Places in the Cloud Networking Growth Continues
with Record Earnings and Revenue
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
second quarter ended June 30, 2019.
Second Quarter Financial Highlights
- Revenue of $608.3 million, an increase of 2.2% compared to the
first quarter of 2019, and an increase of 17.0% from the second
quarter of 2018.
- GAAP gross margin of 64.1%, compared to GAAP gross margin of
63.9% in the first quarter of 2019 and 64.2% in the second quarter
of 2018.
- Non-GAAP gross margin of 64.7%, compared to non-GAAP gross
margin of 64.5% in the first quarter of 2019 and 64.5% in the
second quarter of 2018.
- GAAP net income of $189.3 million, or $2.33 per diluted share,
compared to GAAP net loss of $155.3 million, or $2.08 per diluted
share in the second quarter of 2018.
- Non-GAAP net income of $198.6 million, or $2.44 per diluted
share, compared to non-GAAP net income of $155.7 million, or $1.93
per diluted share in the second quarter of 2018.
"In Q2 2019, Arista raised the ante with innovative products in
both 400G and Cognitive Campus. Our leadership in cloud area
networking is now widely recognized by industry analysts, partners
and customers,” stated Jayshree Ullal, Arista President and
CEO.
Commenting on the company's financial results, Ita Brennan,
Arista’s CFO, said, “The business continued to demonstrate solid
earnings and cash flow generation for the quarter.”
Second Quarter Company Highlights
- Arista Delivers Universal 400G Platforms for Cloud Network
Transformation – Arista Networks introduced the new 7800R family
for demanding 400G cloud networks and the next generation of the
Arista 7500R, 7280R Series. The new platforms support 100G and 400G
Ethernet with compelling throughput, density and price-performance
and offer new telemetry and intelligence.
- Arista Enables Cloud Area Networking on Microsoft Azure –
Announced the next-generation hybrid cloud architecture for the
enterprise. This new offering leverages the Microsoft Azure global
network, integrates Arista EOS® with Azure and Azure Stack,
focusing on the delivery of a seamless hybrid computing experience
for organizations of any size.
- Arista Cognitive Cloud Networking Redefines the Campus - Arista
Networks announced an expansion of the cognitive campus portfolio
with unified wired and wireless campus edge products designed to
address transitional changes as the enterprise moves to an IoT
(Internet of Things) ready campus.
- This is the fifth consecutive year Arista Networks has been
recognized in the Leaders Quadrant of the 2019 Gartner Magic
Quadrant for Data Center Networking, published on 15 July
2019.
- Best Workplaces for Millennials™ 2019 - Arista Networks has
been named to the "2019 Best Workplaces for Millennials" by Great
Place to Work and FORTUNE.
Financial Outlook
For the third quarter of 2019, we expect:
- Revenue between $647 million and $657 million;
- Non-GAAP gross margin between 63% to 65%, and
- Non-GAAP operating margin of approximately 36%
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).
Prepared Materials and Conference Call Information
Arista executives will discuss the second quarter 2019 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
5568407.
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 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 fiscal 2019, and statements regarding the
benefits from the introduction of new products and our leadership
in cloud area networking. 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’ limited operating history; Arista
Networks’ rapid growth; Arista Networks’ customer concentration;
the evolution and growth of the cloud networking market and the
adoption by end customers of Arista Networks’ cloud networking
solutions; changes in our customers’ demand for our 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; 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 including our 400G products as well as our campus and
WiFi products; the benefits and impact of acquisitions; rapid
technological and market change; Arista Networks’ dispute with
OptumSoft; our revenue growth rate; 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 May 6, 2019, 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 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.
Gartner does not endorse any vendor, product or service depicted
in its research publications, and does not advise technology users
to select only those vendors with the highest ratings or other
designation. Gartner research publications consist of the opinions
of Gartner's research organization and should not be construed as
statements of fact. Gartner disclaims all warranties, expressed or
implied, with respect to this research, including any warranties of
merchantability or fitness for a particular purpose.
