Cloud Networking Adoption Continues Across
Verticals
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
fourth quarter and year ended December 31, 2017.
Fourth Quarter Financial Highlights
- Revenue of $467.9 million, an
increase of 6.9% compared to the third quarter of 2017, and an
increase of 42.7% from the fourth quarter of 2016.
- GAAP gross margin of 65.7%, compared to
GAAP gross margin of 64.1% in the third quarter of 2017 and 64.1%
in the fourth quarter of 2016.
- Non-GAAP gross margin of 65.9%,
compared to non-GAAP gross margin of 64.4% in the third quarter of
2017 and 64.4% in the fourth quarter of 2016.
- GAAP net income of $103.8 million,
or $1.29 per diluted share, compared to GAAP net income
of $58.8 million, or $0.79 per diluted share, in the
fourth quarter of 2016.
- Non-GAAP net income of $137.3
million, or $1.71 per diluted share, compared to non-GAAP
net income of $77.5 million, or $1.04 per diluted
share, in the fourth quarter of 2016.
Full Year Financial Highlights
- Revenue of $1.6 billion, an
increase of 45.8% compared to fiscal year 2016.
- GAAP gross margin of 64.5%, compared to
GAAP gross margin of 64.0% in fiscal year 2016.
- Non-GAAP gross margin of 64.8%,
compared to non-GAAP gross margin of 64.4% in fiscal year
2016.
- GAAP net income of $423.2 million,
or $5.35 per diluted share, compared to GAAP net income
of $184.2 million, or $2.50 per diluted share, in
fiscal year 2016.
- Non-GAAP net income of $442.8
million, or $5.61 per diluted share, compared to non-GAAP
net income of $241.4 million, or $3.30 per diluted
share, in fiscal year 2016.
"2017 represents a market tipping point with Arista’s disruptive
software-driven architecture gaining mainstream acceptance as we
surpassed 15 million cumulative ports of cloud networking,”
stated Jayshree Ullal, Arista President and CEO.
Commenting on the company's financial results, Ita Brennan,
Arista’s CFO, said, “We are pleased with the strong execution
underlying our 2017 financial performance with 46% revenue growth
and 70% growth in non-GAAP EPS on a year-over-year basis.”
Fourth Quarter Company Highlights
- Continued expansion in cloud-grade
routing with the latest Arista EOS® (Extensible Operating System)
and CloudVision® software. Arista EOS version 4.20 delivers new
routing and management software capabilities, helping customers
evolve to modern, software-driven routing principles.
2017 Company Highlights
- Third consecutive year Arista has been
recognized as a leader and positioned the furthest for Completeness
of Vision in the Leaders Quadrant of the July 2017 Gartner Magic
Quadrant for Data Center Networking.
- Introduced the next generation R2
Series platforms based on merchant silicon that is twice the
density and half the power of custom router silicon, delivering
more than 150 Tbps of capacity for switching and routing
applications with cloud-driven Arista EOS software technologies
including Arista FlexRoute™ and AlgoMatch™.
- Containerized EOS (cEOS) supports
alternate models of procuring, packaging and deploying Arista’s EOS
across cloud, enterprises and service providers. Utilizing the
industry standard container development/operations (DevOps) model,
Arista extends the architectural choices beyond its own hardware to
support EOS on virtual machines, containers and third-party
merchant silicon-based switches.
- Arista Data AnalyZer DANZ 2017 supports
the Arista R-Series Universal Leaf and Spine platforms, bringing
improved visibility to 25G and 100G networks. DANZ, powered by
Arista EOS and combined with Arista CloudVision for automation and
telemetry, delivers the hyperscale visibility platform required to
secure today’s cloud centric applications and workflows.
- 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. The new
virtualized offering, Arista vEOS™ Router, combined with
CloudVision and new Cloud Tracer™ functionality, provides
consistent operations, orchestration, security and telemetry across
multi-cloud environments.
Financial Outlook
For the first quarter of 2018, we expect:
- Revenue between $450 and $468
million.
- Non-GAAP gross margin between 63% to
65%, and
- Non-GAAP operating margin of
approximately 32%
Guidance for non-GAAP financial measures excludes estimated
legal expenses of approximately $8 million associated
with the Cisco and OptumSoft litigation, stock-based
compensation expense, 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 fourth 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 1592049.
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 first quarter of fiscal 2018, 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, Arista’s
ability to develop new redesigned products in a timely manner that
are acceptable to customers if Arista’s current redesigns are not
approved by the ITC, 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 customers’ 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; the impact of global and domestic
tax reform, including the Tax Cuts and Jobs Act of 2017 (“the Tax
Act”); 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 November 3, 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.
