Arista Networks, Inc. (NYSE: ANET), an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments, today announced financial results for its third quarter ended September 30, 2022.

“Arista continues to outpace our networking peers with record revenue in Q3 2022,” said Jayshree Ullal, President and CEO of Arista Networks. “Clearly, we are entering the next phase of Arista’s evolution in products, customer intimacy and new market expansion.”

Third Quarter Financial Highlights

  • Revenue of $1.177 billion, an increase of 11.9% compared to the second quarter of 2022, and an increase of 57.2% from the third quarter of 2021.
  • GAAP gross margin of 60.3%, compared to GAAP gross margin of 61.2% in the second quarter of 2022 and 63.9% in the third quarter of 2021.
  • Non-GAAP gross margin of 61.2%, compared to non-GAAP gross margin of 61.9% in the second quarter of 2022 and 64.9% in the third quarter of 2021.
  • GAAP net income of $354.0 million, or $1.13 per diluted share, compared to GAAP net income of $224.3 million, or $0.70 per diluted share in the third quarter of 2021.
  • Non-GAAP net income of $391.9 million, or $1.25 per diluted share, compared to non-GAAP net income of $236.9 million, or $0.74 per diluted share in the third quarter of 2021.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, “We are pleased with the continued strong revenue growth in the quarter, driving significant EPS upside and demonstrating the inherent operational leverage of the business model.”

Company Highlights

  • Arista Delivers Next Generation Cloud Routing - a leader in data-driven cloud networking, announced innovations for its comprehensive cloud-grade routing platform that simplify and secure routing for the enterprise, mobile provider and cloud operators. These software and hardware innovations continue to drive down customer operational cost and complexity with a consistent and modern approach to a broad range of routing use cases.
  • Arista Introduces the Unified Cloud Fabric - Arista’s Converged Cloud Fabric (CCF)™, brings an automated fabric built with cloud networking design principles.
  • Arista is proud to be named a Best Work-Life Balance company in 2022 by Comparably and listed as a 2022 Best Place to Work Company earlier this year by the Silicon Valley Business Journal.

Financial Outlook

For the fourth quarter of 2022, we expect:

  • Revenue between $1.175 billion to $1.200 billion
  • Non-GAAP gross margin of approximately 60% to 62%; and
  • Non-GAAP operating margin of approximately 40%

Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and certain 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's executives will discuss the third quarter 2022 financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial (888) 330-2502 in the United States or +1 (240) 789-2713 from international locations. The Conference ID is 5655862.

The financial results conference call will also be available via live webcast on Arista's 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 fourth quarter of 2022, statements regarding Arista's business plans and its ability to execute such plans, statements regarding our ability to grow our revenue and expand our market share and statements regarding the benefits of Arista's 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: interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including increased purchase commitments and extended lead times; adverse global economic and geopolitical conditions including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending and the Russia/Ukraine conflict; the impact of the COVID-19 pandemic and related public safety measures on our business; dependence on a limited number of customers who represent a substantial portion of our revenue; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; a decline in our revenue growth rate; fluctuations in our results of operations including as a result of seasonality; variability in our gross margins including as a result of changes in customer mix or product mix; intense competition; expansion of our international sales and operations; investments in or acquisitions of other businesses; fluctuations in currency exchange rates; any failure to raise any needed capital; our ability to attract new large end customers or sell products and services to existing end customers and dependence on large end customers; our ability to increase market awareness of our company and new products and services; a decline in the sales prices of our products and services; a decline in maintenance renewals by customers; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; the management of the supply of our products and product components; our dependence on third-party manufacturers to build our products; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; failure to maintain effective internal control over financial reporting; tax, tariff, import/export restrictions or other trade barriers; and other future events. Additional risks and uncertainties that could affect us can be found in our most recent filings with the Securities and Exchange Commission including, but not limited to, our annual report on Form 10-K and quarterly reports on Form 10-Q. 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 we disclaim 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, certain 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 have 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 is an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments. Arista’s award-winning platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack. For more information, visit www.arista.com.

ARISTA, EOS, CloudVision, NetDL AVA, TunnelSEC and Arista CCF 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.

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,

 

 

2022

 

2021

 

2022

 

2021

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

1,008,689

 

$

604,160

 

$

2,619,213

 

$

1,709,772

Service

 

 

168,112

 

 

144,537

 

 

486,545

 

 

413,806

Total revenue

 

 

1,176,801

 

 

748,697

 

 

3,105,758

 

 

2,123,578

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

432,569

 

 

243,342

 

 

1,102,012

 

 

687,554

Service

 

 

34,252

 

 

26,740

 

 

96,656

 

 

77,959

Total cost of revenue

 

 

466,821

 

 

270,082

 

 

1,198,668

 

 

765,513

Gross profit

 

 

709,980

 

 

478,615

 

 

1,907,090

 

 

1,358,065

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

187,807

 

 

153,093

 

 

537,971

 

 

428,873

Sales and marketing

 

 

81,401

 

