Arista Networks, Inc. (NYSE: ANET), an industry leader in
cognitive cloud networking for large datacenter and campus
environments, today announced financial results for its third
quarter ended September 30, 2020.
Third Quarter Financial Highlights
- Revenue of $605.4 million, an increase of 12.0% compared to the
second quarter of 2020, and a decrease of 7.5% from the third
quarter of 2019.
- GAAP gross margin of 63.6%, compared to GAAP gross margin of
63.7% in the second quarter of 2020 and 63.8% in the third quarter
of 2019.
- Non-GAAP gross margin of 64.6%, compared to non-GAAP gross
margin of 64.7% in the second quarter of 2020 and 64.4% in the
third quarter of 2019.
- GAAP net income of $168.4 million, or $2.12 per diluted share,
compared to GAAP net income of $208.9 million, or $2.59 per diluted
share in the third quarter of 2019.
- Non-GAAP net income of $192.0 million, or $2.42 per diluted
share, compared to non-GAAP net income of $217.1 million, or $2.69
per diluted share in the third quarter of 2019.
“Our customers are validating our traction as we migrate from
legacy to cognitive client to cloud deployments with a cumulative
of 40 million cloud networking ports shipped by Q3 2020. Despite
some COVID-19 turbulence, we believe Arista will only emerge
stronger,” stated Jayshree Ullal, President and CEO of Arista
Networks.
Commenting on the company’s financial results, Ita Brennan,
Arista’s CFO said, “We saw continued improvement in underlying
business trends in the quarter, with the Arista team working
diligently with customers, supply chain and other partners to
navigate the new COVID-19 operating environment.”
Third Quarter Company Highlights
- Arista Networks acquired Awake Security, a Network Detection
and Response (NDR) platform provider that combines artificial
intelligence (AI) with human expertise to autonomously hunt and
respond to insider and external threats. The acquisition closed in
October, 2020.
- Arista expanded its cognitive campus portfolio with new
platforms, including the 750 Series modular chassis (the first 100G
ready, high density modular PoE switches), and the 720 Series 96
port fixed switch.
- Arista announced unified edge innovations across wired and
wireless networks for its Cognitive Campus Edge portfolio for
Enterprise Workspaces.
- Arista introduced a new enterprise-grade Software-as-a-Service
(SaaS) offering for the flagship CloudVision® platform. Arista’s
new CloudVision as-a-Service product is now available as a fully
managed software.
- Arista announced several additions to its multi-cloud and
cloud-native software product family with CloudEOSEdge which is
designed to integrate with native cloud networking services like
Amazon Web Services Transit Gateway, with native interoperability
using provisioning tools like Hashicorp Terraform and Red Hat’s
Ansible.
Financial Outlook
For the fourth quarter of 2020, we expect:
- Revenue between $615 million to $635 million;
- Non-GAAP gross margin of 63% to 65%; and
- Non-GAAP operating margin of approximately 37%
Guidance for non-GAAP financial measures excludes stock-based
compensation expense, amortization of acquisition-related
intangible assets, and certain non-recurring items. A
reconciliation of non-GAAP guidance measures to corresponding GAAP
measures is not available on a forward-looking basis (see further
explanation below under “Non-GAAP Financial Measures”).
Prepared Materials and Conference Call Information
Arista executives will discuss the third quarter financial
results on a conference call at 1:30 p.m. Pacific time today. To
listen to the call via telephone, dial (833) 968-2211 in the United
States or +1 (778) 560-2896 from international locations. The
Conference ID is 1469655.
The financial results conference call will also be available via
live webcast on our investor relations website at
https://investors.arista.com/. Shortly after the conclusion of the
conference call, a replay of the audio webcast will be available on
Arista’s investor relations website.
