BRINGING IT TOGETHER TO CREATE VALUE

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Transcription:

BRINGING IT TOGETHER TO CREATE VALUE Ken Miller Chief Financial Officer

CAUTIONARY STATEMENTS Forward-Looking Statements. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Except for historical information contained herein, all statements could be deemed forward-looking statement, including, without limitation, Juniper Networks views concerning our business outlook; economic and market outlook; our future financial and operating results; the expected impact of network transitions and timing of deployments with large customers; our capital return program; the potential impact of import tariffs; our expectations with respect to market trends; our future strategy; the strength of certain customer segments; our ability to expand business opportunities (including in hyperscale-switching, 5G buildouts and with enterprise customers); our expectations with respect to revenue growth or cost containment or our ability to improve profitability and make necessary investments; the introduction of future products; the strength of our solution portfolio; and overall future prospects. 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 by our customers; the network capacity requirements of our customers and, in particular, cloud and communication service providers; the timing of orders and their fulfillment; manufacturing and supply chain constraints, changes or disruptions; availability of product components; delays in scheduled product availability; adoption of regulations or standards affecting Juniper Networks products, services or the networking industry; the impact of import tariffs; and other factors listed in Juniper Networks most recent report on Form 10-Q and 10-K filed with the Securities and Exchange Commission. These forward-looking statements are not guarantees of future performance and speak only as of the date of this presentation. Juniper Networks undertakes no obligation to update the information in this presentation in the event facts or circumstances subsequently change. Non-GAAP Financial Measures. This presentation contains information regarding Juniper Networks financial results prepared on a basis of accounting generally accepted in the United States of America ( GAAP ) as well as certain financial measures calculated and presented on the basis of methodologies other than in accordance with GAAP ( non-gaap ). The non-gaap financial measures disclosed by Juniper Networks should not be considered a substitute for, or superior to, the financial measures prepared in accordance with GAAP. Please refer to Discussion of Non-GAAP Financial Measures in our quarterly earnings release for a detailed explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-gaap measures, and the reasons why management believes the non-gaap measures provide investors with useful supplemental information. With respect to future financial guidance provided on a non-gaap basis, we exclude estimates for amortization of intangible assets, share-based compensation expenses, acquisition-related charges, restructuring benefits or charges, impairment charges, litigation settlement benefits or charges and resolution charges, supplier component remediation charges and recoveries, gain or loss on equity investments, retroactive impact of certain tax settlements, significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform, 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 period. Juniper Networks 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. 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. Statement of Product Direction. Juniper Networks may disclose information related to development and plans for future products, features or enhancements ( SOPD ). SOPD information is subject to change at any time, without notice. Except as may be set forth in definitive agreements, Juniper Networks provides no assurances, and assumes no responsibility, that future products, features or enhancements will be introduced and third parties should not base purchasing decisions upon reliance of timeframes or specifics outlined in an SOPD, because Juniper may delay or never introduce the future products, features or enhancements. Company Logos. Juniper Networks, the Juniper Networks logo, Juniper and Junos are registered trademarks of Juniper Networks, Inc. and/or its affiliates in the United States and other countries. Other names and/or logos may be trademarks of their respective owners, and Juniper Networks use hereof does not imply an affiliation with, or endorsement by, the owners of these trademarks or logos. 2

PRINCIPLES OF VALUE CREATION REVENUE GROWTH EARNINGS EXPANSION OPTIMIZED CAPITAL STRATEGY 3

CREATING VALUE THROUGH REVENUE GROWTH REVENUE GROWTH Positioned to benefit from attractive markets Invest in strategic and differentiated solutions Leverage and expand customer base Maintain healthy Services business 4

A LARGE AND GROWING MARKET Total Addressable Market (TAM) $49B $8 $54B $10 Security CAGR ~6% Routing impacted by Service Provider spending potentially offset by 5G $28 $31 Switching CAGR ~4% Switching data center TAM growing faster than campus and branch $13 $13 Routing CAGR ~(1%) Security market seeing steady growth 2018E 2021E Source: 650 Group, Dell Oro, IHS Markit Note: All CAGRs are 3 Years 2018-2021 5

TECHNOLOGY MIX EXPECTED TO SHIFT TO GROWTH AREAS Technology Mix 31% ~33% ~34% Service CAGR 1%-5% Routing: Service Provider spending pressure offset by growth in Cloud and uptake of new products 6% 19% 44% FY 17 ~7% ~20% ~40% FY 18E ~8% ~23% ~35% FY 21 Target Security CAGR 3%-7% Switching CAGR 5%-9% Routing CAGR (4%)-0% Note: FY 17 shown in ASC 605; FY 18 and onwards in ASC 606; All CAGRs are 3 Years 2018-2021 Switching: Cloud / data center solution focus and Enterprise momentum Security: Maintain share with refreshed products and solution selling Services: Growth expected to continue 6

