Juniper Networks(JNPR) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Juniper Networks, Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Juniper Networks, Inc. for the periods ended June 30, 2022, and December 31, 2021, including statements of operations, comprehensive income, balance sheets, cash flows, and changes in stockholders' equity, along with accompanying notes Condensed Consolidated Statements of Operations This statement provides a summary of the company's revenues, costs, operating expenses, and net income for the three and six months ended June 30, 2022, and 2021 Net Revenues (Three Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :-------------- | :-------- | :-------- | :---------- | :--------- | | Product | 839.8 | 759.2 | 80.6 | 10.6% | | Service | 429.8 | 413.1 | 16.7 | 4.0% | | Total | 1,269.6 | 1,172.3 | 97.3 | 8.3% | Net Revenues (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :-------------- | :-------- | :-------- | :---------- | :--------- | | Product | 1,584.1 | 1,431.6 | 152.5 | 10.7% | | Service | 853.7 | 815.1 | 38.6 | 4.7% | | Total | 2,437.8 | 2,246.7 | 191.1 | 8.5% | Net Income and Diluted EPS (Three and Six Months Ended June 30) | Metric | Three Months 2022 ($M) | Three Months 2021 ($M) | Six Months 2022 ($M) | Six Months 2021 ($M) | | :-------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Net Income | 113.4 | 62.0 | 169.1 | 30.9 | | Diluted EPS | 0.35 | 0.19 | 0.51 | 0.09 | Condensed Consolidated Statements of Comprehensive Income This statement details the components of comprehensive income, including net income and other comprehensive income (loss) items such as unrealized gains/losses on debt securities, cash flow hedges, and foreign currency translation adjustments for the three and six months ended June 30, 2022, and 2021 Comprehensive Income (Three and Six Months Ended June 30) | Metric | Three Months 2022 ($M) | Three Months 2021 ($M) | Six Months 2022 ($M) | Six Months 2021 ($M) | | :----------------- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Comprehensive Income | 101.6 | 36.6 | 171.1 | 31.2 | Other Comprehensive (Loss) Income, Net (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | | :------------------------------------------- | :-------- | :-------- | :---------- | | Net change on available-for-sale debt securities | (7.2) | (0.9) | (6.3) | | Net change on cash flow hedges | 23.9 | 2.7 | 21.2 | | Change in foreign currency translation adjustments | (14.7) | (1.5) | (13.2) | | Total | 2.0 | 0.3 | 1.7 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity as of June 30, 2022, and December 31, 2021 Total Assets, Liabilities, and Stockholders' Equity (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($M) | Dec 31, 2021 ($M) | Change ($M) | Change (%) | | :----------------------- | :----------------- | :---------------- | :---------- | :--------- | | Total Assets | 8,861.0 | 8,887.0 | (26.0) | (0.3%) | | Total Liabilities | 4,612.3 | 4,570.1 | 42.2 | 0.9% | | Total Stockholders' Equity | 4,248.7 | 4,316.9 | (68.2) | (1.6%) | Key Current Assets (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($M) | Dec 31, 2021 ($M) | Change ($M) | Change (%) | | :---------------------------------------- | :----------------- | :---------------- | :---------- | :--------- | | Cash and cash equivalents | 721.8 | 922.5 | (200.7) | (21.8%) | | Accounts receivable, net | 1,048.4 | 994.4 | 54.0 | 5.4% | | Inventory | 394.9 | 272.6 | 122.3 | 44.9% | | Prepaid expenses and other current assets | 612.6 | 451.6 | 161.0 | 35.7% | Key Current Liabilities (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($M) | Dec 31, 2021 ($M) | Change ($M) | Change (%) | | :-------------------- | :----------------- | :---------------- | :---------- | :--------- | | Accounts payable | 360.6 | 273.7 | 86.9 | 31.8% | | Accrued compensation | 276.1 | 336.0 | (59.9) | (17.8%) | | Deferred revenue | 940.4 | 937.9 | 2.5 | 0.3% | Condensed Consolidated Statements of Cash Flows This statement outlines the cash flows from operating, investing, and financing activities for the six months ended June 30, 2022, and 2021 Cash Flows Summary (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :------------------------------------------ | :-------- | :-------- | :---------- | :--------- | | Net cash (used in) provided by operating activities | (73.8) | 437.0 | (510.8) | (116.9%) | | Net cash provided by investing activities | 217.7 | 20.6 | 197.1 | 956.8% | | Net cash used in financing activities | (332.0) | (829.6) | 497.6 | (60.0%) | | Cash, cash equivalents, and restricted cash at end of period | 740.6 | 1,009.4 | (268.8) | (26.6%) | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details the changes in stockholders' equity, including net income, other comprehensive income/loss, stock issuance, repurchases, share-based compensation, and dividends for the three and six months ended June 30, 2022, and 2021 Total Stockholders' Equity (June 30) | Year | Total Stockholders' Equity ($M) | | :--- | :------------------------------ | | 2022 | 4,248.7 | | 2021 | 4,340.9 | - Key changes in stockholders' equity for the six months ended June 30, 2022, include net income of $169.1 million, repurchase and retirement of common stock of $(226.3) million, payments of cash dividends of $(134.8) million, and share-based compensation expense of $92.7 million[28][341] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering accounting policies, significant events, and specific financial line items Note 1. Basis of Presentation and Summary of Significant Accounting Policies The financial statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the annual 10-K. It outlines the company's accounting for equity method investments and notes the adoption of ASU No. 2021-08 and ASU No. 2020-04, neither of which had a material impact - The Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and are not necessarily indicative of the results for the full year[32][345] - Investments in companies where Juniper has significant influence but not control are accounted for under the equity method, with the share of net earnings or loss recorded two months in arrears[35][348] - The early adoption of ASU No. 2021-08 (Topic 805) on contract assets and liabilities and ASU No. 2020-04 (Topic 848) on Reference Rate Reform did not have a material impact on the Condensed Consolidated Financial Statements[36][349][37][350][351] Note 2. Divestiture On April 4, 2022, Juniper divested its silicon photonics business to Synopsys, Inc., forming OpenLight Photonics, Inc. Juniper received $90.0 million cash and retained a 25% equity interest, recognizing a gain of $45.8 million. The retained equity interest is accounted for under the equity method - Juniper divested its silicon photonics business to Synopsys, Inc. on April 4, 2022, receiving $90.0 million in cash and retaining a 25% equity interest in the new entity, OpenLight Photonics, Inc[41][354] - A gain on divestiture of $45.8 million was recognized, with $19.5 million related to the remeasurement of the retained investment[42][355] - The 25% equity interest in OpenLight, valued at $40.8 million, is accounted for under the equity method[43][356] Note 3. Cash Equivalents and Investments This note details the company's available-for-sale debt securities and equity investments, including their fair values and classifications. It also provides a reconciliation of cash, cash equivalents, and restricted cash Total Available-for-Sale Debt Securities (June 30, 2022) | Metric | Estimated Fair Value ($M) | | :------------------------------------ | :------------------------ | | Total available-for-sale debt securities | 726.0 | Total Equity Securities (June 30, 2022) | Metric | Amount ($M) | | :-------------------- | :---------- | | Total equity securities | 462.2 | - As of June 30, 2022, the company had $10.9 million in unrealized losses from 469 available-for-sale debt investments, primarily due to changes in market interest rates[48][361] Cash, Cash Equivalents, and Restricted Cash (June 30, 2022) | Metric | Amount ($M) | | :---------------------------------------- | :---------- | | Total cash, cash equivalents, and restricted cash | 740.6 | Note 4. Fair Value Measurements This note describes how the company measures assets and liabilities at fair value on a recurring and nonrecurring basis, categorizing them into Level 1, 2, and 3 inputs. It highlights that privately-held debt and equity securities without readily determinable fair value are classified as Level 3 Total Assets and Liabilities Measured at Fair Value (June 30, 2022) | Metric | Total ($M) | | :------------------------------------------ | :--------- | | Total assets measured at fair value | 1,097.0 | | Total liabilities measured at fair value | (106.1) | - Available-for-sale debt securities and derivative instruments are classified as Level 2, valued using observable market data[62][375] - Privately-held debt and redeemable preferred stock securities, and equity investments without readily determinable fair value, are classified as Level 3 assets due to the lack of observable inputs[63][376][64][377] - No significant impairment charges were recognized for intangible assets and goodwill during the three and six months ended June 30, 2022[65][378] Note 5. Derivative Instruments Juniper uses derivative instruments, including foreign currency forward contracts and interest rate swaps, to manage foreign currency and interest rate risks, not for speculative purposes. The note details the notional amounts and fair values of these designated and non-designated derivatives Total Notional Amount of Derivative Instruments (June 30, 2022) | Metric | Amount ($M) | | :----------------------------------- | :---------- | | Total designated derivatives | 2,259.4 | | Non-designated derivatives | 148.4 | | Total | 2,407.8 | Fair Value of Derivative Instruments (June 30, 2022) | Metric | Amount ($M) | | :------------------------------------------ | :---------- | | Total derivative assets | 112.5 | | Total