Arista networks, inc. reports third quarter 2022 financial results
Santa clara, calif.--(business wire)--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, 2022. “arista continues to outpace our networking peers with record revenue in q3 2022,” said jayshree ullal, president and ceo of arista networks. “clearly, we are entering the next phase of arista’s evolution in products, customer intimacy and new market expansion.” third quarter financial highlights revenue of $1.177 billion, an increase of 11.9% compared to the second quarter of 2022, and an increase of 57.2% from the third quarter of 2021. gaap gross margin of 60.3%, compared to gaap gross margin of 61.2% in the second quarter of 2022 and 63.9% in the third quarter of 2021. non-gaap gross margin of 61.2%, compared to non-gaap gross margin of 61.9% in the second quarter of 2022 and 64.9% in the third quarter of 2021. gaap net income of $354.0 million, or $1.13 per diluted share, compared to gaap net income of $224.3 million, or $0.70 per diluted share in the third quarter of 2021. non-gaap net income of $391.9 million, or $1.25 per diluted share, compared to non-gaap net income of $236.9 million, or $0.74 per diluted share in the third quarter of 2021. commenting on the company's financial results, ita brennan, arista’s cfo said, “we are pleased with the continued strong revenue growth in the quarter, driving significant eps upside and demonstrating the inherent operational leverage of the business model.” company highlights arista delivers next generation cloud routing - a leader in data-driven cloud networking, announced innovations for its comprehensive cloud-grade routing platform that simplify and secure routing for the enterprise, mobile provider and cloud operators. these software and hardware innovations continue to drive down customer operational cost and complexity with a consistent and modern approach to a broad range of routing use cases. arista introduces the unified cloud fabric - arista’s converged cloud fabric (ccf)™, brings an automated fabric built with cloud networking design principles. arista is proud to be named a best work-life balance company in 2022 by comparably and listed as a 2022 best place to work company earlier this year by the silicon valley business journal. financial outlook for the fourth quarter of 2022, we expect: revenue between $1.175 billion to $1.200 billion non-gaap gross margin of approximately 60% to 62%; and non-gaap operating margin of approximately 40% guidance for non-gaap financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and certain 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's executives will discuss the third quarter 2022 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 2022, statements regarding arista's business plans and its ability to execute such plans, statements regarding our ability to grow our revenue and expand our market share 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: interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including increased purchase commitments and extended lead times; adverse global 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; the impact of the covid-19 pandemic and related public safety measures on our business; dependence on a limited number of customers who represent a substantial portion of our revenue; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; a decline in our revenue growth rate; fluctuations in our results of operations including as a result of seasonality; 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 products and services to existing end customers and dependence on large end customers; our ability to increase market awareness of our company and new products and services; a decline in the sales prices of our products and services; a decline in maintenance renewals by customers; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; the management of the supply of our products and product components; our dependence on third-party manufacturers to build our products; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; failure to maintain effective internal control over financial reporting; tax, tariff, import/export restrictions 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 margins, 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 intangible assets, certain 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 have 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 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, eos, cloudvision, netdl ava, tunnelsec and arista ccf 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 statements of operations (unaudited, in thousands, except per share amounts) three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 revenue: