Juniper Reports Revenue Decline on Disappointing Service Provider & Cloud Sales
SUNNYVALE, CALIF. -- Juniper Networks, an industry leader in automated, scalable and secure networks, today reported preliminary financial results for the three months and twelve months ended December 31, 2018 and provided its outlook for the three months ending March 31, 2019.
Fourth Quarter 2018 Financial Performance
Net revenues were $1,181.0 million, a decrease of 5% year-over-year, and flat sequentially.
GAAP operating margin was 16.7%, an increase from 16.4% in the fourth quarter of 2017, and an increase from 13.6% in the third quarter of 2018.
Non-GAAP operating margin was 21.1%, a decrease from 22.7% in the fourth quarter of 2017, and an increase from 20.0% in the third quarter of 2018.
GAAP net income was $192.2 million, compared to a net loss of $148.1 million in the fourth quarter in 2017, and a decrease of 14% sequentially, resulting in diluted earnings per share of $0.55. The year-over-year change in GAAP net income was primarily due to a lower effective tax rate.
Non-GAAP net income was $205.7 million, an increase of 3% year-over-year and an increase of 8% sequentially, resulting in non-GAAP diluted earnings per share of $0.59.
Full Year 2018 Financial Performance
Net revenues were $4,647.5 million, a decrease of 8% year-over-year.
GAAP operating margin was 12.3%, a decrease from 16.9% in fiscal year 2017.
Non-GAAP operating margin was 18.1%, a decrease from 22.8% in fiscal year 2017.
GAAP net income was $566.9 million, an increase of 85% year-over-year, resulting in diluted earnings per share of $1.60, an increase of 100% year-over-year. The change in GAAP net income was primarily due to a lower effective tax rate in fiscal year 2018.
Non-GAAP net income was $666.4 million, a decrease of 18% year-over-year, resulting in non-GAAP diluted earnings per share of $1.88, a decrease of 11% year-over-year.
“We are disappointed by our Q4 sales, as continued weakness with several of our cloud and service provider customers more than offset solid momentum in our enterprise business,” said Rami Rahim, chief executive officer, Juniper Networks. “We are taking actions to drive improved sales execution and capitalize on the attractive end market opportunities that we expect to emerge in 2019. We remain confident in our strategy and believe we have the products needed to win in the market.”
“We demonstrated strong financial management during the December quarter as non-GAAP gross margin and non-GAAP earnings per share came in toward the high-end of our guidance and non-GAAP operating expenses were below the low-end of our guidance,” said Ken Miller, chief financial officer, Juniper Networks. “Given our confidence in our long-term financial model and commitment to creating shareholder value, we plan to enter into a $300 million accelerated share repurchase program and increase our quarterly dividend by approximately 6% to $0.19 per share.”
Balance Sheet and Other Financial Results
Total cash, cash equivalents, and investments as of December 31, 2018 were $3,758.1 million, compared to $4,021.0 million as of December 31, 2017, and $3,648.0 million as of September 30, 2018.
Net cash flows provided by operations for the fourth quarter of 2018 was $212.4 million, compared to $212.6 million in the fourth quarter of 2017, and $207.3 million in the third quarter of 2018.
Days sales outstanding in accounts receivable, or “DSO,” was 58 days in the fourth quarter of 2018, compared to 62 days in the fourth quarter of 2017, and 49 days in the third quarter of 2018.
Capital expenditures were $36.5 million, and depreciation and amortization expense was $52.2 million during the fourth quarter of 2018.
These metrics are provided on a non-GAAP basis, except for revenue and share count. Non-GAAP earnings per share is on a fully diluted basis. The outlook assumes that the exchange rate of the U.S. dollar to other currencies will remain relatively stable at current levels.
Our Q1 revenue outlook reflects continued weakness with our Cloud customers. In addition, we are transitioning our go-to-market organization to enable our strategy. While we are confident these changes will lead to long-term growth, this may result in short-term challenges. We have also factored in the partial US Federal government shutdown and geopolitical uncertainty which we believe could adversely impact our business in the early part of 2019. These factors lead us to expect below normal seasonality for the first quarter.
We expect revenue to grow on a sequential basis beyond the first quarter with better trends during the second half of the year. We expect to return to year-over-year growth at some point in the second half of the year. We remain confident in the long-term financial model we outlined at our Investor Day in November last year.
We expect non-GAAP gross margins toward the low-end of our long-term model in Q1’19, due to lower revenue volume, product mix, and the impact of China tariffs. Full year non-GAAP gross margins are expected to improve directionally from Q1'19 levels and we believe gross margin for the year will be toward the mid-point of our long-term model.
Despite the reset of variable compensation and typical seasonal increase of fringe costs, we plan to manage our operating expenses prudently in the first quarter and throughout the year. Based on our current forecast we expect operating expenses on a full year basis to be relatively flat versus 2018.
For 2019, we expect a non-GAAP tax rate on worldwide earnings to be approximately flat versus 2018, plus or minus 1%.
We expect non-GAAP earnings per share of $1.75-$1.85 for 2019.
Juniper’s Board of Directors has declared a quarterly cash dividend of $0.19 per share to be paid on March 22, 2019 to shareholders of record as of the close of business on March 1, 2019. Additional details can be found in the press release issued today at http://investor.juniper.net/investor-relations/default.aspx. This reflects an increase of approximately 6% compared to previous quarterly dividends. In addition, as part of our $2 billion authorized share repurchase, approved last January, we plan to enter into an accelerated share repurchase program of approximately $300 million, reflecting our belief in our future prospects. We plan to remain opportunistic with our share repurchases throughout the year.
Our guidance for the quarter ending March 31, 2019 is as follows:
- Revenue will be approximately $980 million, plus or minus $30 million.
- Non-GAAP gross margin will be approximately 58.5%, plus or minus 1%.
- Non-GAAP operating expenses will be approximately $485 million, plus or minus $5 million.
- Non-GAAP operating margin will be approximately 9% at the midpoint of revenue guidance.
- Non-GAAP net income per share will be approximately $0.20, plus or minus $0.03. This assumes a share count of approximately 349 million.
Juniper Networks Inc. (NYSE: JNPR)