Forward-Looking Statements
This press release contains “forward-looking statements”
regarding our future performance, including quotations from
management, statements in the section entitled “Financial Outlook,”
such as estimates regarding revenue, non-GAAP gross margin and
non-GAAP operating margin for the fourth quarter of fiscal year
2020, statements regarding the benefits of the introduction of new
products and our leadership in cloud networking and statements
regarding our recent acquisition of Awake Security. Forward-looking
statements are subject to known and unknown risks, uncertainties,
assumptions and other factors that could cause actual results,
performance or achievements to differ materially from those
anticipated in or implied by the forward-looking statements
including risks associated with: the impact of the COVID-19
pandemic on our business, including as a result of continued
volatility in the financial markets and global economy or
disruption in our supply chain; the evolution and growth of the
cloud networking market and other markets in which we compete and
the adoption by end customers of our solutions; adverse economic
conditions or reduced information technology and network
infrastructure spending; rapid technological and market change;
Arista’s customer concentration; our ability to attract new large
end customers or sell additional products and services to existing
customers; competition in our products and services markets;
changes in Arista’s customers’ demand for our products and
services; changes in customer order patterns or customer mix;
requests by large end customers for more favorable terms and
conditions; general market, political, economic and business
conditions such as the recent U.S. trade wars with China and the
impact of public health pandemics like the COVID-19 pandemic; our
ability to pursue and manage, and our dependence on, the
introduction and market acceptance of new product offerings and
standards including our 400G products as well as our campus, WiFi
and security products; declines in the sales prices of our products
and services; the timing of orders and manufacturing and customer
lead times; the benefits and impact of acquisitions; and other
future events. Additional risks and uncertainties that could affect
us can be found in our most recent Quarterly Report on Form 10-Q
filed with the SEC on August 5, 2020, and other filings that the
company makes to the SEC from time to time. You can locate these
reports through our website at https://investors.arista.com/ and on
the SEC’s website at https://www.sec.gov/. All forward-looking
statements in this press release are based on information available
to the company as of the date hereof and we disclaim any obligation
to publicly update or revise any forward-looking statement to
reflect events that occur or circumstances that exist after the
date on which they were made.
Non-GAAP Financial Measures
This press release and accompanying table contain certain
non-GAAP financial measures including non-GAAP gross profit,
non-GAAP gross margin, non-GAAP income from operations, non-GAAP
operating margins, non-GAAP net income and non-GAAP diluted net
income per share. These non-GAAP financial measures exclude
stock-based compensation expense, amortization of
acquisition-related intangible assets, certain non-recurring
charges or benefits, and the income tax effect of these non-GAAP
exclusions. In addition, non-GAAP financial measures exclude net
tax benefits associated with stock-based awards, which include
excess tax benefits, and other discrete indirect effects of such
awards. The company uses these non-GAAP financial measures
internally in analyzing its financial results and believes that
these non-GAAP financial measures are useful to investors as an
additional tool to evaluate ongoing operating results and trends.
In addition, these measures are the primary indicators management
uses as a basis for its planning and forecasting for future
periods.
Non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for the comparable GAAP financial
measures. Non-GAAP financial measures are subject to limitations,
and should be read only in conjunction with the company's
consolidated financial statements prepared in accordance with GAAP.
Non-GAAP financial measures do not have any standardized meaning
and are therefore unlikely to be comparable to similarly titled
measures presented by other companies. A description of these
non-GAAP financial measures and a reconciliation of the company’s
non-GAAP financial measures to their most directly comparable GAAP
measures has been provided in the financial statement tables
included in this press release, and investors are encouraged to
review the reconciliation.
The company’s guidance for non-GAAP financial measures excludes
stock-based compensation expense, amortization of
acquisition-related intangible assets, and certain non-recurring
items. The company does not provide guidance on GAAP gross margin
or GAAP operating margin or the various reconciling items between
GAAP gross margin and GAAP operating margin and non-GAAP gross
margin and non-GAAP operating margin. A reconciliation of the
non-GAAP financial measures guidance to the corresponding GAAP
measures on a forward-looking basis is not available because
stock-based compensation expense is impacted by the company’s
future hiring and retention needs and the future fair market value
of the company’s common stock, all of which are difficult to
predict and subject to constant change. The actual amount of
stock-based compensation expense will have a significant impact on
the company’s GAAP gross margin and GAAP operating margin.
About Arista Networks
Arista Networks is an industry leader in software-driven cloud
networking solutions for large data center and campus environments.
Arista’s award-winning platforms deliver availability, agility,
automation analytics and security through CloudVision® and Arista
EOS®, an advanced network operating system. For more information
visit www.arista.com.
ARISTA NETWORKS, INC.
