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Arista (ANET) Tops Q2 Earnings Estimates on Product Strength

Zacks Equity Research

Arista Networks, Inc. ANET reported solid second-quarter 2019 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year. The strong quarterly performance reflected the underlying strength of the resilient business model and diligent execution of operational plans.

Net Income

On a GAAP basis, net income improved to $189.2 million or $2.33 per share from net loss of $155.2 million or loss of $2.08 per share in the year-ago quarter primarily driven by top-line growth. The bottom line was also hampered by huge legal settlement costs to the tune of $405 million.

Quarterly non-GAAP net income came in at $198.6 million or $2.44 per share compared with $155.7 million or $1.93 per share in the year-ago quarter. The bottom line beat the consensus estimate by 22 cents.

Arista Networks, Inc. Price, Consensus and EPS Surprise

 

Arista Networks, Inc. Price, Consensus and EPS Surprise

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

Revenues

Quarterly total revenues increased 17% year over year to $608.3 million and were at the higher end of the company’s guidance of $600-$610 million, driven by healthy overall demand with strength across the business, particularly in cloud titans vertical. The top line surpassed the Zacks Consensus Estimate of $606 million.

Arista generated 73% of total revenues from the Americas and the balance 27% from international operations. Product revenues jumped to $513.2 million from $444.8 million while Service revenues rose to $95.2 million from $75.1 million on healthy renewal activities.

Other Quarterly Details

Non-GAAP gross profit improved to $393.8 million from $335.1 million for respective margins of 64.7% and 64.5%. The non-GAAP gross margin was above the mid-point of management’s guidance of 64-65%. This was reflective of healthy enterprise and service contributions combined with a continued focus on cost optimization.

Non-GAAP operating income came in at $235.1 million compared with $191.2 million a year ago. Non-GAAP operating margin improved to 38.7% from 36.8%.

Cash Flow and Liquidity

Arista generated $366.5 million of cash from operating activities in the first six months of 2019 compared with $326.1 million in the year-ago period. As of Jun 30, 2019, the cloud networking company had $944.4 million of cash and cash equivalents with $229.9 million of non-current deferred revenue balance. During the quarter, the company repurchased $100 million worth shares at a weighted average price of $246 per share.

Outlook

Arista is well positioned with its key cloud customers and is focused on expanding presence across all the verticals. For third-quarter 2019, the company projects revenues in the range of $647-$657 million. It anticipates non-GAAP gross margin of 63-65% and non-GAAP operating margin of approximately 36%.

Moving Forward

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 profitable revenue growth and healthy cash generation in 2019 and beyond on the back of industry-leading product offerings.

Zacks Rank & Key Picks

Arista currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Harmonic Inc. HLIT, sporting a Zacks Rank #1 (Strong Buy), and 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 stocks here.

Harmonic has a long-term earnings growth expectation of 8.8%. It delivered average positive earnings surprise of 119.9% 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 23.3% in the trailing four quarters.

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