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Arista Networks, Inc. Reports Second Quarter 2023 Financial Results

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 second quarter ended June 30, 2023.

“Arista again achieves record revenue and profitability for Q2 2023,” said Jayshree Ullal, President and CEO of Arista Networks. “Our customers now represent more than 75 million cumulative cloud networking ports.”

Second Quarter Financial Highlights

  • Revenue of $1.459 billion, an increase of 8.0% compared to the first quarter of 2023, and an increase of 38.7% from the second quarter of 2022.
  • GAAP gross margin of 60.6%, compared to GAAP gross margin of 59.5% in the first quarter of 2023 and 61.2% in the second quarter of 2022.
  • Non-GAAP gross margin of 61.3%, compared to non-GAAP gross margin of 60.3% in the first quarter of 2023 and 61.9% in the second quarter of 2022.
  • GAAP net income of $491.9 million, or $1.55 per diluted share, compared to GAAP net income of $299.1 million, or $0.94 per diluted share in the second quarter of 2022.
  • Non-GAAP net income of $501.2 million, or $1.58 per diluted share, compared to non-GAAP net income of $342.7 million, or $1.08 per diluted share in the second quarter of 2022.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, “In spite of the return to shorter lead times and reduced visibility, we are executing well with gradual incremental improvements to our 2023 outlook which now calls for year-over-year growth in excess of 30%.”

Company Highlights

Financial Outlook

For the third quarter of 2023, we expect:

  • Revenue between $1.450 billion to $1.500 billion
  • Non-GAAP gross margin of approximately 62%; and
  • Non-GAAP operating margin of approximately 41%

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 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 second 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 third 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, including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending, and the Russia/Ukraine conflict; 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.

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, unrealized gains/losses on equity 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, CV AGNI, Arista CUE, 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 Income Statements

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended June 30, 2023

 

Six Months Ended June 30, 2023

 

 

2023

 

2022

 

2023

 

2022

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

1,261,537

 

$

885,806

 

 

$

2,433,631

 

$

1,610,524

Service

 

 

197,387

 

 

 

166,085

 

 

 

376,644

 

 

 

318,433

 

Total revenue

 

 

1,458,924

 

 

 

1,051,891

 

 

 

2,810,275

 

 

 

1,928,957

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

533,613

 

 

 

375,634

 

 

 

1,042,475

 

 

 

669,443

 

Service

 

 

41,182

 

 

 

32,992

 

 

 

79,164

 

 

 

62,404

 

Total cost of revenue

 

 

574,795

 

 

 

408,626

 

 

 

1,121,639

 

 

 

731,847

 

Gross profit

 

 

884,129

 

 

 

643,265

 

 

 

1,688,636

 

 

 

1,197,110

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

229,676

 

 

 

178,158

 

 

 

431,084

 

 

 

350,164

 

Sales and marketing

 

 

97,971

 

 

 

79,372

 

 

 

191,463

 

 

 

160,111

 

General and administrative

 

 

26,420

 

 

 

22,882

 

 

 

51,449

 

 

 

45,995

 

Total operating expenses

 

 

354,067

 

 

 

280,412

 

 

 

673,996

 

 

 

556,270

 

Income from operations

 

 

530,062

 

 

 

362,853

 

 

 

1,014,640

 

 

 

640,840

 

Other income (expense), net

 

 

56,339

 

 

 

(533

)

 

 

68,485

 

 

 

30,947

 

Income before income taxes

 

 

586,401

 

 

 

362,320

 

 

 

1,083,125

 

 

 

671,787

 

Provision for income taxes

 

 

94,516

 

 

 

63,221

 

 

 

154,767

 

 

 

100,429

 

Net income

 

$

491,885

 

 

$

299,099

 

 

$

928,358

 

 

$

571,358

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.59

 

 

$

0.98

 

 

$

3.02

 

 

$

1.86

 

Diluted

 

$

1.55

 

 

$

0.94

 

 

$

2.94

 

 

$

1.80

 

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

 

 

 

 

 

 

 

 

Basic

 

 

308,636

 

 

 

306,754

 

 

 

307,810

 

 

 

307,399

 

Diluted

 

 

316,485

 

 

 

316,581

 

 

 

316,031

 

