Juniper Networks(US:JNPR)2021-02-11 16:00PART I ITEM 1. Business Juniper Networks provides high-performance networking products and services to Cloud, Service Provider, and Enterprise customers globally, expanding its AI-driven software business - Juniper Networks provides high-performance network products and services across routing, switching, Wi-Fi, network security, and SDN technologies to customers in Cloud, Service Provider, and Enterprise verticals globally615 - The company is actively expanding its software business, focusing on cloud-managed, AI-enabled enterprise networking operations, supported by acquisitions like Mist Systems (2019), 128 Technology (2020), and Netrounds (2020)617642643 - Key strategic priorities include seizing the cloud transition, differentiating through innovation in networking, security, and software orchestration, and leveraging automation and AI for operational simplicity619 - As of December 31, 2020, Juniper Networks employed 9,950 full-time employees globally, with significant investments in R&D (4,044 employees) and sales & marketing (2,880 employees)698665668 Product Backlog (2019-2020) | Metric | 2020 (Millions) | 2019 (Millions) | | :--------------- | :-------------- | :-------------- | | Total Product Backlog | $419.6 | $341.1 | Overview Strategy Customer Verticals Products, Services, and Technology Research and Development Sales and Marketing Manufacturing and Operations Backlog Seasonality Competition Material Government Regulations Intellectual Property Human Capital Resources Information about our Executive Officers Available Information Item 1A. Risk Factors The company faces significant risks from COVID-19, market fluctuations, competition, and legal/regulatory challenges - The COVID-19 pandemic has negatively impacted operations, causing supply constraints, component shortages, extended lead-times, and increased logistics costs, which affected revenue recognition and gross margins in fiscal 2020718719720 - Quarterly results are highly unpredictable due to factors like customer ordering patterns, product/service mix, market conditions, competition, and seasonal fluctuations721722 - Gross margins and operating margins are expected to vary due to customer/product/geographic mix shifts, price competition, currency fluctuations, increased costs (materials, labor, logistics), and tariffs724 - The company faces significant competition from larger, more integrated companies (e.g., Cisco, Nokia, Huawei) with broader portfolios and resources, as well as specialized security vendors726777778 - Risks related to technology and business operations include failure to anticipate technological shifts, product interoperability issues, reliance on licensed third-party technology, difficulties enforcing proprietary rights, and dependence on single/limited source suppliers and contract manufacturers739742743744747 - Legal and regulatory risks encompass lawsuits (employment, patent infringement, FCPA), non-standard contract terms with large customers, industry-specific regulations (e.g., security product certifications, conflict minerals, environmental laws), global trade restrictions (export controls, sanctions, tariffs), and evolving data privacy laws (GDPR, CCPA, CPRA)765768770772776783786 - Financial risks include potential impairment of goodwill ($3,669.6 million as of Dec 31, 2020) and purchased intangible assets ($266.7 million), changes in effective tax rates, risks from international operations (economic, political, currency fluctuations), and risks associated with outstanding indebtedness and investments789790794798802 ITEM 1B. Unresolved Staff Comments There are no unresolved written comments from the SEC staff regarding the company's periodic reports ITEM 2. Properties Juniper Networks' headquarters is in Sunnyvale, California, with owned buildings and leased facilities globally, deemed adequate - Corporate headquarters in Sunnyvale, California, includes 0.7 million square feet of owned buildings on 80 acres806 - Leases approximately 1.7 million square feet worldwide, with 36% in North America, expiring through May 2031806 ITEM 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 15, Commitments and Contingencies - Legal proceedings information is incorporated by reference from Note 15, Commitments and Contingencies808 ITEM 4. Mine Safety Disclosures This item is not applicable to Juniper Networks PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Juniper Networks' common stock trades on NYSE, with details on stockholders, cash dividends, and stock repurchase activities - Common stock (JNPR) is traded on the New York Stock Exchange (NYSE)810 - As of February 10, 2021, there were 599 stockholders of record811 Cash Dividends Paid (2020) | Year | Dividends per Share | Total Amount (Millions) | | :--- | :------------------ | :---------------------- | | 2020 | $0.80 | $264.1 | - A quarterly cash dividend of $0.20 per share was declared in January 2021, payable March 22, 2021812 Stock Repurchase Activity (2020) | Period | Total Shares Purchased (Millions) | Average Price Paid per Share | Amount (Millions) | | :------------------------- | :-------------------------------- | :--------------------------- | :---------------- | | December 1 - December 31, 2020 | 3.4 | $21.83 | $1,325.0 (remaining) | | Total 2020 | 16.1 | $23.36 | $375.0 | - As of December 31, 2020, $1.3 billion remained authorized under the $3.0 billion stock repurchase program884 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Juniper Networks' financial performance for 2020 vs 2019, covering key metrics, COVID-19 impact, policies, and liquidity Key Financial Results (2020 vs. 2019) | Metric | 2020 (Millions) | 2019 (Millions) | Change (Millions) | % Change | | :------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Net revenues | $4,445.1 | $4,445.4 | $(0.3) | — % | | Gross margin | $2,573.7 | $2,616.8 | $(43.1) | (2)% | | Percentage of net revenues | 57.9 % | 58.9 % | | | | Operating income | $353.1 | $442.2 | $(89.1) | (20)% | | Percentage of net revenues | 7.9 % | 9.9 % | | | | Net income | $257.8 | $345.0 | $(87.2) | (25)% | | Percentage of net revenues | 5.8 % | 7.8 % | | | | Basic EPS | $0.78 | $1.01 | $(0.23) | (23)% | | Diluted EPS | $0.77 | $0.99 | $(0.22) | (22)% | | Operating cash flows | $612.0 | $528.9 | $83.1 | 16 % | | Stock repurchase activity | $375.0 | $550.0 | $(175.0) | (32)% | | Cash dividends per share | $0.80 | $0.76 | $0.04 | 5 % | | DSO | 71 | 66 | 5 | 8 % | | Deferred revenue | $1,285.8 | $1,223.4 | $62.4 | 5 % | - Net revenues were flat year-over-year in 2020, with growth in Enterprise (driven by Switching) and Cloud (driven by Routing) offset by a decline in Service Provider (partially due to COVID-19 supply constraints) Service net revenues increased due to strong support contract renewals823848850 - Gross margin decreased to 57.9% (from 58.9% in 2019) primarily due to increased logistics and supply chain costs related to COVID-19, customer and product mix shifts, and higher intangible asset amortization from the Mist acquisition824852853 - Operating income decreased by 20% due to lower gross margins, higher restructuring charges ($68.0 million in 2020 vs. $35.3 million in 2019), and increased personnel-related costs, partially offset by reduced travel expenses823824857860 - Net cash provided by operations increased by 16% to $612.0 million, driven by higher invoicing and improved customer collections, despite increased payments to suppliers and for employee compensation823877 - The company incurred a $55.0 million loss on extinguishment of debt in 2020 due to early repayment of senior notes, compared to $15.3 million in 2019863 - The effective tax rate decreased significantly to 2.8% in 2020 (from 16.7% in 2019) due to a $63.7 million benefit from unrecognized tax benefits and a $20.1 million charge for cost sharing related to share-based compensation869 Executive Overview Critical Accounting Policies and Estimates Recent Accounting Pronouncements Results of Operations Liquidity and Capital Resources ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk This section details Juniper Networks' market risk exposure, primarily interest rate and foreign currency, and its hedging strategies - The company's investment portfolio is diversified across various holdings, types, and maturities (e.g., asset-backed securities, corporate debt, government securities) to preserve principal, maintain liquidity, and maximize yield, while minimizing interest rate risk896 - Juniper uses interest rate swaps to convert fixed-rate notes to floating rates, hedging against interest rate risk As of December 31, 2020, the notional amount of these swaps was $300.0 million, with a fair value asset of $20.3 million899 - In 2020, the company entered into interest rate locks for $650.0 million to hedge future debt issuance, recorded as a $30.7 million asset in fair value as of December 31, 2020900 - Foreign currency forward contracts are used to hedge forecasted foreign currency transactions and mitigate variability in gains/losses from re-measurement of foreign-denominated assets/liabilities These derivatives are designated as cash flow hedges901902 - A hypothetical 10% movement in foreign currency exchange rates would change the U.S. dollar value of cash, cash equivalents, and investments by $33.4 million (1.4%) as of December 31, 2020903 - Investments in privately-held companies, totaling $201.9 million as of December 31, 2020, are subject to equity price risk due to their early development stages and potential for market non-materialization904 ITEM 8. Financial Statements and Supplementary Data This section presents Juniper Networks' audited consolidated financial statements for 2018-2020, including balance sheets, income statements, cash flows, and notes - The consolidated financial statements for 2020, 2019, and 2018 are presented in conformity with U.S GAAP and have been audited by Ernst & Young LLP, who expressed an unqualified opinion909912 - Management concluded that internal control over financial reporting was effective as of December 31, 2020, excluding recent acquisitions (128 Technology and Netrounds) which were immaterial to total assets and net revenues935 Consolidated Statements of Operations (Selected Data, in millions) | Metric | 2020 | 2019 | 2018 | | :----------------- | :-------- | :-------- | :-------- | | Total net revenues | $4,445.1 | $4,445.4 | $4,647.5 | | Gross margin | $2,573.7 | $2,616.8 | $2,741.2 | | Operating income | $353.1 | $442.2 | $572.2 | | Net income | $257.8 | $345.0 | $566.9 | Consolidated Balance Sheets (Selected Data, in millions) | Asset/Liability | Dec 31, 2020 | Dec 31, 2019 | | :------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $1,361.9 | $1,215.8 | | Total current assets | $3,271.2 | $3,209.8 | | Goodwill | $3,669.6 | $3,337.1 | | Total assets | $9,378.3 | $8,837.7 | | Total current liabilities | $2,161.1 | $1,543.9 | | Long-term debt | $1,705.8 | $1,683.9 | | Total liabilities | $4,834.8 | $4,227.1 | | Total stockholders' equity | $4,543.5 | $4,610.6 | Consolidated Statements of Cash Flows (Selected Data, in millions) | Activity | 2020 | 2019 | 2018 | | :----------------------------- | :-------- | :---------- | :-------- | | Net cash from operating activities | $612.0 | $528.9 | $861.1 |\ | Net cash used in investing activities | $(288.9) | $(528.2) | $564.8 |\ | Net cash used in financing activities | $(222.4) | $(1,228.8) | $(968.6) | Reports of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm (Internal Control) Management's Report on Internal Control Over Financial Reporting Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders' Equity Notes to Consolidated Financial Statements Note 1. Description of Business, Basis of Presentation and Significant Accounting Policies Note 2. Business Combinations Note 3. Cash Equivalents and Investments Note 4. Fair Value Measurements Note 5. Derivative Instruments Note 6. Goodwill and Purchased Intangible Assets Note 7. Other Financial Information Note 8. Restructuring Charges Note 9. Debt and Financing Note 10. Equity Note 11. Employee Benefit Plans Note 12. Segments Note 13. Income Taxes Note 14. Net Income per Share Note 15. Commitments and Contingencies Note 16. Selected Quarterly Financial Data (Unaudited) Note 17. Subsequent Events ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters ITEM 9A. Controls and Procedures Management concluded disclosure controls and procedures were effective as of December 31, 2020, with no material internal control changes - Disclosure controls and procedures were deemed effective as of December 31, 2020, following evaluation by management, including the principal executive and financial officers1194 - No material changes in internal control over financial reporting occurred in Q4 2020, with remote work due to COVID-19 not significantly impacting effectiveness due to adaptable control design1195 PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the Proxy Statement - Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the 2021 Proxy Statement1197 ITEM 11. Executive Compensation Executive compensation details, including director compensation and committee reports, are incorporated by reference from the Proxy Statement - Executive compensation details, including director compensation and compensation committee reports, are incorporated by reference from the Proxy Statement1199 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management, plus equity compensation plan details, is incorporated by reference from the Proxy Statement - Security ownership information for beneficial owners and management, along with equity compensation plan details, is incorporated by reference from the Proxy Statement1200 ITEM 13. Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related transactions, and director independence are incorporated by reference from the Proxy Statement - Details on certain relationships, related transactions, and director independence are incorporated by reference from the Proxy Statement1201 ITEM 14. Principal Accounting Fees and Services Information on principal accounting fees, services, and audit committee pre-approval policies is incorporated by reference from the Proxy Statement - Information on principal accounting fees and services and audit committee pre-approval policies is incorporated by reference from the Proxy Statement1202 PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits, including Schedule II for Valuation and Qualifying Accounts - The report includes consolidated financial statements and financial statement schedules, specifically Schedule II - Valuation and Qualifying Accounts12031204 Allowance for Doubtful Accounts (in millions) | Year | Balance at Beginning of Year | Charged to Expenses | Write-offs, Net of Recoveries | Balance at End of Year | | :--- | :--------------------------- | :------------------ | :---------------------------- | :--------------------- | | 2020 | $5.5 | $4.4 | — | $9.9 | | 2019 | $4.9 | $1.7 | $(1.1) | $5.5 | | 2018 | $5.7 | $(0.8) | — | $4.9 | Sales Return Reserve (in millions) | Year | Balance at Beginning of Year | Charged as a Reduction in Revenues | Used | Balance at End of Year | | :--- | :--------------------------- | :--------------------------------- | :----- | :--------------------- | | 2020 | $24.8 | $60.7 | $(57.1) | $28.4 | | 2019 | $32.7 | $59.5 | $(67.4) | $24.8 | | 2018 | $44.5 | $70.7 | $(82.5) | $32.7 | ITEM 16. Form 10-K Summary This item indicates that a Form 10-K Summary is not applicable SIGNATURES This section contains the required signatures for the Annual Report on Form 10-K from key executives and the Board of Directors - The report is signed by key executives including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, along with the Board of Directors, on February 12, 202112091212