ANET Arista Networks

Arista Networks, Inc. (NYSE: ANET), an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments, today announced financial results for its third quarter ended September 30, 2021.

Third Quarter Financial Highlights

• Revenue of $748.7 million, an increase of 5.8% compared to the second quarter of 2021, and an increase of 23.7% from the third quarter of 2020.
• GAAP gross margin of 63.9%, compared to GAAP gross margin of 64.2% in the second quarter of 2021 and 63.6% in the third quarter of 2020.
• Non-GAAP gross margin of 64.9%, compared to non-GAAP gross margin of 65.2% in the second quarter of 2021 and 64.6% in the third quarter of 2020.
• GAAP net income of $224.3 million, or $2.81 per diluted share, compared to GAAP net income of $168.4 million, or $2.12 per diluted share in the third quarter of 2020.
• Non-GAAP net income of $236.9 million, or $2.96 per diluted share, compared to non-GAAP net income of $192.0 million, or $2.42 per diluted share in the third quarter of 2020.

"We are experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors. Despite a challenging supply chain environment, I am pleased with our delivery of another record quarter of Arista's financial results in Q3 2021," stated Jayshree Ullal, Arista’s President and CEO.

Commenting on the company’s financial results, Ita Brennan, Arista’s CFO said, “The business continued to perform well in the quarter, exceeding on all key financial metrics, while the team navigates a difficult supply environment.”

Third Quarter Company Highlights

• Arista Extends Cloud-Grade Routing to the Network Edge - Arista announced the expansion of its cloud-grade routing solutions for next generation network edge roles in the multi cloud era. Arista’s EOS® (Extensible Operating System) enhancements for cloud and service provider customers transform edge and backbone routing, migrating from legacy routers to software-driven, highly available and scale-out architectures for faster time to revenue and lower operating expenses.
• Arista Selected to Build Australian Securities Exchange Next Generation Campus Network - Arista to build next generation national campus network for Australian Securities Exchange (ASX), providing ultra high-performance networking for corporate sites in Sydney, Melbourne and Perth.
• Arista Expands Its Cognitive Campus With the Latest Generation Wi-Fi 6E Solution - Arista announced today the expansion of its cognitive campus edge portfolio with a new Wi-Fi 6E access point. As a result, customers can take advantage of the greater capacity, higher bandwidth and lower latency of Wi-Fi 6E to support high definition video collaboration applications and IoT proliferation.

Share Repurchase Program

In October 2021, Arista’s Board of Directors increased the prior authorization to repurchase shares by authorizing an additional $1 billion. The actual timing and amount of repurchases will be dependent on market and business conditions, business requirements, stock price, acquisition opportunities and other factors.

Stock Split Authorization

Arista’s board of directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Arista shareholder of record at the close of business on November 11, 2021 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on or about November 18, 2021.

Financial Outlook

For the fourth quarter of 2021, we expect:

• Revenue between $775 million to $795 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 1:15 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 1552223.

The financial results conference call will also be available via live webcast on Arista’s 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.

Following the financial results conference call, Arista Networks will host its Analyst Day 2021 on Monday, November 1st, 2021 beginning at 3:00 p.m. PT (6:00 p.m. ET). Interested participants will be able to join the virtual event through the Investor Relations section of the Arista website at https://investors.arista.com/Events/Events/Event-Details/2021/Analyst-Day-placeholder/default.aspx.

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 2021 and statements regarding the benefits of new products and product enhancements, our plans to repurchase our stock, and our leadership in cloud networking. 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; insufficient component supply and inventory and increased costs of components; manufacturing capacity impacted by COVID-19 and increased lead times; interruptions or delays in shipments; excess inventory; deferral, reduction or cancellation of orders from end customers; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; a decline in our revenue growth rate; unpredictability of our results of operations; adverse economic conditions or reduced information technology and network infrastructure spending; intense competition; expansion of our international sales and operations; investment or acquisition in other businesses; seasonality; our ability to attract new large end customers or sell products and services to existing end customers; our ability to increase market awareness of our company and new products and services; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches our intellectual property rights; and tax, tariff, import/export restrictions; and other future events. Additional risks and uncertainties that could affect us can be found in our most recent filings with the Securities and Exchange Commission including, but not limited to, our annual report on Form 10-K and quarterly reports on Form 10-Q. 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 have 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 other 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 data-driven, client to cloud networking for large data center, campus and routing 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, CloudVision, CloudEOS and MSS are among the registered and unregistered trademarks of Arista Networks, Inc. in jurisdictions around the world. Other company names or product names may be trademarks of their respective owners. Additional information and resources can be found at 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,

 

 

2021

 

2020

 

2021

 

2020

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

604,160

 

 

$

480,242

 

 

$

1,709,772

 

 

$

1,312,561

 

Service

 

