Cloud Networking Pace Drives Stellar Revenue
and Record EPS
Arista Networks, Inc. (NYSE: ANET), an industry leader in
software-driven cloud networking solutions for large data center
and computing environments, today announced financial results for
its fourth quarter and year ended December 31, 2016.
Fourth Quarter Financial Highlights
- Revenue of $328.0 million, an increase
of 33.6% compared to the fourth quarter of 2015, and an increase of
13.0% from the third quarter of 2016.
- GAAP gross margin of 64.1%, compared to
GAAP gross margin of 63.6% in the fourth quarter of 2015 and 64.2%
in the third quarter of 2016.
- Non-GAAP gross margin of 64.4%,
compared to non-GAAP gross margin of 64.0% in the fourth quarter of
2015 and 64.6% in the third quarter of 2016.
- GAAP net income of $58.8 million, or
$0.79 per diluted share, compared to GAAP net income of $43.9
million, or $0.60 per diluted share, in the fourth quarter of
2015.
- Non-GAAP net income of $77.5 million,
or $1.04 per diluted share, compared to non-GAAP net income of
$57.5 million, or $0.80 per diluted share, in the fourth quarter of
2015.
"2016 was indeed a historic year for Arista, as we exceeded one
billion dollars in annual sales within two years of becoming a
public company,” stated Jayshree Ullal, Arista President and CEO.
“Our customers are adopting cloud networking at an unprecedented
pace.”
Full Year Financial Highlights
- Revenue of $1.1 billion, an increase of
34.8% compared to fiscal year 2015.
- GAAP gross margin of 64.0%, compared to
GAAP gross margin of 64.9% in fiscal year 2015.
- Non-GAAP gross margin of 64.4%,
compared to non-GAAP gross margin of 65.3% in fiscal year
2015.
- GAAP net income of $184.2 million, or
$2.50 per diluted share, compared to GAAP net income of $121.1
million, or $1.67 per diluted share, in fiscal year 2015.
- Non-GAAP net income of $241.4 million
or $3.30 per diluted share, compared to non-GAAP net income of
$174.2 million, or $2.44 per diluted share, in fiscal year
2015.
Commenting on the company's financial results for the quarter,
Ita Brennan, Arista’s CFO, said, “We are pleased with our
outstanding financial performance in the fourth quarter, reflecting
strong customer demand and consistent execution.”
Fourth Quarter Company Highlights
- Introduced Arista AlgoMatch™, an
innovation that delivers advanced network policy enforcement for
modern cloud networking along with the new Arista 7160
Series 25/100GbE programmable platforms. Arista AlgoMatch
provides customers with more flexible and scalable solutions for
access control, telemetry and secure cloud networking. The Arista
7160 Series utilizes new merchant silicon from Cavium to provide a
programmable platform that lowers operational costs by supporting
Flexible Profiles to reduce network complexity and delivers native
25GbE interfaces that support the new IEEE standard.
2016 Company Highlights
- Delivered the Arista 7500R Universal
Spine and Arista 7280R Universal Leaf platforms.
- Introduced the Arista FlexRoute™
Engine, which provides support for the full internet routing table,
in hardware, and scales to more than one million routes on the
Arista 7500R Universal Spine and Arista 7280R Universal Leaf
platforms.
- Positioned by Gartner, Inc. in the
“Leaders” quadrant of the 16 May 2016 Magic Quadrant for Data
Center Networking.
- Announced next-generation,
real-time telemetry and analytics capabilities that
leverage Arista EOS® and CloudVision®.
- Initiated a strategic partnership with
Hewlett Packard Enterprise ("HPE") to deliver on a common vision of
secure Hybrid IT solutions.
- Unveiled the next phase of Arista EOS
(Extensible Operating System) enabling network-wide state with
NetDB™.
Financial Outlook
For the first quarter of 2017, we expect:
- Revenue between $320 and $330
million.
- Non-GAAP gross margin between 61% to
64%, and
- Non-GAAP operating margin of
approximately 27%.
