The operator welcomes participants to Juniper Networks' Q3 2023 Financial Results Conference Call and introduces the speakers, CEO Rami Rahim and CFO Ken Miller. The call contains forward-looking statements and non-GAAP financial results, which will be followed by a question-and-answer session. Rami Rahim discusses the company's better-than-expected Q3 results, with a total revenue of $1.5 billion.

During the third quarter, the company had better than expected results with total revenue of $1.398 billion and strong profitability. They attribute this success to their teams executing well and their focus on providing customers with the best user experience. While total product orders were in line with expectations, the Enterprise business saw significant growth and accounted for more than half of the company's revenue. This segment has been consistently growing and was the largest and fastest growing vertical for the fourth consecutive quarter.

In the third quarter, Juniper saw strong growth in new logos and mid-market success, driven by the differentiation of their products. Their AI-driven enterprise revenue and mystified segment also had record growth, surpassing $1 billion run rate and $100 million run rate milestones respectively. Customers are recognizing Juniper's leadership in AI-driven operations and the benefits it provides. This transition to next-gen solutions managed by AI and the cloud is still in its early stages and presents growth opportunities. In Q3, Juniper secured a win with a global pharmaceutical leader, the world's largest healthcare provider, and two large retailers, including one with nearly 10,000 locations.

In the third quarter, the company saw strong demand for their cloud-based network access control product, resulting in over 50 customer wins. This was attributed to the product's ability to reduce rollout time and simplify operations. The company also saw record revenue in their wireless, wired, and SD-WAN products, as well as an increase in full-stack wins where customers purchased multiple products together. In addition, their Enterprise data center business performed well, with a significant increase in new logos and a strong pipeline of opportunities. The company's diversification strategy is working, and they expect to continue growing their Enterprise revenue and orders in the coming years, even in a challenging macro environment where customers are more closely scrutinizing budgets and project timelines.

The company's Cloud segment has been affected by customers still processing prior purchases, but they remain optimistic about their long-term prospects due to their strong wide-area footprint and the growth of AI and ML use cases. They expect AI adoption to drive traffic growth and are seeing success with cloud and enterprise accounts. The Service Provider business softened in Q3 due to macro uncertainties causing carriers to closely scrutinize budgets and run their networks harder than planned.

Despite facing challenges with certain customers and macro headwinds, the company has seen strong momentum in their Cloud Metro portfolio and services division. They have secured new wins and expect this business to become more significant in the future. The services team has also delivered record revenue and margins, and the company remains committed to improving profitability in the coming years. The CEO is confident in their strategy and optimistic about long-term growth prospects.

In the third quarter of 2023, the company's revenue exceeded expectations and non-GAAP diluted earnings per share were above the high end of the guidance range. Enterprise demand was strong, but Cloud and Service Provider demand remained pressured. AI-driven enterprise revenue saw record growth, while Automated WAN and cloud-ready data center revenue declined. Software and related services revenue increased by 27% year-over-year, and the company remains confident in its software transformation and ARR growth.

In the third quarter of 2023, Total Security saw a 14% increase in revenue, with services revenue reaching a record high and growing 12% year-over-year. The non-GAAP service gross margin also improved significantly. The top 10 customers for the quarter were a mix of Cloud, Enterprise, and Service Providers. Non-GAAP gross margin was at the high end of expectations, driven by improved service margin and lower logistics costs. Non-GAAP operating expenses increased 4% year-over-year, but decreased 1% sequentially. Cash flows from operations were $329 million, and the company paid dividends and repurchased shares. The company also announced a plan to reduce worldwide head count by 440 employees to support strategic priorities and profitability goals.

The company had solid results in the third quarter and expects sequential growth in bookings and a moderation in year-over-year order declines for the fourth quarter. They anticipate healthy Enterprise momentum and growth in orders for the full year, but demand from Cloud and Service Provider customers may remain constrained. They expect a modest increase in non-GAAP gross margin and a decline in non-GAAP operating expenses. Total 2023 revenue is expected to grow 5-6% and non-GAAP operating margin will expand by more than 100 basis points. The company expects double digit growth in non-GAAP earnings per share for 2023 and anticipates growth in bookings and Enterprise revenue for 2024, but total revenue will depend on the recovery of the Cloud and Service Provider verticals.

