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 second quarter ended June 30, 2022.

“In Q2 2022, we achieved our first billion-dollar revenue quarter, despite the challenges of an uncertain supply chain environment,” said Jayshree Ullal, President and CEO of Arista Networks. “This record milestone further validates the customer value of Arista’s differentiated cloud networking platforms, now adopted by many of the largest cloud and enterprise customers around the world.”

Second Quarter Financial Highlights

  • Revenue of $1.052 billion, an increase of 20.0% compared to the first quarter of 2022, and an increase of 48.7% from the second quarter of 2021.
  • GAAP gross margin of 61.2%, compared to GAAP gross margin of 63.1% in the first quarter of 2022 and 64.2% in the second quarter of 2021.
  • Non-GAAP gross margin of 61.9%, compared to non-GAAP gross margin of 63.9% in the first quarter of 2022 and 65.2% in the second quarter of 2021.
  • GAAP net income of $299.1 million, or $0.94 per diluted share, compared to GAAP net income of $196.9 million, or $0.62 per diluted share in the second quarter of 2021.
  • Non-GAAP net income of $342.7 million, or $1.08 per diluted share, compared to non-GAAP net income of $216.8 million, or $0.68 per diluted share in the second quarter of 2021.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, “We are pleased with overall business momentum in the quarter with strong revenue growth driving significant EPS upside and demonstrating the inherent operational leverage of the business model.”

Company Highlights

  • Arista Acquires Pluribus Networks – a leader in delivering unified cloud fabrics that provides agility, security, automation and visibility across all clouds.
  • Arista Introduces Edge as a Service with Cognitive Unified Edge Solution – Arista announces the next phase of Arista’s cognitive campus vision with the introduction of Arista CUE™ (Cognitive Unified Edge). CUE enables commercial and distributed branch customers to accelerate new services and technology innovations by consolidating multiple security and networking functions into an “edge as a service” cloud-managed solution.
  • Arista Expands EOS and CloudVision Software Platforms as a Foundation for High-Performance Media and Entertainment Networking - Arista announces the extension of its Arista EOS® (Extensible Operating System) and CloudVision® software to support high-performance switched networks for media and entertainment customers. Arista Media Control Service (MCS) makes broadcast workflows an integral function of the Arista network fabric providing customers with faster establishment of audio and video streams.
  • Arista Introduces Next Generation 7130 Series Systems for Converged Ultra Low Latency Networking - Arista announces the next generation of converged ultra low latency, highly programmable 7130 Series systems designed for demanding in-network applications. The new systems improve customer agility while consolidating multiple devices that reduce complexity, power and costs.

Financial Outlook

For the third quarter of 2022, we expect:

  • Revenue between $1.025 billion to $1.075 billion;
  • Non-GAAP gross margin of 60% to 62%; and
  • Non-GAAP operating margin of approximately 39%

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’s executives will discuss the second quarter 2022 financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial (888) 330-2502 in the United States or +1 (240) 789-2713 from international locations. The Conference ID is 5655862.

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.

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 third quarter of 2022, statements regarding Arista's business plans and its ability to execute such plans, and statements regarding the benefits of Arista's products. 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: interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including increased purchase commitments and extended lead times, the impact of the COVID-19 pandemic and related public safety measures on our business; 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; deferral, reduction or cancellation of orders from end customers; increased component costs including as a result of global inflationary pressures and the impact of the Russian/Ukrainian conflict; variability in our gross margins including as a result of changes in end customer mix or product mix; adverse global economic and geopolitical conditions and reduced information technology and network infrastructure spending; intense competition; expansion of our international sales and operations; investments in or acquisitions of other businesses; fluctuations in our results of operations including as a result of seasonality; our ability to attract new large end customers or sell products and services to existing end customers and dependence on large end customers; the timing of orders and their fulfillment; 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; insufficient, excess or obsolete inventory; a decline in end customer demand for our products or services; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; 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 an advanced network operating stack. For more information, visit www.arista.com.

ARISTA, EOS, CloudVision and Arista CUE 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.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2022

 

2021

 

2022

 

2021

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

885,806

 

 

$

566,467

 

$

1,610,524

 

$

1,105,612

Service

 

 

166,085

 

 

 

140,852

 

 

318,433

 

 

269,269

Total revenue

 

 

1,051,891

 

 

 

707,319

 

 

1,928,957

 

 

1,374,881

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

375,634

 

 

 

225,779

 

 

669,443

 

 

444,212

Service

 

 

32,992

 

 

 

27,362

 

 

62,404

 

 

51,219

Total cost of revenue

 

 

408,626

 

 

 

253,141

 

 

731,847

 

 

495,431

Gross profit

 

 

643,265

 

 

 

454,178

 

 

1,197,110

 

 

879,450

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

178,158

 

 

 

143,293

 

 

350,164

 

 

275,780

Sales and marketing

 

 

