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Arista Networks, Inc. Reports First Quarter 2020 Financial Results

Arista Networks, Inc. (NYSE: ANET), an industry leader in software-driven cloud networking solutions for large datacenter and campus environments, today announced financial results for its first quarter ended March 31, 2020.

First Quarter Financial Highlights

  • Revenue of $523.0 million, a decrease of 5.3% compared to the fourth quarter of 2019, and a decrease of 12.2% from the first quarter of 2019.
  • GAAP gross margin of 64.7%, compared to GAAP gross margin of 64.5% in the fourth quarter of 2019 and 63.9% in the first quarter of 2019.
  • Non-GAAP gross margin of 65.6%, compared to non-GAAP gross margin of 65.2% in the fourth quarter of 2019 and 64.5% in the first quarter of 2019.
  • GAAP net income of $138.4 million, or $1.73 per diluted share, compared to GAAP net income of $201.0 million, or $2.47 per diluted share in the first quarter of 2019.
  • Non-GAAP net income of $161.7 million, or $2.02 per diluted share, compared to non-GAAP net income of $187.7 million, or $2.31 per diluted share in the first quarter of 2019.

"Arista delivered solid Q1 2020 financial results despite the global pandemic that we all are experiencing. We are committed to our employees’ safety while bringing value to our customers, shareholders and community in these unpredictable times and believe we will emerge stronger in the long term," stated Jayshree Ullal, Arista’s President and CEO.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, "We are pleased with our business execution in the quarter, with the majority of our team effectively working from home, yet continuing to engage productively with our customers, supply chain and other partners."

First Quarter Company Highlights

  • Arista Networks announced that it has acquired Big Switch Networks, a network monitoring and SDN (Software Defined Networking) pioneer. The acquisition of Big Switch further strengthens the company’s network monitoring and observability suite delivered through Arista’s software platform CloudVision and DANZ (Data ANalyZer) capabilities.
  • Arista Networks Announced an Optical Line System for 400G – The Arista OSFP-LS is a highly compact, low power and cost-effective solution for increasing bandwidth between data centers without the need for external optical line systems. This pluggable OSFP form factor simplifies DWDM network deployment and reduces valuable rack space, appealing in particular to Tier2 Cloud and Internet Service Providers.
  • Ciena and Arista Complete Interoperability Testing of 400GbE-Optimized Transport Solution - Ciena and Arista completed an interoperability test of the industry’s most dense and spectrally-efficient 400GbE transport solution with the industry’s highest density native 400GbE router.
  • COVID-19 Response - A Letter from Our CEO – Arista plays a critical role in supporting the cloud communications and computing infrastructure that will keep the world running during these difficult times. The rapid acceleration of Covid-19 developments across the world has brought a new perspective to Arista's business, customers and community goals.

Financial Outlook

For the second quarter of 2020, we expect:

  • Revenue between $520 million to $540 million;
  • Non-GAAP gross margin of 63% to 65%, and
  • Non-GAAP operating margin of approximately 35%

Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and other 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 executives will discuss the first quarter financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial (833) 287-7905 in the United States or (647) 689-4469 from outside the US. The Conference ID is 9769576.

The financial results conference call will also be available via live webcast on our 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 second quarter of fiscal year 2020, and statements regarding the introduction of new products and the expected benefits from the acquisition of Big Switch. 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: the impact of the COVID-19 pandemic on our business, the evolution and growth of the cloud networking market and the adoption by end customers of Arista’s cloud networking solutions; rapid technological and market change; Arista’s customer concentration; our ability to attract new large end customers or sell additional products and services to existing customers; competition in our products and services markets; changes in Arista’s customers’ demand for our products and services; changes in customer order patterns or customer mix; requests by large end customers for more favorable terms and conditions; general market, political, economic and business conditions such as the recent U.S. trade wars with China and the impact of public health pandemics like the COVID-19 pandemic; dependence on the introduction and market acceptance of new product offerings and standards including our 400G products as well as our campus and WiFi products; declines in the sales prices of our products and services; the timing of orders and manufacturing and customer lead times; and the benefits and impact of acquisitions; and other future events. Additional risks and uncertainties that could affect Arista can be found in our most recent Annual Report on Form 10-K filed with the SEC on February 14, 2020, and other filings that the company makes to the SEC from time to time. 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 Arista disclaims 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, other 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 has 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 pioneered software-driven, cognitive cloud networking for large-scale datacenter and campus environments. Arista’s award-winning platforms redefine and deliver availability, agility, automation, analytics, and security. Arista has shipped more than twenty million cloud networking ports worldwide with CloudVision and EOS, an advanced network operating system. Committed to open standards across private, public and hybrid cloud solutions, Arista products are supported worldwide directly and through partners.

