Arista Networks, Inc. ANET reported strong fourth-quarter 2021 results, wherein both the bottom and the top line beat the respective Zacks Consensus Estimate, driven by solid demand trends and healthy customer additions. Adjusted earnings and revenues also improved year over year.
On a GAAP basis, net income in the reported quarter improved to $239.3 million or 75 cents per share from $182.9 million or 58 cents per share in the prior-year quarter, primarily driven by top-line growth.
Excluding non-recurring items, non-GAAP net income was $262.4 million or 82 cents per share compared with $197.7 million or 62 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.
In 2021, GAAP net income was up to $840.9 million or $2.63 per share from $634.6 million or $2 per share in 2020, primarily due to higher revenues. Non-GAAP earnings in 2021 improved to $915 million or $2.87 per share from $718.4 million or $2.26 per share in 2020.
Arista Networks, Inc. Price, Consensus and EPS Surprise
Arista Networks, Inc. price-consensus-eps-surprise-chart | Arista Networks, Inc. Quote
Quarterly total revenues jumped 23.7% year over year to $748.7 million and surpassed the company’s guidance of $725-$745 million. The rise was primarily led by solid customer additions and growth in the enterprise vertical, partially offset by shipment constraints resulting from the COVID-19 operating environment and supply-chain disruptions. The top line surpassed the consensus estimate of $737 million.
Arista generated 71% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $667.9 million from $518.3 million on healthy traction from existing products and ramp up of newer ones with a successful transition from prototype to trials. Service revenues grew to $156.5 million from $130.2 million, supported by renewals and subscriptions. Cloud titans were the largest in terms of the vertical mix, followed by enterprise, specialty cloud providers, financials and service providers.
In 2021, revenues were record high at $2,948 million compared with $2,317.5 million in 2020 with healthy growth momentum in core cloud and data center products developed on differentiated Arista EOS stack and successfully deployed across 10, 25, 40, 100, 200 and 400-gig speeds.
Non-GAAP gross profit improved to $530.4 million from $421.6 million for respective margins of 64.3% and 65%. The non-GAAP gross margin was at the higher end of the company’s guidance of 63-65%, reflecting healthy software and services mix.
Total operating expenses increased to $256.9 million from $219.9 million in the prior-year quarter owing to higher R&D costs, high variable compensation and other headcount-related charges, partially offset by lower COVID-related travel and marketing expenses. Non-GAAP operating income increased to $324.2 million from $243.5 million in the year-ago quarter, with corresponding margins of 39.3% and 37.6%, respectively.
With improved customer demand and order visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity to negate supply-chain headwinds that resulted in higher lead times of certain components. Fourth-quarter inventory was up to 650.1 million from 575.7 million in the prior-year quarter as it continued to maintain buffer levels for certain components and products.
Cash Flow & Liquidity
In 2021, Arista generated $1,015.9 million of net cash from operating activities compared with $735.1 million in 2020. As of Dec 31, 2021, the cloud networking company had $620.8 million in cash and cash equivalents with $129.1 million of non-current deferred tax liabilities compared with respective tallies of $893.2 million and $227.9 million in the prior-year period. Arista repurchased 176 million shares during the quarter at an average price of $113 per share. The company has thus completed its $1 billion share repurchase program initiated in second-quarter 2019. In October 2021, management increased its share repurchase program by an additional $1 billion, out of which it bought $72.9 million worth of shares at an average price of $124 per share during the quarter.
Arista is increasingly offering a software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience. The company is increasingly gaining market traction in 100-, 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista expects to witness continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the first quarter of 2022, it expects revenues of $840-$860 million. It anticipates a non-GAAP gross margin of 63-64% and a non-GAAP operating margin of around 38%.
Zacks Rank & Other Stocks to Consider
Arista currently has a Zacks Rank #2 (Buy).
Viavi Solutions Inc. VIAV, carrying a Zacks Rank #2, is a solid pick for investors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Viavi delivered a modest earnings surprise of 15.6%, on average, in the trailing four quarters. Earnings estimates for the current year for the stock have moved up 10.8% since February 2021, while that for the next year is up 9.2%.
Viavi boasts a comprehensive product portfolio that offers end-to-end network visibility and analytics that help build, test, certify, maintain and optimize complex physical and virtual networks. Its wireless and fiber test solutions are in the early stages of a multi-year investment cycle fueled by the transition of OEMs and service providers to superfast 5G networks. Viavi expects growth to be driven by the secular demand for 5G wireless, fiber and 3D sensing.
Vocera Communications, Inc. VCRA, sporting a Zacks Rank #1, is another key pick. It has a long-term earnings growth expectation of 18% and delivered a stellar earnings surprise of 115.4%, on average, in the trailing four quarters.
Over the past year, Vocera has gained 66.5%. It offers an all-inclusive digital platform for hands-free communication via secure text messaging, alert and alarm management. This, in turn, augments clinical workflow by enabling the interoperability of the solution with a significant number of clinical and operational systems used in hospitals today.
Knowles Corporation KN sports a Zacks Rank #1. It has a long-term earnings growth expectation of 10% and delivered a modest earnings surprise of 14.9%, on average, in the trailing four quarters. Earnings estimates for the current year have moved up 21% since February 2021.
The transformation from an acoustic component supplier to an audio solutions provider has enabled Knowles to migrate to higher-value solutions and increase content per device. This, in turn, has empowered the company to capitalize on the positive macro trends in audio and edge processing solutions.
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