Skip to main content

Arista Networks, Inc. Reports Fourth Quarter and Year End 2019 Financial Results

Arista Networks, Inc. (NYSE: ANET), an industry leader in software-driven cloud networking solutions for large datacenter and campus environments, today announced financial results for its fourth quarter and year ended December 31, 2019.

Fourth Quarter Financial Highlights

  • Revenue of $552.5 million, a decrease of 15.6% compared to the third quarter of 2019, and a decrease of 7.2% from the fourth quarter of 2018.
  • GAAP gross margin of 64.5%, compared to GAAP gross margin of 63.8% in the third quarter of 2019 and 62.9% in the fourth quarter of 2018.
  • Non-GAAP gross margin of 65.2%, compared to non-GAAP gross margin of 64.4% in the third quarter of 2019 and 64.1% in the fourth quarter of 2018.
  • GAAP net income of $260.7 million, or $3.25 per diluted share, compared to GAAP net income of $170.3 million, or $2.10 per diluted share in the fourth quarter of 2018.
  • Non-GAAP net income of $183.4 million, or $2.29 per diluted share, compared to non-GAAP net income of $182.2 million, or $2.25 per diluted share in the fourth quarter of 2018.

Full Year Financial Highlights

  • Revenue of $2.41 billion, an increase of 12.1% compared to fiscal year 2018.
  • GAAP gross margin of 64.1%, compared to GAAP gross margin of 63.8% in fiscal year 2018.
  • Non-GAAP gross margin of 64.7%, compared to non-GAAP gross margin of 64.4% in fiscal year 2018.
  • GAAP net income of $859.9 million, or $10.63 per diluted share, compared to GAAP net income of $328.1 million, or $4.06 per diluted share, in fiscal year 2018.
  • Non-GAAP net income of $786.8 million or $9.73 per diluted share, compared to non-GAAP net income of $643.3 million, or $7.96 per diluted share, in fiscal year 2018.

“Despite the volatility of cloud spend, 2019 marked the entry of Arista in the campus and mainstream enterprise. Our cloud networking technology is being accepted in thousands of diverse enterprise customers. We are excited by our prospects in 2020 and committed to a multi-year foundation of growth, innovation and profitability,” stated Jayshree Ullal, Arista’s President and CEO.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, “We were pleased with the solid execution on earnings and cash flow in the quarter.”

Arista today also announced that it has acquired Big Switch Networks, a network monitoring and SDN (Software Defined Networking) pioneer for the past decade.

Fourth Quarter Company Highlights

2019 Company Highlights

Financial Outlook

For the first quarter of 2020, we expect:

  • Revenue between $522 million to $532 million;
  • Non-GAAP gross margin of approximately 63%, and
  • Non-GAAP operating margin of approximately 34%

Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, 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 under “Non-GAAP Financial Measures”).

Prepared Materials and Conference Call Information

Arista executives will discuss the fourth quarter and year end 2019 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 1579521.

The financial results conference call will also be available via live webcast on our 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 first quarter of fiscal year 2020, and statements regarding the introduction of new products 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 evolution and growth of the cloud networking market and the adoption by end customers of Arista’s cloud networking solutions; rapid technological and market change; Arista’s customer concentration; our ability to attract new large end customers or sell additional products and services to existing customers; competition in our products and services markets; changes in Arista’s customers’ demand for our products and services; changes in customer order patterns or customer mix; requests by large end customers for more favorable terms and conditions; general market, political, economic and business conditions such as the recent U.S. trade wars with China and the impact of public health epidemics like the coronavirus currently affecting China; dependence on the introduction and market acceptance of new product offerings and standards including our 400G products as well as our campus and WiFi products; declines in the sales prices of our products and services; the timing of orders and manufacturing and customer lead times; and the benefits and impact of acquisitions; and other future events. Additional risks and uncertainties that could affect Arista can be found in our most recent Quarterly Report on Form 10-Q filed with the SEC on November 1, 2019, and other filings that the company makes to the SEC from time to time. 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 Arista 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.