The speaker discusses their expectations for a return to traditional revenue patterns in the first quarter of 2024, with a potential for non-GAAP gross margin and operating margin expansion. They also mention their long-term financial objectives and announce a quarterly cash dividend. The first question from a caller relates to the current weakness in the Cloud and Service Provider market, and whether it is due to customers digesting existing products or pushing out new deployments.

Rami Rahim, CEO of Juniper Networks, responds to a question about the demand environment for Cloud and Service Provider segments. He mentions that there hasn't been much change from the previous quarter and that Service Provider is slightly more challenging due to Tier 2, Tier 3, and international providers. He also states that the digestion period for these segments is expected to last for several quarters, but there are still opportunities in the metro and emerging AI cluster space. It may take a few more quarters before these opportunities start to contribute to the company's top line.

The speaker, Rami Rahim, thanks Amit and then takes a question from Michael Ng from Goldman Sachs. Michael asks about the strength in hardware, maintenance, and professional services, as well as product orders. Rami explains that the services business had record results, with a 12% year-on-year revenue increase and strong margins. The growth was driven by both maintenance and SaaS software. The maintenance business has benefited from the growing SaaS business and the expansion of the installed base. On the product booking and order side, it met expectations, with the enterprise sector performing slightly better than anticipated.

The Service Provider segment was slightly weaker than expected, but overall in line with expectations. The company predicts a decrease in year-over-year decline in the fourth quarter. They are anticipating gross margin expansion and cost controls to lead to operating margin expansion next year, but this may be challenging if revenue declines significantly. They remain focused on protecting profitability.

The company is considering cutting costs to protect their margins. They may return to year-on-year growth in Q4, but it is not factored into their current base case. They expect to return to full year growth in 2024. The backlog has normalized faster than expected due to improvements in the supply chain, but it is still expected to remain elevated by the end of the year. The excess inventory is also expected to normalize, but there may be some risk of obsolescence.

The speaker does not believe that backlog will be twice the elevated level discussed in previous periods. They expect backlog to fully normalize by the middle of next year and for inventory levels to plateau and start to decrease in 2024. However, the speaker believes that inventory levels will remain higher than in the past due to lessons learned from recent supply chain issues. The company is currently paying for excess and obsolescence reserves and carrying charges for inventory, which is factored into their results and guidance. The speaker anticipates that these costs will decrease as inventory normalizes.

The speaker is confident in their company's growth in the campus and branch business, despite market research firms predicting a decline in the market in 2024. They attribute their success to their solutions that reduce costs and enable digital transformation, as well as the large market opportunity for growth.

The speaker is optimistic about the Enterprise business, especially the campus and branch business. They expect a sequential decline from Q4 to Q1, but anticipate sequential growth throughout the rest of the year. The uncertainty of revenue next year is due to the unclear pace and timing of recovery in Cloud and SP.

The speaker discusses the expected acceleration of revenue and the impact on gross margin due to supply chain issues and excess inventory. They mention that revenue may be back-end loaded and that backlog will remain elevated but not as high as previously thought. They also mention that high-cost componentry and excess and obsolete inventory are contributing to the gross margin breakdown.

The company is seeing improvements in transitory costs, such as logistics and expedite fees. The supply chain has normalized, but there is still some inventory bought at higher prices. Logistics costs have returned to normal, but inventory carrying fees remain high. The company expects to grow gross margin next year. Services gross margin was strong in Q3, likely due to the SaaS business.

During a recent earnings call, Ken Miller, the CEO of a technology company, discussed the factors driving the company's revenue growth and margin expansion. He mentioned that their SaaS business has been a significant contributor, with ARR at an all-time high. However, he also acknowledged the growth in their maintenance business and the efficiencies in their services organization. When asked about the gross margin, Miller stated that there were no one-time items driving it and that they expect it to continue to increase. Another analyst brought up the demand for wireless LAN upgrades, citing the need for improved bandwidth for video conferencing apps like Zoom and Teams.

