Rami Rahim
Chief Executive Officer at Juniper Networks
Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q4 and full year 2022 results. We delivered record revenue during the fourth quarter, although total sales of $1,449 million were slightly below the midpoint of our guidance due to the timing of supply and some logistical challenges at the end of the quarter. Despite these challenges, we achieved a second consecutive quarter of double-digit year-over-year revenue growth, a record performance by our enterprise business and our second highest cloud revenue quarter. Our non-GAAP gross and operating margin also exceeded expectations resulting in non-GAAP earnings per share of $0.65, which was above the midpoint of our quarterly guidance.
Our Q4 results capped a record revenue year for Juniper in 2022, which saw us accelerate our growth despite the challenged global supply chain environment. The diversity of our strength was also a highlight during the year as we grew our enterprise business by more than 20% year-over-year. We grew our cloud business by more than 13% year-over-year and we grew our service provider business by approximately 3% year-over-year with the revenue growth for each of these verticals exceeding the high end of our long-term model. I believe these results speak to the strong execution by our team, the strength of our portfolio and our ability to win across each of the customer verticals and use cases where we compete.
While revenue growth was healthy in Q4 and for the full year of 2022 as we expected, overall demand moderated in the December quarter with total orders declining more than 20% year-over-year, although our enterprise orders were flat year-over-year despite a very difficult comp. This moderation in total orders was primarily driven by a normalization of buying pattern amongst our cloud and service provider customers. This follows year in which many of these accounts placed multiple quarters of demand in advance of known requirement to account for extended lead times.
Now that many of these orders placed in prior periods are shipping and with significant orders on the books for the upcoming year, cloud and service provider customers are placing fewer new orders, which is a trend we expect to continue through at least the first half of the current year. As this order normalization process continues, we think revenue growth will be the most important metric to gauge customer demand over the next several quarters.
I'd like to acknowledge that we are seeing some customers across each of our customer verticals more closely scrutinize spending plan and deployment timeline due to the economic uncertainties that are happening around the world. Order cancellations continue to remain low and our customers' appetite to receive orders that were placed in prior periods remains high. As a result, we remain confident in our ability to monetize our backlog as supply improves. That said, we're watching these trends closely and have factored decent certainties into our financial outlook.
Despite these current macro uncertainties, I remain optimistic regarding our prospects for the upcoming year. Five reasons driving my optimism include, first, our focus on leveraging AI-driven cloud-based automation tool to simplify customer operation and improve the end user experience, what we call experienced first networking, continues to resonate across the customer verticals we serve, whether it be missed in the campus, to apps stored in the datacenter, to Juniper Paragon in the service provider market, these software automation tools are enabling customers to achieve superior scale cost effectively to rapidly identify and remediate network problems in many cases without the need for human intervention and to accelerate the timeline for network deployments. These capabilities deliver tangible value to customers, which is enabling us to win in the current market environment and may resonate even more if return on investment plays an increasingly important role in customer decision.
Given our level of portfolio differentiation balanced against our relatively modest share in the large markets where we compete, I remain optimistic regarding our ability to grow revenue even in a more challenged macro-environment. Second, we continued to invest in our go-to-market organization to capitalize on our product differentiation and take share particularly in the enterprise. To this point, since the beginning of 2019, we have steadily increased our quota carrying headcount, meaningfully increased our channel presence and invested in both demand generation and modern selling tools that are creating more FX and more wins in the market.
While these investments have enabled us to accelerate our growth over the last several years, particularly in the enterprise vertical, they are also continuing to provide tailwinds with deal registration from the channel growing 18% year-over-year and order momentum in the commercial market growing 43% year-over-year in the Q4 timeframe. We expect this momentum to continue and further benefit growth in future periods. Third, we continue to see strong 400 gig progress with more than a 100 new wins across wide area and datacenter use cases since our last quarterly update. Many of these wins constitute franchises that are likely to present tailwinds for revenue over a multiyear period. While 400 gig solutions are critical to enabling customers to meet the continuous growth in the network bandwidth, they are also critical for improving the power efficiency and cost of operating network, which we think is likely to add resilience to these important projects.
Fourth, we continue to make progress transitioning our business to a more software-centric model. This includes transforming more of our perpetual offerings to term-based licenses, introducing more ratable subscription offerings and training our sales organization to better monetize the value of our software stack. While these efforts remain in the early innings, we experienced encouraging momentum in the Q4 timeframe, which saw total software and related services revenue grow 26% year-over-year and accounts for 21% of our total sales. Our annualized recurring revenue which solely consist of truly ratable software subscriptions and related services increased 43% year-over-year due to strong demand for missed and certain security subscriptions. We are encouraged by the progress we are making in our software transformation strategy as many of these revenue streams are recurring, pull through infrastructure and improve margin.
Finally, we exited 2022 with an exceptional backlog of more than $2 billion, which is up approximately $200 million from where we entered the year and remains well above historical levels. This backlog is providing us with exceptional revenue visibility and should enable us to deliver another year of healthy growth. Based on our current backlog, customer demand and our assumptions regarding supply, we currently expect to deliver at least 8% revenue growth and at least 1 point of non-GAAP operating margin expansion in 2023. Our expectations for 2023 assumes the availability of supply only modestly improve and at the end market environment remains uncertain.
