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Published: 2023-10-30 16:08:02 ET
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EX-99.1 2 ex991q323-earningsrelease.htm EX-99.1 Document

Exhibit 99.1
Arista Networks, Inc. Reports Third Quarter 2023 Financial Results
SANTA CLARA, Calif.- October 30, 2023 -- 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, 2023.
Third Quarter Financial Highlights
“Arista once again delivered strong financial results in the third quarter,” says Jayshree Ullal, President and CEO of Arista Networks. “Customer momentum remained strong in both enterprise and cloud/AI sectors.”
•Revenue of $1.509 billion, an increase of 3.5% compared to the second quarter of 2023, and an increase of 28.3% from the third quarter of 2022.
•GAAP gross margin of 62.4%, compared to GAAP gross margin of 60.6% in the second quarter of 2023 and 60.3% in the third quarter of 2022.
•Non-GAAP gross margin of 63.1%, compared to non-GAAP gross margin of 61.3% in the second quarter of 2023 and 61.2% in the third quarter of 2022.
•GAAP net income of $545.3 million, or $1.72 per diluted share, compared to GAAP net income of $354.0 million, or $1.13 per diluted share in the third quarter of 2022.
•Non-GAAP net income of $581.4 million, or $1.83 per diluted share, compared to non-GAAP net income of $391.9 million, or $1.25 per diluted share in the third quarter of 2022.
Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, “The team continues to demonstrate strong discipline, working to normalize supply chain metrics while delivering incremental improvements to our 2023 outlook, which now calls for year-over-year revenue growth in excess of 33%.”
Company Highlights
•Arista Appointed by Spark as Private Telecommunications Cloud Networking Provider – Arista announced that it has been appointed by Spark as a private cloud networking provider to support Spark’s data centre networking services for a new private telecommunications cloud platform.
•The Arrival of Open AI Networking – Arista and the founding members of the Ultra Ethernet Consortium, UEC, have set out on the mission to enhance the capabilities of Ethernet for AI and HPC.
•Arista is Recognized by Newsweek as one of America’s Greenest Companies – Arista is pleased to be included in Newsweek’s first ranking of America's Greenest Companies which captures a snapshot in time of where the leading companies are—and sets a benchmark for future rankings.
Financial Outlook
For the fourth quarter of 2023, we expect:
•Revenue between $1.500 billion to $1.550 billion
•Non-GAAP gross margin of approximately 63%; and
•Non-GAAP operating margin of approximately 42%.
Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and potential non-recurring charges or benefits. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis because these exclusions can be uncertain or difficult to predict, including stock-based compensation expense which is impacted by the company’s future hiring and retention needs and the future fair market value of the company’s common
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stock. The actual amount of these exclusions will have a significant impact on the company’s GAAP gross margin and GAAP operating margin.
Prepared Materials and Conference Call Information
Arista's executives will discuss the third quarter 2023 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 2023 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: dependence on a limited number of end customers who represent a substantial portion of our revenue; adverse economic and geopolitical conditions and conflicts, including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending, the Russia/Ukraine and Israel/Hamas conflicts; changes in our customers technology roadmaps and priorities including the need for the rapid deployment of artificial intelligence (“AI”) and related technologies; the impact of limited sources of supply on our business, including significant purchase commitments, excess inventory and extended lead times or supply changes; volatility in our revenue growth rate; variations in our results of operations, including as a result of seasonality; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; 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 additional products and services to existing end customers; our ability to grow sales of our switches; our ability to increase market awareness of our new products and services; a decrease in the sales prices of our products and services; a decline in maintenance renewals by end customers; product quality problems; our ability to anticipate technological shifts and develop products and product enhancements that meet those technological shifts; any failure to manage the supply of our products and product components, resulting in insufficient component supply and inventory or excess inventory; our dependence on third-party manufacturers to build our products; assertions by third parties of infringement or other violations by us of their intellectual property rights; our ability to protect our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; tax, tariff, import/export restrictions, Chinese regulations 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.
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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 margin, 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 intangibles and other acquisition-related expenses, gains/losses on strategic investments, 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.
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 and CloudVision 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.


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ARISTA NETWORKS, INC.
Condensed Consolidated Income Statements
(Unaudited, in thousands, except per share amounts)
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
2023202220232022
Revenue:
Product$1,285,548 $1,008,689 $3,719,179 $2,619,213 
Service 223,908 168,112 600,552 486,545 
Total revenue1,509,456 1,176,801 4,319,731 3,105,758 
Cost of revenue:
Product522,866 432,569 1,565,341 1,102,012 
Service 44,171 34,252 123,335 96,656 
Total cost of revenue567,037 466,821 1,688,676 1,198,668 
Gross profit 942,419 709,980 2,631,055 1,907,090 
Operating expenses:
Research and development 212,353 187,807 643,437 537,971 
Sales and marketing 102,033 81,401 293,496 241,512 
General and administrative 25,338 23,425 76,787 69,420 
Total operating expenses 339,724 292,633 1,013,720 848,903 
Income from operations602,695 417,347 1,617,335 1,058,187 
Other income (expense), net 41,815 6,817 110,300 37,764 
Income before income taxes644,510 424,164 1,727,635 1,095,951 
Provision for income taxes99,183 70,165 253,950 170,594 
Net income$545,327 $353,999 $1,473,685 $925,357 
Net income per share:
Basic $1.76 $1.16 $4.78 $3.02 
Diluted $1.72 $1.13 $4.66 $2.92 
Weighted-average shares used in computing net income per share:
Basic 310,185 304,931 308,602 306,576 
Diluted 317,631 314,401 316,564 316,745 