Guidance for non-GAAP financial measures excludes legal expenses
of approximately $12 million associated with the OptumSoft and
Cisco litigation, stock-based compensation and other non-recurring
expenses. A reconciliation of non-GAAP guidance measures to
corresponding GAAP measures is not available on a forward-looking
basis (see further explanation below).
Prepared Materials and Conference Call Information
Arista executives will discuss fourth quarter and fiscal 2016
financial results on a conference call at 1:30 p.m. Pacific time
today. To listen to the call via telephone, dial 1-877-201-0168 in
the United States or 1-647-788-4901 from outside the US. The
Conference ID is 49206884.
The financial results conference call will also be available via
live webcast on our investor relations website at
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 statements in the
section entitled “Financial Outlook,” such as estimates regarding
revenue, non-GAAP gross margin and non-GAAP operating margin for
the first quarter of fiscal 2017, statements regarding the adoption
of cloud networking by our customers at an unprecedented pace, and
statements regarding the benefits from the introduction of Arista
AlgoMatch™ and the Arista 7160 Series platforms. Forward-looking
statements are subject to a number of uncertainties and risks that
could cause actual results to differ materially from those
anticipated in the forward-looking statements including risks
associated with: Arista Networks’ limited operating history; risks
associated with Arista Networks’ rapid growth; Arista Networks’
customer concentration; Arista Networks’ dispute with Cisco
Systems, Inc. including Arista Networks’ ability to obtain a
determination that alternative product implementations are not
covered by remedial orders and our ability to manage our
manufacturing and supply chain including the sourcing of components
on commercially reasonable terms, if at all; risks associated with
our customer’s adoption of our redesigned products and services and
requests for more favorable terms and conditions; declines in the
sales prices of our products and services; changes in customer
order patterns or customer mix; increased competition in our
products and service markets, including the data center market;
dependence on the introduction and market acceptance of new product
offerings and standards; rapid technological and market change; the
evolution of the cloud networking market and the adoption by end
customers of Arista Networks’ cloud networking solutions; Arista’s
dispute with OptumSoft; and general market, political, economic and
business conditions. Additional risks and uncertainties that could
affect Arista Networks can be found in Arista’s Quarterly Reporting
on Form 10-Q filed with the SEC on November 3, 2016, and other
filings that the company makes to the SEC from time to time. You
can locate these reports through our website at http://investors.arista.com and on the SEC’s
website at 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 Networks 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
The company reports certain non-GAAP financial measures that
exclude stock-based compensation expense, expenses associated with
the OptumSoft and Cisco litigation, and other non-recurring
charges. The company uses these non-GAAP financial measures
internally in analyzing its financial results and believes that the
use of these non-GAAP financial measures is 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 comparable GAAP net income, net
income per diluted share, gross margin, or operating margin.
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. 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, expenses associated with the OptumSoft
and Cisco litigation, and other non-recurring charges. The Company
has not reconciled its non-GAAP gross margin or its non-GAAP
operating margin guidance to GAAP gross margin or GAAP operating
margin, because we do not provide guidance on GAAP gross margin or
GAAP operating margin or the various reconciling cash and non-cash
items between GAAP gross margin and GAAP operating margin and
non-GAAP gross margin and non-GAAP operating margin. Stock-based
compensation expense is impacted by the Company’s future hiring and
retention needs, as well as the future fair market value of the
Company’s common stock, all of which is difficult to predict and
subject to constant change. The actual amount of stock-based
compensation in the fiscal first quarter of 2017 will have a
significant impact on the Company’s GAAP gross margin and GAAP
operating margin. Accordingly, a reconciliation of the non-GAAP
financial measure guidance to the corresponding GAAP measure is not
available without unreasonable effort.
About Arista Networks
Arista Networks was founded to pioneer and deliver
software-driven cloud networking solutions for large datacenter
storage and computing environments. Arista’s award-winning
platforms, ranging in Ethernet speeds from 10 to 100 gigabits per
second, redefine scalability, agility and resilience. Arista has
shipped more than ten million cloud networking ports worldwide with
CloudVision and EOS, an advanced network operating system.
Committed to open standards, Arista is a founding member of the
25/50GbE consortium. Arista Networks products are available
worldwide directly and through partners.
