Arista Networks, Inc. Reports Third Quarter 2021 Financial Results
SANTA CLARA, Calif.- November 1, 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® (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.
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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
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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® and Arista EOS®, an advanced network operating system. For more information, visit www.arista.com.
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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.
Investor Contacts:
Arista Networks, Inc.
Liz Stine, 408-547-5885
Charles Yager, 408-547-5892
Director, Investor Relations
Product and Investor Advocacy
liz@arista.com
cyager@arista.com
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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,
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 revenue
270,082
220,469
765,513
601,728
Gross profit
478,615
384,962
1,358,065
1,067,302
Operating expenses:
Research and development
153,093
128,049
428,873
352,747
Sales and marketing
69,740
53,372
211,385
161,695
General and administrative
22,488
15,146
58,856
47,814
Total operating expenses
245,321
196,567
699,114
562,256
Income from operations
233,294
188,395
658,951
505,046
Other income, net
1,346
13,224
4,640
33,637
Income before income taxes
234,640
201,619
663,591
538,683
Provision for income taxes
10,335
33,244
62,032
87,084
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-average shares used in computing net income per share:
Basic
76,864
75,999
76,544
76,024
Diluted
79,909
79,313
79,744
79,519
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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
___________________
(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.
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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
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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