 

69,740

 

 

241,512

 

 

211,385

General and administrative

 

 

23,425

 

 

22,488

 

 

69,420

 

 

58,856

Total operating expenses

 

 

292,633

 

 

245,321

 

 

848,903

 

 

699,114

Income from operations

 

 

417,347

 

 

233,294

 

 

1,058,187

 

 

658,951

Other income (expenses), net

 

 

6,817

 

 

1,346

 

 

37,764

 

 

4,640

Income before income taxes

 

 

424,164

 

 

234,640

 

 

1,095,951

 

 

663,591

Provision for income taxes

 

 

70,165

 

 

10,335

 

 

170,594

 

 

62,032

Net income

 

$

353,999

 

$

224,305

 

$

925,357

 

$

601,559

Net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

0.73

 

$

3.02

 

$

1.96

Diluted

 

$

1.13

 

$

0.70

 

$

2.92

 

$

1.89

Weighted-average shares used in computing net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

 

304,931

 

 

307,456

 

 

306,576

 

 

306,176

Diluted

 

 

314,401

 

 

319,636

 

 

316,745

 

 

318,976

(1)

Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

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,

 

 

2022

 

2021

 

2022

 

2021

GAAP gross profit

 

$

709,980

 

 

$

478,615

 

 

$

1,907,090

 

 

$

1,358,065

 

GAAP gross margin

 

 

60.3

%

 

 

63.9

%

 

 

61.4

%

 

 

64.0

%

Stock-based compensation expense

 

 

2,992

 

 

 

2,002

 

 

 

6,613

 

 

 

5,198

 

Intangible asset amortization

 

 

6,820

 

 

 

5,464

 

 

 

18,553

 

 

 

16,393

 

Non-GAAP gross profit

 

$

719,792

 

 

$

486,081

 

 

$

1,932,256

 

 

$

1,379,656

 

Non-GAAP gross margin

 

 

61.2

%

 

 

64.9

%

 

 

62.2

%

 

 

65.0

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

417,347

 

 

$

233,294

 

 

$

1,058,187

 

 

$

658,951

 

Stock-based compensation expense

 

 

65,477

 

 

 

53,135

 

 

 

165,980

 

 

 

135,632

 

Intangible asset amortization

 

 

9,315

 

 

 

7,281

 

 

 

24,334

 

 

 

22,076

 

Acquisition-related costs (1)

 

 

 

 

 

 

 

 

4,691

 

 

 

 

Non-GAAP income from operations

 

$

492,139

 

 

$

293,710

 

 

$

1,253,192

 

 

$

816,659

 

Non-GAAP operating margin

 

 

41.8

%

 

 

39.2

%

 

 

40.4

%

 

 

38.5

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

353,999

 

 

$

224,305

 

 

$

925,357

 

 

$

601,559

 

Stock-based compensation expense

 

 

65,477

 

 

 

53,135

 

 

 

165,980

 

 

 

135,632

 

Intangible asset amortization

 

 

9,315

 

 

 

7,281

 

 

 

24,334

 

 

 

22,076

 

Acquisition-related costs (1)

 

 

 

 

 

 

 

 

4,691

 

 

 

 

Unrealized loss (gain) on equity investments

 

 

(708

)

 

 

 

 

 

(24,121

)

 

 

 

Tax benefit on stock-based awards

 

 

(27,636

)

 

 

(39,665

)

 

 

(76,325

)

 

 

(84,684

)

Income tax effect on non-GAAP exclusions

 

 

(8,524

)

 

 

(8,137

)

 

 

(16,805

)

 

 

(21,999

)

Non-GAAP net income

 

$

391,923

 

 

$

236,919

 

 

$

1,003,111

 

 

$

652,584

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share (2)

 

$

1.13

 

 

$

0.70

 

 

$

2.92

 

 

$

1.89

 

Non-GAAP adjustments to net income

 

 

0.12

 

 

 

0.04

 

 

 

0.25

 

 

 

0.16

 

Non-GAAP diluted net income per share

 

$

1.25

 

 

$

0.74

 

 

$

3.17

 

 

$

2.05

 

Weighted-average shares used in computing diluted net income per share (2)

 

 

314,401

 

 

 

319,636

 

 

 

316,745

 

 

 

318,976

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

2,992

 

 

$

2,002

 

 

$

6,613

 

 

$

5,198

 

Research and development

 

 

37,698

 

 

 

27,552

 

 

 

93,723

 

 

 

72,673

 

Sales and marketing

 

 

16,103

 

 

 

12,680

 

 

 

42,039

 

 

 

34,133

 

General and administrative

 

 

8,684

 

 

 

10,901

 

 

 

23,605

 

 

 

23,628

 

Total

 

$

65,477

 

 

$

53,135

 

 

$

165,980

 

 

$

135,632

 

(1)

Represent non-recurring costs associated with business combinations, which primarily include retention bonuses, and professional and consulting fees.