144,537

 

 

125,189

 

 

413,806

 

 

356,469

 

Total revenue

 

748,697

 

 

605,431

 

 

2,123,578

 

 

1,669,030

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

243,342

 

 

199,465

 

 

687,554

 

 

539,526

 

Service

 

26,740

 

 

21,004

 

 

77,959

 

 

62,202

 

Total cost of revenue

 

270,082

 

 

220,469

 

 

765,513

 

 

601,728

 

Gross profit

 

478,615

 

 

384,962

 

 

1,358,065

 

 

1,067,302

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

153,093

 

 

128,049

 

 

428,873

 

 

352,747

 

Sales and marketing

 

69,740

 

 

53,372

 

 

211,385

 

 

161,695

 

General and administrative

 

22,488

 

 

15,146

 

 

58,856

 

 

47,814

 

Total operating expenses

 

245,321

 

 

196,567

 

 

699,114

 

 

562,256

 

Income from operations

 

233,294

 

 

188,395

 

 

658,951

 

 

505,046

 

Other income, net

 

1,346

 

 

13,224

 

 

4,640

 

 

33,637

 

Income before income taxes

 

234,640

 

 

201,619

 

 

663,591

 

 

538,683

 

Provision for income taxes

 

10,335

 

 

33,244

 

 

62,032

 

 

87,084

 

Net income

 

$

224,305

 

 

$

168,375

 

 

$

601,559

 

 

$

451,599

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

2.92

 

 

$

2.22

 

 

$

7.86

 

 

$

5.94

 

Diluted

 

$

2.81

 

 

$

2.12

 

 

$

7.54

 

 

$

5.68

 

Weighted-average shares used in computing net income per share:

 

 

 

 

 

 

 

 

Basic

 

76,864

 

 

75,999

 

 

76,544

 

 

76,024

 

Diluted

 

79,909

 

 

79,313

 

 

79,744

 

 

79,519

 

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,

 

 

2021

 

2020

 

2021

 

2020

GAAP gross profit

 

$

478,615

 

 

$

384,962

 

 

$

1,358,065

 

 

$

1,067,302

 

GAAP gross margin

 

63.9

%

 

63.6

%

 

64.0

%

 

63.9

%

Stock-based compensation expense

 

2,002

 

 

1,806

 

 

5,198

 

 

4,718

 

Intangible asset amortization

 

5,464

 

 

4,178

 

 

16,393

 

 

12,016

 

Non-GAAP gross profit

 

$

486,081

 

 

$

390,946

 

 

$

1,379,656

 

 

$

1,084,036

 

Non-GAAP gross margin

 

64.9

%

 

64.6

%

 

65.0

%

 

65.0

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

233,294

 

 

$

188,395

 

 

$

658,951

 

 

$

505,046

 

Stock-based compensation expense

 

53,135

 

 

36,469

 

 

135,632

 

 

96,947

 

Intangible asset amortization

 

7,281

 

 

5,811

 

 

22,076

 

 

16,524

 

Acquisition-related costs (1)

 

—

 

 

858

 

 

—

 

 

12,718

 

Non-GAAP income from operations

 

$

293,710

 

 

$

231,533

 

 

$

816,659

 

 

$

631,235

 

Non-GAAP operating margin

 

39.2

%

 

38.2

%

 

38.5

%

 

37.8

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

224,305

 

 

$

168,375

 

 

$

601,559

 

 

$

451,599

 

Stock-based compensation expense

 

53,135

 

 

36,469

 

 

135,632

 

 

96,947

 

Intangible asset amortization

 

7,281

 

 

5,811

 

 

22,076

 

 

16,524

 

Acquisition-related costs (1)

 

—

 

 

858

 

 

—

 

 

12,718

 

Tax benefit on stock-based awards

 

(39,665

)

 

(14,894

)

 

(84,684

)

 

(41,078

)

Income tax effect on non-GAAP exclusions

 

(8,137

)

 

(4,624

)

 

(21,999

)

 

(15,975

)

Non-GAAP net income

 

$

236,919

 

 

$

191,995

 

 

$

652,584

 

 

$

520,735

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

2.81

 

 

$

2.12

 

 

$

7.54

 

 

$

5.68

 

Non-GAAP adjustments to net income

 

0.15

 

 

0.30

 

 

0.64

 

 

0.87

 

Non-GAAP diluted net income per share

 

$

2.96

 

 

$

2.42

 

 

$

8.18

 

 

$

6.55

 

Weighted-average shares used in computing diluted net income per share

 

79,909

 

 

79,313

 

 

79,744

 

 

79,519

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

2,002

 

 

$

1,806

 

 

$

5,198

 

 

$

4,718

 

Research and development

 

27,552

 

 

21,423

 

 

72,673

 

 

56,729

 

Sales and marketing

 