ARISTA, EOS, CloudVision, and AlgoMatch 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:
http://www.arista.com
ARISTA NETWORKS, INC.
Consolidated Statements of
Income
(Unaudited in thousands, except per
share amounts)
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 Revenue: Product $ 289,008 $ 217,325 $ 991,337 $
744,877 Service 38,961 28,121 137,830 92,714
Total revenue 327,969 245,446 1,129,167
837,591 Cost of revenue: Product 108,057 81,142 369,768
263,585 Service 9,757 8,136 36,283 30,446
Total cost of revenue 117,814 89,278 406,051
294,031 Gross profit 210,155 156,168 723,116 543,560
Operating expenses: Research and development 71,398 57,413 273,581
209,448 Sales and marketing 38,321 31,308 130,887 109,084 General
and administrative 22,941 18,050 75,239 75,720
Total operating expenses 132,660 106,771
479,707 394,252 Income from operations 77,495 49,397
243,409 149,308 Other income (expense), net: Interest expense (918
) (746 ) (3,136 ) (3,152 ) Other income (expense), net 560
(109 ) 1,952 (147 ) Total other income (expense), net (358 )
(855 ) (1,184 ) (3,299 ) Income before provision for income taxes
77,137 48,542 242,225 146,009 Provision for income taxes 18,354
4,618 58,036 24,907 Net income $ 58,783
$ 43,924 $ 184,189 $ 121,102 Net income
attributable to common stockholders: Basic $ 58,527 $ 43,431
$ 182,965 $ 119,115 Diluted $ 58,542 $
43,464 $ 183,039 $ 119,264 Net income per
share attributable to common stockholders: Basic $ 0.84 $
0.65 $ 2.66 $ 1.81 Diluted $ 0.79 $
0.60 $ 2.50 $ 1.67 Weighted-average shares
used in computing net income per share attributable to common
stockholders: Basic 69,980 67,111 68,771
65,964 Diluted 74,384 72,062 73,222
71,411
ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to
Non-GAAP Financial Measures
(Unaudited in thousands, except
percentages and per share amounts)
Three Months Ended December 31, Year Ended
December 31, 2016 2015 2016
2015 GAAP gross profit $ 210,155 $ 156,168 $ 723,116 $
543,560 GAAP gross margin 64.1 % 63.6 % 64.0 % 64.9 % Stock-based
compensation expense 1,004 842 3,620 3,048
Non-GAAP gross profit $ 211,159 $ 157,010 $
726,736 $ 546,608 Non-GAAP gross margin 64.4 % 64.0 %
64.4 % 65.3 % GAAP income from operations $ 77,495 $ 49,397
$ 243,409 $ 149,308 Stock-based compensation expense 16,324 12,978
59,032 45,303 Litigation expense 12,209 8,956 35,833
41,424 Non-GAAP income from operations $ 106,028
$ 71,331 $ 338,274 $ 236,035 Non-GAAP
operating margin 32.3 % 29.1 % 30.0 % 28.2 % GAAP net income
$ 58,783 $ 43,924 $ 184,189 $ 121,102 Stock-based compensation
expense 16,324 12,978 59,032 45,303 Litigation expense 12,209 8,956
35,833 41,424 Release of income tax reserve — (968 ) (6,293 )
(7,344 ) Income tax effect on non-GAAP exclusions (9,836 ) (7,424 )
(31,340 ) (26,292 ) Non-GAAP net income $ 77,480 $ 57,466
$ 241,421 $ 174,193
Weighted average shares used in computing GAAP diluted
income per share attributable to common stockholders 74,384
72,062 73,222 71,411 GAAP diluted net
income per share attributable to common stockholders $ 0.79 $ 0.60
$ 2.50 $ 1.67 Net income attributable to participating securities —
0.01 0.02 0.03 Non-GAAP adjustments to net income 0.25 0.19
0.78 0.74 Non-GAAP diluted net income per
share $ 1.04 $ 0.80 $ 3.30 $ 2.44
Summary of Stock-Based Compensation Expense Cost of revenue
$ 1,004 $ 842 $ 3,620 $ 3,048 Research and development 8,830 7,171
31,892 25,515 Sales and marketing 4,292 3,316 15,666 11,454 General
and administrative 2,198 1,649 7,854 5,286
Total $ 16,324 $ 12,978 $ 59,032 $
45,303
ARISTA NETWORKS, INC.
