 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Revenue numbers are GAAP. |
The following CFO Commentary contains non-GAAP financial measures and the reconciliations to GAAP can be found at the end of this document. We are unable to provide a reconciliation of forward-looking non-GAAP guidance measures to corresponding GAAP measures without unreasonable effort due to the overall high variability and low visibility of most of the items that are excluded from our non-GAAP guidance measures. More information on these exclusions can be found under “Q4 2016 Outlook” below.
Q3 2016 Overview
The results for the September quarter reflect solid sequential revenue and earnings growth. Our sequential revenue growth was balanced across all technologies, markets and geographies, and we are pleased with the momentum of our new products. We saw continued data center strength, particularly with our QFX family of products, which grew 50% year-over-year.
In reviewing our top 10 customers for the quarter, four were Cloud or Cable Providers, four were Telecoms, and two were Enterprises. Of these customers, two were located outside of the U.S.
Our underlying demand metrics were healthy this quarter, with a product book-to-bill greater than one, and an increase in product deferred revenue, up 24% year-over-year and 2% sequentially.
In the quarter, we had cash flow from operations of $245 million, down $109 million sequentially due primarily to payments for incentive compensation. During the quarter, we repurchased $112 million of shares and paid $38 million in dividends. Since the first quarter of 2014, inclusive of share repurchases and dividends, we have returned approximately $4.06 billion of capital to shareholders against our commitment to return $4.1 billion by the end of 2016.
Revenue
Product & Service
| • | Routing product revenue: $620 million, up 3% year-over-year and up 8% sequentially. The year-over-year increase was primarily driven by Cloud Providers, and to a lesser extent, Cable Providers, partially offset by decreases in Telecom and National Government. Sequentially, the increase was driven by Telecom and Cloud Providers, partially offset by a decrease in National Government. Our PTX family saw record results, with strong year-over-year and sequential growth, while MX was down year-over-year and up sequentially. |
| • | Switching product revenue: $222 million, up 10% year-over-year and up 6% sequentially. The year-over-year increase was primarily driven by Cloud Providers, and to a lesser extent, Cable Providers, slightly offset by a decrease in Enterprise. The sequential increase was driven by Enterprise, Cloud and Cable Providers, partially offset by declines in National Government and Telecom. We saw continued data center strength with record results in our QFX product family, which grew 50% year-over-year. Our EX product family declined year-over-year and sequentially. |
| • | Security product revenue: $86 million, down 29% year-over-year and up 9% sequentially. The year-over-year decrease was due to Enterprise, Telecom, and Cloud Providers, partially offset by an increase in National Government. The sequential increase was driven by Cloud Providers and National Government, partially offset by a decline in Financial Services. Our ScreenOS and Other Legacy products were $2 million, down 76% year-over-year and 49% from the prior quarter. |
| • | Service revenue: $357 million, up 10% year-over-year and down 1% sequentially. The year-over-year increase was primarily driven by strong renewal and attach rates of support contracts. The sequential decrease was due to timing of support renewals in the Americas. |
Geography
| • | Americas: $745 million, up 5% year-over-year and up 3% sequentially. The year-over-year and sequential increases were driven by Cloud and Cable Providers and partially offset by decreases in Telecom. The United States was a primary growth driver for year-over-year and sequential increases. |
| • | EMEA: $338 million, down 5% year-over-year and up 13% from the prior quarter. The year-over-year decline was due to Telecom and Enterprise, partially offset by an increase in Cloud Providers. Sequentially, the increase was driven by Telecom and slightly offset by Enterprise and Cloud Providers. The Middle East and Western Europe drove the sequential increase. |
| • | APAC: $202 million, up 12% year-over-year and up 1% quarter-over-quarter. The year-over-year growth was driven primarily by Cloud Providers and Telecom, partially offset by a decline in National Government. The quarter-over-quarter growth was driven primarily by Cloud Providers, partially offset by decreases in National Government and Telecom. Southeast Asia and China drove the year-over-year increases, which were slightly offset by a decrease in Japan. Sequentially, the increase was due to Southeast Asia, and to a lesser extent Korea, partially offset by Japan and Australia. |
Market
| • | Service Provider: $854 million, up 6% year-over-year and up 2% from the prior quarter. Year-over-year, all geographies increased, led by APAC. Sequentially, growth was primarily in EMEA, partially offset by Tier 1 Telecoms in the Americas. Year-over-year and sequentially, Routing and Switching increased, partially offset by Security. |
| • | Enterprise: $431 million, down 3% year-over-year and up 12% from the prior quarter. Year-over-year declines in EMEA and APAC were partially offset by growth in the Americas. Sequentially, growth in the Americas was slightly offset by declines in EMEA and APAC. All technologies decreased year-over-year. Sequentially, all technologies increased, led by Routing. |
Gross Margin
| • | GAAP gross margin: 62.2%, compared to 63.9% from the prior year and 61.9% from last quarter. |
| • | Non-GAAP gross margin: 62.9%, compared to 64.3% from the prior year and 63.0% from last quarter. |
| • | GAAP product gross margin: 62.3%, down 2.8 points from a year ago and up 0.4 points from last quarter. |
| • | Non-GAAP product gross margin: 62.9%, down 2.5 points from a year ago and up 0.1 points from last quarter. |
Year-over-year, the decrease in product gross margin, on a GAAP and non-GAAP basis, was due to product mix and elevated pricing pressure, partially offset by improvements in our cost structure. Non-GAAP gross margin was within our guided range for the quarter. While the pricing environment is challenging, we remain focused on delivering innovation and continued improvements to our cost structure.