derivative liabilities | 106.1 | - For cash flow hedges, the Company recognized an unrealized gain of $7.2 million and $35.2 million in accumulated other comprehensive income (loss) for the effective portion of its derivative instruments for the three and six months ended June 30, 2022, respectively[76][389] - An estimated $25.0 million of unrealized net loss within accumulated other comprehensive loss is expected to be reclassified into earnings within the next twelve months[77][390] Note 6. Other Financial Information This note provides details on inventory, prepaid expenses and other current assets, warranties, revenue recognition from deferred revenue, remaining performance obligations (RPO), deferred commissions, and the components of other expense, net Total Inventory (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($M) | Dec 31, 2021 ($M) | | :-------------- | :----------------- | :---------------- | | Total inventory | 410.3 | 284.2 | Prepaid Expenses and Other Current Assets (June 30, 2022 vs. Dec 31, 2021) | Metric | June 30, 2022 ($M) | Dec 31, 2021 ($M) | | :---------------------------------------- | :----------------- | :---------------- | | Total prepaid expenses and other current assets | 612.6 | 451.6 | Remaining Performance Obligations (RPO) (June 30, 2022) | Metric | Total ($M) | Less than 1 year ($M) | | :------ | :--------- | :-------------------- | | Total | 1,483.7 | 958.6 | Other Expense, Net (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :-------------------------- | :-------- | :-------- | :---------- | :--------- | | Interest income | 5.9 | 7.5 | (1.6) | (21.3%) | | Interest expense | (25.9) | (26.3) | 0.4 | (1.5%) | | Gain (loss) on investments, net | (3.1) | 2.6 | (5.7) | (219.2%) | | Other | 2.1 | 0.3 | 1.8 | 600.0% | | Total Other expense, net | (21.0) | (15.9) | (5.1) | 32.1% | Note 7. Restructuring Charges The company initiated restructuring plans in 2022 and 2021 to align with strategic changes, resulting in severance and contract termination costs. Activities are expected to be completed by the end of 2022 Restructuring Liabilities (June 30, 2022) | Metric | Amount ($M) | | :------------------------------------ | :---------- | | Total restructuring liabilities | 9.2 | - Restructuring charges for the six months ended June 30, 2022, were $9.3 million[97][410] - Activities under the approved restructuring plans are expected to be completed by the end of 2022[96][409] Note 8. Debt This note summarizes the company's total debt, including Senior Notes and a revolving credit facility. As of June 30, 2022, the company had $1,700.0 million in Senior Notes and was in compliance with all debt covenants Total Debt (June 30, 2022) | Metric | Amount ($M) | | :------------------------------------ | :---------- | | Total Senior Notes | 1,700.0 | | Total Debt (net of discount and adjustments) | 1,625.8 | - The company has an unsecured revolving credit facility of up to $500.0 million, expiring in April 2024, with no outstanding amounts as of June 30, 2022[103][416] - As of June 30, 2022, the Company was in compliance with all covenants in the indentures governing the Notes and the credit facility[102][415][103][416] Note 9. Equity This note details the company's dividend payments and stock repurchase activities. The company declared and paid quarterly cash dividends and repurchased common stock under its 2018 Stock Repurchase Program Cash Dividends Paid (Six Months Ended June 30, 2022) | Metric | Amount ($M) | | :------------------------------------ | :---------- | | Total cash dividends paid | 134.8 | | Per share | 0.42 | Stock Repurchases (Six Months Ended June 30, 2022) | Metric | Amount | | :------------------------------------ | :---------- | | Shares repurchased (millions) | 6.3 | | Aggregate purchase price ($M) | 212.2 | | Average price per share ($) | 33.38 | - Approximately $0.7 billion of authorized funds remained under the 2018 Stock Repurchase Program as of June 30, 2022[108][421] - On July 26, 2022, a cash dividend of $0.21 per share was declared, payable on September 22, 2022[147][460] Note 10. Employee Benefit Plans This note describes the company's equity incentive plans, including stock options, RSUs, and PSAs, and the Employee Stock Purchase Plan (ESPP). It also provides details on RSU, RSA, and PSA activities and share-based compensation expense - As of June 30, 2022, 8.8 million shares were available for future issuance under the 2015 Equity Incentive Plan and 7.4 million shares under the ESPP[116][429] RSU, RSA, and PSA Activities (June 30, 2022) | Metric | Amount | | :------------------------------------ | :---------- | | Number of Shares Outstanding (millions) | 19.6 | | Weighted Average Grant Date Fair Value per Share ($) | 26.01 | | Aggregate Intrinsic Value ($M) | 557.8 | Share-Based Compensation Expense by Award Type (Six Months Ended June 30) | Award Type | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :------------------ | :-------- | :-------- | :---------- | :--------- | | Stock