Juniper Networks Inc. (JNPR) posted adjusted earnings per share of 26 cents, in line the Zacks Consensus Estimate.
Juniper Networks’ revenues rose 23.0% year over year to $1.01 billion in the third quarter, but came in slightly below the Zacks Consensus Estimate of $1.02 billion. The company generated 79.1% of its consolidated quarterly revenue from product sales, with the remaining 20.9% coming from service revenues. The company witnessed growth in both product and services revenues, which were up 26.4% and 11.3%, respectively from the year-ago quarter.
Revenue by Segment
Segment-wise, on a year-over-year basis, revenues from Infrastructure Products increased 28.7%, Infrastructure Services increased 10.7%, Service Layer Technologies Products 19.4% and Service Layer Technologies Services 12.2% in the reported quarter.
The company generated 52.9% of its quarterly revenues from the Americas. Out of the remaining, 27.3% was generated in Europe, Middle East and Africa, while 20.1% came from the Asia-Pacific.
Operating Results
On a GAAP basis, Juniper Networks’ gross margin increased to 66.9% in the third quarter from 65.9% in the year-ago quarter. Excluding amortization of intangibles and stock compensation, non-GAAP gross margin in the quarter was 67.5%, up from 66.5% reported in the year-ago quarter.
On a non-GAAP basis, product gross margin was 55.0%, up from 52.2% in the year-ago quarter. The improvement was driven by better product mix. Service gross margin was 12.5%, down from 14.4% reported in the year-ago quarter.
Operating margin on a GAAP basis was 19.3%, up from 15.5% reported in the year-ago quarter, while the non-GAAP operating margin was 24.1%, up from 20.8% reported in the year-earlier quarter. Non-GAAP operating expenses increased 16.4% on a year-over-year basis. However, the rate of increase was much below revenue growth of 23.0%, which resulted in operating margin expansion.
The company increased its investment in research and development and enhanced the quality of its product portfolio. Juniper also increased its sales, general and administrative expenses.
Net income on a GAAP basis was $134.5 million, compared to $83.8 million reported in the year-ago quarter. Excluding special items such as restructuring charges, amortization, acquisition related charges, stock-based compensation expenses, non-recurring income tax adjustments, non-GAAP net income in the quarter was $171.5 million, up from $122.5 million reported in the year-ago quarter
Net income per share on a non-GAAP basis was 32 cents, up from 23 cents reported in the comparable quarter last year. Including stock-based compensation, adjusted net income per share was 26 cents.
Balance Sheet & Cash Flow
Juniper Networks exited the third quarter with $2.10 billion in cash and short-term investments, compared to $2.22 billion in the previous quarter. The company generated $131.4 million in net cash from operations, compared with $223.9 million in the year-ago quarter. Capital expenditures during the quarter were $54.3 million versus $39.6 million in the prior-year quarter.
During the quarter, Juniper repurchased approximately 5 million shares at an average price of $26.81 per share for approximately $135 million.
Guidance
Management expects customer demand to remain healthy, going forward, which would subsequently drive further gains in the networking and cloud computing space. However, based on strong demand metrics and a healthy business momentum noticed throughout the first half and the third quarter, Juniper expects fourth quarter revenues to be in the range of $1.10–$1.12 billion.
Gross margin is expected to range between 66.0% and 68.0%. Operating expenses, as a percentage of total revenue is expected to be slightly lower sequentially. Operating margin is expected to be in the range of 24.0%–25.0%. Juniper expects the tax rate to be 30.0%, which along with a flat share count is expected to fetch non-GAAP earnings per share of 35 cents to 37 cents.
Juniper also expects full-year revenues to grow more than 20%.
Our Take
The company delivered decent third quarter numbers, and reported a substantial increase in revenue. Encouraging guidance, strong bookings and significant growth in backlog are indications of a strong fourth quarter. We believe that with the SMobile acquisition, which was wrapped up during the quarter, Juniper will be able to gain share in the security market.
Moreover, continuous launch of new products and entry into new markets will keep Juniper ahead of its networking peers. We believe that increased spending by key carriers such as AT&T Inc. (T) and Verizon Inc. (VZ), as well as ongoing enterprise share gains fueled by the EX switch and SRX security platform will pave the way for healthy profitability, going forward.
However, stiff competition from market leader Cisco Systems Inc. (CSCO) and upcoming networking company Hewlett-Packard Company (HPQ), as well as Juniper’s European exposure are likely to weigh on the shares.
We currently have a short-term Buy recommendation on Juniper, as implied by the Zacks #2 Rank.
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