| • | GAAP service gross margin: 61.9%, up 1.7 points from a year ago and down 0.1 points quarter-over-quarter. |
| • | Non-GAAP service gross margin: 62.8%, up 1.6 points from a year ago and down 0.5 points quarter-over-quarter. |
Year-over-year, the increase in service gross margin, on a GAAP and non-GAAP basis, was driven by higher support revenue and improvements in our cost structure. Sequentially, the decrease in services gross margin, on a GAAP and non-GAAP basis, was primarily due to lower revenue.
Operating Expenses
| • | GAAP operating expenses: $550 million, an increase of $10 million, or 2% year-over-year, and a decrease of $3 million, or 1% sequentially. |
| • | Non-GAAP operating expenses: $494 million, an increase of $8 million, or 2% year-over-year, and flat sequentially. |
The year-over-year increase, on a GAAP and non-GAAP basis, was primarily due to operating expenses associated with the acquisitions of BTI Systems Inc. and Aurrion, Inc. As a reminder, the Aurrion, Inc. acquisition closed in August 2016.
GAAP operating expenses were 42.8% of revenue, down 2.4 points quarter-over-quarter. On a non-GAAP basis, operating expenses were 38.4% of revenue, down 2.1 points quarter-over-quarter. We expect to continue our focus on operational expense discipline and execute to our annualized long-term model of 39% of revenue, on a non-GAAP basis.
Operating Margin
| • | GAAP operating margin: 19.5%, a decrease of 1.2 points year-over-year and an increase of 2.8 points sequentially. |
| • | Non-GAAP operating margin: 24.4%, a decrease of 1.1 points year-over-year and an increase of 1.9 points sequentially. |
We continue to focus on profitable growth and prudent cost management as we execute to our annualized long-term model of 25% of revenue, on a non-GAAP basis.
Tax Rate
| • | GAAP tax rate: 27.1%, flat compared to 27.2% last quarter. |
| • | Non-GAAP tax rate: 26.3%, flat compared to 26.2% last quarter. |
Diluted Earnings Per Share
| • | GAAP diluted earnings per share: $0.45, a decrease of $0.06 year-over-year and an increase of $0.09 sequentially. |
| • | Non-GAAP diluted earnings per share: $0.58, an increase of $0.01 year-over-year and an increase of $0.08 sequentially. |
The year-over-year decrease, on a GAAP basis, was due to lower gross margin, a higher tax rate and higher other expenses, partially offset by higher revenue and lower operating expenses as a percentage of revenue. On a non-GAAP basis, the year-over-year increase was driven by higher revenue, lower other expenses, and lower operating expenses as a percentage of revenue, partially offset by lower gross margin and a higher tax rate.
The sequential increase, on a GAAP and non-GAAP basis, was primarily due to lower operating expenses as a percentage of revenue and higher revenue.