Source: Gartner, Magic Quadrant for Data Center Networking, Andrew Lerner, Mike Toussaint, Jonathan Forest, 15 July 2019. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

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, litigation-related expenses, amortization of acquisition-related intangible assets, 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 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 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, 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 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 twenty 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, CloudEOS 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. Additional information and resources can be found at https://www.arista.com.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited in thousands, except per share amounts)

 

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2019

2018

2019

2018

Revenue:

Product

$

447,498

$

503,235

$

2,021,150

$

1,841,100

Service

105,048

92,491

389,556

310,269

Total revenue

552,546

595,726

2,410,706

2,151,369

Cost of revenue:

Product

175,476

204,507

792,382

720,584

Service

20,767

16,227

73,986

57,408

Total cost of revenue

196,243

220,734

866,368

777,992

Total gross profit

356,303

374,992

1,544,338

1,373,377

Operating expenses:

Research and development

110,063

118,439

462,759

442,468

Sales and marketing

54,535

50,911

213,907

187,142

General and administrative

15,716

12,000

61,898

65,420

Legal settlement

405,000

Total operating expenses

180,314

181,350

738,564

1,100,030

Income from operations

175,989

193,642

805,774

273,347

Other income (expense), net

11,183

4,848

56,496

15,454

Income before income taxes

187,172

198,490

862,270

288,801

Provision for (benefit from) income taxes

(73,520

)

28,168

2,403

(39,314

)

Net income

$

260,692

$

170,322

$

859,867

$

328,115

Net income attributable to common stockholders:

Basic

$

260,589

$

170,211

$

859,444

$

327,926

Diluted

$

260,594

$

170,218

$

859,468

$

327,941

Net income per share attributable to common stockholders:

Basic

$

3.41

$

2.26

$

11.26

$

4.39

Diluted

$

3.25

$

2.10

$

10.63

$

4.06

Weighted-average shares used in computing net income per share attributable to common stockholders:

Basic

76,345

75,473

76,312

74,750

Diluted

80,261

80,928

80,879

80,844

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(Unaudited, in thousands, except percentages and per share amounts)

 

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2019

2018

2019

2018

GAAP gross profit

$

356,303

$

374,992

$

1,544,338

$

1,373,377

GAAP gross margin

64.5

%

62.9

%

64.1

%

63.8

%

Stock-based compensation expense

1,253

1,381

4,637

5,087

Intangible asset amortization

2,626

2,626

10,503

3,824

Acquisition-related costs

3,138

3,138

Non-GAAP gross profit

$

360,182

$

382,137

$

1,559,478

$

1,385,426

Non-GAAP gross margin

65.2

%

64.1

%

64.7

%

64.4

%

GAAP income from operations

$

175,989

$

193,642

$

805,774

$

273,347

Stock-based compensation expense

26,435

24,619

101,280

91,202

Litigation expense (benefit)

333

(3,988

)

2,295

6,566

Legal settlement (1)

405,000

Intangible asset amortization

3,084

3,500

13,375

5,110

Acquisition-related costs

4,313

7,745

Non-GAAP income from operations

$

205,841

$

222,086

$

922,724

$

788,970

Non-GAAP operating margin

37.3

%

37.3

%

38.3

%

36.7

%

GAAP net income

$

260,692

$

170,322

$

859,867

$

328,115

Stock-based compensation expense

26,435

24,619

101,280

91,202

Litigation expense (benefit)

333

(3,988

)

2,295

6,566

Legal settlement (1)

405,000

Intangible asset amortization

3,084

3,500

13,375

5,110

Acquisition-related costs

4,313

7,745

(Gain) loss on investment in privately-held companies

4,700

(5,427

)

13,800

Acquisition-related tax expense

5,853

Altera stock-based tax charge (2)

9,781

Tax benefit on intra-entity IP transfer (3)

(85,819

)

(85,819

)

Tax benefit on stock-based awards

(16,232

)

(8,227

)

(89,415

)

(92,675

)

Impact of the U.S. Tax Cuts and Jobs Act

(12,632

)

(12,632

)

Income tax effect on non-GAAP exclusions

(5,045

)

(429

)

(19,093

)

(114,769

)

Non-GAAP net income

$

183,448

$

182,178

$

786,844

$

643,315

GAAP diluted net income per share attributable to common stockholders

$

3.25

$

2.10

$

10.63

$

4.06

Non-GAAP adjustments to net income

(0.96

)

0.15

(0.90

)

3.90

Non-GAAP diluted net income per share

$

2.29

$

2.25

$

9.73

$

7.96

Weighted-average shares used in computing GAAP and Non-GAAP diluted net income per share attributable to common stockholders

80,261

80,928

80,879

80,844

Summary of Stock-Based Compensation Expense:

Cost of revenue

$

1,253

$

1,381

$

4,637

$

5,087

Research and development

13,897

13,505

53,068

48,205

Sales and marketing

7,705

6,224

29,168

24,995

General and administrative

3,580

3,509

14,407

12,915

Total

$

26,435

$

24,619

$

101,280

$

91,202

___________________

(1)

Represents one-time charges associated with the settlement of our lawsuit with Cisco on August 6, 2018.