CUSTOMER VERTICALS ARE DIVERSIFIED Vertical Mix 28% 26% 46% ~34% ~22% ~44% ~36% ~26% ~38% Enterprise CAGR 2%-6% Cloud CAGR 6%-10% Service Provider CAGR (5%)-(1%) Service Provider: Spending pressure partially offset by Telco Cloud, Metro and 5G investments Cloud: Positioned to protect WAN footprint and capture new use cases Enterprise: Leverage strong product portfolio and solution selling FY 17 FY 18E FY 21 Target Note: FY 17 shown in ASC 605; FY 18 and onwards in ASC 606; All CAGRs are 3 Years 2018-2021 7

CUSTOMER CONCENTRATION REMAINS HIGH Customer Concentration By Vertical* ~20% ~50% ~80% ~70% Other Customers Service Provider customer concentration remains steady Significant customer and use case concentration in the Cloud vertical ~50% ~30% Top 10 Customers More diversified base of Enterprise customers Service Provider Cloud Enterprise *Revenue through Q3 18 & under ASC 606 8

SERVICES BUSINESS WILL REMAIN STRONG Service Revenue ($M) $1,295 $1,461 $1,581 ASC 606 Adjustment* Service revenue growth ~9% CAGR 15-18E on a normalized basis >90% of total Services is recurring Strong attach and renewal rates Growth in Software and Professional Services FY 15 FY 16 FY 17 FY 18E *All FY 15-FY 18 shown in ASC 605; Q4 18 assumes ASC 606 adjustment comparable to Q1 18-Q3 18 levels and Q4 18 Consensus as of 10/29/2018 9

CREATING VALUE THROUGH EARNINGS EXPANSION EARNINGS EXPANSION Drive revenue growth Focus on gross margin optimization Prudent management of operating expense and investments 10

GROSS MARGIN FLUCTUATES WITH MIX Gross Margin* Profile Software MX PTX SRX QFX EX ACX Above Juniper Average Juniper Average (~60%) Below Juniper Average We are focused on gross margin improvement through: Design for value and value engineering Supply chain optimization Value and solution selling Services optimization *Non GAAP Gross Margin 11

OPERATING EXPENSE DISCIPLINE WILL CONTINUE Growing Revenue vs. Declining OpEx*($M) $477M $4,209 +11% $4,686 Revenue Focus on productivity gains & operational excellence FY 12 (1) FY 12-FY 18E FY 18E Reprioritize investments to focus on strategic growth areas $2,124 $163M -8% $1,961 Operating Expense* FY 12 FY 12-FY 18E FY 18E *Non-GAAP (1) FY 12 Revenue normalized for the sale of Pulse and shown in ASC 605; FY 18 and onwards in ASC 606 12

CREATING VALUE THROUGH AN OPTIMIZED CAPITAL STRATEGY OPTIMIZED CAPITAL STRATEGY Continued strong free cash flow generation Maintain healthy and flexible balance sheet Deploy capital into value enhancing organic and inorganic opportunities Deliver consistent capital return to shareholders 13

STRONG CASH FLOW AND HEALTHY BALANCE SHEET Total Cash & Debt ($M) Debt/ Adjusted EBITDA (1) $4,021 $3,657 $3,648 $3,105 $3,192 $1,523 $1,885 $1,510 $1,255 $1,764 $1,937 $2,134 $2,136 $2,138 $1,341 FY'14 FY'15 FY'16 FY'17 Q3'18 1.2x 1.5x 1.6x 1.6x 2.0x (2) Cash Net Cash Debt Consistently strong free cash flow generation Investment grade rating (Baa2/BBB) provides ready access to capital markets Liquidity to invest in the business, support value-enhancing M&A, and fund our return of capital to shareholders (1) Adjusted EBITDA is calculated as non-gaap operating income plus depreciation and amortization (2) Q3 18 Debt/Adjusted EBITDA based on Q3 18 Debt and trailing 12 months of Adjusted EBITDA Note: Cash includes cash, cash equivalents, and investments 14

RETURNED SIGNIFICANT CAPITAL TO SHAREHOLDERS Dividend & Share Repurchases ($M) % of FCF $86 $2,250 $156 $1,143 $153 $313 $150 $249 $720 $750 FY'14 FY'15 FY'16 FY'17 FY 18E FY'18 (1) 409% 188% 52% 78% ~130% Dividend Buybacks (1) FY 18E includes Q1-Q4 dividends and Q1 ASR, but does not include any potential opportunistic repurchases in Q4 18. Assumes consensus estimates for FY18 FCF as of 10/31/18. Note: Free Cash Flow is calculated as Operating Cash Flow less CAPEX ~170% average annual capital return as % of free cash flow over last five years 80% increase in dividend in Q1 18 Go forward expectation of returning >50% of free cash flow to shareholders Plan to return ~75% of free cash flow to shareholders in 2019 15

