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
first quarter ended March 31, 2020.
First Quarter Financial Highlights
- Revenue of $523.0 million, a decrease of 5.3% compared to the
fourth quarter of 2019, and a decrease of 12.2% from the first
quarter of 2019.
- GAAP gross margin of 64.7%, compared to GAAP gross margin of
64.5% in the fourth quarter of 2019 and 63.9% in the first quarter
of 2019.
- Non-GAAP gross margin of 65.6%, compared to non-GAAP gross
margin of 65.2% in the fourth quarter of 2019 and 64.5% in the
first quarter of 2019.
- GAAP net income of $138.4 million, or $1.73 per diluted share,
compared to GAAP net income of $201.0 million, or $2.47 per diluted
share in the first quarter of 2019.
- Non-GAAP net income of $161.7 million, or $2.02 per diluted
share, compared to non-GAAP net income of $187.7 million, or $2.31
per diluted share in the first quarter of 2019.
"Arista delivered solid Q1 2020 financial results despite the
global pandemic that we all are experiencing. We are committed to
our employees’ safety while bringing value to our customers,
shareholders and community in these unpredictable times and believe
we will emerge stronger in the long term,” stated Jayshree Ullal,
Arista’s President and CEO.
Commenting on the company's financial results, Ita Brennan,
Arista’s CFO, said, “We are pleased with our business execution in
the quarter, with the majority of our team effectively working from
home, yet continuing to engage productively with our customers,
supply chain and other partners.”
First Quarter Company Highlights
- Arista Networks announced that it has acquired Big Switch
Networks, a network monitoring and SDN (Software Defined
Networking) pioneer. The acquisition of Big Switch further
strengthens the company’s network monitoring and observability
suite delivered through Arista’s software platform CloudVision and
DANZ (Data ANalyZer) capabilities.
- Arista Networks Announced an Optical Line System for 400G – The
Arista OSFP-LS is a highly compact, low power and cost-effective
solution for increasing bandwidth between data centers without the
need for external optical line systems. This pluggable OSFP form
factor simplifies DWDM network deployment and reduces valuable rack
space, appealing in particular to Tier2 Cloud and Internet Service
Providers.
- Ciena and Arista Complete Interoperability Testing of
400GbE-Optimized Transport Solution - Ciena and Arista completed an
interoperability test of the industry’s most dense and
spectrally-efficient 400GbE transport solution with the industry’s
highest density native 400GbE router.
- COVID-19 Response - A Letter from Our CEO – Arista plays a
critical role in supporting the cloud communications and computing
infrastructure that will keep the world running during these
difficult times. The rapid acceleration of Covid-19 developments
across the world has brought a new perspective to Arista's
business, customers and community goals.
Financial Outlook
For the second quarter of 2020, we expect:
- Revenue between $520 million to $540 million;
- Non-GAAP gross margin of 63% to 65%, and
- Non-GAAP operating margin of approximately 35%
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
under “Non-GAAP Financial Measures”).
Prepared Materials and Conference Call Information
Arista executives will discuss the first quarter 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
9769576.
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 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 second quarter of fiscal year
2020, and statements regarding the introduction of new products and
the expected benefits from the acquisition of Big Switch.
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 impact of the
COVID-19 pandemic on our business, the evolution and growth of the
cloud networking market and the adoption by end customers of
Arista’s cloud networking solutions; rapid technological and market
change; Arista’s customer concentration; our ability to attract new
large end customers or sell additional products and services to
existing customers; competition in our products and services
markets; changes in Arista’s customers’ demand for our products and
services; changes in customer order patterns or customer mix;
requests by large end customers for more favorable terms and
conditions; general market, political, economic and business
conditions such as the recent U.S. trade wars with China and the
impact of public health pandemics like the COVID-19 pandemic;
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; the timing of orders and manufacturing and
customer lead times; and the benefits and impact of acquisitions;
and other future events. Additional risks and uncertainties that
could affect Arista can be found in our most recent Annual Report
on Form 10-K filed with the SEC on February 14, 2020, 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 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
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, 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, CloudEOS and CloudVision 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 March
31,
2020
2019
Revenue:
Product
$
410,906
$
505,415
Service
112,123
90,009
Total revenue
523,029
595,424
Cost of revenue:
Product
163,629
198,152
Service
21,149
16,702
Total cost of revenue
184,778
214,854
Gross profit
338,251
380,570
Operating expenses:
Research and development
113,154
119,669
Sales and marketing
57,086
51,053
General and administrative
18,349
15,506
Total operating expenses
188,589
186,228
Income from operations
149,662
194,342
Other income, net
12,157
12,333
Income before income taxes
161,819
206,675
Provision for income taxes
23,388
5,646
Net income
$
138,431
$
201,029
Net income attributable to common
stockholders:
Basic
$
138,431
$
200,911
Diluted
$
138,431
$
200,918
Net income per share attributable to
common stockholders:
Basic
$
1.82
$
2.65
Diluted
$
1.73
$
2.47
Weighted-average shares used in computing
net income per share attributable to common stockholders:
Basic
76,264
75,920
Diluted
79,939
81,201
ARISTA NETWORKS, INC.
