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Arista Networks, Inc. Reports Second Quarter 2022 Financial Results

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SANTA CLARA, Calif., August 01, 2022--(BUSINESS WIRE)--Arista Networks, Inc. (NYSE: ANET), an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments, today announced financial results for its second quarter ended June 30, 2022.

"In Q2 2022, we achieved our first billion-dollar revenue quarter, despite the challenges of an uncertain supply chain environment," said Jayshree Ullal, President and CEO of Arista Networks. "This record milestone further validates the customer value of Arista’s differentiated cloud networking platforms, now adopted by many of the largest cloud and enterprise customers around the world."

Second Quarter Financial Highlights

  • Revenue of $1.052 billion, an increase of 20.0% compared to the first quarter of 2022, and an increase of 48.7% from the second quarter of 2021.

  • GAAP gross margin of 61.2%, compared to GAAP gross margin of 63.1% in the first quarter of 2022 and 64.2% in the second quarter of 2021.

  • Non-GAAP gross margin of 61.9%, compared to non-GAAP gross margin of 63.9% in the first quarter of 2022 and 65.2% in the second quarter of 2021.

  • GAAP net income of $299.1 million, or $0.94 per diluted share, compared to GAAP net income of $196.9 million, or $0.62 per diluted share in the second quarter of 2021.

  • Non-GAAP net income of $342.7 million, or $1.08 per diluted share, compared to non-GAAP net income of $216.8 million, or $0.68 per diluted share in the second quarter of 2021.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, "We are pleased with overall business momentum in the quarter with strong revenue growth driving significant EPS upside and demonstrating the inherent operational leverage of the business model."

Company Highlights

Financial Outlook

For the third quarter of 2022, we expect:

  • Revenue between $1.025 billion to $1.075 billion;

  • Non-GAAP gross margin of 60% to 62%; and

  • Non-GAAP operating margin of approximately 39%

Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and certain 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’s executives will discuss the second quarter 2022 financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial (888) 330-2502 in the United States or +1 (240) 789-2713 from international locations. The Conference ID is 5655862.

The financial results conference call will also be available via live webcast on Arista's 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 third quarter of 2022, statements regarding Arista's business plans and its ability to execute such plans, and statements regarding the benefits of Arista's products. 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: interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including increased purchase commitments and extended lead times, the impact of the COVID-19 pandemic and related public safety measures on our business; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; a decline in our revenue growth rate; deferral, reduction or cancellation of orders from end customers; increased component costs including as a result of global inflationary pressures and the impact of the Russian/Ukrainian conflict; variability in our gross margins including as a result of changes in end customer mix or product mix; adverse global economic and geopolitical conditions and reduced information technology and network infrastructure spending; intense competition; expansion of our international sales and operations; investments in or acquisitions of other businesses; fluctuations in our results of operations including as a result of seasonality; our ability to attract new large end customers or sell products and services to existing end customers and dependence on large end customers; the timing of orders and their fulfillment; our ability to increase market awareness of our company and new products and services; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; insufficient, excess or obsolete inventory; a decline in end customer demand for our products or services; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; and tax, tariff, import/export restrictions; and other future events. Additional risks and uncertainties that could affect us can be found in our most recent filings with the Securities and Exchange Commission including, but not limited to, our annual report on Form 10-K and quarterly reports on Form 10-Q. 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 we disclaim 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, certain 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 have 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 is an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments. Arista’s award-winning platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack. For more information, visit www.arista.com.

ARISTA, EOS, CloudVision and Arista CUE 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.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Revenue:

Product

$

885,806

$

566,467

$

1,610,524

$

1,105,612

Service

166,085

140,852

318,433

269,269

Total revenue

1,051,891

707,319

1,928,957

1,374,881

Cost of revenue:

Product

375,634

225,779

669,443

444,212

Service

32,992

27,362

62,404

51,219

Total cost of revenue

408,626

253,141

731,847

495,431

Gross profit

643,265

454,178

1,197,110

879,450

Operating expenses:

Research and development

178,158

143,293

350,164

275,780

Sales and marketing

79,372

70,625

160,111

141,645

General and administrative

22,882

20,895

45,995

36,368

Total operating expenses

280,412

234,813

556,270

453,793

Income from operations

362,853

219,365

640,840

425,657

Other income (loss), net

(533

)

1,719

30,947

3,294

Income before income taxes

362,320

221,084

671,787

428,951

Provision for income taxes

63,221

24,196

100,429

51,697

Net income

$

299,099

$

196,888

$

571,358

$

377,254

Net income per share (1):

Basic

$

0.98

$

0.64

$

1.86

$

1.23

Diluted

$

0.94

$

0.62

$

1.80

$

1.18

Weighted-average shares used in computing net income per share (1):

Basic

306,754

305,844

307,399

305,536

Diluted

316,581

318,840

318,040

318,708

_______________________

(1) Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

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

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

GAAP gross profit

$

643,265

$

454,178

$

1,197,110

$

879,450

GAAP gross margin

61.2

%

64.2

%

62.1

%

64.0

%

Stock-based compensation expense

2,312

1,796

3,621

3,196

Intangible asset amortization

6,012

5,465

11,733

10,929

Non-GAAP gross profit

$

651,589

$

461,439

$

1,212,464

$

893,575

Non-GAAP gross margin

61.9

%

65.2

%

62.9

%

65.0

%

GAAP income from operations

$

362,853

$

219,365

$

640,840

$

425,657

Stock-based compensation expense

50,224

44,944

100,503

82,497

Intangible asset amortization

7,708

7,365

15,019

14,795

Acquisition-related costs (1)

