Arista Networks, Inc. Reports Second Quarter 2021 Financial Results

SANTA CLARA, Calif.–()–Arista Networks, Inc. (NYSE: ANET), an industry leader in cognitive cloud networking solutions for large datacenter and campus environments, today announced financial results for its second quarter ended June 30, 2021.

Second Quarter Financial Highlights

  • Revenue of $707.3 million, an increase of 6.0% compared to the first quarter of 2021, and an increase of 30.8% from the second quarter of 2020.
  • GAAP gross margin of 64.2%, compared to GAAP gross margin of 63.7% in the first quarter of 2021 and 63.7% in the second quarter of 2020.
  • Non-GAAP gross margin of 65.2%, compared to non-GAAP gross margin of 64.7% in the first quarter of 2021 and 64.7% in the second quarter of 2020.
  • GAAP net income of $196.9 million, or $2.47 per diluted share, compared to GAAP net income of $144.8 million, or $1.83 per diluted share in the second quarter of 2020.
  • Non-GAAP net income of $216.8 million, or $2.72 per diluted share, compared to non-GAAP net income of $167.0 million, or $2.11 per diluted share in the second quarter of 2020.

“Our record second quarter reflects continued momentum and diversification across our top verticals and product-lines,” said Jayshree Ullal, Arista’s president and CEO. “We are on the cusp of network software and data driven transformation and look forward to delighting many more customers.”

Commenting on the company’s financial results, Ita Brennan, Arista’s CFO said, “We are pleased with the strong performance of the business in the quarter, as we continued to work with customers and partners to navigate a challenging supply environment.”

Second Quarter Company Highlights

  • In Q2 2021, Arista surpassed 50 million cloud network ports shipped cumulatively.
  • Arista Launches Sub 100ns Ultra-low Latency Switch for Financial Services – Arista announced SwitchApp for Arista 7130, a new ultra-low latency switch that cuts latency to less than a third of existing Arista solutions. SwitchApp is based on the latest programmable FPGA technology and is fully integrated with Arista EOS® (Extensible Operating System).
  • Arista Boosts Agility for Modern Enterprises – Arista announced CloudVision® 2021, a further expansion of Arista’s software-driven approach for modern enterprises. CloudVision 2021 delivers new automation capabilities designed to improve network agility and streamline enterprise business outcomes.
  • Arista Networks Cognitive Campus Solutions – Campus networks are undergoing another massive transition in the post-COVID era. As administrators adapt to the shifting boundaries between the office and home around the world, the campus is evolving to distributed workspaces.

Financial Outlook

For the third quarter of 2021, we expect:

  • Revenue between $725 million to $745 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 second quarter financial results on a conference call at 1:30 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 6062407.

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 third quarter of 2021 and statements regarding the benefits of new products and product enhancements, our leadership in cloud networking, the continued momentum and diversification of our top verticals and product-lines and the evolution of the campus market. 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; increased costs of components; manufacturing capacity impacted by COVID-19 and increased lead times; interruptions or delays in shipments; 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 cognitive cloud networking solutions for large data center and campus environments. Arista’s award-winning platforms deliver availability, agility, automation analytics, and security through CloudVision® and Arista EOS®, 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 June 30,

 

Six Months Ended June 30,

 

 

2021

 

2020

 

2021

 

2020

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

566,467

 

 

$

421,413

 

 

$

1,105,612

 

 

$

832,319

 

Service

 

140,852

 

 

119,157

 

 

269,269

 

 

231,280

 

Total revenue

 

707,319

 

 

540,570

 

 

1,374,881

 

 

1,063,599

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

225,779

 

 

176,432

 

 

444,212

 

 

340,061

 

Service

 

27,362

 

 

20,049

 

 

51,219

 

 

41,198

 

Total cost of revenue

 

253,141

 

 

196,481

 

 

495,431

 

 

381,259

 

Gross profit

 

454,178

 

 

344,089

 

 

879,450

 

 

682,340

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

143,293

 

 

111,544

 

 

275,780

 

 

224,698

 

Sales and marketing

 

70,625

 

 

51,237

 

 

141,645

 

 

108,323

 

General and administrative

 

20,895

 

 

14,319

 

 

36,368

 

 

32,668

 

Total operating expenses

 

234,813

 

 

177,100

 

 

453,793

 