options | 3.1 | 5.2 | (2.1) | (40.4%) | | RSUs, RSAs, and PSAs | 79.4 | 94.5 | (15.1) | (16.0%) | | ESPP purchase rights | 9.9 | 8.3 | 1.6 | 19.3% | | Total | 92.4 | 108.0 | (15.6) | (14.4%) | Note 11. Segments Juniper Networks operates as one reportable segment, with financial performance reviewed on a consolidated basis. This note provides disaggregated net revenues by customer solution, customer vertical, and geographic region Net Revenues by Customer Solution (Six Months Ended June 30, 2022) | Customer Solution | Revenue ($M) | % of Total | | :------------------------------------- | :----------- | :--------- | | Automated WAN Solutions | 853.6 | 35.0% | | Cloud-Ready Data Center | 389.7 | 16.0% | | AI-Driven Enterprise | 441.3 | 18.1% | | Hardware Maintenance and Professional Services | 753.2 | 30.9% | | Total | 2,437.8 | 100% | Net Revenues by Customer Vertical (Six Months Ended June 30, 2022) | Customer Vertical | Revenue ($M) | % of Total | | :---------------- | :----------- | :--------- | | Cloud | 638.0 | 26.2% | | Service Provider | 898.8 | 36.8% | | Enterprise | 901.0 | 37.0% | | Total | 2,437.8 | 100% | Net Revenues by Geographic Region (Six Months Ended June 30, 2022) | Geographic Region | Revenue ($M) | % of Total | | :---------------- | :----------- | :--------- | | Americas | 1,403.6 | 57.6% | | EMEA | 671.1 | 27.5% | | APAC | 363.1 | 14.9% | | Total | 2,437.8 | 100% | Note 12. Income Taxes This note provides details on the income tax provision and effective tax rates, explaining the factors contributing to differences from the federal statutory rate. It also discusses the impact of the Tax Cuts and Jobs Act of 2017 on R&D expenditures and ongoing tax examinations Income Tax Provision and Effective Tax Rate (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--------------------- | :-------- | :-------- | :---------- | :--------- | | Income tax provision | 21.5 | 6.1 | 15.4 | 252.5% | | Effective tax rate | 11.3% | 16.5% | (5.2%) | (31.5%) | - The effective tax rate for the six months ended June 30, 2022, decreased primarily due to changes in the effect of one-time items, including the gain on divestiture and tax legislative benefits[135][448][194][507] - The capitalization and amortization of R&D expenditures under the Tax Act (effective Jan 1, 2022) is estimated to decrease 2022 cash flow from operations by up to $230 million[195][508] - As of June 30, 2022, gross unrecognized tax benefits totaled $116.7 million, with a greater than remote likelihood of decreasing by up to $6.9 million within the next twelve months[135][448][136][449] Note 13. Net Income per Share This note presents the computation of basic and diluted net income per share for the three and six months ended June 30, 2022, and 2021 Net Income per Share (Six Months Ended June 30) | Metric | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :---------- | :------- | :------- | :--------- | :--------- | | Basic EPS | 0.53 | 0.09 | 0.44 | 488.9% | | Diluted EPS | 0.51 | 0.09 | 0.42 | 466.7% | - Weighted-average shares used to compute diluted net income per share were 329.3 million for the six months ended June 30, 2022, compared to 331.5 million in the prior year[141][454] Note 14. Commitments and Contingencies This note outlines the company's purchase commitments with contract manufacturers and suppliers, and discusses ongoing legal proceedings - Purchase commitments with contract manufacturers and suppliers totaled $2,823.4 million as of June 30, 2022, with $2,553.4 million payable within 12 months[144][457] - The company is subject to various legal proceedings, but believes none are likely to have a material adverse effect on its financial position, though litigation uncertainties exist[145][458] Note 15. Subsequent Events This note reports a subsequent event regarding the declaration of a cash dividend after the reporting period - On July 26, 2022, the Company announced a cash dividend of $0.21 per share of common stock, to be paid on September 22, 2022[147][460] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an executive overview, business and market environment, financial results, liquidity, and critical accounting policies. It also contains forward-looking statements and discusses the impact of the COVID-19 pandemic and global component shortages Business and Market Environment Juniper Networks designs and sells high-performance networking products and services globally, focusing on "experience-first networking." The company's offerings are categorized into AI-Driven Enterprise, Automated WAN Solutions, and Cloud-Ready Data Center, serving Cloud, Service Provider, and Enterprise verticals. The section also addresses the ongoing impacts of the COVID-19 pandemic and global component shortages on operations, costs, and supply chain - Juniper Networks designs, develops, and sells products and services for high-performance networks, focusing on 'experience-first networking' to build scalable, reliable, secure, and cost-effective networks[151][464] - The