Juniper Networks(JNPR) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q1 2021 financials show increased revenues but a $31.1 million net loss, driven by debt extinguishment and reduced cash from debt and acquisitions Condensed Consolidated Statements of Operations Q1 2021 vs Q1 2020 Statement of Operations (in millions, except per share data) | Financial Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Net Revenues | $1,074.4 | $998.0 | +7.7% | | Product Revenue | $672.4 | $608.8 | +10.4% | | Service Revenue | $402.0 | $389.2 | +3.3% | | Gross Margin | $615.6 | $579.3 | +6.3% | | Operating Income | $27.8 | $39.4 | -29.4% | | Loss on Extinguishment of Debt | ($60.6) | $0.0 | N/A | | Net (Loss) Income | ($31.1) | $20.4 | -252.5% | | Diluted EPS | ($0.10) | $0.06 | -266.7% | - The company experienced a significant shift from net income to a net loss, primarily due to a one-time $60.6 million loss on the extinguishment of debt[15] Condensed Consolidated Statements of Comprehensive Loss - Comprehensive loss narrowed to $5.4 million in Q1 2021 from $20.3 million in Q1 2020 This improvement was mainly driven by a net change on cash flow hedges, which shifted from a loss of $23.5 million to a gain of $29.6 million[17] Condensed Consolidated Balance Sheets Balance Sheet Comparison (in millions) | Account | March 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $989.1 | $1,361.9 | | Total current assets | $2,600.3 | $3,271.2 | | Goodwill | $3,753.3 | $3,669.6 | | Total Assets | $8,711.1 | $9,378.3 | | Total current liabilities | $1,607.7 | $2,161.1 | | Long-term debt | $1,685.2 | $1,705.8 | | Total Liabilities | $4,281.5 | $4,834.8 | | Total Stockholders' Equity | $4,429.6 | $4,543.5 | - Goodwill increased from $3.7 billion to $3.8 billion due to the acquisition of Apstra, Inc[19][35] - The short-term portion of long-term debt was eliminated, decreasing from $421.5 million to zero, reflecting debt redemption activities during the quarter[19][104] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in millions) | Cash Flow Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $179.8 | $272.2 | | Net cash provided by investing activities | $102.4 | $168.9 | | Net cash used in financing activities | ($651.0) | ($241.6) | | Net (decrease) increase in cash | ($370.8) | $183.3 | - Cash from operations decreased by 34% YoY, primarily due to higher payments to suppliers and for restructuring costs[21][195] - Cash used in financing activities increased significantly due to a $423.8 million payment for debt redemption and $58.3 million for debt extinguishment costs[21] - Investing activities included a $175.0 million payment for a business acquisition (Apstra), a notable increase from the prior year[21] Condensed Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity decreased from $4,543.5 million at the end of 2020 to $4,429.6 million at the end of Q1 2021[24] - Key drivers for the decrease in equity were the net loss of $31.1 million, common stock repurchases of $131.9 million, and dividend payments of $65.2 million[24] Notes to Condensed Consolidated Financial Statements - On January 27, 2021, the company acquired Apstra, Inc for $179.4 million to expand its data center networking portfolio The acquisition added $84.0 million in goodwill and $87.8 million in intangible assets[35][36] - In Q1 2021, the company initiated a restructuring plan, recording charges of $19.3 million, primarily for employee severance and facility consolidations[98] - The company redeemed its 2024 Notes and 2025-I Notes for an aggregate principal of $482.1 million, resulting in a loss on debt extinguishment of $60.6 million[104] - During Q1 2021, the company repurchased 5.1 million shares for $125.0 million and paid $65.2 million in dividends ($0.20 per share)[109][110][111] - Purchase commitments with contract manufacturers and suppliers totaled $1,319.2 million as of March 31, 2021[145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported an 8% revenue increase to $1,074.4 million, driven by Service Provider and WAN Solutions, despite gross margin decline from acquisitions and supply chain costs Business and Market Environment - The company's strategy is focused on 'experience-first networking' across three customer solution categories: AI-Driven Enterprise, Automated WAN Solutions, and Cloud-Ready Data Center[153] - The COVID-19 pandemic continued to cause supply chain disruptions in Q1 2021, leading to extended lead times, increased logistics costs, and a negative impact on revenue recognition and gross margins[158] - A worldwide semiconductor shortage is causing ongoing supply constraints and extended lead times, which are expected to persist for several quarters However, management believes they have access to sufficient supply to meet the full-year financial forecast[162] Financial Results and Key Performance Metrics Overview Q1 2021 Key Financial Metrics (in millions, except percentages and per share data) | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $1,074.4 | $998.0 | 8% | | Gross Margin % | 57.3% | 58.0% | -0.7 p.p. | | Operating Margin % | 2.6% | 3.9% | -1.3 p.p. | | Net (Loss) Income | ($31.1) | $20.4 | -252% | | Diluted EPS | ($0.10) | $0.06 | -267% | | Operating Cash Flows | $179.8 | $272.2 | -34% | - Net revenue growth was primarily driven by the Service Provider vertical, which saw strong performance in Automated WAN Solutions[166] - Gross margin percentage decreased due to higher intangible amortization from recent acquisitions (Apstra and 128 Technology) and increased logistics and supply chain costs related to the COVID-19 pandemic[167] Results of Operations Net Revenues by Customer Solution (in millions) | Customer Solution | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Automated WAN Solutions | $386.4 | $315.5 | +22% | | Cloud-Ready Data Center | $157.4 | $174.4 | -10% | | AI-Driven Enterprise | $161.2 | $143.4 | +12% | | Hardware Maintenance & Professional Services | $369.4 | $364.7 | +1% | | Total Net Revenues | $1,074.4 | $998.0 | +8% | Net Revenues by Customer Vertical (in millions) | Customer Vertical | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Cloud | $270.7 | $261.9 | +3% | | Service Provider | $438.2 | $375.5 | +17% | | Enterprise | $365.5 | $360.6 | +1% | - Product gross margin as a percentage of product revenues decreased from 55.8% to 52.9% YoY, primarily due to higher intangible amortization from acquisitions and increased supply chain costs[179][180] - Total operating expenses increased by 9% YoY to $587.8 million, driven by higher personnel-related expenses from increased headcount and a $10.4 million increase