Balance Sheet, Cash Flow, Capital Return, and Other Financial Metrics
| (in millions, except product book-to-bill, days sales outstanding (“DSO”), and headcount) |
Q3’16 | Q2’16 | Q1’16 | Q4’15 | Q3’15 | |||||||||||||||
| Cash(1) |
$ | 3,480.1 | $ | 3,491.1 | $ | 3,416.8 | $ | 3,192.2 | $ | 3,247.0 | ||||||||||
| Debt(2) |
2,133.1 | 2,132.5 | 2,131.8 | 1,937.4 | 1,937.0 | |||||||||||||||
| Net cash and investments(3) |
1,347.0 | 1,358.6 | 1,285.0 | 1,254.8 | 1,310.0 | |||||||||||||||
| Operating cash flow |
245.4 | 354.4 | 172.4 | 117.0 | 293.0 | |||||||||||||||
| Capital expenditures |
46.0 | 67.6 | 49.3 | 55.4 | 71.1 | |||||||||||||||
| Depreciation and amortization |
52.2 | 49.2 | 45.4 | 43.4 | 40.8 | |||||||||||||||
| Share repurchases |
112.4 | 125.5 | 75.0 | 92.5 | 50.0 | |||||||||||||||
| Dividends |
$ | 38.0 | $ | 38.1 | $ | 38.3 | $ | 38.3 | $ | 38.5 | ||||||||||
| Diluted shares |
384.5 | 386.3 | 389.3 | 390.9 | 389.2 | |||||||||||||||
| Product book-to-bill |
>1 | >1 | >1 | >1 | >1 | |||||||||||||||
| DSO |
53 | 55 | 64 | 53 | 42 | |||||||||||||||
| Headcount |
9,863 | 9,617 | 9,274 | 9,058 | 8,934 | |||||||||||||||
| (1) | Cash includes cash, cash equivalents, and investments. |
| (2) | Certain amounts in the prior period have been retrospectively adjusted to conform to the current period presentation. |
| (3) | Net cash and investments includes, cash, cash equivalents, and investments, net of debt. |
Balance Sheet
| • | Cash: $3.5 billion, down $11 million from the prior quarter, with 9% held onshore. The decrease in cash was primarily due to $150 million of capital return, $74 million related to the acquisition of Aurrion, Inc., and $46 million of capital expenditures, partially offset by $245 million of cash generated from operations. |
| • | Debt: $2.1 billion. We continue to maintain investment grade credit ratings of BBB/Baa2 by S&P and Moody’s. We believe that our debt has well staggered maturities and aligns with our focus on an efficient capital structure. |
| • | Net cash and investments: $1.3 billion, a decrease of $12 million quarter-over-quarter. |
Cash Flow
| • | Cash flow from operations: $245 million, down $48 million year-over year and $109 million sequentially. The year-over-year decrease was primarily due to timing differences in working capital and lower net income. The sequential decrease was primarily due to payments for incentive compensation and a decrease in accounts payable, partially offset by higher net income. |
DSO
| • | DSO: 53 days, compared to 55 days from the prior quarter, a decrease of 2 days. The quarter-over-quarter improvement was driven by better shipment and invoicing linearity. Going forward, we expect DSO to remain in our target range of 45 to 55 days. |
Capital Return
| • | We continue to deliver on our commitment to shareholders and execute on our capital return plan. |
| • | We repurchased $112 million of shares in the quarter and paid $38 million in dividends. |
| • | A quarterly dividend of $0.10 per share was paid in September. |
| • | Diluted shares declined 1% year-over-year. |
| • | Since the first quarter of 2014, inclusive of share repurchases and dividends, we have returned approximately $4.06 billion of capital to shareholders against our commitment to return $4.1 billion by end of 2016 and reduced our diluted share count by 23%. |
| • | Beginning in 2017, we intend to return approximately 50% of annual free cash flow, inclusive of share repurchases and dividends, after completion of the $4.1 billion capital return program. |
Demand metrics
| • | Product book-to-bill was greater than 1. |
| • | Total deferred revenue was $1,304 million, up $179 million year-over-year and up $9 million quarter-over-quarter. |
| • | Product deferred revenue was $298 million, an increase of $57 million year-over-year and $7 million quarter-over-quarter. |
Headcount
| • | 9,863, an increase of 246 employees or 3% quarter-over-quarter, primarily in Research and Development, which includes headcount related to our Aurrion, Inc. acquisition, as well as Services and Sales as we focus on delivering our new products to our customers. |
Q4 2016 Outlook
These metrics are provided on a non-GAAP basis, except for revenue and share count. The outlook assumes that the exchange rate of the U.S. dollar to other currencies will remain relatively stable at current levels.
We are focused on executing to our strategy and capitalizing on the momentum of our new products, and expect continued strength with Cloud Providers and Enterprise customers.
While we continue to see pricing pressure and product mix fluctuations, we remain focused on cost improvements. We expect gross margin to remain approximately at their Q3 levels in the near-term.