Consolidated Balance Sheets
(Unaudited in thousands)
December 31, 2016 2015
ASSETS CURRENT ASSETS: Cash and cash equivalents $ 567,923 $
687,326 Marketable securities 299,910 — Accounts receivable 253,119
144,263 Inventories 236,490 92,129 Prepaid expenses and other
current assets 168,684 50,610 Total current assets
1,526,126 974,328 Property and equipment, net 76,961 79,706
Investments 36,136 36,636 Deferred tax assets 70,960 48,429 Other
assets 18,824 20,791 TOTAL ASSETS $ 1,729,007
$ 1,159,890
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES: Accounts payable $ 79,457 $ 43,966 Accrued
liabilities 90,951 60,971 Deferred revenue 273,350 122,049 Other
current liabilities 15,795 8,025 Total current
liabilities 459,553 235,011 Income taxes payable 14,498 14,060
Lease financing obligations, non-current 39,593 41,210 Deferred
revenue, non-current 99,585 74,759 Other long-term liabilities
7,958 6,698 TOTAL LIABILITIES 621,187 371,738
Commitments and contingencies STOCKHOLDERS’ EQUITY: Common
stock 7 7 Additional paid-in capital 674,183 537,904 Retained
earnings 435,105 250,916 Accumulated other comprehensive loss
(1,475 ) (675 ) TOTAL STOCKHOLDERS’ EQUITY 1,107,820 788,152
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,729,007
$ 1,159,890
ARISTA NETWORKS, INC.
Consolidated Statements of Cash
Flows
(Unaudited in thousands)
Year Ended December 31, 2016
2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income
$ 184,189 $ 121,102 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
19,749 13,671 Stock-based compensation 59,032 45,303 Deferred
income taxes (21,720 ) (24,409 ) Excess tax benefit on stock
based-compensation (42,855 ) (37,251 ) Amortization of investment
premiums 1,493 1,471 Changes in operating assets and liabilities:
Accounts receivable (108,856 ) (47,281 ) Inventories (144,361 )
(14,123 ) Prepaid expenses and other current assets (115,074 )
(7,827 ) Other assets 2,866 (3,087 ) Accounts payable 38,678 9,037
Accrued liabilities 30,629 20,398 Deferred revenue 176,126 90,340
Income taxes payable 42,650 32,018 Other liabilities 8,894
1,171 Net cash provided by operating activities 131,440
200,533
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from marketable securities 137,855 208,200 Purchases of
marketable securities (439,711 ) — Purchases of property and
equipment (21,419 ) (19,989 ) Other investing activities (2,500 ) —
Change in restricted cash (204 ) (4,041 ) Net cash provided by
(used) in investing activities (325,979 ) 184,170
CASH
FLOWS FROM FINANCING ACTIVITIES: Principal payments of lease
financing obligations (1,336 ) (1,086 ) Proceeds from issuance of
common stock upon exercising options, net of repurchases 24,855
17,835 Minimum tax withholding paid on behalf of employees for net
share settlement (1,100 ) — Proceeds from issuance of common stock,
employee stock purchase plan 10,326 9,366 Excess tax benefit on
stock-based compensation 42,855 37,251 Issuance costs from initial
public offering — (261 ) Net cash provided by financing
activities 75,600 63,105 Effect of exchange rate
changes (464 ) (513 ) NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (119,403 ) 447,295 CASH AND CASH EQUIVALENTS—Beginning
of year 687,326 240,031 CASH AND CASH EQUIVALENTS—End
of year $ 567,923 $ 687,326
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version on businesswire.com: http://www.businesswire.com/news/home/20170216006185/en/
Arista Networks, Inc.Investor Contact:Chuck Elliott,
408-547-5549Business and Investor Developmentelliott@arista.comorCharles Yager,
408-547-5892Product and Investor Advocacycyager@arista.com
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