Acquires Mojo Networks for Cloud Networking Expansion
SANTA CLARA, Calif.--(BUSINESS WIRE)--
Arista Networks, Inc. (NYSE: ANET), an industry leader in
software-driven, cognitive cloud networking for large-scale datacenter
and campus environments, today announced financial results for its
second quarter ended June 30, 2018.
Second Quarter Financial Highlights
-
Revenue of $519.8 million, an increase of 10.0% compared to the first
quarter of 2018, and an increase of 28.3% from the second quarter of
2017.
-
GAAP gross margin of 64.2%, compared to GAAP gross margin of 64.1% in
the first quarter of 2018 and 64.1% in the second quarter of 2017.
-
Non-GAAP gross margin of 64.5%, compared to non-GAAP gross margin of
64.4% in the first quarter of 2018 and 64.4% in the second quarter of
2017.
-
GAAP net income of $150.7 million, or $1.86 per diluted share,
compared to GAAP net income of $102.7 million, or $1.30 per diluted
share, in the second quarter of 2017.
-
Non-GAAP net income of $155.7 million, or $1.93 per diluted share,
compared to non-GAAP net income of $105.5 million, or $1.34 per
diluted share, in the second quarter of 2017.
“Arista is one of the fastest networking companies to achieve a $2
billion annual revenue rate, driven by its industry leadership in
software-defined networking,” stated Jayshree Ullal, Arista President
and CEO. “In Q2 2018 we comfortably surpassed the $500 million revenue
mark with record profitability.”
Commenting on the company's financial results, Ita Brennan, Arista’s
CFO, said, “The team continues to demonstrate consistent execution,
driving healthy revenue growth and earnings expansion.”
Arista Extends the Campus to Cognitive WiFi™ Networking
Arista today also announced
that it will acquire Mojo
Networks, the inventor of Cognitive WiFi and a leader in
cloud-managed wireless networking. The parties expect to close the
transaction in Q3 2018. “We are excited about Arista's first acquisition
transaction and its significance to Arista's cognitive campus vision.
We welcome the Mojo Networks employees to the Arista family,” stated Ms.
Ullal.
Company Highlights
Financial Outlook
For the third quarter of 2018, we expect:
-
Revenue between $540 and $552 million
-
Non-GAAP gross margin between 63% to 65%, and
-
Non-GAAP operating margin of approximately 32% to 34%
Guidance for non-GAAP financial measures excludes estimated legal
expenses of approximately $6 million associated with the OptumSoft and
Cisco litigation, stock-based compensation expense, and other
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).
Prepared Materials and Conference Call Information
Arista executives will discuss second quarter 2018 financial results on
a conference call at 1:30 p.m. Pacific time today. To listen to the call
via telephone, dial (833) 287-7905 in the United States or (647)
689-4469 from outside the US. The Conference ID is 8687498.
The financial results conference call will also be available via live
webcast on our investor relations website at http://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 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 fiscal
2018, and statements regarding the benefits from the introduction of new
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: Arista Networks’ dispute with Cisco
Systems, Inc. including the ITC remedial orders which prohibit the
importation of Arista products (or components thereof) into the U.S., or
the sale of previously imported products that are covered by those
remedial orders, Arista Networks’ ability to redesign its products in a
manner not covered by such remedial orders and obtain appropriate
governmental approvals for those redesigned products, any penalties
assessed by the ITC if Arista’s redesigned products are covered by such
remedial orders and Arista Networks’ ability to manage our manufacturing
and supply chain including the sourcing of components on commercially
reasonable terms; Arista Networks’ limited operating history; Arista
Networks’ rapid growth; Arista Networks’ customer concentration; our
customer’s adoption of our redesigned products and services; requests
for more favorable terms and conditions from our large end customers;
declines in the sales prices of our products and services; changes in
customer demand for our products and services, customer order patterns
or customer mix; the timing of orders and manufacturing and customer
lead times; increased competition in our products and service markets;
dependence on the introduction and market acceptance of new product
offerings and standards; the benefits and impact of acquisitions; rapid
technological and market change; the evolution of the cloud networking
market and the adoption by end customers of Arista Networks’ cloud
networking solutions; Arista Networks’ dispute with OptumSoft; and
general market, political, economic and business conditions. Additional
risks and uncertainties that could affect Arista Networks can be found
in Arista’s most recent Annual Report on Form 10-K filed with the SEC on
February 20, 2018, and other filings that the company makes to the SEC
from time to time. You can locate these reports through our website at http://investors.arista.com/
and on the SEC’s website at http://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 Arista
Networks disclaims 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
The company reports certain non-GAAP financial measures that exclude
stock-based compensation expense, expenses associated with the OptumSoft
and Cisco litigation, other 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
the use of these non-GAAP financial measures is 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 comparable GAAP net income, net income per
diluted share, gross margin, or operating margin. 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. 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 has
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, expenses associated with the OptumSoft
and Cisco litigation, 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. 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. Accordingly, a
reconciliation of the non-GAAP financial measure guidance to the
corresponding GAAP measure is not available without unreasonable effort.