Non-GAAP Financial Measures
This press release and accompanying tables 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, litigation-related expenses,
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, CloudVision, Cognitive WiFi 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:
https://www.arista.com/
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,
2019
2018
2019
2018
Revenue:
Product
$
513,171
$
444,767
$
1,018,586
$
852,384
Service
95,150
75,078
185,159
139,950
Total revenue
608,321
519,845
1,203,745
992,334
Cost of revenue:
Product
200,534
171,622
398,686
328,313
Service
17,596
14,340
34,298
27,219
Total cost of revenue
218,130
185,962
432,984
355,532
Total gross profit
390,191
333,883
770,761
636,802
Operating expenses:
Research and development
114,295
104,078
233,964
206,440
Sales and marketing
53,040
46,188
104,093
88,328
General and administrative
16,019
18,420
31,525
38,099
Legal settlement
—
405,000
—
405,000
Total operating expenses
183,354
573,686
369,582
737,867
Income (loss) from operations
206,837
(239,803
)
401,179
(101,065
)
Other income (expense), net
13,811
(2,169
)
26,144
1,987
Income (loss) before income taxes
220,648
(241,972
)
427,323
(99,078
)
Provision for (benefit from) income
taxes
31,397
(86,703
)
37,043
(88,347
)
Net income (loss)
$
189,251
$
(155,269
)
$
390,280
$
(10,731
)
Net income (loss) attributable to common
stockholders:
Basic
$
189,152
$
(155,187
)
$
390,063
$
(10,725
)
Diluted
$
189,158
$
(155,187
)
$
390,076
$
(10,725
)
Net income (loss) per share attributable
to common stockholders:
Basic
$
2.47
$
(2.08
)
$
5.12
$
(0.14
)
Diluted
$
2.33
$
(2.08
)
$
4.80
$
(0.14
)
Weighted-average shares used in computing
net income (loss) per share attributable to common
stockholders:
Basic
76,552
74,503
76,238
74,250
Diluted
81,335
74,503
81,271
74,250
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,
2019
2018
2019
2018
GAAP gross profit
$
390,191
$
333,883
$
770,761
$
636,802
GAAP gross margin
64.1
%
64.2
%
64.0
%
64.2
%
Stock-based compensation expense
1,028
1,236
2,126
2,438
Intangible asset amortization
2,626
—
5,251
—
Non-GAAP gross profit
$
393,845
$
335,119
$
778,138
$
639,240
Non-GAAP gross margin
64.7
%
64.5
%
64.6
%
64.4
%
GAAP income (loss) from operations
$
206,837
$
(239,803
)
$
401,179
$
(101,065
)
Stock-based compensation expense
24,297
22,478
48,588
43,329
Litigation expense
514
3,569
1,962
10,654
Legal settlement (1)
—
405,000
—
405,000
Intangible asset amortization
3,499
—
6,998
—
Non-GAAP income from operations
$
235,147
$
191,244
$
458,727
$
357,918
Non-GAAP operating margin
38.7
%
36.8
%
38.1
%
36.1
%
GAAP net income (loss)
$
189,251
$
(155,269
)
$
390,280
$
(10,731
)
Stock-based compensation expense
24,297
22,478
48,588
43,329
Litigation expense
514
3,569
1,962
10,654
Legal settlement (1)
—
405,000
—
405,000
Intangible asset amortization
3,499
—
6,998
—
Altera stock-based tax charge (2)
9,781
—
9,781
—
(Gain) loss on investment in
privately-held companies
—
9,100
(1,150
)
9,100
Tax benefit on stock-based awards
(23,455
)
(25,472
)
(60,509
)
(58,318
)
Income tax effect on non-GAAP
exclusions
(5,324
)
(103,686
)
(9,657
)
(109,191
)
Non-GAAP net income
$
198,563
$
155,720
$
386,293
$
289,843
GAAP diluted net income (loss) per share
attributable to common stockholders
$
2.33
$
(2.08
)
$
4.80
$
(0.14
)
Non-GAAP adjustments to net income
(loss)
0.11
4.01
(0.05
)
3.73
Non-GAAP diluted net income per share
$
2.44
$
1.93
$
4.75
$
3.59
Weighted-average shares used in computing
GAAP diluted net income (loss) per share attributable to common
stockholders
81,335
74,503
81,271
74,250
Weighted-average shares used in computing
Non-GAAP diluted net income per share attributable to common
stockholders
81,335
80,826
81,271
80,774
Summary of Stock-Based Compensation
Expense:
Cost of revenue
$
1,028
$
1,236
$
2,126
$
2,438
Research and development
12,568
11,745
25,699
22,690
Sales and marketing
7,097
6,274
13,631
12,234
General and administrative
3,604
3,223
7,132
5,967
Total
$
24,297
$
22,478
$
48,588
$
43,329
________________
(1) Represents one-time charges associated
with the settlement of our lawsuit with Cisco on August 6,
2018.