ARISTA, EOS, CloudEOS and CloudVision 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. Additional information and resources can be found at https://www.arista.com.

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Revenue:

 

 

 

 

Product

 

$

410,906

 

 

$

505,415

 

Service

 

112,123

 

 

90,009

 

Total revenue

 

523,029

 

 

595,424

 

Cost of revenue:

 

 

 

 

Product

 

163,629

 

 

198,152

 

Service

 

21,149

 

 

16,702

 

Total cost of revenue

 

184,778

 

 

214,854

 

Gross profit

 

338,251

 

 

380,570

 

Operating expenses:

 

 

 

 

Research and development

 

113,154

 

 

119,669

 

Sales and marketing

 

57,086

 

 

51,053

 

General and administrative

 

18,349

 

 

15,506

 

Total operating expenses

 

188,589

 

 

186,228

 

Income from operations

 

149,662

 

 

194,342

 

Other income, net

 

12,157

 

 

12,333

 

Income before income taxes

 

161,819

 

 

206,675

 

Provision for income taxes

 

23,388

 

 

5,646

 

Net income

 

$

138,431

 

 

$

201,029

 

Net income attributable to common stockholders:

 

 

 

 

Basic

 

$

138,431

 

 

$

200,911

 

Diluted

 

$

138,431

 

 

$

200,918

 

Net income per share attributable to common stockholders:

 

 

 

 

Basic

 

$

1.82

 

 

$

2.65

 

Diluted

 

$

1.73

 

 

$

2.47

 

Weighted-average shares used in computing net income per share attributable to common stockholders:

 

 

 

 

Basic

 

76,264

 

 

75,920

 

Diluted

 

79,939

 

 

81,201

 

 

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

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

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

GAAP gross profit

 

$

338,251

 

 

$

380,570

 

GAAP gross margin

 

64.7

%

 

63.9

%

Stock-based compensation expense

 

1,327

 

 

1,098

 

Intangible asset amortization

 

3,660

 

 

2,625

 

Non-GAAP gross profit

 

$

343,238

 

 

$

384,293

 

Non-GAAP gross margin

 

65.6

%

 

64.5

%

 

 

 

 

 

GAAP income from operations

 

$

149,662

 

 

$

194,342

 

Stock-based compensation expense

 

27,556

 

 

24,291

 

Litigation expense

 

 

 

1,448

 

Intangible asset amortization

 

4,902

 

 

3,499

 

Acquisition-related costs (1)

 

11,860

 

 

 

Non-GAAP income from operations

 

$

193,980

 

 

$

223,580

 

Non-GAAP operating margin

 

37.1

%

 

37.5

%

 

 

 

 

 

GAAP net income

 

$

138,431

 

 

$

201,029

 

Stock-based compensation expense

 

27,556

 

 

24,291

 

Litigation expense

 

 

 

1,448

 

Intangible asset amortization

 

4,902

 

 

3,499

 

Acquisition-related costs

 

11,860

 

 

 

Gain on investment in privately-held companies

 

 

 

(1,150

)

Tax benefit on stock-based awards

 

(14,502

)

 

(37,054

)

Income tax effect on non-GAAP exclusions

 

(6,555

)

 

(4,333

)

Non-GAAP net income

 

$

161,692

 

 

$

187,730

 

 

 

 

 

 

GAAP diluted net income per share attributable to common stockholders

 

$

1.73

 

 

$

2.47

 

Non-GAAP adjustments to net income

 

0.29

 

 

(0.16

)

Non-GAAP diluted net income per share

 

$

2.02

 

 

$

2.31

 

 

 

 

 

 

Weighted-average shares used in computing diluted net income per share attributable to common stockholders

 

79,939

 

 

81,201

 

 

 

 

 

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

Cost of revenue

 

$

1,327

 

 

$

1,098

 

Research and development

 

15,928

 

 

13,131

 

Sales and marketing

 

6,396

 

 

6,534

 

General and administrative

 

3,905

 

 

3,528

 

Total

 

$

27,556

 

 

$

24,291

 

(1) Represents non-recurring costs associated with our acquisition of Big Switch, and primarily include severance, retention bonuses, professional and consulting fees, and facilities restructuring costs.