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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,
2023202220232022
GAAP gross profit$942,419 $709,980 $2,631,055 $1,907,090 
GAAP gross margin62.4 %60.3 %60.9 %61.4 %
Stock-based compensation expense3,717 2,992 9,516 6,613 
Intangible asset amortization5,622 6,820 19,262 18,553 
Non-GAAP gross profit$951,758 $719,792 $2,659,833 $1,932,256 
Non-GAAP gross margin63.1 %61.2 %61.6 %62.2 %
GAAP income from operations$602,695 $417,347 $1,617,335 $1,058,187 
Stock-based compensation expense85,390 65,477 215,398 165,980 
Intangible asset amortization8,117 9,315 26,747 24,334 
Acquisition-related costs (1)
— — — 4,691 
Non-GAAP income from operations$696,202 $492,139 $1,859,480 $1,253,192 
Non-GAAP operating margin46.1 %41.8 %43.0 %40.4 %
GAAP net income $545,327 $353,999 $1,473,685 $925,357 
Stock-based compensation expense85,390 65,477 215,398 165,980 
Intangible asset amortization8,117 9,315 26,747 24,334 
Acquisition-related costs (1)
— — — 4,691 
(Gain)/loss on strategic investments473 (708)(18,699)(24,121)
Tax benefit on stock-based awards (45,667)(27,636)(133,561)(76,325)
Income tax effect on non-GAAP exclusions(12,253)(8,524)(28,488)(16,805)
Non-GAAP net income$581,387 $391,923 $1,535,082 $1,003,111 
GAAP diluted net income per share $1.72 $1.13 $4.66 $2.92 
Non-GAAP adjustments to net income 0.11 0.12 0.19 0.25 
Non-GAAP diluted net income per share$1.83 $1.25 $4.85 $3.17 
Weighted-average shares used in computing diluted net income per share 317,631 314,401 316,564 316,745 
Summary of Stock-Based Compensation Expense:
Cost of revenue$3,717 $2,992 $9,516 $6,613 
Research and development47,965 37,698 125,671 93,723 
Sales and marketing20,490 16,103 51,461 42,039 
General and administrative13,218 8,684 28,750 23,605 
Total$85,390 $65,477 $215,398 $165,980 
_____________________________________________
(1) Represent costs associated with business combinations, which primarily include retention bonuses, and professional and consulting fees.

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ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
September 30, 2023December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,748,818 $671,707 
Marketable securities2,706,785 2,352,022 
Accounts receivable833,374 923,096 
Inventories 1,893,538 1,289,706 
Prepaid expenses and other current assets 472,483 314,217 
Total current assets 7,654,998 5,550,748 
Property and equipment, net102,592 95,009 
Acquisition-related intangible assets, net95,458 122,205 
Goodwill268,531 265,924 
Investments62,288 39,468 
Operating lease right-of-use assets58,888 53,390 
Deferred tax assets 793,015 574,912 
Other assets33,265 73,754 
TOTAL ASSETS $9,069,035 $6,775,410 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $268,972 $232,572 
Accrued liabilities 410,071 292,487 
Deferred revenue 698,675 637,432 
Other current liabilities 469,007 131,040 
Total current liabilities 1,846,725 1,293,531 
Income taxes payable 104,660 89,839 
Operating lease liabilities, non-current48,044 43,964 
Deferred revenue, non-current496,076 403,814 
Other long-term liabilities 67,975 58,442 
TOTAL LIABILITIES 2,563,480 1,889,590 
STOCKHOLDERS’ EQUITY:
Common stock31 31 
Additional paid-in capital 2,028,301 1,780,714 
Retained earnings 4,500,389 3,138,983 
Accumulated other comprehensive income (loss)(23,166)(33,908)
TOTAL STOCKHOLDERS’ EQUITY 6,505,555 4,885,820 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $9,069,035 $6,775,410 

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ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,473,685 $925,357 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other56,233 45,169 
Stock-based compensation 215,398 165,980 
Noncash lease expense13,615 13,837 
Deferred income taxes (217,489)(148,355)
Gain on strategic investments(18,699)(24,121)
Amortization (accretion) of investment premiums (discounts)(22,389)14,167 
Changes in operating assets and liabilities:
Accounts receivable, net 89,722 (129,947)
Inventories (603,832)(449,792)
Other assets(118,622)(86,895)
Accounts payable 33,740 73,480 
Accrued liabilities 117,481 14,690 
Deferred revenue 153,505 (1,245)
Income taxes, net346,170 41,074 
Other liabilities (10,968)(1,059)
Net cash provided by operating activities 1,507,550 452,340 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities1,564,950 1,277,821 
Proceeds from sale of marketable securities49,584 186,782 
Purchases of marketable securities(1,934,156)(973,489)
Purchases of property and equipment (28,424)(34,184)
Cash paid for business combinations, net of cash acquired 1,799 (145,087)
Investments in notes and privately-held companies(4,250)(12,691)
Net cash provided by (used in) investing activities (350,497)299,152 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity plans53,797 43,073 
Tax withholding paid on behalf of employees for net share settlement(23,939)(25,542)
Repurchases of common stock(112,279)(667,470)
Net cash used in financing activities(82,421)(649,939)
Effect of exchange rate changes (934)(6,090)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH1,073,698 95,463 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period675,978 625,050 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period$1,749,676 $720,513 

Investor Contacts: 

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