About Arista Networks
Arista Networks pioneered software-driven, cognitive cloud networking
for large-scale datacenter and campus environments. Arista's
award-winning platforms redefine and deliver availability, agility,
automation, analytics and security. Arista has shipped more than fifteen
million cloud networking ports worldwide with CloudVision and EOS, an
advanced network operating system. Committed to open standards across
private, public and hybrid cloud solutions, Arista products are
supported worldwide directly and through partners.
ARISTA, EOS, CloudVision, FlexRoute and AlgoMatch 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 Income
(Unaudited in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
444,767
|
|
|
$
|
353,904
|
|
|
$
|
852,384
|
|
|
$
|
645,271
|
|
Service
|
|
75,078
|
|
|
51,307
|
|
|
139,950
|
|
|
95,415
|
|
Total revenue
|
|
519,845
|
|
|
405,211
|
|
|
992,334
|
|
|
740,686
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
171,622
|
|
|
134,406
|
|
|
328,313
|
|
|
244,242
|
|
Service
|
|
14,340
|
|
|
11,028
|
|
|
27,219
|
|
|
22,457
|
|
Total cost of revenue
|
|
185,962
|
|
|
145,434
|
|
|
355,532
|
|
|
266,699
|
|
Total gross profit
|
|
333,883
|
|
|
259,777
|
|
|
636,802
|
|
|
473,987
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
104,078
|
|
|
81,194
|
|
|
206,440
|
|
|
162,804
|
|
Sales and marketing
|
|
46,188
|
|
|
38,630
|
|
|
88,328
|
|
|
75,657
|
|
General and administrative
|
|
18,420
|
|
|
23,319
|
|
|
38,099
|
|
|
45,474
|
|
Total operating expenses
|
|
168,686
|
|
|
143,143
|
|
|
332,867
|
|
|
283,935
|
|
Income from operations
|
|
165,197
|
|
|
116,634
|
|
|
303,935
|
|
|
190,052
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(680
|
)
|
|
(623
|
)
|
|
(1,367
|
)
|
|
(1,338
|
)
|
Other income (expense), net
|
|
(1,489
|
)
|
|
1,119
|
|
|
3,354
|
|
|
2,144
|
|
Total other income (expense), net
|
|
(2,169
|
)
|
|
496
|
|
|
1,987
|
|
|
806
|
|
Income before provision for income taxes
|
|
163,028
|
|
|
117,130
|
|
|
305,922
|
|
|
190,858
|
|
Provision for income taxes
|
|
12,320
|
|
|
14,445
|
|
|
10,676
|
|
|
5,212
|
|
Net income
|
|
$
|
150,708
|
|
|
$
|
102,685
|
|
|
$
|
295,246
|
|
|
$
|
185,646
|
|
Net income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
150,629
|
|
|
$
|
102,454
|
|
|
$
|
295,078
|
|
|
$
|
185,139
|
|
Diluted
|
|
$
|
150,635
|
|
|
$
|
102,474
|
|
|
$
|
295,091
|
|
|
$
|
185,182
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.02
|
|
|
$
|
1.42
|
|
|
$
|
3.97
|
|
|
$
|
2.59
|
|
Diluted
|
|
$
|
1.86
|
|
|
$
|
1.30
|
|
|
$
|
3.65
|
|
|
$
|
2.37
|
|
Weighted-average shares used in computing net income per share
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
74,503
|
|
|
71,992
|
|
|
74,250
|
|
|
71,555
|
|
Diluted
|
|
80,826
|
|
|
78,756
|
|
|
80,774
|
|
|
78,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
GAAP gross profit
|
|
$
|
333,883
|
|
|
$
|
259,777
|
|
|
$
|
636,802
|
|
|
$
|
473,987
|
|
GAAP gross margin
|
|
64.2
|
%
|
|
64.1
|
%
|
|
64.2
|
%
|
|
64.0
|
%
|
Stock-based compensation expense
|
|
1,236
|
|
|
1,087
|
|
|
2,438
|
|
|
2,111
|
|
Non-GAAP gross profit
|
|
$
|
335,119
|
|
|
$
|
260,864
|
|
|
$
|
639,240
|
|
|
$
|
476,098
|
|
Non-GAAP gross margin
|
|
64.5
|
%
|
|
64.4
|
%
|
|
64.4
|
%
|
|
64.3
|
%
|
|
|
|
|
|
|
|
|
|
GAAP income from operations
|
|
$
|
165,197
|
|
|
$
|
116,634
|
|
|
$
|
303,935
|
|
|
$
|
190,052
|
|
Stock-based compensation expense
|
|
22,478
|
|
|
18,400
|
|
|
43,329
|
|
|
34,839
|
|
Litigation expense
|
|
3,569
|
|
|
11,957
|
|
|
10,654
|
|
|
23,423
|
|
Non-GAAP income from operations
|
|
$
|
191,244
|
|
|
$
|
146,991
|
|
|
$
|
357,918
|
|
|
$
|
248,314
|
|
Non-GAAP operating margin
|
|
36.8
|
%
|
|
36.3
|
%
