Arista Networks, Inc. ANET reported solid third-quarter 2019 results, wherein both the bottom line and the top line increased year over year and surpassed the respective Zacks Consensus Estimate. The strong quarterly performance reflected the underlying strength of the resilient business model and diligent execution of operational plans.
On a GAAP basis, net income improved to $208.9 million or $2.59 per share from $168.5 million or loss of $2.08 per share in the year-ago quarter, primarily driven by top-line growth.
Quarterly non-GAAP net income came in at $217.1 million or $2.69 per share compared with $171.3 million or $2.11 per share in the year-ago quarter. The bottom line beat the consensus estimate by 25 cents.
Arista Networks, Inc. Price, Consensus and EPS Surprise
Arista Networks, Inc. price-consensus-eps-surprise-chart | Arista Networks, Inc. Quote
Quarterly total revenues increased 16.2% year over year to $654.4 million and were at the higher end of the company’s guidance of $647-$657 million, driven by healthy overall demand and strong performance from cloud titan and enterprise verticals. In addition, Arista registered record number of new customer additions during the quarter. The top line surpassed the Zacks Consensus Estimate of $653 million.
Arista generated 81% of total revenues from the Americas and the remainder from international operations. Product revenues jumped to $555.1 million from $485.5 million, and Service revenues rose to $99.3 million from $77.8 million on healthy renewal activities.
Other Quarterly Details
Non-GAAP gross profit improved to $421.2 million from $364 million for respective margins of 64.4% and 64.6%. The non-GAAP gross margin was above the mid-point of management’s guidance of 63-65%. This was reflective of healthy enterprise and service contributions combined with a continued focus on cost optimization.
Non-GAAP operating income came in at $258.2 million compared with $209 million a year ago. Non-GAAP operating margin improved to 39.4% from 37.1%.
Cash Flow and Liquidity
Arista generated $635.9 million of cash from operating activities in the first nine months of 2019 compared with $207.3 million in the year-ago period. As of Sep 30, 2019, the cloud networking company had $1,095.3 million of cash and cash equivalents with $237.6 million of non-current deferred revenue balance. During the quarter, the company repurchased $115 million worth shares at a weighted average price of $224 per share.
Arista is well positioned with its key cloud customers and is focused on expanding presence across all the verticals. For fourth-quarter 2019, the company projects revenues in the range of $540-$560 million. The lower revenue projection is primarily due to the volatility in demand on account of a shift in procurement strategy from a cloud titan customer, resulting in a material reduction in demand. It anticipates non-GAAP gross margin of 63-65% and non-GAAP operating margin of approximately 36%.
Apart from driving cloud area networking, Arista boasts the number one market position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. The company aims to sustain long-term revenue growth and healthy cash generation on the back of industry-leading product offerings.
Zacks Rank & Key Picks
Arista currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Harmonic Inc. HLIT, Communications Systems, Inc. JCS and UTStarcom Holdings Corp UTSI, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Harmonic has a long-term earnings growth expectation of 8.8%. It delivered average positive earnings surprise of 48.3% in the trailing four quarters, beating estimates on each occasion.
Communications Systems delivered average positive earnings surprise of 600% in the trailing four quarters.
UTStarcom delivered average positive earnings surprise of 56.4% in the trailing four quarters, beating estimates twice.
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