Our guidance for the quarter ending December 31, 2016, is as follows:
| • | Revenues will be approximately $1,350 million, plus or minus $30 million. |
| • | Non-GAAP gross margin will be approximately 63%, plus or minus 0.5%. |
| • | Non-GAAP operating expenses will be approximately $510 million, plus or minus $5 million. |
| • | Non-GAAP operating margin will be approximately 25% at the midpoint of revenue guidance. |
| • | Non-GAAP tax rate approximately flat from the third quarter. |
| • | Non-GAAP net income per share will range between $0.59 and $0.65 on a diluted basis. This assumes a flat share count from the third quarter. |
On a full year basis, at the midpoint of our guidance, we expect revenue growth, which is consistent with our outlook from previous quarters, as well as earnings per share growth.
We are focused on growth and continued earnings expansion, and are confident in our strategy and long-term model.
All forward-looking non-GAAP measures exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuring charges (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges, gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter.
Juniper is unable to provide a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.
Forward-Looking Statements
Statements in this CFO Commentary and related conference call concerning Juniper Networks’ business, economic and market outlook, long-term financial model, product portfolio and success of particular products and product families, the contribution of new products to our revenues, our DSO going forward, future financial and operating results, focus on operational expense discipline, execution towards our long-term model, ability to deliver revenue and earnings per share growth, expectations with respect to near term gross margins, improvements to our cost structure and expense reductions and management, momentum of new products, strength of certain customer segments, capital structure, capital return program, and overall future prospects are forward looking statements within the meaning of the Private Securities Litigation Reform Act 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 several factors, including: general economic and political conditions globally or regionally; business and economic conditions in the networking industry; changes in overall technology spending and spending by communication service providers and major customers; 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; issues resulting from the transition to our new ERP system; manufacturing and supply chain constraints, changes or disruptions; availability of key product components; 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 settlements and resolutions; the potential impact of activities related to the execution of capital return and product rationalization; and other factors listed in Juniper Networks’ most recent report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”). All statements contained in this CFO Commentary and related conference call are made only as of the date set forth at the beginning of this document. Juniper Networks undertakes no obligation to update the information contained in this document or the related conference call in the event facts or circumstances subsequently change after the date of this document.
Use of Non-GAAP Financial Measures
This CFO Commentary contains references to the following non-GAAP financial measures: gross margin; product gross margin; service gross margin; product gross margin as a percentage of product revenue; service gross margin as a percentage of service revenue; gross margin as a percentage of revenue; research and development expense; sales and marketing expense; general and administrative expense; operating expense; operating expense as a percentage of revenue; operating income; operating margin; provision for income tax; income tax rate; net income; and diluted earnings per share. For important commentary on why Juniper Networks considers non-GAAP information a useful view of the company’s financial results, please see the press release furnished with our Form 8-K filed today with the SEC. 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 (benefits), impairment charges, professional services related to non-routine stockholder matters, litigation settlement and resolution charges, gain or loss on equity investments, retroactive impact of certain tax settlements, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions, divestitures, or joint ventures that may occur in the quarter. 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 this CFO Commentary 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.
A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures.
Juniper Networks, Inc.
Preliminary Supplemental Data
(in millions)
(unaudited)
Deferred Revenue
| As of | ||||||||
| September 30, 2016 |
December 31, 2015 |
|||||||
| Deferred product revenue: |
||||||||
| Undelivered product commitments and other product deferrals |
$ | 250.4 | $ | 210.1 | ||||
| Distributor inventory and other sell-through items |
92.8 | 81.8 | ||||||
|
|
|
|
|
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| Deferred gross product revenue |