Reconciliation of Selected
GAAP to Non-GAAP Financial Measures
(Unaudited, in thousands,
except percentages and per share amounts)
Three Months Ended March
31,
2020
2019
GAAP gross profit
$
338,251
$
380,570
GAAP gross margin
64.7
%
63.9
%
Stock-based compensation expense
1,327
1,098
Intangible asset amortization
3,660
2,625
Non-GAAP gross profit
$
343,238
$
384,293
Non-GAAP gross margin
65.6
%
64.5
%
GAAP income from operations
$
149,662
$
194,342
Stock-based compensation expense
27,556
24,291
Litigation expense
—
1,448
Intangible asset amortization
4,902
3,499
Acquisition-related costs (1)
11,860
—
Non-GAAP income from operations
$
193,980
$
223,580
Non-GAAP operating margin
37.1
%
37.5
%
GAAP net income
$
138,431
$
201,029
Stock-based compensation expense
27,556
24,291
Litigation expense
—
1,448
Intangible asset amortization
4,902
3,499
Acquisition-related costs
11,860
—
Gain on investment in privately-held
companies
—
(1,150
)
Tax benefit on stock-based awards
(14,502
)
(37,054
)
Income tax effect on non-GAAP
exclusions
(6,555
)
(4,333
)
Non-GAAP net income
$
161,692
$
187,730
GAAP diluted net income per share
attributable to common stockholders
$
1.73
$
2.47
Non-GAAP adjustments to net income
0.29
(0.16
)
Non-GAAP diluted net income per share
$
2.02
$
2.31
Weighted-average shares used in computing
diluted net income per share attributable to common
stockholders
79,939
81,201
Summary of Stock-Based Compensation
Expense:
Cost of revenue
$
1,327
$
1,098
Research and development
15,928
13,131
Sales and marketing
6,396
6,534
General and administrative
3,905
3,528
Total
$
27,556
$
24,291
(1) Represents non-recurring costs
associated with our acquisition of Big Switch, and primarily
include severance, retention bonuses, professional and consulting
fees, and facilities restructuring costs.
ARISTA NETWORKS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited, in
thousands)
March 31, 2020
December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
761,333
$
1,111,286
Marketable securities
1,875,660
1,613,082
Accounts receivable, net
352,159
391,987
Inventories
261,798
243,825
Prepaid expenses and other current
assets
85,949
111,456
Total current assets
3,336,899
3,471,636
Property and equipment, net
37,806
39,273
Acquisition-related intangible assets,
net
89,373
45,235
Goodwill
84,781
54,855
Investments
4,150
4,150
Operating lease right-of-use assets
83,377
87,770
Deferred tax assets
448,432
452,025
Other assets
27,027
30,346
TOTAL ASSETS
$
4,111,845
$
4,185,290
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES:
Accounts payable
$
84,815
$
92,105
Accrued liabilities
100,443
140,249
Deferred revenue
332,175
312,668
Other current liabilities
55,574
52,052
Total current liabilities
573,007
597,074
Income taxes payable
58,507
55,485
Operating lease liabilities,
non-current
78,502
83,022
Deferred revenue, non-current
264,600
262,620
Deferred tax liabilities, non-current
250,304
254,710
Other long-term liabilities
38,099
37,693
TOTAL LIABILITIES
1,263,019
1,290,604
STOCKHOLDERS’ EQUITY:
Common stock
8
8
Additional paid-in capital
1,149,224
1,106,305
Retained earnings
1,698,766
1,788,230
Accumulated other comprehensive income
828
143
TOTAL STOCKHOLDERS’ EQUITY
2,848,826
2,894,686
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
4,111,845
$
4,185,290
ARISTA NETWORKS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited, in
thousands)
Three Months Ended March
31,
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
138,431
$
201,029
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and other
10,208
8,362
Stock-based compensation
27,556
24,291
Noncash lease expense
4,073
3,689
Deferred income taxes
457
(718
)
(Gain) on investments in privately-held
companies
—
(1,150
)
Amortization (accretion) of investment
premiums (discounts)
1,042
(2,069
)
Changes in operating assets and
liabilities:
Accounts receivable, net
46,329
60,531
Inventories
(17,691
)
(82,596
)
Prepaid expenses and other current
assets
25,751
30,664
Other assets
3,946
(2,475
)
Accounts payable
(6,386
)
(2,391
)
Accrued liabilities
(39,450
)
(19,014
)
Deferred revenue
21
(50,756
)
Income taxes payable
3,982
2,040
Other liabilities
(3,422
)
660
Net cash provided by operating
activities
194,847
170,097
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from maturities of marketable
securities
414,503
302,264
Purchases of marketable securities
(674,649
)
(332,247
)
Business acquisitions, net of cash
acquired
(66,225
)
—
Purchases of property and equipment
(3,107
)
(5,237
)
Net cash used in investing activities
(329,478
)
(35,220
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock
under equity plans
17,082
26,323
Tax withholding paid on behalf of
employees for net share settlement
(1,740
)
(1,850
)
Repurchase of common stock
(227,895
)
—
Net cash provided by (used in) financing
activities
(212,553
)
24,473
Effect of exchange rate changes
(2,691
)
195
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(349,875
)
159,545
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—Beginning of period
1,115,515
654,164
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
—End of period
$
765,640
$
813,709
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200505005808/en/
Curtis McKee Corporate and Investor Development (408) 547-5701
curtism@arista.com
Charles Yager Product and Investor Advocacy (408) 547-5892
cyager@arista.com
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