company's product offerings are categorized into AI-Driven Enterprise, Automated WAN Solutions, and Cloud-Ready Data Center, with connected security products sold across all categories[151][464][152][465][154][467] - The COVID-19 pandemic did not have a substantial net impact on consolidated operating results or liquidity in Q2 2022, but higher logistics costs due to air travel and transport restrictions persist[157][470] - Global supply chain constraints and component shortages led to extended lead times, increased logistics costs, and impacted revenue recognition in the first half of 2022; pricing actions are being taken to mitigate rising costs[158][471][159][472][160][473] Financial Results and Key Performance Metrics Overview This overview highlights key financial results and performance metrics for the three and six months ended June 30, 2022, compared to 2021, including net revenues, gross margin, operating income, net income, EPS, operating cash flows, stock repurchase activity, dividends, DSO, and deferred revenue - Net revenues increased by 8% for the three months and 9% for the six months ended June 30, 2022, driven by all verticals and strong service sales[163][476] - Gross margin as a percentage of net revenues decreased due to higher component and freight costs and unfavorable product mix, partially offset by pricing actions[163][476] - Operating income as a percentage of net revenues increased primarily due to lower restructuring costs, partially offset by gross margin factors and higher personnel expenses[165][478] - Net cash used in operations was $73.8 million for the six months ended June 30, 2022, a significant decrease from $437.0 million provided by operations in the prior year, primarily due to higher supplier payments, cash taxes, and lower customer collections[165][478] - Days Sales Outstanding (DSO) increased to 74 days (from 59 days) due to a significant increase in product invoicing later in the quarter[166][479] - Total deferred revenue increased to $1,462.6 million as of June 30, 2022, driven by an increase in deferrals of SaaS and software license subscriptions[166][479] Results of Operations This section provides a detailed analysis of the company's revenues, gross margins, operating expenses, and other income/expense items for the three and six months ended June 30, 2022, compared to the same periods in 2021 Revenues Total net revenues increased across all customer solutions and verticals for the six months ended June 30, 2022, primarily driven by higher sales volume in Automated WAN Solutions and AI-Driven Enterprise. Software and related services revenue also saw significant growth Total Net Revenues (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :---------------- | :-------- | :-------- | :---------- | :--------- | | Total net revenues | 2,437.8 | 2,246.7 | 191.1 | 9% | - Automated WAN Solutions revenue increased by 9% to $853.6 million for the six months ended June 30, 2022, primarily driven by Cloud and Enterprise verticals[171][484][173][486] - AI-Driven Enterprise revenue increased by 24% to $441.3 million for the six months ended June 30, 2022, primarily driven by Enterprise and Service Provider verticals[171][484][173][486] Software and Security Products and Services Net Revenues (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :-------------------------- | :-------- | :-------- | :---------- | :--------- | | Software and Related Services | 441.5 | 315.4 | 126.1 | 40% | | Total Security | 319.6 | 334.7 | (15.1) | (5%) | Gross Margins Product gross margin as a percentage of product revenues decreased for both the three and six months ended June 30, 2022, primarily due to increased component and freight costs and unfavorable product mix. Service gross margin, however, increased due to higher revenue and lower delivery costs Total Gross Margin (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :----------------- | :-------- | :-------- | :---------- | :--------- | | Total gross margin | 1,343.5 | 1,297.5 | 46.0 | 4% | Product and Service Gross Margin as % of Revenues (Six Months Ended June 30) | Metric | 2022 (%) | 2021 (%) | | :------------------------------------ | :------- | :------- | | Product gross margin as % of product revenues | 48.8% | 53.4% | | Service gross margin as % of service revenues | 66.7% | 65.4% | - Product gross margin decreased primarily due to $40.7 million in incremental component costs and $11.9 million in incremental freight costs, driven by supply chain constraints and unfavorable product mix[181][494] Operating Expenses Total operating expenses decreased slightly for the three and six months ended June 30, 2022, primarily due to lower restructuring costs, partially offset by higher headcount-related costs Total Operating Expenses (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--------------------- | :-------- | :-------- | :---------- | :--------- | | Total operating expenses | 1,177.2 | 1,184.0 | (6.8) | (1%) | - Restructuring charges decreased