79,372

 

 

 

70,625

 

 

160,111

 

 

141,645

General and administrative

 

 

22,882

 

 

 

20,895

 

 

45,995

 

 

36,368

Total operating expenses

 

 

280,412

 

 

 

234,813

 

 

556,270

 

 

453,793

Income from operations

 

 

362,853

 

 

 

219,365

 

 

640,840

 

 

425,657

Other income (loss), net

 

 

(533

)

 

 

1,719

 

 

30,947

 

 

3,294

Income before income taxes

 

 

362,320

 

 

 

221,084

 

 

671,787

 

 

428,951

Provision for income taxes

 

 

63,221

 

 

 

24,196

 

 

100,429

 

 

51,697

Net income

 

$

299,099

 

 

$

196,888

 

$

571,358

 

$

377,254

Net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

$

0.98

 

 

$

0.64

 

$

1.86

 

$

1.23

Diluted

 

$

0.94

 

 

$

0.62

 

$

1.80

 

$

1.18

Weighted-average shares used in computing net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

 

306,754

 

 

 

305,844

 

 

307,399

 

 

305,536

Diluted

 

 

316,581

 

 

 

318,840

 

 

318,040

 

 

318,708

_______________________

(1) Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(Unaudited, in thousands, except percentages and per share amounts)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

GAAP gross profit

 

$

643,265

 

 

$

454,178

 

 

$

1,197,110

 

 

$

879,450

 

GAAP gross margin

 

 

61.2

%

 

 

64.2

%

 

 

62.1

%

 

 

64.0

%

Stock-based compensation expense

 

 

2,312

 

 

 

1,796

 

 

 

3,621

 

 

 

3,196

 

Intangible asset amortization

 

 

6,012

 

 

 

5,465

 

 

 

11,733

 

 

 

10,929

 

Non-GAAP gross profit

 

$

651,589

 

 

$

461,439

 

 

$

1,212,464

 

 

$

893,575

 

Non-GAAP gross margin

 

 

61.9

%

 

 

65.2

%

 

 

62.9

%

 

 

65.0

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

362,853

 

 

$

219,365

 

 

$

640,840

 

 

$

425,657

 

Stock-based compensation expense

 

 

50,224

 

 

 

44,944

 

 

 

100,503

 

 

 

82,497

 

Intangible asset amortization

 

 

7,708

 

 

 

7,365

 

 

 

15,019

 

 

 

14,795

 

Acquisition-related costs (1)

 

 

4,691

 

 

 

 

 

 

4,691

 

 

 

 

Non-GAAP income from operations

 

$

425,476

 

 

$

271,674

 

 

$

761,053

 

 

$

522,949

 

Non-GAAP operating margin

 

 

40.4

%

 

 

38.4

%

 

 

39.5

%

 

 

38.0

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

299,099

 

 

$

196,888

 

 

$

571,358

 

 

$

377,254

 

Stock-based compensation expense

 

 

50,224

 

 

 

44,944

 

 

 

100,503

 

 

 

82,497

 

Intangible asset amortization

 

 

7,708

 

 

 

7,365

 

 

 

15,019

 

 

 

14,795

 

Acquisition-related costs (1)

 

 

4,691

 

 

 

 

 

 

4,691

 

 

 

 

Unrealized loss (gain) on equity investments

 

 

5,084

 

 

 

 

 

 

(23,413

)

 

 

 

Tax benefit on stock-based awards

 

 

(17,725

)

 

 

(24,113

)

 

 

(48,689

)

 

 

(45,019

)

Income tax effect on non-GAAP exclusions

 

 

(6,401

)

 

 

(8,256

)

 

 

(8,281

)

 

 

(13,862

)

Non-GAAP net income

 

$

342,680

 

 

$

216,828

 

 

$

611,188

 

 

$

415,665

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share (2)

 

$

0.94

 

 

$

0.62

 

 

$

1.80

 

 

$

1.18

 

Non-GAAP adjustments to net income

 

 

0.14

 

 

 

0.06

 

 

 

0.12

 

 

 

0.12

 

Non-GAAP diluted net income per share

 

$

1.08

 

 

$

0.68

 

 

$

1.92

 

 

$

1.30

 

Weighted-average shares used in computing diluted net income per share (2)

 

 

316,581

 

 

 

318,840

 

 

 

318,040

 

 

 

318,708

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

2,312

 

 

$

1,796

 

 

$

3,621

 

 

$

3,196

 

Research and development

 

 

28,449

 

 

 

23,139

 

 

 

56,025

 

 

 

45,121

 

Sales and marketing

 

 

12,827

 

 

 

11,368

 

 

 

25,936

 

 

 

21,453

 

General and administrative

 

 

6,636

 

 

 

8,641

 

 

 

14,921

 

 

 

12,727

 

Total

 

$

50,224

 

 

$

44,944

 

 

$

100,503

 

 

$

82,497

 

___________________

(1)

Represent non-recurring costs associated with business combinations, which primarily include retention bonuses, and professional and consulting fees.