 

365,689

 

Income from operations

 

219,365

 

 

166,989

 

 

425,657

 

 

316,651

 

Other income, net

 

1,719

 

 

8,256

 

 

3,294

 

 

20,413

 

Income before income taxes

 

221,084

 

 

175,245

 

 

428,951

 

 

337,064

 

Provision for income taxes

 

24,196

 

 

30,452

 

 

51,697

 

 

53,840

 

Net income

 

$

196,888

 

 

$

144,793

 

 

$

377,254

 

 

$

283,224

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

2.58

 

 

$

1.91

 

 

$

4.94

 

 

$

3.72

 

Diluted

 

$

2.47

 

 

$

1.83

 

 

$

4.73

 

 

$

3.56

 

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

 

 

 

 

 

 

 

 

Basic

 

76,461

 

 

75,808

 

 

76,384

 

 

76,036

 

Diluted

 

79,710

 

 

79,298

 

 

79,677

 

 

79,620

 

 

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

 

2020

 

2021

 

2020

GAAP gross profit

 

$

454,178

 

 

$

344,089

 

 

$

879,450

 

 

$

682,340

 

GAAP gross margin

 

64.2

%

 

63.7

%

 

64.0

%

 

64.2

%

Stock-based compensation expense

 

1,796

 

 

1,585

 

 

3,196

 

 

2,912

 

Intangible asset amortization

 

5,465

 

 

4,178

 

 

10,929

 

 

7,838

 

Non-GAAP gross profit

 

$

461,439

 

 

$

349,852

 

 

$

893,575

 

 

$

693,090

 

Non-GAAP gross margin

 

65.2

%

 

64.7

%

 

65.0

%

 

65.2

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

219,365

 

 

$

166,989

 

 

$

425,657

 

 

$

316,651

 

Stock-based compensation expense

 

44,944

 

 

32,922

 

 

82,497

 

 

60,478

 

Intangible asset amortization

 

7,365

 

 

5,811

 

 

14,795

 

 

10,713

 

Acquisition-related costs (1)

 

 

 

 

 

 

 

11,860

 

Non-GAAP income from operations

 

$

271,674

 

 

$

205,722

 

 

$

522,949

 

 

$

399,702

 

Non-GAAP operating margin

 

38.4

%

 

38.1

%

 

38.0

%

 

37.6

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

196,888

 

 

$

144,793

 

 

$

377,254

 

 

$

283,224

 

Stock-based compensation expense

 

44,944

 

 

32,922

 

 

82,497

 

 

60,478

 

Intangible asset amortization

 

7,365

 

 

5,811

 

 

14,795

 

 

10,713

 

Acquisition-related costs (1)

 

 

 

 

 

 

 

11,860

 

Tax benefit on stock-based awards

 

(24,113

)

 

(11,682

)

 

(45,019

)

 

(26,184

)

Income tax effect on non-GAAP exclusions

 

(8,256

)

 

(4,796

)

 

(13,862

)

 

(11,351

)

Non-GAAP net income

 

$

216,828

 

 

$

167,048

 

 

$

415,665

 

 

$

328,740

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

2.47

 

 

$

1.83

 

 

$

4.73

 

 

$

3.56

 

Non-GAAP adjustments to net income

 

0.25

 

 

0.28

 

 

0.49

 

 

0.57

 

Non-GAAP diluted net income per share

 

$

2.72

 

 

$

2.11

 

 

$

5.22

 

 

$

4.13

 

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

 

79,710

 

 

79,298

 

 

79,677

 

 

79,620

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

1,796

 

 

$

1,585

 

 

$

3,196

 

 

$

2,912

 

Research and development

 

23,139

 

 

19,378

 

 

45,121

 

 

35,306

 

Sales and marketing

 

11,368

 

 

8,277

 

 

21,453

 

 

14,673

 

General and administrative

 

8,641

 

 

3,682

 

 

12,727

 

 

7,587

 

Total

 

$

44,944

 

 

$

32,922

 

 

$

82,497

 

 

$

60,478

 

_____________________

(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.

