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Arista (ANET) Q2 Earnings Hit Record High, Surpass Estimates

Arista Networks, Inc. ANET reported strong second-quarter 2021 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate, driven by a healthy momentum in the enterprise vertical and solid customer additions. Adjusted earnings and revenues also improved significantly year over year.

Net Income

On a GAAP basis, net income in the reported quarter improved to $196.9 million or $2.47 per share from $144.8 million or $1.83 per share in the prior-year quarter, primarily driven by top-line growth.

Excluding non-recurring items, non-GAAP net income was record high at $216.8 million or $2.72 per share compared with $167 million or $2.11 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 17 cents.

Arista Networks, Inc. Price, Consensus and EPS Surprise

Arista Networks, Inc. price-consensus-eps-surprise-chart | Arista Networks, Inc. Quote


Quarterly total revenues were up 30.8% year over year to $707.3 million and was well ahead of the company’s guidance of $675-$695 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 $687 million.

Arista generated 73% of total revenues from the Americas and the remainder from international operations with EMEA (Europe, Middle East and Africa) accounting for 16% and APAC (Asia Pacific region) contributing 11% of total revenues. Product revenues jumped to $566.5 million from $421.4 million, while Service revenues grew to $140.9 million from $119.2 million, supported by renewals and subscriptions. In terms of the vertical mix, cloud titans was the largest vertical followed by enterprise, financials, specialty cloud providers and service providers. With improved customer demand and visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity in order to negate supply-chain headwinds. Arista is increasingly offering software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience.

Other Details

Non-GAAP gross profit improved to $461.4 million from $349.9 million for respective margins of 65.2% and 64.7%. 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 $234.8 million from $177.1 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 jumped to $271.7 million from $205.7 million in the year-ago quarter with corresponding margins of 38.4% and 38.1%, respectively.

Cash Flow & Liquidity

In the first six months of 2021, Arista generated $518 million of net cash from operating activities compared with $333.1 million in the prior-year period. As of Jun 30, 2021, the cloud networking company had $893.7 million in cash and cash equivalents with $216.7 million of non-current deferred tax liabilities. Arista did not repurchase any shares during the quarter. Notably, the company has purchased $763 million worth of shares to date since the initiation of its $1 billion share repurchase program in second-quarter 2019.

Q3 Outlook

The company expects to witness continued growth within its enterprise vertical in the forthcoming quarters with customer mix being the key driver. For the third quarter of 2021, Arista expects revenues of $725-$745 million. It anticipates a non-GAAP gross margin of 63-65% and a non-GAAP operating margin of around 37%.

Zacks Rank & Stocks to Consider

Arista currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry are Knowles Corporation KN, Harmonic Inc. HLIT and SeaChange International, Inc. SEAC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Knowles has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 10.8%, on average, in the trailing four quarters.

Harmonic has a long-term earnings growth expectation of 15%. It delivered an earnings surprise of 68.1%, on average, in the trailing four quarters.

SeaChange International has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 12.2%, on average, in the trailing four quarters.

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