4,691

4,691

Non-GAAP income from operations

$

425,476

$

271,674

$

761,053

$

522,949

Non-GAAP operating margin

40.4

%

38.4

%

39.5

%

38.0

%

GAAP net income

$

299,099

$

196,888

$

571,358

$

377,254

Stock-based compensation expense

50,224

44,944

100,503

82,497

Intangible asset amortization

7,708

7,365

15,019

14,795

Acquisition-related costs (1)

4,691

4,691

Unrealized loss (gain) on equity investments

5,084

(23,413

)

Tax benefit on stock-based awards

(17,725

)

(24,113

)

(48,689

)

(45,019

)

Income tax effect on non-GAAP exclusions

(6,401

)

(8,256

)

(8,281

)

(13,862

)

Non-GAAP net income

$

342,680

$

216,828

$

611,188

$

415,665

GAAP diluted net income per share (2)

$

0.94

$

0.62

$

1.80

$

1.18

Non-GAAP adjustments to net income

0.14

0.06

0.12

0.12

Non-GAAP diluted net income per share

$

1.08

$

0.68

$

1.92

$

1.30

Weighted-average shares used in computing diluted net income per share (2)

316,581

318,840

318,040

318,708

Summary of Stock-Based Compensation Expense:

Cost of revenue

$

2,312

$

1,796

$

3,621

$

3,196

Research and development

28,449

23,139

56,025

45,121

Sales and marketing

12,827

11,368

25,936

21,453

General and administrative

6,636

8,641

14,921

12,727

Total

$

50,224

$

44,944

$

100,503

$

82,497

___________________

(1)

Represent non-recurring costs associated with business combinations, which primarily include retention bonuses, and professional and consulting fees.

(2)

Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

June 30, 2022

December 31, 2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

493,246

$

620,813

Marketable securities

2,408,656

2,787,502

Accounts receivable

585,786

516,509

Inventories

852,810

650,117

Prepaid expenses and other current assets

388,697

237,735

Total current assets

4,729,195

4,812,676

Property and equipment, net

91,823

78,634

Acquisition-related intangible assets, net

140,836

93,555

Goodwill

273,494

188,397

Investments

38,263

20,247

Operating lease right-of-use assets

61,869

65,182

Deferred tax assets

442,455

442,295

Other assets

46,610

33,443

TOTAL ASSETS

$

5,824,545

$

5,734,429

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

275,093

$

202,636

Accrued liabilities

210,334

226,643

Deferred revenue

697,762

593,578

Other current liabilities

94,837

86,972

Total current liabilities

1,278,026

1,109,829

Income taxes payable

79,422

69,916

Operating lease liabilities, non-current

51,793

56,527

Deferred revenue, non-current

335,728

335,734

Deferred tax liabilities, non-current

13,447

129,074

Other long-term liabilities

60,337

54,749

TOTAL LIABILITIES

1,818,753

1,755,829

STOCKHOLDERS’ EQUITY:

Common stock

30

31

Additional paid-in capital

1,638,787

1,530,046

Retained earnings

2,408,294

2,456,823

Accumulated other comprehensive income (loss)

(41,319

)

(8,300

)

TOTAL STOCKHOLDERS’ EQUITY

4,005,792

3,978,600

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

5,824,545

$

5,734,429

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Six Months Ended June 30,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

571,358

$

377,254

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

Depreciation, amortization and other

28,012

25,235

Stock-based compensation

100,503

82,497

Noncash lease expense

9,161

8,410

Deferred income taxes

(105,937

)

(2,998

)

Unrealized gain on equity investments

(23,413

)

Amortization of investment premiums

11,457

12,121

Changes in operating assets and liabilities:

Accounts receivable, net

(64,335

)

25,326

Inventories

(202,052

)

(63,531

)

Prepaid expenses and other current assets

(158,149

)

(44,356

)

Other assets

(5,543

)

(3,390

)

Accounts payable

71,169

10,879

Accrued liabilities

(16,210

)

20,025

Deferred revenue

91,201

95,263

Income taxes payable

10,792

(9,144

)

Other liabilities

221

(15,550

)

Net cash provided by operating activities

318,235

518,041

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of marketable securities

829,714

819,807

Purchases of marketable securities

(641,979

)

(1,241,657

)

Purchases of property and equipment

(23,744

)

(9,567

)

Business acquisitions, net of cash acquired

(145,087

)

1,419

Investments in privately-held companies and intangibles

(11,691

)

(6,084

)

Proceeds from sale of marketable securities

165,746

Net cash provided by (used in) investing activities

172,959

(436,082

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under equity plans

22,991

26,884

Tax withholding paid on behalf of employees for net share settlement

(18,802

)

(6,353

)

Repurchase of common stock

(619,888

)

(101,355

)

Net cash used in financing activities

(615,699

)

(80,824

)

Effect of exchange rate changes

(3,041

)

(665

)

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

(127,546

)

470

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

625,050

897,454

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

$

497,504

$

897,924

View source version on businesswire.com: https://www.businesswire.com/news/home/20220801005641/en/

Contacts

Investor Contacts:

Arista Networks, Inc.
Liz Stine, 408-547-5885
Investor Relations
liz@arista.com