343.2 | 291.9 | ||||||
| Deferred cost of product revenue |
(45.3 | ) | (51.6 | ) | ||||
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|
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| Deferred product revenue, net |
297.9 | 240.3 | ||||||
| Deferred service revenue |
1,006.2 | 927.8 | ||||||
|
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|
|
|||||
| Total |
$ | 1,304.1 | $ | 1,168.1 | ||||
|
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|
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| Reported as: |
||||||||
| Current |
$ | 918.5 | $ | 822.9 | ||||
| Long-term |
385.6 | 345.2 | ||||||
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|
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| Total |
$ | 1,304.1 | $ | 1,168.1 | ||||
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Security Products: Quarterly Revenue Trend
| Q3’15 | Q4’15 | Q1’16 | Q2’16 | Q3’16 | Q/Q | Y/Y | ||||||||||||||||||||||||||||||
| SRX Platform and Security Software |
$ | 111.4 | $ | 110.5 | $ | 68.1 | $ | 74.3 | $ | 83.5 | $ | 9.2 | 12 | % | $ | (27.9 | ) | (25 | )% | |||||||||||||||||
| Screen OS and Other Legacy |
8.2 | 5.6 | 5.3 | 3.9 | 2.0 | (1.9 | ) | (49 | )% | (6.2 | ) | (76 | )% | |||||||||||||||||||||||
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| Total product revenue |
$ | 119.6 | $ | 116.1 | $ | 73.4 | $ | 78.2 | $ | 85.5 | $ | 7.3 | 9 | % | $ | (34.1 | ) | (29 | )% | |||||||||||||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||
| September 30, 2016 |
June 30, 2016 |
September 30, 2015 |
||||||||||
| GAAP gross margin - Product |
$ | 578.6 | $ | 533.8 | $ | 602.8 | ||||||
| GAAP product gross margin % of product revenue |
62.3 | % | 61.9 | % | 65.1 | % | ||||||
| Share-based compensation expense |
1.5 | 1.5 | 1.3 | |||||||||
| Amortization of purchased intangible assets |
3.5 | 3.6 | 4.7 | |||||||||
| Restructuring benefits |
— | — | (3.5 | ) | ||||||||
| Acquisition/divestiture and other charges |
— | 2.8 | — | |||||||||
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|||||||
| Non-GAAP gross margin - Product |
$ | 583.6 | $ | 541.7 | $ | 605.3 | ||||||
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| Non-GAAP product gross margin % of product revenue |
62.9 | % | 62.8 | % | 65.4 | % | ||||||
| GAAP gross margin - Service |
$ | 220.9 | $ | 222.6 | $ | 194.6 | ||||||
| GAAP service gross margin % of service revenue |
61.9 | % | 62.0 | % | 60.2 | % | ||||||
| Share-based compensation expense |
3.5 | 4.3 | 3.2 | |||||||||
| Share-based payroll tax expense |
— | 0.3 | 0.1 | |||||||||
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| Non-GAAP gross margin - Service |
$ | 224.4 | $ | 227.2 | $ | 197.9 | ||||||
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| Non-GAAP service gross margin % of service revenue |
62.8 | % | 63.3 | % | 61.2 | % | ||||||
| GAAP gross margin |
$ | 799.5 | $ | 756.4 | $ | 797.4 | ||||||
| GAAP gross margin % of revenue |
62.2 | % | 61.9 | % | 63.9 | % | ||||||
| Share-based compensation expense |
5.0 | 5.8 | 4.5 | |||||||||
| Share-based payroll tax expense |
— | 0.3 | 0.1 | |||||||||
| Amortization of purchased intangible assets |
3.5 | 3.6 | 4.7 | |||||||||
| Restructuring benefits |
— | — | (3.5 | ) | ||||||||
| Acquisition/divestiture and other charges |
— | 2.8 | — | |||||||||
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| Non-GAAP gross margin |
$ | 808.0 | $ | 768.9 | $ | 803.2 | ||||||
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| Non-GAAP gross margin % of revenue |
62.9 | % | 63.0 | % | 64.3 | % | ||||||
| GAAP research and development expense |
$ | 251.8 | $ | 247.9 | $ | 247.0 | ||||||
| Share-based compensation expense |
(27.2 | ) | (29.5 | ) | (31.0 | ) | ||||||
| Share-based payroll tax expense |
(0.1 | ) | (0.4 | ) | (0.2 | ) | ||||||
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| Non-GAAP research and development expense |
$ | 224.5 | $ | 218.0 | $ | 215.8 | ||||||
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| GAAP sales and marketing expense |
$ | 242.9 | $ | 243.7 | $ | 235.3 | ||||||
| Share-based compensation expense |
(17.5 | ) | (13.8 | ) | (13.0 | ) | ||||||
| Share-based payroll tax expense |
(0.1 | ) | (0.8 | ) | (0.3 | ) | ||||||
| Amortization of purchased intangible assets |
(0.8 | ) | (0.8 | ) | (0.7 | ) | ||||||
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| Non-GAAP sales and marketing expense |
$ | 224.5 | $ | 228.3 | $ | 221.3 | ||||||
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| GAAP general and administrative expense |
$ | 54.0 | $ | 58.6 | $ | 57.1 | ||||||
| Share-based compensation expense |
(5.9 | ) | (6.5 | ) | (8.0 | ) | ||||||
| Share-based payroll tax expense |
— | (0.1 | ) | (0.1 | ) | |||||||
| Amortization of purchased intangible assets |
(0.5 | ) | (0.4 | ) | (0.2 | ) | ||||||
| Acquisition/divestiture and other charges |
(2.8 | ) | (3.6 | ) | (0.5 | ) | ||||||
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| Non-GAAP general and administrative expense |
$ | 44.8 | $ | 48.0 | $ | 48.3 | ||||||
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Juniper Networks, Inc.
