Juniper Networks Inc, Q4 2005 Earnings Conference Call Transcript (JNPR)

Juniper Networks Inc. (JNPR)
Q4 2005 Earnings Conference Call
January 25th 2006, 4:45 PM.

Executives:

Kathy Durr, Vice President, Investor Relations
Scott Kriens, Chairman & CEO
Rob Dykes, CFO & Executive Vice President of Business Operations.

Analysts:

Samuel Wilson, JMP Securities
Alex Henderson, Citigroup
Christin Armacost, SG. Cowen & Co., Lucas Gwenky
Jeff Evanson, Sanford Bernstein
Gina Sockolow, Buckingham Research
John Zhou, Lehman Brothers
Shah Wu, American Technology Research
Mark Sue, RBC capital markets
Natarajan Subrahmanyan, Sanders Morris
Scott Coleman, Morgan Stanley
Stephen Kamman, CIBC
Ehud Gelblum, J.P. Morgan
Nikos Theodosopoulos, UBS

Presentation

Operator

Thank you and good afternoon everyone and thank you for joining us this afternoon. If you have not seen press release it can be retrieved off of www.juniper.net or First Call or Business Wire. With me today is Scott Kriens, our Chairman CEO; and Rob Dykes, our CFO and Executive Vice President of Business Operations. Today Scott will begin by reviewing Juniper’s fourth quarter and the full year 2005 performance. He will then spend the remainder of his time outlining how we will use our accomplishments in 2005 to leverage our success into 2006 given the current market trends as it relates to our long-term strategy. Following Scott’s comments Rob will review the detail financial results for the fourth quarter and full year ending December 31st 2005 as well as outlining our financial goals. We will then open the call up for questions.

Before I turn call over to Scott, I’d like to remind you that the matters we will be discussing today may include forward-looking statements and as such are subject to the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, including those risks and uncertainties discussed in our most recent 10-Q filings with the SEC. We are also presenting some non-GAAP financial information. A reconciliation of GAAP to non-GAAP items can be found on our Investor Relations web page. Juniper Networks assumes no obligation and does not intended update forward-looking statements made on this call. Scott, over to you?

Scott Kriens, Chairman, CEO

Thanks Randy and Happy New Year to everyone. Today I’ll be talking briefly about the fourth quarter and the full year performance for 2005 and then I’d like to spend the majority of my time focusing on how we can leverage the accomplishments in 2006 and beyond. Last quarter I spoke about the foundation we built and as I look back not only across the last year but over the last 10 years as we approach the celebrations of our 10 year anniversary next week actually. There have been tremendous accomplishments and successes to mark our progress and we are going to continue to leverage these experiences based on the trends that we see in 2006 and beyond. So firstly the results.

We had another solid quarter, our 14th consecutive quarter of growth and as you’ll once again see this is reflected in the metrics we’ll review today. Revenues, earnings, cash, customers and market share all grew as we continue to outperform in all of our target market. Total revenue for the quarter was $575.5 million, up over 5% from last quarter and fully diluted non-GAAP earnings per share was $0.20 up from $0.19 last quarter. GAAP EPS for the fourth quarter was $0.17 compared to $0.14 last quarter and GAAP EPS for 2005 was $0.59 versus $0.25 last year. And please see the press release on our website for the reconciliation of non-GAAP to GAAP results. These results are reflection of our direct sales efforts as well as the contribution of our key strategy partners and resellers. And as we look across the full year I’d like to share both our strategy with regards to our partners as well as some numbers, which represent our success in delivering results in support of that strategy.

We believe in open standards, and using partnerships to broaden our reach and best serve the evolving requirements of our customers and as many of you know we have a number of key strategy partners including Ericsson, Lucent, Siemens and NEC in Asia. And in addition we announced this morning a formal agreement with our new strategic partner Avaya to deliver secure converged communication solutions to enterprise customers worldwide. These partners has been instrumental in building relationships with our customers and we remain very excited about the strength of these partnerships as we enter 2006. This side-by-side approach with its support of open standards continues to be well received in contrast with end-to-end proprietary alternatives. And it is also important to understand that with our high touch model each and every customer has a Juniper representative who is responsible for direct contact with them as we sell side by with our strategic partners.

In total the revenue generated from these four strategic partners grew almost 40% from 2004 to 2005, more specifically the full year growth rate for Ericsson, Lucent, Siemens and NEC were approximately 57, 32, 44 and over 100% respectively, and Siemens contributed greater than 10% of total revenue during the fourth quarter as well as for the full year of 2005. We are also pleased with the product balance across our business. For Q4 the infrastructure products represented 77% of total product revenue while service layer technology products represented 23% of total product revenue during the quarter. From a geographic perspective last quarter, we saw a strong growth in the Americas and Europe including developing markets in Latin America, Middle East and Eastern Europe in areas like Bulgaria and Russia among others. However, we saw a softness in Asia specifically within Japan due to a pause in the build out of its next generation networks or NGN as decisions are contemplated at many of the major carriers and the market prepares for the next wave of bandwidth and services expansion. This is a very exciting time in Japan we will talk more about in just a few minutes.

Finally for the quarter we invested in both the market and product development areas announced several new products during the quarter, we are once again recognized as a leader by the industry analysts and realize significant accomplishment in expanding our broader channel presence. So for a quick look back across the full year of 2005, I would like to point to some numbers and some highlights, which has helped our growth, and extend our success. We grew total revenue to over $2 billion, up over 54% from 2004 and nearly tripled the revenue of only two years ago. This is a major milestone and accomplishment for the company. Fully diluted non-GAAP earnings per share was $0.72, up 64% from $0.44 last year and more than a four-fold increase from two years ago. We are generating cash from operations of almost two-thirds of a billion dollars per year ending 2005 with over $2 billion in total cash and investments. Currently the business generates approximately $2.5 million of cash from operations every business day.

In the marketplace, we again grew significantly faster than our competitors year-over-year, allowing us to further establish our brand and gain market share in various segments of the market. As an example we were the leaders in Gartner’s Magic Quadrant in all four areas: Firewall, IPSec VPN, SSL VPN and IPS: our Intrusion Prevention Systems, and we are in the No.2 slot in the high-end enterprise router market according to Synergy Research Group, up from 0 in 2004. And in addition we maintain the No.2 position in the service provider EDGE routing category and have done so for more than 13 consecutive quarters according again to Synergy Research Group. And we did all that by expanding our market presence globally and are now doing business in more than 75 countries around the world. We expanded the breath of the channel, growing our sales through the distribution channel by approximately 160% and the number of quality channel partners to over 6000. One example of this success is Ingram Micro, a major distributor of Juniper Solutions whose business now makes them our third largest partner.

And we did all of this by staying true to our mantra, which is “Focus