Business Wire | Nov 1, 2021 04:05PM EDT

Arista Networks, Inc. Reports Third Quarter 2021 Financial Results

Nov. 01, 2021

SANTA CLARA, Calif.--(BUSINESS WIRE)--Nov. 01, 2021--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, 2021.

Third Quarter Financial Highlights

* Revenue of $748.7 million, an increase of 5.8% compared to the second quarter of 2021, and an increase of 23.7% from the third quarter of 2020. * GAAP gross margin of 63.9%, compared to GAAP gross margin of 64.2% in the second quarter of 2021 and 63.6% in the third quarter of 2020. * Non-GAAP gross margin of 64.9%, compared to non-GAAP gross margin of 65.2% in the second quarter of 2021 and 64.6% in the third quarter of 2020. * GAAP net income of $224.3 million, or $2.81 per diluted share, compared to GAAP net income of $168.4 million, or $2.12 per diluted share in the third quarter of 2020. * Non-GAAP net income of $236.9 million, or $2.96 per diluted share, compared to non-GAAP net income of $192.0 million, or $2.42 per diluted share in the third quarter of 2020.

"We are experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors. Despite a challenging supply chain environment, I am pleased with our delivery of another record quarter of Arista's financial results in Q3 2021," stated Jayshree Ullal, Arista's President and CEO.

Commenting on the company's financial results, Ita Brennan, Arista's CFO said, "The business continued to perform well in the quarter, exceeding on all key financial metrics, while the team navigates a difficult supply environment."

Third Quarter Company Highlights

* Arista Extends Cloud-Grade Routing to the Network Edge - Arista announced the expansion of its cloud-grade routing solutions for next generation network edge roles in the multi cloud era. Arista's EOS(r) (Extensible Operating System) enhancements for cloud and service provider customers transform edge and backbone routing, migrating from legacy routers to software-driven, highly available and scale-out architectures for faster time to revenue and lower operating expenses. * Arista Selected to Build Australian Securities Exchange Next Generation Campus Network - Arista to build next generation national campus network for Australian Securities Exchange (ASX), providing ultra high-performance networking for corporate sites in Sydney, Melbourne and Perth. * Arista Expands Its Cognitive Campus With the Latest Generation Wi-Fi 6E Solution - Arista announced today the expansion of its cognitive campus edge portfolio with a new Wi-Fi 6E access point. As a result, customers can take advantage of the greater capacity, higher bandwidth and lower latency of Wi-Fi 6E to support high definition video collaboration applications and IoT proliferation.

Share Repurchase Program

In October 2021, Arista's Board of Directors increased the prior authorization to repurchase shares by authorizing an additional $1 billion. The actual timing and amount of repurchases will be dependent on market and business conditions, business requirements, stock price, acquisition opportunities and other factors.

Stock Split Authorization

Arista's board of directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Arista shareholder of record at the close of business on November 11, 2021 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on or about November 18, 2021.

Financial Outlook

For the fourth quarter of 2021, we expect:

* Revenue between $775 million to $795 million; * Non-GAAP gross margin of 63% to 65%; and * Non-GAAP operating margin of approximately 37%

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 executives will discuss the third quarter financial results on a conference call at 1:15 p.m. Pacific Time today. To listen to the call via telephone, dial (833) 968-2211 in the United States or +1 (778) 560-2896 from international locations. The Conference ID is 1552223.

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.

Following the financial results conference call, Arista Networks will host its Analyst Day 2021 on Monday, November 1st, 2021 beginning at 3:00 p.m. PT (6:00 p.m. ET). Interested participants will be able to join the virtual event through the Investor Relations section of the Arista website at https://investors.arista.com/Events/Events/Event-Details/2021/Analyst-Day-placeholder/default.aspx.