MEANINGFUL REDUCTION IN SHARE COUNT Diluted Share Count (in Millions) (1) (15) (16) (53) ~35% reduction in share count since FY 11 541 (58) (11) (4) -6% CAGR (33) 351 Share count Decreased every year since FY 11 Lowered burn rate from ~2.8% in FY 11 to ~2.3% in FY 18 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18 YTD Q3'18 (1) Change in full year diluted share count for FY12-FY17, and change YTD FY18 to Q3 18 ending diluted share count. 16

3-YEAR BASE CASE FINANCIAL MODEL P&L FY 18E FY 19 FY 21 Revenue $4,686M Low single digit growth Gross Margin* 59.6% 58-62% Operating Expenses* $1,961M Grow slower than revenue Operating Margin* 17.8% ~22% EPS* $1.87 High single digit growth Capital Management FY 18E FY 19 FY 21 Capital Return ~130% of FCF (1) FY 19: 75% of FCF FY 20 FY 21: >50% of FCF Dividends $0.18/share/quarter Grew 80% y/y; 2.5% yield (2) Grow with earnings Share Buyback $750M ASR + Opportunistic Opportunistic *All financial values Non-GAAP except for Revenue (1) FY 18E includes Q1-Q4 dividends and Q1 ASR, but does not include any potential opportunistic repurchases in Q4 18 (2) Based on the closing stock price on 10/31/18 of $29.27 17

Positioned to Own Transitions in Key Customer Verticals Continued Investment in Innovation SUMMARY Maintain Financial Discipline Committed to Increasing Shareholder Value

GAAP TO NON-GAAP RECONCILIATION TABLES 2018 Juniper Networks

GAAP TO NON-GAAP RECONCILIATIONS (In millions) Revenue, As Reported FY 12 Product Revenue $ 3,262.1 Services Revenue 1,103.3 Total Revenue $ 4,365.4 Revenue, Excluding Junos Pulse Product Revenue $ 3,166.6 Services Revenue 1,042.3 Total Revenue $ 4,208.9 (In millions) FY 12 GAAP operating expense $ 2,400.7 Share-based compensation expense (221.8) Share-based payroll tax expense (1.1) Amortization of purchased intangible assets (4.7) Restructuring charges (46.8) Acquisition-related charges (2.0) Non-GAAP operating expense $ 2,124.3 2018 Juniper Networks 20

GAAP TO NON-GAAP RECONCILIATIONS (In millions) FY 14 FY 15 FY 16 FY 17 LTM Q3'18 GAAP operating (loss) income $ (419.7) $ 912.0 $ 889.7 $ 848.1 $ 578.1 Share-based compensation expense 240.0 217.3 226.8 187.5 216.6 Share-based payroll tax expense 13.1 6.4 5.8 6.6 6.8 Amortization of purchased intangible assets 36.3 28.4 16.2 17.5 18.0 Restructuring charges (benefits) 208.6 (4.1) 3.3 65.6 38.5 Acquisition-related and other charges 1.7 2.7 14.5 2.1 0.5 Strategic partnership-related charges - - - - 2.1 Legal reserve and settlement charges - - - 13.2 11.4 Supplier component remediation charges 20.7-10.8 6.1 - Professional services related to non-routine stockholder matters 7.7 3.0 - - - Impairment of goodwill 850.0 - - - - Non-GAAP operating income $ 958.4 $ 1,165.7 $ 1,167.1 $ 1,146.7 $ 872.0 Depreciation and amortization 178.2 170.1 200.7 220.3 213.4 Non-GAAP Adjusted EBITDA $ 1,136.6 $ 1,335.8 $ 1,367.8 $ 1,367.0 $ 1,085.4 2018 Juniper Networks 21

GAAP TO NON-GAAP RECONCILIATIONS (In millions) (In (In millions) FY 14 FY 15 FY 16 FY 17 Operating Cash Flow $ 763.4 $ 899.5 $ 1,107.2 $ 1,260.1 Capex (192.9) (210.3) (214.7) (151.2) Free Cash Flow $ 570.5 $ 689.2 $ 892.5 $ 1,108.9 (In millions) A reconciliation of FY 18 non-gaap operating expenses and Free Cash Flow to the corresponding GAAP measures are 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. 2018 Juniper Networks 22