Cloud Networking Adoption Continues with Record
Revenue and EPS
Arista Networks, Inc. (NYSE: ANET), an industry leader in
software-driven cloud networking solutions for large datacenter and
computing environments, today announced financial results for its
third quarter ended September 30, 2017.
Third Quarter Financial Highlights
- Revenue of $437.6 million, an
increase of 8.0% compared to the second quarter of 2017, and an
increase of 50.8% from the third quarter of 2016.
- GAAP gross margin of 64.1%, compared to
GAAP gross margin of 64.1% in the second quarter of 2017 and 64.2%
in the third quarter of 2016.
- Non-GAAP gross margin of 64.4%,
compared to non-GAAP gross margin of 64.4% in the second quarter of
2017 and 64.6% in the third quarter of 2016.
- GAAP net income of $133.7 million,
or $1.68 per diluted share, compared to GAAP net income
of $51.3 million, or $0.69 per diluted share, in the
third quarter of 2016.
- Non-GAAP net income of $128.2
million, or $1.62 per diluted share, compared to non-GAAP
net income of $61.2 million, or $0.83 per diluted
share, in the third quarter of 2016.
"I am proud of our record results and profits in Q3 2017,”
stated Jayshree Ullal, Arista President and CEO. “Our
performance validates our meaningful traction with customers as
they evolve from legacy to universal cloud networking designs.”
Commenting on the company's financial results, Ita Brennan,
Arista’s CFO, said, “We are pleased with our execution and strong
financial performance in the quarter".
Company Highlights
- Introduced Arista Any Cloud software
platform, reducing operational costs and complexity for enterprises
by simplifying integration and management of hybrid clouds across
private cloud datacenters and public cloud providers.
- Arista Networks makes the top 10 in
FORTUNE magazine’s 100 Fastest-Growing Companies September 2017
issue.
Financial Outlook
For the fourth quarter of 2017, we expect:
- Revenue between $450 and $464
million.
- Non-GAAP gross margin between 63% to
65%, and
- Non-GAAP operating margin between 30%
and 32%
Guidance for non-GAAP financial measures excludes legal expenses
of approximately $12 million associated with the
OptumSoft and Cisco litigation, stock-based compensation
expense, including excess tax benefits on stock-based awards, 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 third quarter 2017 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 94689018.
The financial results conference call will also be available via
live webcast on our investor relations website
at http://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 fourth quarter of fiscal 2017, and statements regarding the
benefits from the introduction of new 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: Arista Networks’ dispute with
Cisco Systems, Inc. including the ITC remedial orders which
prohibit the importation of Arista products (or components thereof)
into the U.S., or the sale of previously imported products, that
are covered by those remedial orders, Arista Networks’ ability to
redesign its products in a manner not covered by such remedial
orders and obtain appropriate governmental approvals for those
redesigned products, any penalties assessed by the ITC if Arista’s
redesigned products are covered by such remedial orders and Arista
Networks’ ability to manage our manufacturing and supply chain
including the sourcing of components on commercially reasonable
terms; Arista Networks’ limited operating history; Arista Networks’
rapid growth; Arista Networks’ customer concentration; our
customer’s adoption of our redesigned products and services;
requests for more favorable terms and conditions from our large end
customers; declines in the sales prices of our products and
services; changes in customer demand for our products and services,
customer order patterns or customer mix; the timing of orders and
manufacturing and customer lead times; increased competition in our
products and service markets; 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 Networks’ 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 most recent Quarterly
Report on Form 10-Q filed with the SEC on August 4, 2017, 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
http://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 and related excess tax
benefits, expenses associated with the OptumSoft
and Cisco litigation, other non-recurring charges or
benefits, and the income tax effect of these non-GAAP exclusions.
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 expense and related excess tax benefits,
expenses associated with the OptumSoft
and Cisco litigation, and other non-recurring items. 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 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 and the future fair market value of the Company’s
common stock. In addition, excess tax benefits on stock-based
awards will fluctuate based on these same factors, as well as the
timing of exercise or vesting of such awards, all of which are
difficult to predict and subject to constant change. The actual
amount of stock-based compensation expense and excess tax benefits
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.