 

 

318,040

 

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,

 

 

2023

 

2022

 

2023

 

2022

GAAP gross profit

 

$

884,129

 

 

$

643,265

 

 

$

1,688,636

 

 

$

1,197,110

 

GAAP gross margin

 

 

60.6

%

 

 

61.2

%

 

 

60.1

%

 

 

62.1

%

Stock-based compensation expense

 

 

2,824

 

 

 

2,312

 

 

 

5,799

 

 

 

3,621

 

Intangible asset amortization

 

 

6,820

 

 

 

6,012

 

 

 

13,640

 

 

 

11,733

 

Non-GAAP gross profit

 

$

893,773

 

 

$

651,589

 

 

$

1,708,075

 

 

$

1,212,464

 

Non-GAAP gross margin

 

 

61.3

%

 

 

61.9

%

 

 

60.8

%

 

 

62.9

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

530,062

 

 

$

362,853

 

 

$

1,014,640

 

 

$

640,840

 

Stock-based compensation expense

 

 

67,127

 

 

 

50,224

 

 

 

130,008

 

 

 

100,503

 

Intangible asset amortization

 

 

9,315

 

 

 

7,708

 

 

 

18,630

 

 

 

15,019

 

Acquisition-related costs (1)

 

 

 

 

 

4,691

 

 

 

 

 

 

4,691

 

Non-GAAP income from operations

 

$

606,504

 

 

$

425,476

 

 

$

1,163,278

 

 

$

761,053

 

Non-GAAP operating margin

 

 

41.6

%

 

 

40.4

%

 

 

41.4

%

 

 

39.5

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

491,885

 

 

$

299,099

 

 

$

928,358

 

 

$

571,358

 

Stock-based compensation expense

 

 

67,127

 

 

 

50,224

 

 

 

130,008

 

 

 

100,503

 

Intangible asset amortization

 

 

9,315

 

 

 

7,708

 

 

 

18,630

 

 

 

15,019

 

Acquisition-related costs (1)

 

 

 

 

 

4,691

 

 

 

 

 

 

4,691

 

Unrealized loss (gain) on equity investments

 

 

(24,743

)

 

 

5,084

 

 

 

(19,172

)

 

 

(23,413

)

Tax benefit on stock-based awards

 

 

(37,832

)

 

 

(17,725

)

 

 

(87,894

)

 

 

(48,689

)

Income tax effect on non-GAAP exclusions

 

 

(4,519

)

 

 

(6,401

)

 

 

(16,235

)

 

 

(8,281

)

Non-GAAP net income

 

$

501,233

 

 

$

342,680

 

 

$

953,695

 

 

$

611,188

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

1.55

 

 

$

0.94

 

 

$

2.94

 

 

$

1.80

 

Non-GAAP adjustments to net income

 

 

0.03

 

 

 

0.14

 

 

 

0.08

 

 

 

0.12

 

Non-GAAP diluted net income per share

 

$

1.58

 

 

$

1.08

 

 

$

3.02

 

 

$

1.92

 

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

 

 

316,485

 

 

 

316,581

 

 

 

316,031

 

 

 

318,040

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

2,824

 

 

$

2,312

 

 

$

5,799

 

 

$

3,621

 

Research and development

 

 

41,137

 

 

 

28,449

 

 

 

77,706

 

 

 

56,025

 

Sales and marketing

 

 

15,833

 

 

 

12,827

 

 

 

30,971

 

 

 

25,936

 

General and administrative

 

 

7,333

 

 

 

6,636

 

 

 

15,532

 

 

 

14,921

 

Total

 

$

67,127

 

 

$

50,224

 

 

$

130,008

 

 

$

100,503

 

_____________________________________________

(1)

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

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

June 30, 2023

 

December 31, 2022

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

1,261,836

 

 

$

671,707

 

Marketable securities

 

 

2,479,290

 

 

 

2,352,022

 

Accounts receivable

 

 

779,726

 

 

 

923,096

 

Inventories

 

 

1,864,334

 

 

 

1,289,706

 

Prepaid expenses and other current assets

 

 

466,371

 

 

 

314,217

 

Total current assets

 

 

6,851,557

 

 

 

5,550,748

 

Property and equipment, net

 

 