significantly by 77% to $9.3 million for the six months ended June 30, 2022, from $40.9 million in the prior year[184][497] - Sales and marketing expenses increased by 7% to $547.6 million for the six months ended June 30, 2022[184][497] Gain on Divestiture The company recognized a $45.8 million gain on the divestiture of its silicon photonics business during the six months ended June 30, 2022 Gain on Divestiture (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | | :---------------- | :-------- | :-------- | :---------- | | Gain on divestiture | 45.8 | — | 45.8 | Loss on Extinguishment of Debt The company incurred a $60.6 million loss on extinguishment of debt during the six months ended June 30, 2021, related to the early redemption of Senior Notes Loss on Extinguishment of Debt (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | | :----------------------------- | :-------- | :-------- | :---------- | | Loss on extinguishment of debt | — | (60.6) | 60.6 | Other Expense, Net Total other expense, net, increased for the six months ended June 30, 2022, primarily due to losses on certain equity investments and lower interest income, partially offset by foreign currency gains Total Other Expense, Net (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :-------------------- | :-------- | :-------- | :---------- | :--------- | | Total other expense, net | (21.0) | (15.9) | (5.1) | 32% | - The increase in net other expense was primarily driven by a loss on investments of $(3.1) million in 2022 compared to a gain of $2.6 million in 2021, and lower interest income[190][503][192][505] Income Tax Provision The effective tax rate for the six months ended June 30, 2022, decreased primarily due to changes in the effect of one-time items. The Tax Cuts and Jobs Act of 2017's R&D capitalization requirements are expected to decrease 2022 cash flow from operations by up to $230 million Income Tax Provision and Effective Tax Rate (Six Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--------------------- | :-------- | :-------- | :---------- | :--------- | | Income tax provision | 21.5 | 6.1 | 15.4 | 252% | | Effective tax rate | 11.3% | 16.5% | (5.2%) | (31.5%) | - The capitalization and amortization of R&D expenditures under the Tax Cuts and Jobs Act of 2017 is estimated to decrease cash flow from operations by up to $230 million in 2022[195][508] Liquidity and Capital Resources Juniper believes its existing cash, investments, operating cash flow, and credit facility will be sufficient to fund operations, capital returns, and growth for the foreseeable future. The company has significant purchase commitments and anticipates substantial tax payments related to R&D capitalization - The company expects existing cash, investments, operating cash flow, and credit facility to be sufficient to fund operations, capital returns, and growth for at least the next twelve months[198][511] - Purchase commitments with contract manufacturers and suppliers totaled $2,823.4 million as of June 30, 2022, with $2,553.4 million payable within 12 months[200][513] - Tax payments of approximately $112 million were made in Q2 2022, with $75 million attributed to R&D capitalization requirements under the Tax Act. An additional $155 million in tax payments is estimated for the remainder of 2022[201][514] - The company repurchased $212.2 million of common stock and paid $134.8 million in cash dividends during the six months ended June 30, 2022, with approximately $0.7 billion remaining under the stock repurchase program[202][515] Critical Accounting Policies and Estimates The company's financial statements require judgments, assumptions, and estimates in conformity with U.S. GAAP. No material changes to critical accounting policies and estimates occurred during the six months ended June 30, 2022, compared to the prior annual report - There were no material changes to the company's critical accounting policies and estimates during the six months ended June 30, 2022[167][480] Recent Accounting Pronouncements This section refers to Note 1 for a full description of recently adopted and not yet adopted accounting standards, including their expected impact on financial statements - For a full description of recently adopted and not yet adopted accounting standards, refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies[168][481] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's exposures to market risk have not materially changed since December 31, 2021, and further disclosures can be found in the Form 10-K - The company's exposures to market risk have not changed materially since December 31, 2021[204][517] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2022. No material changes in internal control over financial reporting occurred during the quarter, despite remote work arrangements due to COVID-19 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[206][519] - There were no material changes in internal control over financial reporting during the second quarter