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Arista Networks, Inc. Reports Third 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 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

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 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.

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.

ARISTA NETWORKS, INC.

Condensed Consolidated Income Statements

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended September 30, 2023

 

Nine Months Ended September 30, 2023

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

1,285,548

 

$

1,008,689

 

$

3,719,179

 

$

2,619,213

Service

 

 

223,908

 

 

168,112

 

 

600,552

 

 

486,545

Total revenue

 

 

1,509,456

 

 

1,176,801

 

 

4,319,731

 

 

3,105,758

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

522,866

 

 

432,569

 

 

1,565,341

 

 

1,102,012

Service

 

 

44,171

 

 

34,252

 

 

123,335

 

 

96,656

Total cost of revenue

 

 

567,037

 

 

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 operations

 

 

602,695

 

 

417,347

 

 

1,617,335

 

 

1,058,187

Other income (expense), net

 

 

41,815

 

 

6,817

 

 

110,300

 

 

37,764

Income before income taxes

 

 

644,510

 

 

424,164

 

 

1,727,635

 

 

1,095,951

Provision for income taxes

 

 

99,183

 

 

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

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,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

GAAP gross profit

 

$

942,419

 

 

$

709,980

 

 

$

2,631,055

 

 

$

1,907,090

 

GAAP gross margin

 

 

62.4

%

 

 

60.3

%

 

 

60.9

%

 

 

61.4

%

Stock-based compensation expense

 

 

3,717

 

 

 

2,992

 

 

 

9,516

 

 

 

6,613

 

Intangible asset amortization

 

 

5,622

 

 

 

6,820

 

 

 

19,262

 

 

 

18,553

 

Non-GAAP gross profit

 

$

951,758

 

 

$

719,792

 

 

$

2,659,833

 

 

$

1,932,256

 

Non-GAAP gross margin

 

 

63.1

%

 

 

61.2

%

 

 

61.6

%

 

 

62.2

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

602,695

 

 

$

417,347

 

 

$

1,617,335

 

 

$

1,058,187

 

Stock-based compensation expense

 

 

85,390

 

 

 

65,477

 

 

 

215,398

 

 

 

165,980

 

Intangible asset amortization

 

 

8,117

 

 

 

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 margin

 

 

46.1

%

 

 

41.8

%

 

 

43.0

%

 

 

40.4

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

545,327

 

 

$

353,999

 

 

$

1,473,685

 

 

$

925,357

 

Stock-based compensation expense

 

 

85,390

 

 

 

65,477

 

 

 

215,398

 

 

 

165,980

 

Intangible asset amortization

 

 

8,117

 

 

 

9,315

 

 

 

26,747

 

 

 

24,334

 

Acquisition-related costs (1)

 

 

 

 

 

 

 

 

 

 

 

4,691

 

(Gain)/loss on strategic investments

 

 

473

 

 

 

(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 development

 

 

47,965

 

 

 

37,698

 

 

 

125,671

 

 

 

93,723

 

Sales and marketing

 

 

20,490

 

 

 

16,103

 

 

 

51,461

 

 

 

42,039

 

General and administrative

 

 

13,218

 

 

 

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.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

September 30, 2023

 

December 31, 2022

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

1,748,818

 

 

$

671,707

 

Marketable securities

 

 

2,706,785

 

 

 

2,352,022

 

Accounts receivable

 

 

833,374

 

 

 

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, net

 

 

102,592

 

 

 

95,009

 

Acquisition-related intangible assets, net

 

 

95,458

 

 

 

122,205

 

Goodwill

 

 

268,531

 

 

 

265,924

 

Investments

 

 

62,288

 

 

 

39,468

 

Operating lease right-of-use assets

 

 

58,888

 

 

 

53,390

 

Deferred tax assets

 

 

793,015

 

 

 

574,912

 

Other assets

 

 

33,265

 

 

 

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-current

 

 

48,044

 

 

 

43,964

 

Deferred revenue, non-current

 

 

496,076

 

 

 

403,814

 

Other long-term liabilities

 

 

67,975

 

 

 

58,442

 

TOTAL LIABILITIES

 

 

2,563,480

 

 

 

1,889,590

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

 

31

 

 

 

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

 

 

 

 

 

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

 

2022

 

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 other

 

 

56,233

 

 

 

45,169

 

Stock-based compensation

 

 

215,398

 

 

 

165,980

 

Noncash lease expense

 

 

13,615

 

 

 

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, net

 

 

346,170

 

 

 

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 securities

 

 

1,564,950

 

 

 

1,277,821

 

Proceeds from sale of marketable securities

 

 

49,584

 

 

 

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 plans

 

 

53,797

 

 

 

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 CASH

 

 

1,073,698

 

 

 

95,463

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

675,978

 

 

 

625,050

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

1,749,676

 

 

$

720,513

 

 

Contacts

Investor Contacts:

Arista Networks, Inc.

Liz Stine, 408-547-5885

Investor Relations

liz@arista.com

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