|
|
36.1
|
%
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
150,708
|
|
|
$
|
102,685
|
|
|
$
|
295,246
|
|
|
$
|
185,646
|
|
Stock-based compensation expense
|
|
22,478
|
|
|
18,400
|
|
|
43,329
|
|
|
34,839
|
|
Litigation expense
|
|
3,569
|
|
|
11,957
|
|
|
10,654
|
|
|
23,423
|
|
Unrealized loss on investments in privately-held companies, net
|
|
9,100
|
|
|
—
|
|
|
9,100
|
|
|
—
|
|
Tax benefit on stock-based awards
|
|
(25,472
|
)
|
|
(18,070
|
)
|
|
(58,318
|
)
|
|
(48,693
|
)
|
Income tax effect on non-GAAP exclusions
|
|
(4,663
|
)
|
|
(9,502
|
)
|
|
(10,168
|
)
|
|
(17,938
|
)
|
Non-GAAP net income
|
|
$
|
155,720
|
|
|
$
|
105,470
|
|
|
$
|
289,843
|
|
|
$
|
177,277
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted net income per share attributable to common stockholders
|
|
$
|
1.86
|
|
|
$
|
1.30
|
|
|
$
|
3.65
|
|
|
$
|
2.37
|
|
Non-GAAP adjustments to net income
|
|
0.07
|
|
|
0.04
|
|
|
(0.06
|
)
|
|
(0.10
|
)
|
Non-GAAP diluted net income per share
|
|
$
|
1.93
|
|
|
$
|
1.34
|
|
|
$
|
3.59
|
|
|
$
|
2.27
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing diluted net income per
share attributable to common stockholders
|
|
80,826
|
|
|
78,756
|
|
|
80,774
|
|
|
78,166
|
|
|
|
|
|
|
|
|
|
|
Summary of Stock-Based Compensation Expense:
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
1,236
|
|
|
$
|
1,087
|
|
|
$
|
2,438
|
|
|
$
|
2,111
|
|
Research and development
|
|
11,745
|
|
|
10,342
|
|
|
22,690
|
|
|
19,929
|
|
Sales and marketing
|
|
6,274
|
|
|
4,080
|
|
|
12,234
|
|
|
7,536
|
|
General and administrative
|
|
3,223
|
|
|
2,891
|
|
|
5,967
|
|
|
5,263
|
|
Total
|
|
$
|
22,478
|
|
|
$
|
18,400
|
|
|
$
|
43,329
|
|
|
$
|
34,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
ASSETS
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
711,157
|
|
|
$
|
859,192
|
|
Marketable securities
|
|
1,149,247
|
|
|
676,363
|
|
Accounts receivable
|
|
260,917
|
|
|
247,346
|
|
Inventories
|
|
245,439
|
|
|
306,198
|
|
Prepaid expenses and other current assets
|
|
168,779
|
|
|
177,330
|
|
Total current assets
|
|
2,535,539
|
|
|
2,266,429
|
|
Property and equipment, net
|
|
73,736
|
|
|
74,279
|
|
Investments
|
|
35,036
|
|
|
36,136
|
|
Deferred tax assets
|
|
68,761
|
|
|
65,125
|
|
Other assets
|
|
20,019
|
|
|
18,891
|
|
TOTAL ASSETS
|
|
$
|
2,733,091
|
|
|
$
|
2,460,860
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
Accounts payable
|
|
$
|
53,182
|
|
|
$
|
52,200
|
|
Accrued liabilities
|
|
86,693
|
|
|
133,827
|
|
Deferred revenue
|
|
262,345
|
|
|
327,706
|
|
Other current liabilities
|
|
19,543
|
|
|
16,172
|
|
Total current liabilities
|
|
421,763
|
|
|
529,905
|
|
Income taxes payable
|
|
40,369
|
|
|
34,067
|
|
Lease financing obligations, non-current
|
|
36,594
|
|
|
37,673
|
|
Deferred revenue, non-current
|
|
186,299
|
|
|
187,556
|
|
Other long-term liabilities
|
|
22,116
|
|
|
9,745
|
|
TOTAL LIABILITIES
|
|
707,141
|
|
|
798,946
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
Common stock
|
|
8
|
|
|
7
|
|
Additional paid-in capital
|
|
872,559
|
|
|
804,731
|
|
Retained earnings (1) |
|
1,157,934
|
|
|
859,114
|
|
Accumulated other comprehensive loss
|
|
(4,551
|
)
|
|
(1,938
|
)
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
2,025,950
|
|
|
1,661,914
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,733,091
|
|
|
$
|
2,460,860
|
|
____________________________
|
|
|
|
|
(1) The adoption of ASU 2014-09, Revenue from Contracts with
Customers (Topic 606), and ASU 2016-16, Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other Than Inventory, in the first
quarter of 2018 resulted in an adjustment to increase the retained
earnings balance by $3.6 million as of January 1, 2018.