(2)

Represents a discrete income tax expense related to stock-based compensation as a result of an opinion on Altera Corporation and Subsidiaries vs. Commissioner on Internal Revenue issued by the Court of Appeals for the Ninth Circuit on June 7, 2019.

(3)

Represents a one-time tax benefit of $85.8 million upon completion of an intra-entity transaction to sell our non-Americas economic and beneficial intellectual property rights in the current quarter.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

December 31,
2019

December 31,
2018

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,111,286

$

649,950

Marketable securities

1,613,082

1,306,197

Accounts receivable

391,987

331,777

Inventories

243,825

264,557

Prepaid expenses and other current assets

111,456

162,321

Total current assets

3,471,636

2,714,802

Property and equipment, net

39,273

75,355

Acquisition-related intangible assets, net

45,235

58,610

Goodwill

54,855

53,684

Investments

4,150

30,336

Operating lease right-of-use assets

87,770

Deferred tax assets

452,025

126,492

Other assets

30,346

22,704

TOTAL ASSETS

$

4,185,290

$

3,081,983

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

92,105

$

93,757

Accrued liabilities

140,249

123,254

Deferred revenue

312,668

358,586

Other current liabilities

52,052

30,907

Total current liabilities

597,074

606,504

Income taxes payable

55,485

36,167

Operating lease liabilities, non-current

83,022

Finance lease liabilities, non-current

35,431

Deferred revenue, non-current

262,620

228,641

Deferred tax liabilities, non-current

254,710

3,753

Other long-term liabilities

37,693

28,098

TOTAL LIABILITIES

1,290,604

938,594

STOCKHOLDERS’ EQUITY:

Common stock

8

8

Additional paid-in capital

1,106,305

956,572

Retained earnings (1)

1,788,230

1,190,803

Accumulated other comprehensive income (loss)

143

(3,994

)

TOTAL STOCKHOLDERS’ EQUITY

2,894,686

2,143,389

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

4,185,290

$

3,081,983

______________________

(1)

We adopted new lease accounting guidance under Accounting Standard Codification Topic 842 – Leases (“ASC 842”), which resulted in a cumulative-effect adjustment of $3.7 million to retained earnings as of January 1, 2019.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

Twelve Months Ended December 31,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

859,867

$

328,115

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

Depreciation, amortization and other

32,849

27,671

Noncash lease expense

16,179

Stock-based compensation

101,280

91,202

Deferred income taxes

(75,741

)

(57,896

)

(Gain) loss on investments in privately-held companies, net

(5,427

)

13,800

Amortization (accretion) of investment premiums (discounts)

(6,771

)

(3,360

)

Changes in operating assets and liabilities:

Accounts receivable, net

(60,210

)

(77,916

)

Inventories

20,927

51,054

Prepaid expenses and other current assets

54,259

21,411

Other assets

(8,112

)

(3,389

)

Accounts payable

(1,937

)

39,337

Accrued liabilities

16,366

(14,786

)

Deferred revenue

(11,939

)

70,533

Income taxes payable

23,523

(112

)

Other liabilities

7,921

17,455

Net cash provided by operating activities

963,034

503,119

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of marketable securities

1,208,717

547,797

Purchases of marketable securities

(1,503,893

)

(1,174,259

)

Business acquisitions, net of cash acquired

(1,365

)

(96,821

)

Purchases of property and equipment

(15,751

)

(23,830

)

Investments in privately-held companies

28,220

(8,000

)

Net cash used in investing activities

(284,072

)

(755,113

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments of lease financing obligations

(1,929

)

Proceeds from issuance of common stock under equity plans

57,378

53,658

Tax withholding paid on behalf of employees for net share settlement

(9,200

)

(8,878

)

Repurchase of common stock

(266,142

)

Net cash provided by (used in) financing activities

(217,964

)

42,851

Effect of exchange rate changes

353

(1,390

)

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

461,351

(210,533

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

654,164

864,697

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

$

1,115,515

$

654,164

Contacts:

Investor Contacts
Curtis McKee
Corporate and Investor Development
(408) 547-5701
curtism@arista.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.