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 2021 and statements regarding the benefits of new products and product enhancements, our plans to repurchase our stock, and our leadership in cloud 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 impact of the COVID-19 pandemic on our business; insufficient component supply and inventory and increased costs of components; manufacturing capacity impacted by COVID-19 and increased lead times; interruptions or delays in shipments; excess inventory; deferral, reduction or cancellation of orders from end customers; 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; unpredictability of our results of operations; adverse economic conditions or reduced information technology and network infrastructure spending; intense competition; expansion of our international sales and operations; investment or acquisition in other businesses; seasonality; our ability to attract new large end customers or sell products and services to existing end customers; our ability to increase market awareness of our company and new products and services; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches our intellectual property rights; and tax, tariff, import/export restrictions; 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 CloudVision(r) and Arista EOS(r), an advanced network operating system. For more information, visit www.arista.com.

ARISTA, CloudVision, CloudEOS and MSS 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 www.arista.com.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended Nine Months Ended September September 30, 30,

2021 2020 2021 2020

Revenue:

Product $ 604,160 $ 480,242 $ 1,709,772 $ 1,312,561

Service 144,537 125,189 413,806 356,469

Total revenue 748,697 605,431 2,123,578 1,669,030

Cost of revenue:

Product 243,342 199,465 687,554 539,526

Service 26,740 21,004 77,959 62,202

Total cost of 270,082 220,469 765,513 601,728 revenue

Gross profit 478,615 384,962 1,358,065 1,067,302

Operating expenses:

Research and 153,093 128,049 428,873 352,747 development

Sales and marketing 69,740 53,372 211,385 161,695

General and 22,488 15,146 58,856 47,814 administrative

Total operating 245,321 196,567 699,114 562,256 expenses

Income from 233,294 188,395 658,951 505,046 operations

Other income, net 1,346 13,224 4,640 33,637

Income before 234,640 201,619 663,591 538,683 income taxes

Provision for 10,335 33,244 62,032 87,084 income taxes

Net income $ 224,305 $ 168,375 $ 601,559 $ 451,599

Net income per share:

Basic $ 2.92 $ 2.22 $ 7.86 $ 5.94

Diluted $ 2.81 $ 2.12 $ 7.54 $ 5.68

Weighted-averageshares used in computing netincome per share:

Basic 76,864 75,999 76,544 76,024

Diluted 79,909 79,313 79,744 79,519

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,

2021

2020

2021

2020

GAAP gross profit

$

478,615

$

384,962

$

1,358,065

$

1,067,302

GAAP gross margin

63.9

%

63.6

%

64.0

%

63.9

%

Stock-based compensation expense

2,002

1,806

5,198

4,718

Intangible asset amortization

5,464

4,178

16,393

12,016

Non-GAAP gross profit

$

486,081

$

390,946

$

1,379,656

$

1,084,036

Non-GAAP gross margin

64.9

%

64.6

%

65.0

%

65.0

%

GAAP income from operations

$

233,294

$

188,395

$

658,951

$

505,046

Stock-based compensation expense

53,135

36,469

135,632

96,947

Intangible asset amortization

7,281

5,811

22,076

16,524

Acquisition-related costs (1)

-

858

-

12,718

Non-GAAP income from operations

$

293,710

$

231,533

$

816,659

$

631,235

Non-GAAP operating margin

39.2

%

38.2

%

38.5

%

37.8

%

GAAP net income

$

224,305

$

168,375

$

601,559

$

451,599

Stock-based compensation expense

53,135

36,469

135,632

96,947

Intangible asset amortization

7,281

5,811

22,076

16,524

Acquisition-related costs (1)

-

858

-

12,718

Tax benefit on stock-based awards

(39,665

)

(14,894

)

(84,684

)

(41,078

)

Income tax effect on non-GAAP exclusions

(8,137

)

(4,624

)

(21,999

)

(15,975

)

Non-GAAP net income

$

236,919

$

191,995

$

652,584

$

520,735

GAAP diluted net income per share

$

2.81

$

2.12

$

7.54

$

5.68

Non-GAAP adjustments to net income

0.15

0.30

0.64

0.87

Non-GAAP diluted net income per share

$

2.96

$

2.42

$

8.18

$

6.55

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

79,909

79,313

79,744

79,519

Summary of Stock-Based Compensation Expense:

