Market Overview

Arista Networks, Inc. Reports First Quarter 2019 Financial Results

Share:

Places in the Cloud Networking Growth Continues with Record Earnings

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, 2019.

First Quarter Financial Highlights

  • Revenue of $595.4 million, essentially flat compared to the fourth
    quarter of 2018, and an increase of 26% from the first quarter of 2018.
  • GAAP gross margin of 63.9%, compared to GAAP gross margin of 62.9% in
    the fourth quarter of 2018 and 64.1% in the first quarter of 2018.
  • Non-GAAP gross margin of 64.5%, compared to non-GAAP gross margin of
    64.1% in the fourth quarter of 2018 and 64.4% in the first quarter of
    2018.
  • GAAP net income of $201.0 million, or $2.47 per diluted share,
    compared to GAAP net income of $144.5 million, or $1.79 per diluted
    share in the first quarter of 2018.
  • Non-GAAP net income of $187.7 million, or $2.31 per diluted share,
    compared to non-GAAP net income of $134.1 million, or $1.66 per
    diluted share in the first quarter of 2018.

"Arista's Q1 results demonstrate our consistent execution and
profitability despite the seasonality of the quarter. We are witnessing
the deployment of cloud principles into new enterprise markets,"
stated Jayshree Ullal, Arista President and CEO.

Commenting on the company's financial results, Ita Brennan, Arista's
CFO, said, "Our Q1 financial performance demonstrates the robustness of
the business model with record earnings as we continue to diversify the
business."

First Quarter Company Highlights

  • Arista
    Introduces Open Cloud-Scale Platform
    Arista Networks
    announced at the 2019 OCP Global Summit the Arista 7360X Series, a
    new and disruptive platform that doubles system density while reducing
    power consumption and cost. By doubling the network diameter,
    customers can address the demand for higher bandwidth with reduced
    leaf-spine tiers while lowering both capex and opex. Cloud providers
    now have the ability to migrate to higher performance 100G or 400G
    while leveraging Arista EOS® for single image consistency
    across the network.
  • Arista
    Introduces Enhanced Ultra-low Latency, High-precision Network
    Application Platforms
    Arista Networks announced the
    Arista 7130L Series, the next generation ultra-low latency,
    high-precision network application platform, with deterministic 5
    nanosecond switching and virtually undetectable jitter. The 7130L
    Series consolidates FPGA (field-programmable gate array) based network
    applications, notably MetaMux, which enables lower latency data
    aggregation and is ideal for connecting electronic trading platforms
    directly to exchanges and MetaWatch for tapping and aggregating
    time-stamped packets for data analysis or compliance.
  • CBC/Radio-Canada
    Selects Arista Networks for New Broadcast Facility
    Arista
    Networks announced that CBC/Radio-Canada, Canada's national public
    broadcaster, has chosen Arista Networks' high performance switching
    infrastructure for its new "Maison de Radio-Canada" (MRC) in Montreal,
    a planned state-of-the-art facility that will be fully compliant with
    the SMPTE ST2110 suite of standards for professional media
    applications over managed IP networks.
  • Arista
    Networks: Named One of the 2019 Best Workplaces in the Bay Area by
    Great Place to Work® and FORTUNE
    - Arista Networks
    announced that Great Place to Work and FORTUNE have honored Arista
    Networks as one of the 2019 Best Workplaces in the San Francisco Bay
    Area. The rankings considered more than 30,000 employee surveys from
    companies across the San Francisco Bay Area. Great Place to Work, a
    global people analytics and consulting firm, evaluated more than 60
    elements of team members' experience on the job. These included the
    extent to which employees trust leaders, the respect with which people
    are treated, the fairness of workplace decisions, and how much
    camaraderie there is among the team. Rankings are based on employees'
    feedback and reward companies who best include all employees, no
    matter who they are or what they do for the organization.

$1 Billion Multi-Year Share Repurchase Authorization

Arista's board of directors has authorized a $1.0 billion stock
repurchase program. This authorization allows the company to repurchase
shares of its common stock opportunistically and will be funded from
working capital. Repurchases may be made at management's discretion from
time to time on the open market, through privately negotiated
transactions, transactions structured through investment banking
institutions, block purchase techniques, 10b5-1 trading plans, or a
combination of the foregoing. The repurchase program, which expires in
April 2022, does not obligate Arista to acquire any of its common stock,
and may be suspended or discontinued by the company at any time without
prior notice.

Financial Outlook

For the second quarter of 2019, we expect:

  • Revenue between $600 million and $610 million;
  • Non-GAAP gross margin between 64% 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 first 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 1076829.

