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
third quarter ended September 30, 2019.
Third Quarter Financial Highlights
- Revenue of $654.4 million, an increase of 7.6% compared to the
second quarter of 2019, and an increase of 16.2% from the third
quarter of 2018.
- GAAP gross margin of 63.8%, compared to GAAP gross margin of
64.1% in the second quarter of 2019 and 64.2% in the third quarter
of 2018.
- Non-GAAP gross margin of 64.4%, compared to non-GAAP gross
margin of 64.7% in the second quarter of 2019 and 64.6% in the
third quarter of 2018.
- GAAP net income of $208.9 million, or $2.59 per diluted share,
compared to GAAP net income of $168.5 million, or $2.08 per diluted
share in the third quarter of 2018.
- Non-GAAP net income of $217.1 million, or $2.69 per diluted
share, compared to non-GAAP net income of $171.3 million, or $2.11
per diluted share in the third quarter of 2018.
“In Q3 2019 we continued to see the adoption of our cloud
networking technology in more diverse environments. While we expect
a sudden softening in Q4 with a specific cloud titan customer, we
are committed to a sustainable and strong foundation of long-term
growth, innovation and profitability,” stated Jayshree Ullal,
Arista President and CEO.
Commenting on the company's financial results, Ita Brennan,
Arista’s CFO, said, “We saw continued solid business execution in
the quarter with strong earnings and cash flow generation.”
Third Quarter Company Highlights
- Arista Networks announced CloudVision 2019, building upon
Arista’s cognitive management plane. The CloudVision 2019 release
brings new capabilities and integrations, helping customers with
operational cost reduction, risk management, and agility in network
operations.
- 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.
- Arista Networks announces that it is providing network
platforms for SK Telecom’s 5G network.
- Vocus Group, Australia’s specialist fibre and network solutions
provider announced Arista Networks has been appointed the supplier
of Vocus’ Layer 2 and Layer 3 network equipment.
Financial Outlook
For the fourth quarter of 2019, we expect:
- Revenue between $540 million and $560 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 third 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
7979217.
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 fourth 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: the evolution and growth of the cloud networking
market and the adoption by end customers of Arista Networks’ cloud
networking solutions; rapid technological and market change;
Arista’s customer concentration; changes in Arista’s customers’
demand for our products and services; general market, political,
economic and business conditions; Arista’s rapid growth and our
revenue growth rate; Arista’s limited operating history; 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; our ability to attract new large end customers or sell
additional products and services to existing customers; competition
in our products and service markets; requests for more favorable
terms and conditions from our large end customers; customer order
patterns or customer mix; the timing of orders and manufacturing
and customer lead times; the benefits and impact of acquisitions;
and Arista Networks’ dispute with OptumSoft. 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 2, 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 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, 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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenue:
Product
$
555,066
$
485,481
$
1,573,652
$
1,337,865
Service
99,349
77,828
284,508
217,778
Total revenue
654,415
563,309
1,858,160
1,555,643
Cost of revenue:
Product
218,220
187,764
616,906
516,077
Service
18,921
13,962
53,219
41,181
Total cost of revenue
237,141
201,726
670,125
557,258
Total gross profit
417,274
361,583
1,188,035
998,385
Operating expenses:
Research and development
118,732
117,589
352,696
324,029
Sales and marketing
55,279
47,903
159,372
136,231
General and administrative
14,657
15,321
46,182
53,420
Legal settlement
—
—
—
405,000
Total operating expenses
188,668
180,813
558,250
918,680
Income from operations
228,606
180,770
629,785
79,705
Other income (expense), net
19,169
8,619
45,313
10,606
Income before income taxes
247,775
189,389
675,098
90,311
Provision for (benefit from) income
taxes
38,880
20,865
75,923
(67,482
)
Net income
$
208,895
$
168,524
$
599,175
$
157,793
Net income attributable to common
stockholders:
Basic
$
208,799
$
168,439
$
598,861
$
157,706
Diluted
$
208,804
$
168,445
$
598,880
$
157,713
Net income per share attributable to
common stockholders:
Basic
$
2.73
$
2.25
$
7.85
$
2.12
Diluted
$
2.59
$
2.08
$
7.38
$
1.95
Weighted-average shares used in computing
net income per share attributable to common stockholders:
Basic
76,426
75,011
76,301
74,506
Diluted
80,753
81,018
81,104
80,844
ARISTA NETWORKS, INC.