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
The company reports certain non-GAAP financial measures that
exclude stock-based compensation expense and related excess tax
benefits, expenses associated with the Cisco and
OptumSoft litigation, discrete tax items associated with the
Tax Act, other non-recurring items, 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, expenses associated with the
Cisco and OptumSoft litigation, 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. 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. Accordingly, a reconciliation of our guidance on
non-GAAP financial measures 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 15 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 EndedDecember 31, Twelve
Months EndedDecember 31, 2017 2016
2017 2016 Revenue: Product $ 407,195 $ 289,008
$ 1,432,810 $ 991,337 Service 60,672 38,961 213,376
137,830 Total revenue 467,867 327,969 1,646,186
1,129,167 Cost of revenue: Product 147,919 108,057 538,035 369,768
Service 12,783 9,757 46,382 36,283
Total cost of revenue 160,702 117,814 584,417
406,051 Total gross profit 307,165 210,155 1,061,769 723,116
Operating expenses: Research and development 107,180 71,398 349,594
273,581 Sales and marketing 38,808 38,321 155,105 130,887 General
and administrative 21,789 22,941 86,798 75,239
Total operating expenses 167,777 132,660 591,497 479,707
Income from operations 139,388 77,495 470,272 243,409 Other income
(expense), net: Interest expense (741 ) (918 ) (2,780 ) (3,136 )
Other income (expense), net 2,988 560 7,268
1,952 Total other income (expense), net 2,247 (358 )
4,488 (1,184 ) Income before provision for income taxes
141,635 77,137 474,760 242,225 Provision for income taxes 37,802
18,354 51,559 58,036 Net income $
103,833 $ 58,783 $ 423,201 $ 184,189
Net income attributable to common stockholders: Basic $ 103,752
$ 58,527 $ 422,400 $ 182,965 Diluted $
103,759 $ 58,542 $ 422,468 $ 183,039
Net income per share attributable to common stockholders: Basic $
1.42 $ 0.84 $ 5.85 $ 2.66 Diluted $
1.29 $ 0.79 $ 5.35 $ 2.50
Weighted-average shares used in computing net income per share
attributable to common stockholders: Basic 73,310 69,980
72,258 68,771 Diluted 80,243 74,384
78,977 73,222
ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to
Non-GAAP Financial Measures
(Unaudited, in thousands, except
percentages and per share amounts)
Three Months EndedDecember 31, Twelve
Months EndedDecember 31, 2017 2016
2017 2016 GAAP gross profit $ 307,165 $
210,155 $ 1,061,769 $ 723,116 GAAP gross margin 65.7 % 64.1 % 64.5
% 64.0 % Stock-based compensation expense 1,129 1,004
4,353 3,620 Non-GAAP gross profit $ 308,294 $
211,159 $ 1,066,122 $ 726,736 Non-GAAP gross
margin 65.9 % 64.4 % 64.8 % 64.4 % GAAP income from
operations $ 139,388 $ 77,495 $ 470,272 $ 243,409 Stock-based
compensation expense 20,436 16,324 75,427 59,032 Litigation expense
9,072 12,209 40,352 35,833 Non-GAAP
income from operations $ 168,896 $ 106,028 $ 586,051
$ 338,274 Non-GAAP operating margin 36.1 % 32.3 %
35.6 % 30.0 % GAAP net income $ 103,833 $ 58,783 $ 423,201 $
184,189 Stock-based compensation expense 20,436 16,324 75,427
59,032 Litigation expense 9,072 12,209 40,352 35,833 Impact of the
U.S. Tax Cuts and Jobs Act(1) 51,812 — 51,812 — Excess tax benefit
on share based awards (38,312 ) — (110,007 ) — Release of income
tax reserve — — — (6,293 ) Income tax effect on non-GAAP exclusions
(9,511 ) (9,836 ) (37,956 ) (31,340 ) Non-GAAP net income $ 137,330
$ 77,480 $ 442,829 $ 241,421
GAAP diluted net income per share attributable to common
stockholders $ 1.29 $ 0.79 $ 5.35 $ 2.50 Non-GAAP adjustments to
net income 0.42 0.25 0.26 0.80 Non-GAAP
diluted net income per share $ 1.71 $ 1.04 $ 5.61
$ 3.30 Weighted-average shares used in
computing diluted net income per share attributable to common
stockholders 80,243 74,384 78,977 73,222
Summary of Stock-Based Compensation Expense:
Cost of revenue $ 1,129 $ 1,004 $ 4,353 $ 3,620 Research and
development 11,207 8,830 42,184 31,892 Sales and marketing 5,302
4,292 17,953 15,666 General and administrative 2,798 2,198
10,937 7,854 Total $ 20,436 $ 16,324
$ 75,427 $ 59,032 (1)
During the quarter ended December 31, 2017, we recorded
provisional tax amounts for the one-time transition tax on the
accumulated earnings of certain foreign subsidiaries and the
re-measurement of certain deferred tax assets and liabilities as a
result of the enactment of the Tax Act. Our accounting for these
tax effects will be completed during the one-year measurement
period allowed under Staff Accounting Bulletin 118.