(2)

Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

June 30, 2022

 

December 31, 2021

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

493,246

 

 

$

620,813

 

Marketable securities

 

 

2,408,656

 

 

 

2,787,502

 

Accounts receivable

 

 

585,786

 

 

 

516,509

 

Inventories

 

 

852,810

 

 

 

650,117

 

Prepaid expenses and other current assets

 

 

388,697

 

 

 

237,735

 

Total current assets

 

 

4,729,195

 

 

 

4,812,676

 

Property and equipment, net

 

 

91,823

 

 

 

78,634

 

Acquisition-related intangible assets, net

 

 

140,836

 

 

 

93,555

 

Goodwill

 

 

273,494

 

 

 

188,397

 

Investments

 

 

38,263

 

 

 

20,247

 

Operating lease right-of-use assets

 

 

61,869

 

 

 

65,182

 

Deferred tax assets

 

 

442,455

 

 

 

442,295

 

Other assets

 

 

46,610

 

 

 

33,443

 

TOTAL ASSETS

 

$

5,824,545

 

 

$

5,734,429

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

275,093

 

 

$

202,636

 

Accrued liabilities

 

 

210,334

 

 

 

226,643

 

Deferred revenue

 

 

697,762

 

 

 

593,578

 

Other current liabilities

 

 

94,837

 

 

 

86,972

 

Total current liabilities

 

 

1,278,026

 

 

 

1,109,829

 

Income taxes payable

 

 

79,422

 

 

 

69,916

 

Operating lease liabilities, non-current

 

 

51,793

 

 

 

56,527

 

Deferred revenue, non-current

 

 

335,728

 

 

 

335,734

 

Deferred tax liabilities, non-current

 

 

13,447

 

 

 

129,074

 

Other long-term liabilities

 

 

60,337

 

 

 

54,749

 

TOTAL LIABILITIES

 

 

1,818,753

 

 

 

1,755,829

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

 

30

 

 

 

31

 

Additional paid-in capital

 

 

1,638,787

 

 

 

1,530,046

 

Retained earnings

 

 

2,408,294

 

 

 

2,456,823

 

Accumulated other comprehensive income (loss)

 

 

(41,319

)

 

 

(8,300

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

4,005,792

 

 

 

3,978,600

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

5,824,545

 

 

$

5,734,429

 

 

 

 

 

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

 

 

Six Months Ended June 30,

 

 

2022

 

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

571,358

 

 

$

377,254

 

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

 

 

 

 

Depreciation, amortization and other

 

 

28,012

 

 

 

25,235

 

Stock-based compensation

 

 

100,503

 

 

 

82,497

 

Noncash lease expense

 

 

9,161

 

 

 

8,410

 

Deferred income taxes

 

 

(105,937

)

 

 

(2,998

)

Unrealized gain on equity investments

 

 

(23,413

)

 

 

 

Amortization of investment premiums

 

 

11,457

 

 

 

12,121

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

(64,335

)

 

 

25,326

 

Inventories

 

 

(202,052

)

 

 

(63,531

)

Prepaid expenses and other current assets

 

 

(158,149

)

 

 

(44,356

)

Other assets

 

 

(5,543

)

 

 

(3,390

)

Accounts payable

 

 

71,169

 

 

 

10,879

 

Accrued liabilities

 

 

(16,210

)

 

 

20,025

 

Deferred revenue

 

 

91,201

 

 

 

95,263

 

Income taxes payable

 

 

10,792

 

 

 

(9,144

)

Other liabilities

 

 

221

 

 

 

(15,550

)

Net cash provided by operating activities

 

 

318,235

 

 

 

518,041

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

 

829,714

 

 

 

819,807

 

Purchases of marketable securities

 

 

(641,979

)

 

 

(1,241,657

)

Purchases of property and equipment

 

 

(23,744

)

 

 

(9,567

)

Business acquisitions, net of cash acquired

 

 

(145,087

)

 

 

1,419

 

Investments in privately-held companies and intangibles

 

 

(11,691

)

 

 

(6,084

)

Proceeds from sale of marketable securities

 

 

165,746

 

 

 

 

Net cash provided by (used in) investing activities

 

 

172,959

 

 

 

(436,082

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

22,991

 

 

 

26,884

 

Tax withholding paid on behalf of employees for net share settlement

 

 

(18,802

)

 

 

(6,353

)

Repurchase of common stock

 

 

(619,888

)

 

 

(101,355

)

Net cash used in financing activities

 

 

(615,699

)

 

 

(80,824

)

Effect of exchange rate changes

 

 

(3,041

)

 

 

(665

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(127,546

)

 

 

470

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

625,050

 

 

 

897,454

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

497,504

 

 

$

897,924

 

 

Investor Contacts:

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

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