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 second quarter of fiscal
2019, and statements regarding the benefits from the introduction of new
products and the diversification of the company's business.
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; 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 Annual Report on Form 10-K filed with the SEC on February
15, 2019, and other filings that the company makes to the SEC from time
to time including any subsequent Quarterly Report on Form 10-Q. 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

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: http://www.arista.com/

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited in thousands, except per share amounts)

 
Three Months Ended March 31,
2019   2018
Revenue:
Product $ 505,415 $ 407,617
Service 90,009   64,872  
Total revenue 595,424 472,489
Cost of revenue:
Product 198,152 156,691
Service 16,702   12,879  
Total cost of revenue 214,854 169,570
Total gross profit 380,570 302,919
Operating expenses:
Research and development 119,669 102,362
Sales and marketing 51,053 42,140
General and administrative 15,506   19,679  
Total operating expenses 186,228 164,181
Income from operations 194,342 138,738
Other income (expense), net:
Interest expense (687 )
Other income, net 12,333   4,843  
Total other income (expense), net 12,333 4,156
Income before income taxes 206,675 142,894
Provision for (benefit from) income taxes 5,646   (1,644 )
Net income $ 201,029   $ 144,538  
Net income attributable to common stockholders:
Basic $ 200,911   $ 144,449  
Diluted $ 200,918   $ 144,456  
Net income per share attributable to common stockholders:
Basic $ 2.65   $ 1.95  
Diluted $ 2.47   $ 1.79  
Weighted-average shares used in computing net income per share
attributable to common stockholders:
Basic 75,920   73,994  
Diluted 81,201   80,721  
 

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,
2019   2018
GAAP gross profit $ 380,570 $ 302,919
GAAP gross margin 63.9 % 64.1 %
Stock-based compensation expense 1,098 1,202
Intangible asset amortization 2,625    
Non-GAAP gross profit $ 384,293   $ 304,121  
Non-GAAP gross margin 64.5 % 64.4 %
 
GAAP income from operations $ 194,342 $ 138,738
Stock-based compensation expense 24,291 20,851
Litigation expense 1,448 7,085
Intangible asset amortization 3,499    
Non-GAAP income from operations $ 223,580   $ 166,674  
Non-GAAP operating margin 37.5 % 35.3 %
 
GAAP net income $ 201,029 $ 144,538
Stock-based compensation expense 24,291 20,851
Litigation expense 1,448 7,085
Intangible asset amortization 3,499
Gain on investment in privately-held companies (1,150 )
Tax benefit on stock-based awards (37,054 ) (32,846 )
Income tax effect on non-GAAP exclusions (4,333 ) (5,505 )
Non-GAAP net income $ 187,730   $ 134,123  
 
GAAP diluted net income per share attributable to common stockholders $ 2.47 $ 1.79
Non-GAAP adjustments to net income (0.16 ) (0.13 )
Non-GAAP diluted net income per share $ 2.31   $ 1.66  
 
Weighted-average shares used in computing diluted net income per
share attributable to common stockholders
81,201   80,721  
 
Summary of Stock-Based Compensation Expense:
Cost of revenue $ 1,098 $ 1,202
Research and development 13,131 10,945
Sales and marketing 6,534 5,960
General and administrative 3,528   2,744  
Total $ 24,291   $ 20,851  
 

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

   
March 31, December 31,
2019 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 809,491 $ 649,950
Marketable securities 1,341,427 1,306,197
Accounts receivable 271,246 331,777
Inventories 347,153 264,557
Prepaid expenses and other current assets 131,657   162,321  
Total current assets 2,900,974 2,714,802
Property and equipment, net 41,529 75,355
Acquisition-related intangible assets, net 55,111 58,610
Goodwill 53,684 53,684
Investments 31,486 30,336
Operating lease right-of-use assets 98,552
Deferred tax assets 126,045 126,492
Other assets 25,063   22,704  
TOTAL ASSETS $ 3,332,444   $ 3,081,983  
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 89,823 $ 93,757
Accrued liabilities 104,228 123,254
Deferred revenue 304,729 358,586
Other current liabilities 44,413   30,907  
Total current liabilities 543,193 606,504
Income taxes payable 37,925 36,167
Operating lease liabilities, non-current 93,616
Finance lease liabilities, non-current 35,431
Deferred revenue, non-current 231,742 228,641
Other long-term liabilities 25,601   31,851  
TOTAL LIABILITIES 932,077 938,594
STOCKHOLDERS' EQUITY:
Common stock 8 8
Additional paid-in capital 1,005,405 956,572
Retained earnings (1) 1,395,534 1,190,803
Accumulated other comprehensive loss (580 ) (3,994 )
TOTAL STOCKHOLDERS' EQUITY 2,400,367   2,143,389  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,332,444   $ 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)

 
Three Months Ended March 31,
2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 201,029 $ 144,538
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and other 8,362 5,697
Stock-based compensation 24,291 20,851
Deferred income taxes (718 ) (3,541 )
Gain on investment in privately-held companies (1,150 )
Accretion of investment discounts (2,069 ) (30 )
Changes in operating assets and liabilities:
Accounts receivable, net 60,531 40,007
Inventories (82,596 ) 38,067
Prepaid expenses and other current assets 30,664 13,722
Other assets 1,214 (2,027 )
Accounts payable (2,391 ) 20,040
Accrued liabilities (19,014 ) (48,140 )
Deferred revenue (50,756 ) (42,686 )
Income taxes payable 2,040 3,478
Other liabilities 660   5,565  
Net cash provided by operating activities 170,097   195,541  
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities 302,264 90,448
Purchases of marketable securities (332,247 ) (267,976 )
Purchases of property and equipment (5,237 ) (6,336 )
Net cash used in investing activities (35,220 ) (183,864 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of lease financing obligations (456 )
Proceeds from issuance of common stock under equity plans 26,323 17,300
Tax withholding paid on behalf of employees for net share settlement (1,850 ) (1,536 )
Net cash provided by financing activities 24,473   15,308  
Effect of exchange rate changes 195 (14 )
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 159,545 26,971
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 654,164   864,697  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $ 813,709   $ 891,668  

View Comments and Join the Discussion!