ARISTA NETWORKS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited, in thousands)
December 31, 2017 December 31,
2016 ASSETS CURRENT ASSETS: Cash and cash equivalents
$ 859,192 $ 567,923 Marketable securities 676,363 299,910 Accounts
receivable 247,346 253,119 Inventories 306,198 236,490 Prepaid
expenses and other current assets 177,330 168,684
Total current assets 2,266,429 1,526,126 Property and
equipment, net 74,279 76,961 Investments 36,136 36,136 Deferred tax
assets 65,125 70,960 Other assets 18,891 18,824 TOTAL
ASSETS $ 2,460,860 $ 1,729,007
LIABILITIES AND
STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $
52,200 $ 79,457 Accrued liabilities 133,827 90,951 Deferred revenue
327,706 273,350 Other current liabilities 16,172 15,795
Total current liabilities 529,905 459,553
Income taxes payable 34,067 14,498 Lease financing obligations,
non-current 37,673 39,593 Deferred revenue, non-current 187,556
99,585 Other long-term liabilities 9,745 7,958 TOTAL
LIABILITIES 798,946 621,187 STOCKHOLDERS’ EQUITY:
Common stock 7 7 Additional paid-in capital 804,731 674,183
Retained earnings 859,114 435,105 Accumulated other comprehensive
loss (1,938 ) (1,475 ) TOTAL STOCKHOLDERS’ EQUITY 1,661,914
1,107,820 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $
2,460,860 $ 1,729,007
ARISTA NETWORKS, INC.
Condensed Consolidated Statements of
Cash Flows
(Unaudited, in thousands)
Twelve Months Ended December 31, 2017
2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $ 423,201 $ 184,189 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 20,640 19,749 Stock-based compensation 75,427 59,032
Deferred income taxes 8,426 (21,720 ) Amortization of investment
premiums 1,452 1,493 Changes in operating assets and liabilities:
Accounts receivable, net 5,773 (108,856 ) Inventories (69,708 )
(144,361 ) Prepaid expenses and other current assets (11,645 )
(115,074 ) Other assets 907 2,866 Accounts payable (30,104 ) 38,678
Accrued liabilities 43,535 30,629 Deferred revenue 142,327 176,126
Income taxes payable 19,921 42,650 Other liabilities 1,475
8,894
Net cash provided by operating activities
(1)
631,627 174,295
CASH FLOWS FROM INVESTING
ACTIVITIES: Proceeds from maturities of marketable securities
206,332 137,855 Purchases of marketable securities (585,373 )
(439,711 ) Purchases of property and equipment (15,279 ) (21,419 )
Proceeds from repayment of notes receivable 3,000 — Investment in
privately-held companies — (2,500 ) Change in restricted cash
(1,260 ) (204 ) Net cash used in investing activities (392,580 )
(325,979 )
CASH FLOWS FROM FINANCING ACTIVITIES: Principal
payments of lease financing obligations (1,617 ) (1,336 ) Proceeds
from issuance of common stock under equity plans 57,111 35,181
Minimum tax withholding paid on behalf of employees for net share
settlement (4,025 ) (1,100 ) Net cash provided by financing
activities (1) 51,469 32,745 Effect of exchange rate
changes 753 (464 ) NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 291,269 (119,403 ) CASH AND CASH EQUIVALENTS—Beginning
of period 567,923 687,326 CASH AND CASH
EQUIVALENTS—End of period $ 859,192 $ 567,923
____________________________________
(1) During our first fiscal quarter of 2017, we adopted
Accounting Standards Update 2016-09, "Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting." This adoption resulted in an increase in net
cash provided by operating activities and a corresponding decrease
in net cash provided by financing activities of $42.9 million for
the year ended December 31, 2016.
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version on businesswire.com: http://www.businesswire.com/news/home/20180215006271/en/
Arista Networks, Inc.Investor ContactsCharles Yager,
408-547-58992Product and Investor Advocacycyager@arista.comChuck
Elliott, 408-547-5549Business and Investor
Developmentchuck@arista.com
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