Now I'd like to provide some additional insights into the quarter and address some of the key developments we're seeing from a customer solutions perspective. Starting with our automated WAN solutions. This business experienced revenue weakness during the fourth quarter due to the timing supply following very strong shipments during the prior quarter. That said, our automated WAN business grew 12% on a full year basis, which exceeded our expectations and the high end of our long-term model. We remain optimistic regarding the long-term outlook for our automated WAN business based on the momentum we're seeing for several of our newer products.
To this point, our new 306 based MX304, an LC 9600 line card continued to perform exceptionally well with the MX304 securing a 150 new logos in Q4 and emerging as one of our fastest ramping products over the last five years. Our PTX portfolio also continues to perform well across cloud, service provider and enterprise accounts. In Q4, our PTX platform secured more than 15 new use case wins that we expect collectively will drive more than $200 million of incremental opportunity over the next three to five years. Not to be overlooked, we're continuing to make progress with our new cloud metro portfolio, which saw orders more than double on a year-over-year basis.
Our pipeline of opportunities is strong and we remain encouraged by our ability to win in the market, especially as we add new AI-driven cloud-based automation capabilities to the portfolio over the next few quarters. Our cloud ready datacenter revenue experienced an exceptional performance in Q4 and grew more than 20% on a full year basis. 400 gig momentum remains strong and we now have more than 120 400 gig datacenter wins that include cloud majors, large enterprise and service provider accounts. Our Apstra pipeline continues to build as new logos increased meaningfully on both a sequential and a year-over-year basis and we experienced strong hardware pull-through for every dollar of software.
Interest in our new Apstra free from capability which provides more flexible deployment options and expands the list of potential customers we can address is encouraging and we plan to introduce new software capabilities that will further expand the use cases we can address in 2023. Customer interest in our cloud ready data center portfolio remains healthy and given the wins we've already secured, I'm optimistic about our ability to capitalize on the attractive growth within this market over the next several years. Our AI-driven enterprise revenue continued to significantly outpace the market growing more than 30% year-over-year in Q4 and 24% on a full year basis. This strength was led by our mystified business, which is the segment of our campus and branch portfolio driven by Mist AI and the cloud. This area saw both revenue and orders grow more than 50% year-over-year with record sales of AI-driven WiFi and EX switching in the Q4 timeframe.
On a full year basis, our mystified revenue was $500 million in 2022, which was up from approximately $300 million in 2021. Our mystified orders also continued to see strong momentum with fourth quarter results surpassing $900 million on a annualized basis. The industry is clearly recognizing the differentiation of Juniper's campus and branch offering driven by Mist AI. We believe this is reflected in Gartner's latest Magic Quadrant for enterprise wired and wireless LAN infrastructure that was released in December of 2022 where Juniper was named a leader for a third consecutive year and was ranked highest in both completeness of vision and ability to execute for a second consecutive year. Additionally, the Gartner enterprise wired and wireless LAN infrastructure critical capabilities report that was published in January 2023, Juniper received the top score in four out of five of the use cases.
On the product side, we continue to invest heavily in new key areas that drive real value to customers and partners, including WiFi 6E and new AI-driven EX switch variants such as the 4100, both of which are seeing strong early adoption in the market. We're also continuing to make enhancements to [Indecipherable], the industry's only virtual network assistant driven by Mist AI. Lastly, customer traction for the AI-driven enterprise remains exceptionally strong. For example, we saw a nearly 80% increase in the number of accounts purchasing at least two mystified products during the most recent year. This highlights the attractiveness of a full tack Juniper offering managed via common AI engine and cloud, as well as the land and expand opportunities available to our sellers and partners, which we believe remains in the early innings.
Our security revenue returned to growth in Q4, although we expect this business to be pressured over the next few quarters as we transition from an appliance to a ratable software subscription model. We remain optimistic regarding the long-term outlook for our security business as we believe the convergence of networking and security provides us with a competitive advantage in the portions of the market where we are currently focused. We're also encouraged by the interest in our software security offering, most notably, our security director cloud platform. This product provides customers a single policy framework to manage all their firewall, whether in the datacenter or at the edge or whether on premises or in the cloud, which is essential to help customers migrate to zero trust and SASE architecture. This platform was recently named CRM Magazine's edge platform of the year and already has secured more than 300 wins, which we view as an encouraging sign of future success.
I'd like to mention that our services team delivered another record quarter and our services business continues to grow year-over-year due to strong renewals and attach rates as well as the growth of our SaaS business. Our customer satisfaction scores remain at all-time highs and our service margins came in better than expected due to higher revenue and lower costs. On a full year basis, our service margins achieved a new all-time record of 67.3%, up 150 basis points as compared to the prior year. Our services organization continues to execute extremely well and is focused on driving incremental efficiencies through automation and cloud delivered insights that not only create new revenue opportunities, but also benefit margin and customer experience. I would like to extend my thanks to our customers, partners and shareholders for their continued support and confidence in Juniper. I especially want to thank our employees for their hard work and dedication, which is essential to creating value for our stakeholders.
I will now turn the call over to Ken who will discuss the quarterly and full year financial results in more detail.