 

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

June 30, 2021

 

December 31, 2020

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

893,688

 

 

 

$

893,219

 

Marketable securities

 

2,388,015

 

 

 

1,979,649

 

Accounts receivable

 

364,214

 

 

 

389,540

 

Inventories

 

543,199

 

 

 

479,668

 

Prepaid expenses and other current assets

 

139,279

 

 

 

94,922

 

Total current assets

 

4,328,395

 

 

 

3,836,998

 

Property and equipment, net

 

32,362

 

 

 

32,231

 

Acquisition-related intangible assets, net

 

107,995

 

 

 

122,790

 

Goodwill

 

188,277

 

 

 

189,696

 

Investments

 

13,647

 

 

 

8,314

 

Operating lease right-of-use assets

 

70,497

 

 

 

77,288

 

Deferred tax assets

 

433,674

 

 

 

441,531

 

Other assets

 

33,433

 

 

 

30,071

 

TOTAL ASSETS

 

$

5,208,280

 

 

 

$

4,738,919

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

145,159

 

 

 

$

134,235

 

Accrued liabilities

 

163,245

 

 

 

143,357

 

Deferred revenue

 

482,112

 

 

 

396,259

 

Other current liabilities

 

69,419

 

 

 

94,392

 

Total current liabilities

 

859,935

 

 

 

768,243

 

Income taxes payable

 

57,977

 

 

 

53,053

 

Operating lease liabilities, non-current

 

64,295

 

 

 

72,397

 

Deferred revenue, non-current

 

263,978

 

 

 

254,568

 

Deferred tax liabilities, non-current

 

216,746

 

 

 

227,936

 

Other long-term liabilities

 

47,508

 

 

 

42,431

 

TOTAL LIABILITIES

 

1,510,439

 

 

 

1,418,628

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

8

 

 

 

8

 

Additional paid-in capital

 

1,395,459

 

 

 

1,292,431

 

Retained earnings

 

2,303,513

 

 

 

2,027,614

 

Accumulated other comprehensive income (loss)

 

(1,139

)

 

 

238

 

TOTAL STOCKHOLDERS’ EQUITY

 

3,697,841

 

 

 

3,320,291

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

5,208,280

 

 

 

$

4,738,919

 

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

377,254

 

 

 

$

283,224

 

 

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

 

 

 

 

Depreciation, amortization and other

 

25,235

 

 

 

21,170

 

 

Stock-based compensation

 

82,497

 

 

 

60,478

 

 

Noncash lease expense

 

8,410

 

 

 

8,223

 

 

Deferred income taxes

 

(2,998

)

 

 

2,668

 

 

Amortization of investment premiums

 

12,121

 

 

 

2,938

 

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

25,326

 

 

 

15,263

 

 

Inventories

 

(63,531

)

 

 

(82,891

)

 

Prepaid expenses and other current assets

 

(44,356

)

 

 

26,815

 

 

Other assets

 

(3,390

)

 

 

5,360

 

 

Accounts payable

 

10,879

 

 

 

31,473

 

 

Accrued liabilities

 

20,025

 

 

 

(39,882

)

 

Deferred revenue

 

95,263

 

 

 

(19,242

)

 

Income taxes payable

 

(9,144

)

 

 

16,820

 

 

Other liabilities

 

(15,550

)

 

 

646

 

 

Net cash provided by operating activities

 

518,041

 

 

 

333,063

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

819,807

 

 

 

875,213

 

 

Purchases of marketable securities

 

(1,241,657

)

 

 

(1,236,477

)

 

Purchases of property and equipment

 

(9,567

)

 

 

(5,178

)

 

Business acquisitions, net of cash acquired

 

 

 

 

(66,317

)

 

Escrow receipts from past business acquisitions

 

1,419

 

 

 

 

 

Investment in privately-held companies and intangibles

 

(6,084

)

 

 

 

 

Net cash used in investing activities

 

(436,082

)

 

 

(432,759

)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

26,884

 

 

 

22,228

 

 

Tax withholding paid on behalf of employees for net share settlement

 

(6,353

)

 

 

(4,000

)

 

Repurchase of common stock

 

(101,355

)

 

 

(227,895

)

 

Net cash used in financing activities

 

(80,824

)

 

 

(209,667

)

 

Effect of exchange rate changes

 

(665

)

 

 

(1,663

)

 

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

 

470

 

 

 

(311,026

)

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

897,454

 

 

 

1,115,515

 

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

897,924

 

 

 

$

804,489

 

 

 

Leave a comment

Your email address will not be published. Required fields are marked *