of 2022[207][520] - The company has not experienced any significant impact to its internal controls over financial reporting despite remote work arrangements due to the COVID-19 pandemic[207][520] PART II - OTHER INFORMATION This section details other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This item incorporates by reference the information on legal proceedings from Note 14, Commitments and Contingencies, in Part I of the report - Information regarding legal proceedings is incorporated by reference from Note 14, Commitments and Contingencies[209][522] Item 1A. Risk Factors This section outlines various factors that could materially and adversely affect Juniper Networks' business, financial condition, operating results, and stock price. These risks are categorized into business strategy and industry, technology and business operations, legal, regulatory and compliance, financial, and general risks RISKS RELATED TO OUR BUSINESS STRATEGY AND INDUSTRY Risks include the uncertain impact of the COVID-19 pandemic and global component shortages on operations, supply chain, and costs. Quarterly results are unpredictable due to fluctuating demand, customer mix, economic conditions, and competition. Gross and operating margins are expected to vary due to various factors, including increased costs and pricing pressures. Dependence on a limited number of customers and the challenges of acquisitions/divestitures also pose significant risks - The COVID-19 pandemic and global component shortages continue to cause supply constraints, extended lead times, and increased logistics and component costs, negatively impacting revenue recognition and gross margins[212][525] - Quarterly results are unpredictable and subject to substantial fluctuations due to factors such as unpredictable ordering patterns, changes in customer mix, demand shifts, economic conditions, and supply chain disruptions[214][527][215][528] - Gross and operating margins are expected to vary due to customer, vertical, product, and geographic mix shifts, increased price competition, currency fluctuations, inflation, and rising material, labor, and logistics costs[217][530] - A material portion of revenues depends on a limited number of customers, increasing risks related to their financial condition, changing business requirements, or consolidation[218][531] - Acquisitions or divestitures of businesses could disrupt operations, harm financial condition, and dilute stockholder ownership due to integration problems, unanticipated costs, and diversion of management's attention[223][536][224][537][225][538] RISKS RELATED TO OUR TECHNOLOGY AND BUSINESS OPERATIONS Risks in this category include the dependence on continued growth of network and IP systems, the need to anticipate technological shifts, challenges in expanding the software business, product interoperability issues, reliance on licensed third-party technology, difficulties in enforcing proprietary rights, and dependence on single-source/limited-source suppliers and contract manufacturers. System security risks, data breaches, and cyberattacks are also significant concerns, along with potential disruptions in distribution channels and the ability to retain key personnel - The company's business and revenues depend substantially on the growth of secure IP infrastructure; any reduction or suspension of spending on IP infrastructure could adversely affect financial results[232][545] - Failure to anticipate future technological shifts, market needs, or to introduce new products and enhancements in a timely manner could lead to loss of customers and harm business[233][546] - The strategy to expand the software business is subject to risks including development costs, customer adoption, potential erosion of revenue/gross margins, and regulatory compliance[234][547] - Dependence on contract manufacturers and single/limited-source suppliers for key components (e.g., semiconductors) poses risks of supply shortfalls, delays, increased costs, and production disruptions, exacerbated by global shortages[242][555][243][556][244][557][245][558][247][560][248][561][249][562] - System security risks, data protection breaches, and cyberattacks could compromise proprietary information, disrupt internal operations, and harm public perception of products, requiring significant resources for mitigation[250][563][251][564][252][565][253][566][254][567][255][568] - The ability to recruit and retain key management, engineering, technical, sales, marketing, and support personnel is critical, and competition for such talent is significant, potentially impacting product development and market support[260][573] LEGAL, REGULATORY, AND COMPLIANCE RISKS This section details legal and regulatory risks, including ongoing lawsuits and investigations, the impact of non-standard contract terms with large customers, and various governmental regulations affecting product sales, manufacturing, and data protection. International trade restrictions, economic sanctions, and