in restructuring charges[183] Liquidity and Capital Resources Liquidity Position (in millions) | Metric | March 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash, cash equivalents, and investments | $1,764.6 | $2,430.6 | | Total Debt (Short & Long-term) | $1,685.2 | $2,127.3 | | Cash, net of debt | $79.4 | $303.3 | - Net cash from operations decreased 34% YoY to $179.8 million, mainly due to higher payments to suppliers and for restructuring[194][195] - The company has a $500.0 million unsecured revolving credit facility expiring in April 2024, with no amounts outstanding as of March 31, 2021[201] - Management believes existing cash, investments, and cash from operations are sufficient to fund operations, capital returns, and growth for at least the next twelve months[203] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states no material changes to market risk exposures since December 31, 2020, referring to its Annual Report on Form 10-K - There were no material changes to the company's market risk exposures since December 31, 2020[205] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal financial controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[207] - No changes in internal control over financial reporting occurred during Q1 2021 that have materially affected, or are reasonably likely to materially affect, these controls[208] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings, but management believes none will materially affect its financial position - The company incorporates by reference the information on legal proceedings from Note 15 of the financial statements[210] - Management does not believe that any currently existing claims or proceedings are likely to have a material adverse effect on the company's financial position[146] Item 1A. Risk Factors Key risks include COVID-19 impacts, semiconductor shortages, unpredictable results, customer concentration, cybersecurity, acquisitions, debt, and data privacy laws Risks Related to Business Strategy and Industry - The COVID-19 pandemic continues to negatively affect operations through supply constraints, component shortages, and increased logistics costs, which has harmed revenue recognition and gross margins[212][213] - Quarterly results are unpredictable and subject to fluctuations due to unpredictable ordering patterns, changes in customer mix, and disruptions in the global supply chain[215][216] - A material portion of revenues is derived from a limited number of customers, and consolidation in their industries could adversely affect purchasing decisions[219] - The success of acquisitions is not guaranteed and involves risks such as integration challenges, unanticipated costs, and potential loss of key employees or customers[223] Risks Related to Technology and Business Operations - The business depends on the ability to anticipate technological shifts and market needs; failure to do so could lead to loss of customers and market acceptance[232] - The company depends on contract manufacturers and single-source suppliers for key components like semiconductors, and is currently experiencing extended lead times due to a worldwide shortage[241][246] - System security risks and cyberattacks pose a significant threat, potentially compromising proprietary information, disrupting operations, and harming public perception of products[248] - The majority of revenues are derived through resellers and distributors, and disruption in these channels could seriously harm future revenue[254] Legal, Regulatory, and Compliance Risks - The company is party to various lawsuits and investigations, including matters of patent infringement and past inquiries into FCPA compliance, which can be costly and divert management attention[260] - Governmental regulations affecting international trade, including import/export controls on encryption technology and economic sanctions, could negatively affect revenues and operating results[272] - Evolving and complex data privacy laws, such as GDPR in Europe and CCPA/CPRA in California, create significant compliance costs and risks of enforcement actions and fines[277][278][280] Financial Risks - The company holds significant goodwill ($3.8 billion) and purchased intangible assets ($335.1 million), which are subject to impairment risk that could adversely affect results of operations[283] - Effective tax rates are subject to volatility from changes in geographic earnings mix, valuation of deferred tax assets, and potential changes in tax laws, such as proposals by the current U.S administration[285][286] - The company has $1.7 billion in aggregate principal of senior notes, and covenants associated with its debt limit its ability to conduct certain business activities[291][292] - The planned elimination of LIBOR after June 2023 may affect financial results, as LIBOR-based borrowings will need to be converted to a replacement rate like SOFR, potentially increasing interest costs[297] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2021, the company repurchased 5.1 million shares for $125.0 million under its 2018 Stock Repurchase Program, with $1.2 billion remaining Q1 2021 Stock Repurchase Activity | Period | Total Shares Purchased (millions) | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2021 | 0 | N/A | | Feb 2021 | 4.7 | $24.50 | | Mar 2021 | 0.4 | $23.91 | | Total | 5.1 | ~ $24.45 | - As of March 31, 2021, approximately $1.2 billion remained available for repurchase under the $3.0 billion 2018 Stock Repurchase Program[303] Item 5. Other Information The company disclosed authorized dealings with Russian FSB in Q1 2021 for import permits, generating no revenue or profit from these specific activities - The company disclosed activities related to Section 13(r) of the Securities Exchange Act, concerning dealings with sanctioned entities[305] - In Q1 2021, the company filed for import licenses and permits from the Russian Federal Security Service (FSB), as authorized by a U.S OFAC General License, to enable product distribution in Russia No revenue or profit was associated with these filings[306][307] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Master Services Agreement amendments, CEO/CFO certifications, and iXBRL financial statements - A list of all exhibits filed with the quarterly report is provided, including CEO/CFO certifications and financial data files in iXBRL format[309] Signatures The report was officially signed on April 30, 2021, by Thomas A Austin, VP, Corporate Controller and Chief Accounting Officer, for Juniper Networks, Inc - The Form 10-Q report was officially signed and authorized on April 30, 2021[311]