|
ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
As Adjusted
(1)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net income
|
|
$
|
295,246
|
|
|
$
|
185,646
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation, amortization and other
|
|
11,328
|
|
|
10,033
|
|
Stock-based compensation
|
|
43,329
|
|
|
34,839
|
|
Deferred income taxes
|
|
(4,281
|
)
|
|
(8,515
|
)
|
Unrealized loss on investments in privately-held companies, net
|
|
9,100
|
|
|
—
|
|
Amortization (accretion) of investment premiums (discounts)
|
|
(783
|
)
|
|
753
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net
|
|
(13,571
|
)
|
|
(16,505
|
)
|
Inventories
|
|
60,759
|
|
|
(127,313
|
)
|
Prepaid expenses and other current assets
|
|
12,605
|
|
|
(22,239
|
)
|
Other assets
|
|
629
|
|
|
(470
|
)
|
Accounts payable
|
|
3,597
|
|
|
1,299
|
|
Accrued liabilities
|
|
(47,153
|
)
|
|
(5,981
|
)
|
Deferred revenue
|
|
(50,096
|
)
|
|
181,575
|
|
Income taxes payable
|
|
6,653
|
|
|
5,380
|
|
Other liabilities
|
|
(1,237
|
)
|
|
3,593
|
|
Net cash provided by operating activities
|
|
326,125
|
|
|
242,095
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Proceeds from maturities of marketable securities
|
|
222,764
|
|
|
112,053
|
|
Purchases of marketable securities
|
|
(696,665
|
)
|
|
(114,195
|
)
|
Purchases of property and equipment
|
|
(13,071
|
)
|
|
(9,534
|
)
|
Investments in privately-held companies
|
|
(8,000
|
)
|
|
—
|
|
Other investing activities
|
|
(2,000
|
)
|
|
—
|
|
Net cash used in investing activities (1) |
|
(496,972
|
)
|
|
(11,676
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Principal payments of lease financing obligations
|
|
(921
|
)
|
|
(773
|
)
|
Proceeds from issuance of common stock under equity plans
|
|
28,810
|
|
|
28,105
|
|
Tax withholding paid on behalf of employees for net share settlement
|
|
(4,463
|
)
|
|
(1,356
|
)
|
Net cash provided by financing activities
|
|
23,426
|
|
|
25,976
|
|
Effect of exchange rate changes
|
|
(607
|
)
|
|
411
|
|
NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
(148,028
|
)
|
|
256,806
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period (1) |
|
864,697
|
|
|
572,168
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period (1) |
|
$
|
716,669
|
|
|
$
|
828,974
|
|
____________________________________
|
|
|
|
|
(1) The adoption of ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash ("ASU 2016-18"), in the first half of 2018 requires
the Company to include restricted cash together with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period
amounts presented on the statements of cash flows. As a result, for the
six months ended June 30, 2017, the beginning-of-period and
end-of-period amounts increased by $4.2 million and $5.5 million,
respectively, and net cash used in investing activities decreased by
$1.3 million.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20180802005863/en/
Arista Networks, Inc.
Investor Contacts:
Charles Yager,
408-547-5892
Product and Investor Advocacy
cyager@arista.com
or
Chuck
Elliott, 408-547-5549
Business and Investor Development
chuck@arista.com
Source: Arista Networks, Inc.