Preliminary Reconciliations between GAAP and non-GAAP Financial Measures
(in millions, except percentages and per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||
| September 30, 2016 |
June 30, 2016 |
September 30, 2015 |
||||||||||
| GAAP operating expenses |
$ | 549.5 | $ | 552.6 | $ | 539.4 | ||||||
| GAAP operating expenses % of revenue |
42.8 | % | 45.2 | % | 43.2 | % | ||||||
| Share-based compensation expense |
(50.6 | ) | (49.8 | ) | (52.0 | ) | ||||||
| Share-based payroll tax expense |
(0.2 | ) | (1.3 | ) | (0.6 | ) | ||||||
| Amortization of purchased intangible assets |
(1.3 | ) | (1.2 | ) | (0.9 | ) | ||||||
| Restructuring charges |
(0.8 | ) | (2.4 | ) | — | |||||||
| Acquisition/divestiture and other charges |
(2.8 | ) | (3.6 | ) | (0.5 | ) | ||||||
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| Non-GAAP operating expenses |
$ | 493.8 | $ | 494.3 | $ | 485.4 | ||||||
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|||||||
| Non-GAAP operating expenses % of revenue |
38.4 | % | 40.5 | % | 38.9 | % | ||||||
| GAAP operating income |
$ | 250.0 | $ | 203.8 | $ | 258.0 | ||||||
| GAAP operating margin |
19.5 | % | 16.7 | % | 20.7 | % | ||||||
| Share-based compensation expense |
55.6 | 55.6 | 56.5 | |||||||||
| Share-based payroll tax expense |
0.2 | 1.6 | 0.7 | |||||||||
| Amortization of purchased intangible assets |
4.8 | 4.8 | 5.6 | |||||||||
| Restructuring charges (benefits) |
0.8 | 2.4 | (3.5 | ) | ||||||||
| Acquisition/divestiture and other charges |
2.8 | 6.4 | 0.5 | |||||||||
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|||||||
| Non-GAAP operating income |
$ | 314.2 | $ | 274.6 | $ | 317.8 | ||||||
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| Non-GAAP operating margin |
24.4 | % | 22.5 | % | 25.5 | % | ||||||
| GAAP income tax provision |
$ | 64.2 | $ | 52.2 | $ | 51.9 | ||||||
| GAAP income tax rate |
27.1 | % | 27.2 | % | 20.8 | % | ||||||
| Income tax effect of non-GAAP exclusions |
14.9 | 15.9 | 22.4 | |||||||||
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| Non-GAAP provision for income tax |
$ | 79.1 | $ | 68.1 | $ | 74.3 | ||||||
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|||||||
| Non-GAAP income tax rate |
26.3 | % | 26.2 | % | 25.1 | % | ||||||
| GAAP net income |
$ | 172.4 | $ | 140.0 | $ | 197.7 | ||||||
| Share-based compensation expense |
55.6 | 55.6 | 56.5 | |||||||||
| Share-based payroll tax expense |
0.2 | 1.6 | 0.7 | |||||||||
| Amortization of purchased intangible assets |
4.8 | 4.8 | 5.6 | |||||||||
| Restructuring charges (benefits) |
0.8 | 2.4 | (3.5 | ) | ||||||||
| Acquisition/divestiture and other charges (income) |
2.8 | 6.4 | (1.6 | ) | ||||||||
| Loss (gain) on equity investments |
0.3 | (3.3 | ) | (7.3 | ) | |||||||
| Gain on contract settlement |
— | — | (4.0 | ) | ||||||||
| Income tax effect of non-GAAP exclusions |
(14.9 | ) | (15.9 | ) | (22.4 | ) | ||||||
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| Non-GAAP net income |
$ | 222.0 | $ | 191.6 | $ | 221.7 | ||||||
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| GAAP diluted net income per share |
$ | 0.45 | $ | 0.36 | $ | 0.51 | ||||||
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| Non-GAAP diluted net income per share |
$ | 0.58 | $ | 0.50 | $ | 0.57 | ||||||
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|||||||
| Shares used in computing diluted net income per share |
384.5 | 386.3 | 389.2 | |||||||||
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