Condensed Consolidated Statements of
Income
(Unaudited in thousands, except per
share amounts)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2017 2016
2017 2016 Revenue: Product $ 380,344 $ 254,238
$ 1,025,615 $ 702,329 Service 57,289 36,023 152,704
98,869 Total revenue 437,633 290,261 1,178,319
801,198 Cost of revenue: Product 145,874 94,777 390,116 261,711
Service 11,142 9,064 33,599 26,526
Total cost of revenue 157,016 103,841 423,715
288,237 Total gross profit 280,617 186,420 754,604 512,961
Operating expenses: Research and development 79,610 70,648 242,414
202,183 Sales and marketing 40,640 33,216 116,297 92,566 General
and administrative 19,535 19,535 65,009 52,298
Total operating expenses 139,785 123,399 423,720 347,047
Income from operations 140,832 63,021 330,884 165,914 Other income
(expense), net: Interest expense (701 ) (735 ) (2,039 ) (2,218 )
Other income (expense), net 2,136 639 4,280
1,392 Total other income (expense), net 1,435 (96 )
2,241 (826 ) Income before provision for income taxes
142,267 62,925 333,125 165,088 Provision for income taxes 8,545
11,668 13,757 39,682 Net income $
133,722 $ 51,257 $ 319,368 $ 125,406
Net income attributable to common stockholders: Basic $ 133,540
$ 50,962 $ 318,643 $ 124,475 Diluted $
133,555 $ 50,980 $ 318,704 $ 124,531
Net income per share attributable to common stockholders: Basic $
1.84 $ 0.74 $ 4.43 $ 1.82 Diluted $
1.68 $ 0.69 $ 4.06 $ 1.71
Weighted-average shares used in computing net income per share
attributable to common stockholders: Basic 72,588 69,076
71,903 68,365 Diluted 79,322 73,453
78,528 72,811
ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to
Non-GAAP Financial Measures
(Unaudited in thousands, except
percentages and per share amounts)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2017 2016
2017 2016 GAAP gross profit $ 280,617 $
186,420 $ 754,604 $ 512,961 GAAP gross margin 64.1 % 64.2 % 64.0 %
64.0 % Stock-based compensation expense 1,113 955
3,224 2,616 Non-GAAP gross profit $ 281,730 $
187,375 $ 757,828 $ 515,577 Non-GAAP gross
margin 64.4 % 64.6 % 64.3 % 64.4 % GAAP income from
operations $ 140,832 $ 63,021 $ 330,884 $ 165,914 Stock-based
compensation expense 20,152 15,116 54,991 42,708 Litigation expense
7,857 9,025 31,280 23,624 Non-GAAP
income from operations $ 168,841 $ 87,162 $ 417,155
$ 232,246 Non-GAAP operating margin 38.6 % 30.0 %
35.4 % 29.0 % GAAP net income $ 133,722 $ 51,257 $ 319,368 $
125,406 Stock-based compensation expense 20,152 15,116 54,991
42,708 Litigation expense 7,857 9,025 31,280 23,624 Excess tax
benefit on share based awards (23,826 ) — (71,695 ) — Release of
income tax reserve — (6,293 ) — (6,293 ) Income tax effect on
non-GAAP exclusions (9,683 ) (7,924 ) (28,445 ) (21,504 ) Non-GAAP
net income $ 128,222 $ 61,181 $ 305,499 $
163,941 GAAP diluted net income per share
attributable to common stockholders $ 1.68 $ 0.69 $ 4.06 $ 1.71
Non-GAAP adjustments to net income (0.06 ) 0.14 (0.17 ) 0.54
Non-GAAP diluted net income per share $ 1.62 $ 0.83
$ 3.89 $ 2.25 Weighted-average shares
used in computing diluted net income per share attributable to
common stockholders 79,322 73,453 78,528
72,811
Summary of Stock-Based Compensation
Expense Cost of revenue $ 1,113 $ 955 $ 3,224 $ 2,616 Research
and development 11,048 8,010 30,977 23,062 Sales and marketing
5,115 3,947 12,651 11,374 General and administrative 2,876
2,204 8,139 5,656 Total $ 20,152 $
15,116 $ 54,991 $ 42,708