101,705

 

 

 

95,009

 

Acquisition-related intangible assets, net

 

 

103,575

 

 

 

122,205

 

Goodwill

 

 

268,531

 

 

 

265,924

 

Investments

 

 

61,788

 

 

 

39,468

 

Operating lease right-of-use assets

 

 

61,333

 

 

 

53,390

 

Deferred tax assets

 

 

705,856

 

 

 

574,912

 

Other assets

 

 

31,696

 

 

 

73,754

 

TOTAL ASSETS

 

$

8,186,041

 

 

$

6,775,410

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

351,920

 

 

$

232,572

 

Accrued liabilities

 

 

363,036

 

 

 

292,487

 

Deferred revenue

 

 

624,207

 

 

 

637,432

 

Other current liabilities

 

 

316,629

 

 

 

131,040

 

Total current liabilities

 

 

1,655,792

 

 

 

1,293,531

 

Income taxes payable

 

 

98,722

 

 

 

89,839

 

Operating lease liabilities, non-current

 

 

51,702

 

 

 

43,964

 

Deferred revenue, non-current

 

 

460,697

 

 

 

403,814

 

Other long-term liabilities

 

 

61,546

 

 

 

58,442

 

TOTAL LIABILITIES

 

 

2,328,459

 

 

 

1,889,590

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

 

31

 

 

 

31

 

Additional paid-in capital

 

 

1,927,697

 

 

 

1,780,714

 

Retained earnings

 

 

3,955,062

 

 

 

3,138,983

 

Accumulated other comprehensive income (loss)

 

 

(25,208

)

 

 

(33,908

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

5,857,582

 

 

 

4,885,820

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

8,186,041

 

 

$

6,775,410

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Six Months Ended June 30,

 

 

2023

 

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

928,358

 

 

$

571,358

 

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

 

 

 

 

Depreciation, amortization and other

 

 

39,227

 

 

 

28,012

 

Stock-based compensation

 

 

130,008

 

 

 

100,503

 

Noncash lease expense

 

 

9,154

 

 

 

9,161

 

Deferred income taxes

 

 

(130,287

)

 

 

(105,937

)

Unrealized gain on equity investments

 

 

(19,172

)

 

 

(23,413

)

Amortization (accretion) of investment premiums (discounts)

 

 

(11,998

)

 

 

11,457

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

143,370

 

 

 

(64,335

)

Inventories

 

 

(574,628

)

 

 

(202,052

)

Other assets

 

 

(120,864

)

 

 

(163,692

)

Accounts payable

 

 

114,905

 

 

 

71,169

 

Accrued liabilities

 

 

70,418

 

 

 

(16,210

)

Deferred revenue

 

 

43,658

 

 

 

91,201

 

Income taxes, net

 

 

198,100

 

 

 

10,792

 

Other liabilities

 

 

(11,676

)

 

 

221

 

Net cash provided by operating activities

 

 

808,573

 

 

 

318,235

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

 

1,265,305

 

 

 

829,714

 

Proceeds from sale of marketable securities

 

 

21,725

 

 

 

165,746

 

Purchases of marketable securities

 

 

(1,392,020

)

 

 

(641,979

)

Purchases of property and equipment

 

 

(17,212

)

 

 

(23,744

)

Cash paid for business acquisitions, net of cash acquired

 

 

1,799

 

 

 

(145,087

)

Investments in notes and privately-held companies

 

 

(4,250

)

 

 

(11,691

)

Net cash provided by (used in) investing activities

 

 

(124,653

)

 

 

172,959

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

30,410

 

 

 

22,991

 

Tax withholding paid on behalf of employees for net share settlement

 

 

(15,766

)

 

 

(18,802

)

Repurchases of common stock

 

 

(112,279

)

 

 

(619,888

)

Net cash used in financing activities

 

 

(97,635

)

 

 

(615,699

)

Effect of exchange rate changes

 

 

429

 

 

 

(3,041

)

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

 

 

586,714

 

 

 

(127,546

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

675,978

 

 

 

625,050

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

1,262,692

 

 

$

497,504

 

 

Contacts

Investor Contacts:

Arista Networks, Inc.

Liz Stine, 408-547-5885

Investor Relations

liz@arista.com

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