The paragraph discusses the potential for growth in the business, specifically in the campus and branch market, and the role of cloud-managed solutions in driving that growth. The speaker, Rami Rahim, mentions that this segment of the market is growing at a healthy rate and is the main focus of their business. He also brings up the topic of orders growing and asks Ken, another speaker, about their expectations for next year's decline.

The growth in wired switching and WAN is happening through the cloud, and security capabilities are also cloud-based. It's more useful to look at the growth of the cloud-connected portion of the market. Customers are seeing real benefits from harnessing the power of AIOps, such as a reduction in tickets and deployment time, and improved root cause analysis. Zoom visibility has been integrated into Mist solutions, providing IT staff with instant visibility into issues. The speaker is optimistic about the competitiveness of their solutions in the market.

Ken Miller, CEO of a company, discusses the revenue growth for 2024 and the challenges they may face due to weakness in the Cloud and Service Provider customer segments. He mentions that the backlog drawdown in 2023 will be a significant headwind for revenue in 2024, but he expects orders to accelerate and all verticals to see growth. However, the timing and pace of recovery for the Cloud and SP segments is uncertain at this point. The next question is from Karl Ackerman, who asks about the upside in services and the decline in product growth. Rami Rahim, the CEO, explains that this is due to a mix dynamic and mentions that the Cloud and SP segments are currently in a period of digestion after making significant equipment purchases in the past few years.

The speaker discusses the recent slowdown in the Cloud Provider and Service Provider segments and notes that this is expected and not a new trend. They believe that these segments will bounce back in the future, but it may take a few quarters. The company's focus on the Enterprise segment has helped to offset the challenges in the SP and Cloud segments. They are optimistic about the future and believe that the Enterprise segment will continue to perform well.

Atif Malik from Citi asks Rami Rahim about the timing of Ethernet adoption for AI clusters. Rami expresses his bullishness about the opportunity and believes that it is only a matter of time before Ethernet becomes the fabric technology of choice for AI clusters. He expects this shift to happen in 2024 and notes that there are already many projects and opportunities for Juniper in this space, particularly with cloud major customers and large enterprises in industries like finance, insurance, and healthcare.

The speaker expresses confidence in their company's technology and its ability to capture market share in the Ethernet cluster solution market. The company expects their Enterprise business to grow faster than the overall market, indicating potential market share gains. In response to a question about the impact of macroeconomic conditions on sales, the speaker notes that their company is less affected due to their share gain position. They also mention the potential for shorter sales cycles due to the compelling ROI of their products. In regards to inventory digestion in the Cloud and Service Provider sectors, the company has visibility into the amount of inventory their customers have.

Rami Rahim, CEO of Juniper Networks, answered two questions from Meta Marshall of Morgan Stanley and Tal Liani from Bank of America. He discussed the timing of initial sales of Mist solutions and subsequent use cases, noting that it varies greatly. Some customers have come back years later to add more use cases, while others purchase the full technology stack right away. Juniper is tracking sales of full-stack solutions and saw a record number in Q3. Rahim also mentioned that they are focusing on cross-selling and enabling their sellers to do so. Regarding visibility, Rahim stated that it is difficult to know exactly how much inventory levels their customers have, but they expect their customers to focus on deploying what they have purchased in the next few quarters before making new orders. Tal Liani had two questions, but they were not specified in the summary.

The Cloud vertical experienced a 28% decline in the current quarter due to shorter lead times, project pushouts, and a shift in priorities towards more expensive equipment like AI and GPUs. However, the speaker remains optimistic about the long-term prospects of this market and believes it will rebound in the future. The Enterprise vertical, on the other hand, has seen strong growth in the past four quarters, but the speaker acknowledges that the upcoming quarters will have tough comparisons.

The speaker discusses the strength of the Enterprise market, specifically mentioning the success of Mist and the record revenue from Apstra. They note that the pipeline for Apstra remains strong and that there has been an 80% increase in new Apstra logos. However, they acknowledge that the upcoming year may present more challenging comparisons and that the backlog draw in 2023 will also affect Enterprise. Despite this, they expect order growth and a clear path to revenue growth in the next year. The speaker advises listeners to factor this information into their models. The call ends with the operator thanking participants for their participation.

This summary was generated with AI and may contain some inaccuracies.