ARISTA NETWORKS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited in thousands)
September 30, 2017 December 31,
2016 ASSETS CURRENT ASSETS: Cash and cash equivalents
$ 854,479 $ 567,923 Marketable securities 488,635 299,910 Accounts
receivable 212,611 253,119 Inventories 333,157 236,490 Prepaid
expenses and other current assets 186,657 168,684
Total current assets 2,075,539 1,526,126 Property and
equipment, net 73,061 76,961 Investments 36,136 36,136 Deferred tax
assets 95,697 70,960 Other assets 21,277 18,824 TOTAL
ASSETS $ 2,301,710 $ 1,729,007
LIABILITIES AND
STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $
32,893 $ 79,457 Accrued liabilities 94,459 90,951 Deferred revenue
423,705 273,350 Other current liabilities 16,490 15,795
Total current liabilities 567,547 459,553
Income taxes payable 22,161 14,498 Lease financing obligations,
non-current 38,199 39,593 Deferred revenue, non-current 141,440
99,585 Other long-term liabilities 7,811 7,958 TOTAL
LIABILITIES 777,158 621,187 STOCKHOLDERS’ EQUITY:
Common stock 7 7 Additional paid-in capital 770,339 674,183
Retained earnings 755,281 435,105 Accumulated other comprehensive
loss (1,075 ) (1,475 ) TOTAL STOCKHOLDERS’ EQUITY 1,524,552
1,107,820 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $
2,301,710 $ 1,729,007
ARISTA NETWORKS, INC.
Condensed Consolidated Statements of
Cash Flows
(Unaudited in thousands)
Nine Months EndedSeptember 30, 2017
2016 Cash flows from operating activities Net
income $ 319,368 $ 125,406 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 15,355 14,807 Stock-based compensation 54,991 42,708
Deferred income taxes (22,743 ) (13,720 ) Amortization of
investment premiums 1,106 994 Changes in operating assets and
liabilities: Accounts receivable, net 40,508 (65,980 ) Inventories
(96,667 ) (69,998 ) Prepaid expenses and other current assets
(20,973 ) (98,050 ) Other assets (1,560 ) 3,208 Accounts payable
(46,075 ) 35,510 Accrued liabilities 4,175 15,913 Deferred revenue
192,210 88,027 Income taxes payable 7,421 27,275 Other liabilities
847 2,628 Net cash provided by operating activities
447,963 108,728
Cash flows from investing
activities Proceeds from marketable securities 135,483 41,917
Purchases of marketable securities (325,414 ) (342,484 ) Purchases
of property and equipment (12,159 ) (16,484 ) Proceeds from
repayment of notes receivable 3,000 — Investment in privately-held
companies — (2,500 ) Change in restricted cash (1,257 ) —
Net cash used in investing activities
(200,347 ) (319,551 )
Cash flows from financing activities
Principal payments of lease financing obligations (1,170 ) (960 )
Proceeds from issuance of common stock under equity plans 41,870
25,882 Minimum tax withholding paid on behalf of employees for net
share settlement (2,457 ) (811 ) Net cash provided by financing
activities 38,243 24,111 Effect of exchange rate
changes 697 (133 ) NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 286,556 (186,845 ) CASH AND CASH EQUIVALENTS—Beginning
of period 567,923 687,326 CASH AND CASH
EQUIVALENTS—End of period $ 854,479 $ 500,481
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version on businesswire.com: http://www.businesswire.com/news/home/20171102006483/en/
Arista Networks, Inc.Media ContactAmanda Jaramillo,
408-547-5798Corporate Communicationsamanda@arista.comorInvestor
ContactCharles Yager, 408-547-5892Product and Investor
Advocacycyager@arista.com
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