the evolving landscape of data privacy and AI regulations also pose significant compliance challenges - The company is a party to various lawsuits and investigations, including those related to commercial transactions, intellectual property, and governmental claims, which can be costly and divert management's attention[264][577][265][578][266][579] - Non-standard contract terms with large customers, including telecommunications, cable, and cloud service providers, can adversely affect the business by impacting revenue recognition and increasing costs[267][580] - The company is subject to various governmental regulations (e.g., country-specific certifications, environmental laws, IT system security for government contractors) that can increase costs, delay product releases, and restrict market access[268][581][270][583][271][584][272][585][273][586][274][587][275][588] - Governmental regulations, economic sanctions (e.g., Russia-Ukraine conflict), and other legal restrictions affecting international trade and product movement can negatively impact revenues and operating results[276][589][277][590][278][591][280][593] - Evolving and complex data protection and privacy laws (e.g., GDPR, U.S. state laws) require significant compliance efforts, can delay product development, and expose the company to enforcement actions and fines[281][594][282][595][284][597] FINANCIAL RISKS Financial risks include potential impairment of goodwill and purchased intangible assets, volatility due to changes in effective tax rates or new tax legislation, and adverse outcomes from tax examinations. Risks associated with international operations, including economic, regulatory, and geopolitical conditions, and currency fluctuations, can also significantly impact financial results. The company's outstanding indebtedness and the upcoming elimination of LIBOR also present financial risks - The company's financial condition could suffer from impairment of goodwill ($3,733.8 million) or purchased intangible assets ($196.2 million), which are subject to annual testing[285][598] - Changes in effective tax rates, new U.S. or international tax legislation (e.g., OECD global minimum tax), or adverse outcomes from tax examinations could adversely affect financial results[286][599][287][600][288][601] - International operations expose the company to economic, business, regulatory, social, and political conditions in foreign countries, including trade controls, sanctions, geopolitical tensions, and currency fluctuations[289][602][290][603][291][604] - Risks associated with outstanding indebtedness ($1,700.0 million in Senior Notes) include limitations from covenants and the ability to generate sufficient cash flow to service debt[293][606][294][607][295][608] - The elimination of LIBOR after June 2023 may affect financial results as LIBOR-based borrowings and interest rate derivatives will need to be converted to a replacement rate[299][612] GENERAL RISK FACTORS General risks include the need to continuously evolve financial and managerial control systems, potential weaknesses in internal controls affecting investor perception, and limitations on stockholders' ability to choose a judicial forum due to bylaws - Failure to adequately evolve financial and managerial control and reporting systems, or any weaknesses in internal controls, may adversely affect investor perception and stock price[300][613] - The company's bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between the company and its stockholders, which could limit stockholders' ability to obtain a favorable judicial forum[301][614] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item provides a table summarizing the company's stock repurchase activity during the three months ended June 30, 2022, under its 2018 Stock Repurchase Program Stock Repurchase Activity (Three Months Ended June 30, 2022) | Period | Total Shares Purchased (M) | Average Price Paid per Share ($) | Value Remaining Under Program ($M) | | :---------------------- | :------------------------- | :------------------------------- | :--------------------------------- | | April 1 - April 30, 2022 | 0.9 | 32.23 | 751.3 | | May 1 - May 31, 2022 | 2.2 | 32.13 | 679.5 | | June 1 - June 30, 2022 | — | — | 679.5 | | Total | 3.1 | | | - Approximately $0.7 billion of authorized funds remained under the 2018 Stock Repurchase Program as of June 30, 2022[305][618] Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, bylaws, equity incentive plan, and XBRL formatted financial statements - Exhibits include certifications of the CEO and CFO, Amended and Restated Bylaws, the 2015 Equity Incentive Plan, and XBRL formatted financial statements[308][621][309][622] SIGNATURES The report is duly signed on behalf of Juniper Networks, Inc. by Thomas A. Austin, Group Vice President and Chief Accounting Officer, on July 29, 2022 - The report was signed by Thomas A. Austin, Group Vice President and Chief Accounting Officer of Juniper Networks, Inc. on July 29, 2022[312][625]