Condensed Consolidated
Statements of Operations
(Unaudited, in thousands,
except per share amounts)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Revenue:
Product
$
480,242
$
555,066
$
1,312,561
$
1,573,652
Service
125,189
99,349
356,469
284,508
Total revenue
605,431
654,415
1,669,030
1,858,160
Cost of revenue:
Product
199,465
218,220
539,526
616,906
Service
21,004
18,921
62,202
53,219
Total cost of revenue
220,469
237,141
601,728
670,125
Gross profit
384,962
417,274
1,067,302
1,188,035
Operating expenses:
Research and development
128,049
118,732
352,747
352,696
Sales and marketing
53,372
55,279
161,695
159,372
General and administrative
15,146
14,657
47,814
46,182
Total operating expenses
196,567
188,668
562,256
558,250
Income from operations
188,395
228,606
505,046
629,785
Other income, net
13,224
19,169
33,637
45,313
Income before income taxes
201,619
247,775
538,683
675,098
Provision for income taxes
33,244
38,880
87,084
75,923
Net income
$
168,375
$
208,895
$
451,599
$
599,175
Net income attributable to common
stockholders:
Basic
$
168,375
$
208,799
$
451,599
$
598,861
Diluted
$
168,375
$
208,804
$
451,599
$
598,880
Net income per share attributable to
common stockholders:
Basic
$
2.22
$
2.73
$
5.94
$
7.85
Diluted
$
2.12
$
2.59
$
5.68
$
7.38
Weighted-average shares used in computing
net income per share attributable to common stockholders:
Basic
75,999
76,426
76,024
76,301
Diluted
79,313
80,753
79,519
81,104
ARISTA NETWORKS, INC.
Reconciliation of Selected
GAAP to Non-GAAP Financial Measures
(Unaudited, in thousands,
except percentages and per share amounts)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
GAAP gross profit
$
384,962
$
417,274
$
1,067,302
$
1,188,035
GAAP gross margin
63.6
%
63.8
%
63.9
%
63.9
%
Stock-based compensation expense
1,806
1,258
4,718
3,384
Intangible asset amortization
4,178
2,626
12,016
7,877
Non-GAAP gross profit
$
390,946
$
421,158
$
1,084,036
$
1,199,296
Non-GAAP gross margin
64.6
%
64.4
%
65.0
%
64.5
%
GAAP income from operations
$
188,395
$
228,606
$
505,046
$
629,785
Stock-based compensation expense
36,469
26,257
96,947
74,845
Litigation expense
—
—
—
1,962
Intangible asset amortization
5,811
3,293
16,524
10,291
Acquisition-related costs
858
—
12,718
—
Non-GAAP income from operations
$
231,533
$
258,156
$
631,235
$
716,883
Non-GAAP operating margin
38.2
%
39.4
%
37.8
%
38.6
%
GAAP net income
$
168,375
$
208,895
$
451,599
$
599,175
Stock-based compensation expense
36,469
26,257
96,947
74,845
Litigation expense
—
—
—
1,962
Intangible asset amortization
5,811
3,293
16,524
10,291
Acquisition-related costs (1)
858
—
12,718
—
Altera stock-based tax charge (2)
—
—
—
9,781
Gain on investment in privately-held
companies
—
(4,277)
—
(5,427)
Tax benefit on stock-based awards
(14,894)
(12,674)
(41,078)
(73,183)
Income tax effect on non-GAAP
exclusions
(4,624)
(4,391)
(15,975)
(14,048)
Non-GAAP net income
$
191,995
$
217,103
$
520,735
$
603,396
GAAP diluted net income per share
attributable to common stockholders
$
2.12
$
2.59
$
5.68
$
7.38
Non-GAAP adjustments to net income
0.30
0.10
0.87
0.06
Non-GAAP diluted net income per share
$
2.42
$
2.69
$
6.55
$
7.44
Weighted-average shares used in computing
diluted net income per share attributable to common
stockholders
79,313
80,753
79,519
81,104
Summary of Stock-Based Compensation
Expense:
Cost of revenue
$
1,806
$
1,258
$
4,718
$
3,384
Research and development
21,423
13,472
56,729
39,171
Sales and marketing
9,083
7,832
23,756
21,463
General and administrative
4,157
3,695
11,744
10,827
Total
$
36,469
$
26,257
$
96,947
$
74,845
___________________
(1)
Represents non-recurring costs associated
with our acquisitions, which primarily include retention bonuses,
professional and consulting fees, and restructuring costs.