(2)

Prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

ARISTA NETWORKS, INC. Condensed Consolidated Balance Sheets (Unaudited, in thousands)

 

 

 

September 30, 2022

 

December 31, 2021

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

716,253

 

 

$

620,813

 

Marketable securities

 

 

2,263,818

 

 

 

2,787,502

 

Accounts receivable

 

 

651,512

 

 

 

516,509

 

Inventories

 

 

1,100,550

 

 

 

650,117

 

Prepaid expenses and other current assets

 

 

299,545

 

 

 

237,735

 

Total current assets

 

 

5,031,678

 

 

 

4,812,676

 

Property and equipment, net

 

 

96,449

 

 

 

78,634

 

Acquisition-related intangible assets, net

 

 

131,520

 

 

 

93,555

 

Goodwill

 

 

271,018

 

 

 

188,397

 

Investments

 

 

39,677

 

 

 

20,247

 

Operating lease right-of-use assets

 

 

58,205

 

 

 

65,182

 

Deferred tax assets

 

 

473,808

 

 

 

442,295

 

Other assets

 

 

59,655

 

 

 

33,443

 

TOTAL ASSETS

 

$

6,162,010

 

 

$

5,734,429

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

278,469

 

 

$

202,636

 

Accrued liabilities

 

 

240,609

 

 

 

226,643

 

Deferred revenue

 

 

607,189

 

 

 

593,578

 

Other current liabilities

 

 

128,645

 

 

 

86,972

 

Total current liabilities

 

 

1,254,912

 

 

 

1,109,829

 

Income taxes payable

 

 

82,167

 

 

 

69,916

 

Operating lease liabilities, non-current

 

 

47,067

 

 

 

56,527

 

Deferred revenue, non-current

 

 

333,855

 

 

 

335,734

 

Deferred tax liabilities, non-current

 

 

 

 

 

129,074

 

Other long-term liabilities

 

 

58,791

 

 

 

54,749

 

TOTAL LIABILITIES

 

 

1,776,792

 

 

 

1,755,829

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

 

31

 

 

 

31

 

Additional paid-in capital

 

 

1,717,605

 

 

 

1,530,046

 

Retained earnings

 

 

2,714,711

 

 

 

2,456,823

 

Accumulated other comprehensive income (loss)

 

 

(47,129

)

 

 

(8,300

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

4,385,218

 

 

 

3,978,600

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

6,162,010

 

 

$

5,734,429

 

ARISTA NETWORKS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands)

 

 

 

Nine Months Ended September 30,

 

 

2022

 

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

925,357

 

 

$

601,559

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation, amortization and other

 

 

45,169

 

 

 

37,864

 

Stock-based compensation

 

 

165,980

 

 

 

135,632

 

Noncash lease expense

 

 

13,837

 

 

 

12,738

 

Deferred income taxes

 

 

(148,355

)

 

 

(573

)

Unrealized gain on equity investments

 

 

(24,121

)

 

 

 

Amortization of investment premiums

 

 

14,167

 

 

 

19,193

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

(129,947

)

 

 

(6,050

)

Inventories

 

 

(449,792

)

 

 

(95,997

)

Prepaid expenses and other current assets

 

 

(68,996

)

 

 

(71,300

)

Other assets

 

 

(17,899

)

 

 

(2,915

)

Accounts payable

 

 

73,480

 

 

 

(1,075

)

Accrued liabilities

 

 

14,690

 

 

 

31,316

 

Deferred revenue

 

 

(1,245

)

 

 

149,613

 

Income taxes payable

 

 

41,074

 

 

 

(3,565

)

Other liabilities

 

 

(1,059

)

 

 

(15,820

)

Net cash provided by operating activities

 

 

452,340

 

 

 

790,620

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

 

1,277,821

 

 

 

1,158,723

 

Purchases of marketable securities

 

 

(973,489

)

 

 

(1,974,853

)

Purchases of property and equipment

 

 

(34,184

)

 

 

(55,455

)

Business acquisitions, net of cash acquired

 

 

(145,087

)

 

 

 

Escrow receipts from past business acquisitions

 

 

 

 

 

1,299

 

Investments and notes receivable in privately-held companies

 

 

(12,691

)

 

 

(10,684

)

Proceeds from sale of marketable securities

 

 

186,782

 

 

 

19,607

 

Net cash provided by (used in) investing activities

 

 

299,152

 

 

 

(861,363

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

43,073

 

 

 

56,154

 

Tax withholdings paid on behalf of employees for net share settlement

 

 

(25,542

)

 

 

(10,622

)

Repurchases of common stock

 

 

(667,470

)

 

 

(235,512

)

Net cash used in financing activities

 

 

(649,939

)

 

 

(189,980

)

Effect of exchange rate changes

 

 

(6,090

)

 

 

(1,513

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

95,463

 

 

 

(262,236

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

625,050

 

 

 

897,454

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

720,513

 

 

$

635,218

 

 

Investor Contact: Arista Networks, Inc. Liz Stine, 408-547-5885 Investor Relations liz@arista.com

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