 

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

March 31, 2020

 

December 31, 2019

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

761,333

 

$

1,111,286

Marketable securities

 

1,875,660

 

1,613,082

Accounts receivable, net

 

352,159

 

391,987

Inventories

 

261,798

 

243,825

Prepaid expenses and other current assets

 

85,949

 

111,456

Total current assets

 

3,336,899

 

3,471,636

Property and equipment, net

 

37,806

 

39,273

Acquisition-related intangible assets, net

 

89,373

 

45,235

Goodwill

 

84,781

 

54,855

Investments

 

4,150

 

4,150

Operating lease right-of-use assets

 

83,377

 

87,770

Deferred tax assets

 

448,432

 

452,025

Other assets

 

27,027

 

30,346

TOTAL ASSETS

 

$

4,111,845

 

$

4,185,290

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

84,815

 

$

92,105

Accrued liabilities

 

100,443

 

140,249

Deferred revenue

 

332,175

 

312,668

Other current liabilities

 

55,574

 

52,052

Total current liabilities

 

573,007

 

597,074

Income taxes payable

 

58,507

 

55,485

Operating lease liabilities, non-current

 

78,502

 

83,022

Deferred revenue, non-current

 

264,600

 

262,620

Deferred tax liabilities, non-current

 

250,304

 

254,710

Other long-term liabilities

 

38,099

 

37,693

TOTAL LIABILITIES

 

1,263,019

 

1,290,604

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

8

 

8

Additional paid-in capital

 

1,149,224

 

1,106,305

Retained earnings

 

1,698,766

 

1,788,230

Accumulated other comprehensive income

 

828

 

143

TOTAL STOCKHOLDERS’ EQUITY

 

2,848,826

 

2,894,686

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

4,111,845

 

$

4,185,290

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

138,431

 

 

$

201,029

 

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

 

 

 

 

Depreciation, amortization and other

 

10,208

 

 

8,362

 

Stock-based compensation

 

27,556

 

 

24,291

 

Noncash lease expense

 

4,073

 

 

3,689

 

Deferred income taxes

 

457

 

 

(718

)

(Gain) on investments in privately-held companies

 

 

 

(1,150

)

Amortization (accretion) of investment premiums (discounts)

 

1,042

 

 

(2,069

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

46,329

 

 

60,531

 

Inventories

 

(17,691

)

 

(82,596

)

Prepaid expenses and other current assets

 

25,751

 

 

30,664

 

Other assets

 

3,946

 

 

(2,475

)

Accounts payable

 

(6,386

)

 

(2,391

)

Accrued liabilities

 

(39,450

)

 

(19,014

)

Deferred revenue

 

21

 

 

(50,756

)

Income taxes payable

 

3,982

 

 

2,040

 

Other liabilities

 

(3,422

)

 

660

 

Net cash provided by operating activities

 

194,847

 

 

170,097

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

414,503

 

 

302,264

 

Purchases of marketable securities

 

(674,649

)

 

(332,247

)

Business acquisitions, net of cash acquired

 

(66,225

)

 

 

Purchases of property and equipment

 

(3,107

)

 

(5,237

)

Net cash used in investing activities

 

(329,478

)

 

(35,220

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

17,082

 

 

26,323

 

Tax withholding paid on behalf of employees for net share settlement

 

(1,740

)

 

(1,850

)

Repurchase of common stock

 

(227,895

)

 

 

Net cash provided by (used in) financing activities

 

(212,553

)

 

24,473

 

Effect of exchange rate changes

 

(2,691

)

 

195

 

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

 

(349,875

)

 

159,545

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

1,115,515

 

 

654,164

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

765,640

 

 

$

813,709

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200505005808/en/

Contacts

Curtis McKee
Corporate and Investor Development
(408) 547-5701
curtism@arista.com

Charles Yager
Product and Investor Advocacy
(408) 547-5892
cyager@arista.com