(2)
Represents a discrete income tax expense
related to stock-based compensation as a result of an opinion on
Altera Corporation and Subsidiaries vs. Commissioner on Internal
Revenue issued by the Court of Appeals for the Ninth Circuit on
June 7, 2019.
ARISTA NETWORKS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited, in
thousands)
September 30, 2020
December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
970,349
$
1,111,286
Marketable securities
1,875,552
1,613,082
Accounts receivable
300,217
391,987
Inventories
438,102
243,825
Prepaid expenses and other current
assets
69,647
111,456
Total current assets
3,653,867
3,471,636
Property and equipment, net
32,670
39,273
Acquisition-related intangible assets,
net
77,752
45,235
Goodwill
84,968
54,855
Investments
4,150
4,150
Operating lease right-of-use assets
79,929
87,770
Deferred tax assets
443,229
452,025
Other assets
22,807
30,346
TOTAL ASSETS
$
4,399,372
$
4,185,290
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES:
Accounts payable
$
163,102
$
92,105
Accrued liabilities
110,348
140,249
Deferred revenue
321,290
312,668
Other current liabilities
70,043
52,052
Total current liabilities
664,783
597,074
Income taxes payable
47,918
55,485
Operating lease liabilities,
non-current
74,903
83,022
Deferred revenue, non-current
241,014
262,620
Deferred tax liabilities, non-current
247,712
254,710
Other long-term liabilities
39,165
37,693
TOTAL LIABILITIES
1,315,495
1,290,604
STOCKHOLDERS’ EQUITY:
Common stock
8
8
Additional paid-in capital
1,240,147
1,106,305
Retained earnings
1,844,656
1,788,230
Accumulated other comprehensive income
(loss)
(934)
143
TOTAL STOCKHOLDERS’ EQUITY
3,083,877
2,894,686
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
4,399,372
$
4,185,290
ARISTA NETWORKS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited, in
thousands)
Nine Months Ended September
30,
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
451,599
$
599,175
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and other
31,975
24,948
Stock-based compensation
96,947
74,845
Noncash lease expense
12,606
12,007
Deferred income taxes
3,261
10,945
Gain on sale of marketable securities
(9,432)
—
Gain on investment in privately-held
companies
—
(5,427)
Amortization (accretion) of investment
premiums (discounts)
6,030
(6,032)
Changes in operating assets and
liabilities:
Accounts receivable, net
98,271
(115,475)
Inventories
(193,996)
24,951
Prepaid expenses and other current
assets
38,654
59,388
Other assets
7,850
(7,009)
Accounts payable
71,803
(14,361)
Accrued liabilities
(29,811)
5,731
Deferred revenue
(34,449)
(58,216)
Income taxes payable
(1,667)
29,808
Other liabilities
(1,451)
595
Net cash provided by operating
activities
548,190
635,873
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturities of marketable
securities
1,183,601
806,519
Purchases of marketable securities
(2,216,436)
(840,098)
Business acquisitions, net of cash
acquired
(66,317)
(1,365)
Purchases of property and equipment
(7,701)
(13,319)
Investments in privately-held
companies
3,399
28,220
Proceeds from sale of marketable
securities
772,978
—
Net cash used in investing activities
(330,476)
(20,043)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock
under equity plans
42,704
52,177
Tax withholding paid on behalf of
employees for net share settlement
(5,932)
(7,069)
Repurchase of common stock
(395,173)
(214,617)
Net cash used in financing activities
(358,401)
(169,509)
Effect of exchange rate changes
(246)
(994)
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(140,933)
445,327
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—Beginning of period
1,115,515
654,164
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—End of period
$
974,582
$
1,099,491
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version on businesswire.com: https://www.businesswire.com/news/home/20201102005857/en/
Investor Contacts: Arista Networks, Inc. Charles Yager,
408-547-5892 Product and Investor Advocacy cyager@arista.com or
Curtis McKee, 408-547-5549 Corporate and Investor Development
curtism@arista.com
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