12,680

 

 

9,083

 

 

34,133

 

 

23,756

 

General and administrative

 

10,901

 

 

4,157

 

 

23,628

 

 

11,744

 

Total

 

$

53,135

 

 

$

36,469

 

 

$

135,632

 

 

$

96,947

 

(1)

Represents non-recurring costs associated with our acquisition of Big Switch, and primarily includes severance, retention bonuses, professional and consulting fees, and facilities restructuring costs.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

September 30, 2021

 

December 31, 2020

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

630,982

 

 

$

893,219

Marketable securities

 

2,755,499

 

 

1,979,649

Accounts receivable

 

395,590

 

 

389,540

Inventories

 

575,665

 

 

479,668

Prepaid expenses and other current assets

 

166,222

 

 

94,922

Total current assets

 

4,523,958

 

 

3,836,998

Property and equipment, net

 

75,373

 

 

32,231

Acquisition-related intangible assets, net

 

100,713

 

 

122,790

Goodwill

 

188,397

 

 

189,696

Investments

 

18,247

 

 

8,314

Operating lease right-of-use assets

 

69,374

 

 

77,288

Deferred tax assets

 

428,764

 

 

441,531

Other assets

 

32,524

 

 

30,071

TOTAL ASSETS

 

$

5,437,350

 

 

$

4,738,919

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

135,252

 

 

$

134,235

Accrued liabilities

 

174,425

 

 

143,357

Deferred revenue

 

511,354

 

 

396,259

Other current liabilities

 

72,356

 

 

94,392

Total current liabilities

 

893,387

 

 

768,243

Income taxes payable

 

62,563

 

 

53,053

Operating lease liabilities, non-current

 

61,628

 

 

72,397

Deferred revenue, non-current

 

289,086

 

 

254,568

Deferred tax liabilities, non-current

 

214,261

 

 

227,936

Other long-term liabilities

 

51,165

 

 

42,431

TOTAL LIABILITIES

 

1,572,090

 

 

1,418,628

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

8

 

 

8

Additional paid-in capital

 

1,473,595

 

 

1,292,431

Retained earnings

 

2,393,661

 

 

2,027,614

Accumulated other comprehensive income (loss)

 

(2,004

)

 

238

TOTAL STOCKHOLDERS’ EQUITY

 

3,865,260

 

 

3,320,291

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

5,437,350

 

 

$

4,738,919

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

 

 

Nine Months Ended September 30,

 

 

2021

 

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

601,559

 

 

$

451,599

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation, amortization and other

 

37,864

 

 

31,975

 

Stock-based compensation

 

135,632

 

 

96,947

 

Noncash lease expense

 

12,738

 

 

12,606

 

Deferred income taxes

 

(573

)

 

3,261

 

Gain on sale of marketable securities

 

—

 

 

(9,432

)

Amortization of investment premiums

 

19,193

 

 

6,030

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

(6,050

)

 

98,271

 

Inventories

 

(95,997

)

 

(193,996

)

Prepaid expenses and other current assets

 

(71,300

)

 

38,654

 

Other assets

 

(2,915

)

 

7,850

 

Accounts payable

 

(1,075

)

 

71,803

 

Accrued liabilities

 

31,316

 

 

(29,811

)

Deferred revenue

 

149,613

 

 

(34,449

)

Income taxes payable

 

(3,565

)

 

(1,667

)

Other liabilities

 

(15,820

)

 

(1,451

)

Net cash provided by operating activities

 

790,620

 

 

548,190

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

1,158,723

 

 

1,183,601

 

Purchases of marketable securities

 

(1,974,853

)

 

(2,216,436

)

Purchases of property and equipment

 

(55,455

)

 

(7,701

)

Business acquisitions, net of cash acquired

 

—

 

 

(66,317

)

Escrow receipts from past business acquisitions

 

1,299

 

 

—

 

Sale (purchase) of investments in privately-held companies and intangible assets

 

(10,684

)

 

3,399

 

Proceeds from sale of marketable securities

 

19,607

 

 

772,978

 

Net cash used in investing activities

 

(861,363

)

 

(330,476

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

56,154

 

 

42,704

 

Tax withholding paid on behalf of employees for net share settlement

 

(10,622

)

 

(5,932

)

Repurchase of common stock

 

(235,512

)

 

(395,173

)

Net cash used in financing activities

 

(189,980

)

 

(358,401

)

Effect of exchange rate changes

 

(1,513

)

 

(246

)

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(262,236

)

 

(140,933

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

897,454

 

 

1,115,515

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

635,218

 

 

$

974,582

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211101005822/en/

Investor Contacts:

Arista Networks, Inc. Liz Stine, 408-547-5885 Director, Investor Relations liz@arista.com

Charles Yager, 408-547-5892 Product and Investor Advocacy cyager@arista.com