Cost of revenue

$

2,002

$

1,806

$

5,198

$

4,718

Research and development

27,552

21,423

72,673

56,729

Sales and marketing

12,680

9,083

34,133

23,756

General and administrative

10,901

4,157

23,628

11,744

Total

$

53,135

$

36,469

$

135,632

$

96,947

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(Unaudited, in thousands, except percentages and per share amounts)



Three Months Ended Nine Months Ended September September 30, 30,

2021 2020 2021 2020

GAAP gross profit $ 478,615 $ 384,962 $ 1,358,065 $ 1,067,302

GAAP gross margin 63.9 % 63.6 % 64.0 % 63.9 %

Stock-basedcompensation 2,002 1,806 5,198 4,718 expense

Intangible asset 5,464 4,178 16,393 12,016 amortization

Non-GAAP gross $ 486,081 $ 390,946 $ 1,379,656 $ 1,084,036 profit

Non-GAAP gross 64.9 % 64.6 % 65.0 % 65.0 %margin



GAAP income from $ 233,294 $ 188,395 $ 658,951 $ 505,046 operations

Stock-basedcompensation 53,135 36,469 135,632 96,947 expense

Intangible asset 7,281 5,811 22,076 16,524 amortization

Acquisition-related - 858 - 12,718 costs ^(1)

Non-GAAP income $ 293,710 $ 231,533 $ 816,659 $ 631,235 from operations

Non-GAAP operating 39.2 % 38.2 % 38.5 % 37.8 %margin



GAAP net income $ 224,305 $ 168,375 $ 601,559 $ 451,599

Stock-basedcompensation 53,135 36,469 135,632 96,947 expense

Intangible asset 7,281 5,811 22,076 16,524 amortization

Acquisition-related - 858 - 12,718 costs ^(1)

Tax benefit on (39,665 ) (14,894 ) (84,684 ) (41,078 )stock-based awards

Income tax effecton non-GAAP (8,137 ) (4,624 ) (21,999 ) (15,975 )exclusions

Non-GAAP net income $ 236,919 $ 191,995 $ 652,584 $ 520,735



GAAP diluted net $ 2.81 $ 2.12 $ 7.54 $ 5.68 income per share

Non-GAAPadjustments to net 0.15 0.30 0.64 0.87 income

Non-GAAP dilutednet income per $ 2.96 $ 2.42 $ 8.18 $ 6.55 share

Weighted-averageshares used incomputing diluted 79,909 79,313 79,744 79,519 net income pershare

Summary ofStock-Based CompensationExpense:

Cost of revenue $ 2,002 $ 1,806 $ 5,198 $ 4,718

Research and 27,552 21,423 72,673 56,729 development

Sales and marketing 12,680 9,083 34,133 23,756

General and 10,901 4,157 23,628 11,744 administrative

Total $ 53,135 $ 36,469 $ 135,632 $ 96,947

(1)

Represents non-recurring costs associated with our acquisition of Big Switch, and primarily includes severance, retention bonuses, professional and consulting fees, and facilities restructuring costs.

Represents non-recurring costs associated with our acquisition of Big(1) Switch, and primarily includes severance, retention bonuses, professional and consulting fees, and facilities restructuring costs.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

September 30, 2021

December 31, 2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

630,982

$

893,219

Marketable securities

2,755,499

1,979,649

Accounts receivable

395,590

389,540

Inventories

575,665

479,668

Prepaid expenses and other current assets

166,222

94,922

Total current assets

4,523,958

3,836,998

Property and equipment, net

75,373

32,231

Acquisition-related intangible assets, net

100,713

122,790

Goodwill

188,397

189,696

Investments

18,247

8,314

Operating lease right-of-use assets

69,374

77,288

Deferred tax assets

428,764

441,531

Other assets

32,524

30,071

TOTAL ASSETS

$

5,437,350

$

4,738,919

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

135,252

$

134,235

Accrued liabilities

174,425

143,357

Deferred revenue

511,354

396,259

Other current liabilities

72,356

94,392

Total current liabilities

893,387

768,243

Income taxes payable

62,563

53,053

Operating lease liabilities, non-current

61,628

72,397

Deferred revenue, non-current

289,086

254,568

Deferred tax liabilities, non-current

214,261

227,936

Other long-term liabilities

51,165

42,431

TOTAL LIABILITIES

1,572,090

1,418,628

STOCKHOLDERS' EQUITY:

Common stock

8

8

Additional paid-in capital

1,473,595

1,292,431

Retained earnings

2,393,661

2,027,614

Accumulated other comprehensive income (loss)

(2,004

)

238

TOTAL STOCKHOLDERS' EQUITY

3,865,260

3,320,291

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

5,437,350

$

4,738,919

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

September 30, December 31, 2021 2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents $ 630,982 $ 893,219

Marketable securities 2,755,499 1,979,649

Accounts receivable 395,590 389,540

Inventories 575,665 479,668

Prepaid expenses and other current assets 166,222 94,922

Total current assets 4,523,958 3,836,998

Property and equipment, net 75,373 32,231

Acquisition-related intangible assets, 100,713 122,790net

Goodwill 188,397 189,696

Investments 18,247 8,314

Operating lease right-of-use assets 69,374 77,288

Deferred tax assets 428,764 441,531

Other assets 32,524 30,071

TOTAL ASSETS $ 5,437,350 $ 4,738,919

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable $ 135,252 $ 134,235

Accrued liabilities 174,425 143,357

Deferred revenue 511,354 396,259

Other current liabilities 72,356 94,392

Total current liabilities 893,387 768,243

Income taxes payable 62,563 53,053

Operating lease liabilities, non-current 61,628 72,397

Deferred revenue, non-current 289,086 254,568

Deferred tax liabilities, non-current 214,261 227,936

Other long-term liabilities 51,165 42,431

TOTAL LIABILITIES 1,572,090 1,418,628

STOCKHOLDERS' EQUITY:

Common stock 8 8

Additional paid-in capital 1,473,595 1,292,431

Retained earnings 2,393,661 2,027,614

Accumulated other comprehensive income (2,004 ) 238(loss)

TOTAL STOCKHOLDERS' EQUITY 3,865,260 3,320,291

TOTAL LIABILITIES AND STOCKHOLDERS' $ 5,437,350 $ 4,738,919EQUITY

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Nine Months Ended September 30,

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

601,559

$

451,599

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

Depreciation, amortization and other

37,864

31,975

Stock-based compensation

135,632

96,947

Noncash lease expense

12,738

12,606

Deferred income taxes

(573

)

3,261

Gain on sale of marketable securities

-

(9,432

)

Amortization of investment premiums

19,193

6,030

Changes in operating assets and liabilities:

Accounts receivable, net

(6,050

)

98,271

Inventories

(95,997

)

(193,996

)

Prepaid expenses and other current assets

(71,300

)

38,654

Other assets

(2,915

)

7,850

Accounts payable

(1,075

)

71,803

Accrued liabilities

31,316

(29,811

)

Deferred revenue

149,613

(34,449

)

Income taxes payable

(3,565

)

(1,667

)

Other liabilities

(15,820

)

(1,451

)

Net cash provided by operating activities

790,620

548,190

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of marketable securities

1,158,723

1,183,601

Purchases of marketable securities

(1,974,853

)

(2,216,436

)

Purchases of property and equipment

(55,455

)

(7,701

)

Business acquisitions, net of cash acquired

-

(66,317

)

Escrow receipts from past business acquisitions

1,299

-

Sale (purchase) of investments in privately-held companies and intangible assets

(10,684

)

3,399

Proceeds from sale of marketable securities

19,607

772,978

Net cash used in investing activities

(861,363

)

(330,476

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under equity plans

56,154

42,704

Tax withholding paid on behalf of employees for net share settlement

(10,622

)

(5,932

)

Repurchase of common stock

(235,512

)

(395,173

)

Net cash used in financing activities

(189,980

)

(358,401

)

Effect of exchange rate changes

(1,513

)

(246

)

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

(262,236

)

(140,933

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period

897,454

1,115,515

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period

$

635,218

$

974,582

View source version on businesswire.com: https://www.businesswire.com/news/home/20211101005822/en/

CONTACT: Investor Contacts:

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

CONTACT: Charles Yager, 408-547-5892 Product and Investor Advocacy cyager@arista.com