Reconciliation of Selected
GAAP to Non-GAAP Financial Measures
(Unaudited, in thousands,
except percentages and per share amounts)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
GAAP gross profit
$
417,274
$
361,583
$
1,188,035
$
998,385
GAAP gross margin
63.8
%
64.2
%
63.9
%
64.2
%
Stock-based compensation expense
1,258
1,268
3,384
3,706
Intangible asset amortization
2,626
1,198
7,877
1,198
Non-GAAP gross profit
$
421,158
$
364,049
$
1,199,296
$
1,003,289
Non-GAAP gross margin
64.4
%
64.6
%
64.5
%
64.5
%
GAAP income from operations
$
228,606
$
180,770
$
629,785
$
79,705
Stock-based compensation expense
26,257
23,254
74,845
66,583
Litigation expense (benefit)
—
(100
)
1,962
10,554
Legal settlement (1)
—
—
—
405,000
Intangible asset amortization
3,293
1,610
10,291
1,610
Acquisition-related costs
—
3,432
—
3,432
Non-GAAP income from operations
$
258,156
$
208,966
$
716,883
$
566,884
Non-GAAP operating margin
39.4
%
37.1
%
38.6
%
36.4
%
GAAP net income
$
208,895
$
168,524
$
599,175
$
157,793
Stock-based compensation expense
26,257
23,254
74,845
66,583
Litigation expense (benefit)
—
(100
)
1,962
10,554
Legal settlement (1)
—
—
—
405,000
Intangible asset amortization
3,293
1,610
10,291
1,610
Acquisition-related costs
—
3,432
—
3,432
Altera stock-based tax charge (2)
—
—
9,781
—
(Gain) loss on investment in
privately-held companies
(4,277
)
—
(5,427
)
9,100
Acquisition-related tax expense
—
5,853
—
5,853
Tax benefit on stock-based awards
(12,674
)
(26,130
)
(73,183
)
(84,448
)
Income tax effect on non-GAAP
exclusions
(4,391
)
(5,149
)
(14,048
)
(114,340
)
Non-GAAP net income
$
217,103
$
171,294
$
603,396
$
461,137
GAAP diluted net income per share
attributable to common stockholders
$
2.59
$
2.08
$
7.38
$
1.95
Non-GAAP adjustments to net income
0.10
0.03
0.06
3.75
Non-GAAP diluted net income per share
$
2.69
$
2.11
$
7.44
$
5.70
Weighted-average shares used in computing
GAAP and Non-GAAP diluted net income per share attributable to
common stockholders
80,753
81,018
81,104
80,844
Summary of Stock-Based Compensation
Expense:
Cost of revenue
$
1,258
$
1,268
$
3,384
$
3,706
Research and development
13,472
12,010
39,171
34,700
Sales and marketing
7,832
6,537
21,463
18,771
General and administrative
3,695
3,439
10,827
9,406
Total
$
26,257
$
23,254
$
74,845
$
66,583
___________________
(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)
September 30, 2019
December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
1,095,265
$
649,950
Marketable securities
1,351,775
1,306,197
Accounts receivable
447,252
331,777
Inventories
239,802
264,557
Prepaid expenses and other current
assets
106,326
162,321
Total current assets
3,240,420
2,714,802
Property and equipment, net
40,188
75,355
Acquisition-related intangible assets,
net
48,319
58,610
Goodwill
54,855
53,684
Investments
4,150
30,336
Operating lease right-of-use assets
91,903
—
Deferred tax assets
110,630
126,492
Other assets
29,360
22,704
TOTAL ASSETS
$
3,619,825
$
3,081,983
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES:
Accounts payable
$
78,600
$
93,757
Accrued liabilities
128,930
123,254
Deferred revenue
291,384
358,586
Other current liabilities
49,275
30,907
Total current liabilities
548,189
606,504
Income taxes payable
60,278
36,167
Operating lease liabilities,
non-current
87,099
—
Finance lease liabilities, non-current
—
35,431
Deferred revenue, non-current
237,628
228,641
Other long-term liabilities
30,627
31,851
TOTAL LIABILITIES
963,821
938,594
STOCKHOLDERS’ EQUITY:
Common stock
8
8
Additional paid-in capital
1,076,732
956,572
Retained earnings (1)
1,579,063
1,190,803
Accumulated other comprehensive income
(loss)
201
(3,994
)
TOTAL STOCKHOLDERS’ EQUITY
2,656,004
2,143,389
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
3,619,825
$
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)
Nine Months Ended September
30,
2019
2018
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
599,175
$
157,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and other
24,948
18,440
Stock-based compensation
74,845
66,583
Noncash lease expense
12,007
—
Deferred income taxes
10,945
(49,615
)
(Gain) loss on investment in
privately-held companies
(5,427
)
9,100
Accretion of investment discounts
(6,032
)
(1,863
)
Changes in operating assets and
liabilities:
Accounts receivable, net
(115,475
)
(68,192
)
Inventories
24,951
98,284
Prepaid expenses and other current
assets
59,388
(50,507
)
Other assets
(7,009
)
(767
)
Accounts payable
(14,361
)
30,515
Accrued liabilities
5,731
(35,917
)
Deferred revenue
(58,216
)
13,161
Income taxes payable
29,808
10,311
Other liabilities
595
9,974
Net cash provided by operating
activities
635,873
207,300
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturities of marketable
securities
806,519
366,999
Purchases of marketable securities
(840,098
)
(827,198
)
Business acquisitions, net of cash
acquired
(1,365
)
(95,640
)
Purchases of property and equipment
(13,319
)
(17,613
)
Proceeds from (purchases of) investments
in privately-held companies
28,220
(8,000
)
Other investing activities
—
(2,000
)
Net cash used in investing activities
(20,043
)
(583,452
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments of lease financing
obligations
—
(1,392
)
Proceeds from issuance of common stock
under equity plans
52,177
49,642
Tax withholding paid on behalf of
employees for net share settlement
(7,069
)
(6,914
)
Repurchase of common stock
(214,617
)
—
Net cash provided by (used in) financing
activities
(169,509
)
41,336
Effect of exchange rate changes
(994
)
(984
)
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
445,327
(335,800
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—Beginning of period
654,164
864,697
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—End of period
$
1,099,491
$
528,897
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191031005831/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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