(2) Represents a discrete income tax
expense related to stock based compensation as a result of an
opinion on Altera Corporation and Subsidiaries vs. Commissioner on
Internal Revenue issued by the Court of Appeals for the Ninth
Circuit on June 7, 2019.
ARISTA NETWORKS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited, in
thousands)
June 30, 2019
December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
944,414
$
649,950
Marketable securities
1,313,389
1,306,197
Accounts receivable
343,080
331,777
Inventories
314,177
264,557
Prepaid expenses and other current
assets
113,458
162,321
Total current assets
3,028,518
2,714,802
Property and equipment, net
41,023
75,355
Acquisition-related intangible assets,
net
51,612
58,610
Goodwill
53,684
53,684
Investments
31,486
30,336
Operating lease right-of-use assets
94,203
—
Deferred tax assets
113,660
126,492
Other assets
27,106
22,704
TOTAL ASSETS
$
3,441,292
$
3,081,983
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES:
Accounts payable
$
86,134
$
93,757
Accrued liabilities
113,898
123,254
Deferred revenue
272,366
358,586
Other current liabilities
52,622
30,907
Total current liabilities
525,020
606,504
Income taxes payable
45,804
36,167
Operating lease liabilities,
non-current
89,705
—
Finance lease liabilities, non-current
—
35,431
Deferred revenue, non-current
229,852
228,641
Other long-term liabilities
25,351
31,851
TOTAL LIABILITIES
915,732
938,594
STOCKHOLDERS’ EQUITY:
Common stock
8
8
Additional paid-in capital
1,038,740
956,572
Retained earnings (1)
1,484,777
1,190,803
Accumulated other comprehensive income
(loss)
2,035
(3,994
)
TOTAL STOCKHOLDERS’ EQUITY
2,525,560
2,143,389
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
3,441,292
$
3,081,983
____________________________
(1) We adopted new lease accounting
guidance under ASC 842, which resulted in a cumulative-effect
adjustment of $3.7 million to retained earnings as of January 1,
2019.
ARISTA NETWORKS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited, in
thousands)
Six Months Ended June
30,
2019
2018
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)
$
390,280
$
(10,731
)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and other
16,757
11,328
Stock-based compensation
48,588
43,329
Noncash lease expense
7,955
—
Deferred income taxes
7,914
(18,281
)
(Gain) loss on investment in
privately-held companies
(1,150
)
9,100
Accretion of investment discounts
(4,260
)
(783
)
Changes in operating assets and
liabilities:
Accounts receivable, net
(11,303
)
(13,571
)
Inventories
(49,620
)
60,759
Prepaid expenses and other current
assets
48,864
(72,418
)
Other assets
(4,635
)
629
Accounts payable
(6,783
)
3,597
Accrued liabilities
(9,476
)
(47,153
)
Accrued legal settlement
—
405,000
Deferred revenue
(85,009
)
(50,096
)
Income taxes payable
14,399
6,653
Other liabilities
3,955
(1,237
)
Net cash provided by operating
activities
366,476
326,125
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturities of marketable
securities
552,512
222,764
Purchases of marketable securities
(549,383
)
(696,665
)
Purchases of property and equipment
(8,639
)
(13,071
)
Investments in privately-held
companies
—
(8,000
)
Other investing activities
—
(2,000
)
Net cash used in investing activities
(5,510
)
(496,972
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments of lease financing
obligations
—
(921
)
Proceeds from issuance of common stock
under equity plans
38,104
28,810
Tax withholding paid on behalf of
employees for net share settlement
(4,662
)
(4,463
)
Repurchase of common stock
(100,008
)
—
Net cash provided by (used in) financing
activities
(66,566
)
23,426
Effect of exchange rate changes
72
(607
)
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
294,472
(148,028
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—Beginning of period
654,164
864,697
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—End of period
$
948,636
$
716,669
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190801005855/en/
Investor Contacts Charles Yager Product and Investor
Advocacy (408) 547-5892 cyager@arista.com
Chuck Elliott Business and Investor Development (408) 547-5549
chuck@arista.com
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