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Juniper Reports Q4 Sales Dip

SUNNYVALE, Calif. -- Juniper Networks (NYSE: JNPR), the industry leader in network innovation, today reported preliminary financial results for the three months and twelve months ended December 31, 2014 and provided its outlook for the three months ending March 31, 2015.

Q4 2014 Results:

Net revenues for the fourth quarter of 2014 decreased 14% year-over-year and decreased 2% sequentially to $1,102 million (normalized for Junos Pulse sale: decrease of 11% year-over-year and a sequential increase of 1%).

During the quarter, the Company recorded an estimated $850 million non-cash goodwill impairment charge related to its security reporting unit. As a result, the company recorded a GAAP net loss of $769.6 million. Excluding this impairment charge, net income would have been $80.4 million or $0.19 per share for the fourth quarter of 2014, inclusive of a $0.07 impact from restructuring and other charges, a $0.04 benefit from the renewal of the R&D tax credit and a $0.05 benefit from the gain on the sale of Junos Pulse.

Juniper’s operating margin for the fourth quarter of 2014 excluding the non-cash goodwill impairment decreased to 13.5% on a GAAP basis, including a $29 million impact from restructuring and other charges. Excluding these items the GAAP operating margin for Q4 2014 would have been 16.1%, an increase from 15.3% in both the third quarter of 2014 and the fourth quarter of 2013.

Non-GAAP operating margin for the fourth quarter of 2014 increased to 21.9% from 21.5% in the third quarter of 2014, and was equal to the fourth quarter of 2013.

Non-GAAP net income was $179.3 million, or $0.41 per diluted share for the fourth quarter of 2014. Non-GAAP net income per diluted share increased 14% compared to the third quarter of 2014, and decreased 5% compared to the fourth quarter of 2013.

Full Year 2014 Results:

For the year ended December 31, 2014, Juniper’s net revenues decreased 1% on a year-over-year basis to $4,627 million (normalized for Junos Pulse sale: revenues were essentially equal year-over-year).

For fiscal year 2014, Juniper’s GAAP operating margin was (9.1%). Excluding the non-cash goodwill impairment, it decreased to 9.3% on a GAAP basis, including a $209 million impact from restructuring and other charges. Excluding these items the GAAP operating margin would have been 13.8%, compared to 12.1% for the prior fiscal year.

Non-GAAP operating margin for fiscal year 2014 was 20.7%, compared to 19.2% in fiscal year 2013.

For the year ended December 31, 2014, Juniper posted a GAAP net loss of $334.3 million, which includes an estimated $850 million impact from a non-cash goodwill impairment charge. Excluding this impairment, net income would have been $515.7 million or $1.11 per share for the year ended 2014, inclusive of a $0.45 impact from restructuring and other charges, a $0.04 benefit from the renewal of the R&D tax credit and a $0.04 benefit from the gain on the sale of Junos Pulse.

Non-GAAP net income was $677.6 million, or $1.45 per diluted share for fiscal year 2014. Non-GAAP net income per diluted share for the year ended December 31, 2014 increased 13% on a year-over-year basis.

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.

“2014 was a year of change for Juniper and I’m pleased with the solid progress we made as we successfully streamlined our organization, reduced costs, increased capital returns to our shareholders and sharpened our focus on the fastest growing segments of the market,” said Rami Rahim, chief executive officer at Juniper Networks. “While we recognize that we have more work to do to realize Juniper’s full potential, we’re energized as we enter 2015. Our customers and partners across our key verticals view network innovation as fundamental to their business, and with a strong innovation pipeline, we are confident in Juniper’s future and see substantial opportunities to grow and deliver value in the long term.”

“Despite the impact of a challenging near-term revenue environment, we delivered improvements across key operational metrics for both Q4 and the full year of 2014,” said Robyn Denholm, chief financial and operations officer at Juniper Networks. “In 2015, our focus remains on improved execution, cost discipline and our targeted growth initiatives in order to drive profitable growth and long-term value for our shareholders. While we recorded a non-cash goodwill impairment charge for our security reporting unit during the quarter, it has no direct effect on our cash balance, operating cash flows or business outlook. We remain relentlessly focused on operational excellence as well as returning capital to shareholders.”

Goodwill Impairment Charge
During the fourth quarter, the Company recorded a non-cash goodwill impairment charge estimated at $850 million. Several factors contributed to this impairment, including the continued underperformance of the security reporting unit in 2014 as well as the change in the Company’s security strategy and product rationalizations. This amount represents Juniper’s preliminary estimate of the impairment charge. As the Company finalizes its reviews of the impairment analysis, adjustments to the estimated goodwill impairment charge may be recorded.

Other Financial Highlights
Total cash, cash equivalents, and investments as of December 31, 2014 were $3,105 million, compared to $3,321 million as of September 30, 2014, and $4,098 million as of December 31, 2013.

Juniper’s net cash flow from operations for the fourth quarter of 2014 was $291 million, compared to $(79) million in the third quarter of 2014, and $394 million in the fourth quarter of 2013. For the year ended December 31, 2014, Juniper generated net cash from operations of $763 million, compared to $846 million in 2013.

Days sales outstanding in accounts receivable or “DSO” was 49 days in the fourth quarter of 2014, compared to 49 days in the prior quarter, and 41 days in the fourth quarter of 2013.

Capital expenditures were $52 million and depreciation and amortization of intangible assets expense was $43 million during the fourth quarter of 2014. During fiscal year 2014, capital expenditures, as well as depreciation and amortization of intangible assets expense, were $193 million and $178 million, respectively.

Juniper’s Board of Directors has declared a quarterly cash dividend of $0.10 per share to be paid on March 24, 2015 to shareholders of record as of the close of business on March 3, 2015.

During the fourth quarter of 2014, the Company repurchased $500 million of common stock against its commitment to repurchase $1.5 billion by the end of Q2’15 and is committed to returning a total of $4.1 billion through 2016. For the year ended December 31, 2014, the Company repurchased 96.1 million shares, at an average share price of $23.41 per share, for a total of $2.25 billion.

Outlook
The Company sees the long-term demand drivers for networking as healthy and is confident in its innovation pipeline. However, Juniper continues to expect the overall revenue environment to be challenging throughout the first half of 2015, and as a result, remains cautious on its revenue planning assumptions.

Juniper Networks estimates that for the quarter ending March 31, 2015:
• Revenues will be in the range of $1,020 million to $1,060 million.

• Non-GAAP gross margin will be approximately 63.5%, plus or minus 0.5%.

• Non-GAAP operating expenses will be $475 million, plus or minus $5 million.

• Non-GAAP operating margin will be roughly 18% at the midpoint of revenue guidance.

• Non-GAAP net income per share will range between $0.28 and $0.32 on a diluted basis. This assumes a share count of 420 million and a non-GAAP tax rate of 27% for the first quarter.

Juniper Networks estimates that for 2015:
• Non-GAAP operating expenses will be $1,900 million, plus or minus $25 million, which is approximately $115 million lower than the full year 2014 non-GAAP operating expense levels.

• Capital Allocation: $1 billion of aggregate share repurchases to be completed before the end of Q2’15 subject to Juniper raising additional debt financing.

Juniper Networks Inc. (NYSE: JNPR)

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