product $ 1,008,689 $ 604,160 $ 2,619,213 $ 1,709,772 service 168,112 144,537 486,545 413,806 total revenue 1,176,801 748,697 3,105,758 2,123,578 cost of revenue: product 432,569 243,342 1,102,012 687,554 service 34,252 26,740 96,656 77,959 total cost of revenue 466,821 270,082 1,198,668 765,513 gross profit 709,980 478,615 1,907,090 1,358,065 operating expenses: research and development 187,807 153,093 537,971 428,873 sales and marketing 81,401 69,740 241,512 211,385 general and administrative 23,425 22,488 69,420 58,856 total operating expenses 292,633 245,321 848,903 699,114 income from operations 417,347 233,294 1,058,187 658,951 other income (expenses), net 6,817 1,346 37,764 4,640 income before income taxes 424,164 234,640 1,095,951 663,591 provision for income taxes 70,165 10,335 170,594 62,032 net income $ 353,999 $ 224,305 $ 925,357 $ 601,559 net income per share (1): basic $ 1.16 $ 0.73 $ 3.02 $ 1.96 diluted $ 1.13 $ 0.70 $ 2.92 $ 1.89 weighted-average shares used in computing net income per share (1): basic 304,931 307,456 306,576 306,176 diluted 314,401 319,636 316,745 318,976 (1) prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in november 2021. 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, 2022 2021 2022 2021 gaap gross profit $ 709,980 $ 478,615 $ 1,907,090 $ 1,358,065 gaap gross margin 60.3 % 63.9 % 61.4 % 64.0 % stock-based compensation expense 2,992 2,002 6,613 5,198 intangible asset amortization 6,820 5,464 18,553 16,393 non-gaap gross profit $ 719,792 $ 486,081 $ 1,932,256 $ 1,379,656 non-gaap gross margin 61.2 % 64.9 % 62.2 % 65.0 % gaap income from operations $ 417,347 $ 233,294 $ 1,058,187 $ 658,951 stock-based compensation expense 65,477 53,135 165,980 135,632 intangible asset amortization 9,315 7,281 24,334 22,076 acquisition-related costs (1) — — 4,691 — non-gaap income from operations $ 492,139 $ 293,710 $ 1,253,192 $ 816,659 non-gaap operating margin 41.8 % 39.2 % 40.4 % 38.5 % gaap net income $ 353,999 $ 224,305 $ 925,357 $ 601,559 stock-based compensation expense 65,477 53,135 165,980 135,632 intangible asset amortization 9,315 7,281 24,334 22,076 acquisition-related costs (1) — — 4,691 — unrealized loss (gain) on equity investments (708 ) — (24,121 ) — tax benefit on stock-based awards (27,636 ) (39,665 ) (76,325 ) (84,684 ) income tax effect on non-gaap exclusions (8,524 ) (8,137 ) (16,805 ) (21,999 ) non-gaap net income $ 391,923 $ 236,919 $ 1,003,111 $ 652,584 gaap diluted net income per share (2) $ 1.13 $ 0.70 $ 2.92 $ 1.89 non-gaap adjustments to net income 0.12 0.04 0.25 0.16 non-gaap diluted net income per share $ 1.25 $ 0.74 $ 3.17 $ 2.05 weighted-average shares used in computing diluted net income per share (2) 314,401 319,636 316,745 318,976 summary of stock-based compensation expense: cost of revenue $ 2,992 $ 2,002 $ 6,613 $ 5,198 research and development 37,698 27,552 93,723 72,673 sales and marketing 16,103 12,680 42,039 34,133 general and administrative 8,684 10,901 23,605 23,628 total $ 65,477 $ 53,135 $ 165,980 $ 135,632 (1) represent non-recurring costs associated with business combinations, which primarily include retention bonuses, and professional and consulting fees. (2) prior periods have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in november 2021. arista networks, inc. condensed consolidated balance sheets (unaudited, in thousands) september 30, 2022 december 31, 2021 assets current assets: cash and cash equivalents $ 716,253 $ 620,813 marketable securities 2,263,818 2,787,502 accounts receivable 651,512 516,509 inventories 1,100,550 650,117 prepaid expenses and other current assets 299,545 237,735 total current assets 5,031,678 4,812,676 property and equipment, net 96,449 78,634 acquisition-related intangible assets, net 131,520 93,555 goodwill 271,018 188,397 investments 39,677 20,247 operating lease right-of-use assets 58,205 65,182 deferred tax assets 473,808 442,295 other assets 59,655 33,443 total assets $ 6,162,010 $ 5,734,429 liabilities and stockholders’ equity current liabilities: accounts payable $ 278,469 $ 202,636 accrued liabilities 240,609 226,643 deferred revenue 607,189 593,578 other current liabilities 128,645 86,972 total current liabilities 1,254,912 1,109,829 income taxes payable 82,167 69,916 operating lease liabilities, non-current 47,067 56,527 deferred revenue, non-current 333,855 335,734 deferred tax liabilities, non-current — 129,074 other long-term liabilities 58,791 54,749 total liabilities 1,776,792 1,755,829 stockholders’ equity: common stock 31 31 additional paid-in capital 1,717,605 1,530,046 retained earnings 2,714,711 2,456,823 accumulated other comprehensive income (loss) (47,129 ) (8,300 ) total stockholders’ equity 4,385,218 3,978,600 total liabilities and stockholders’ equity $ 6,162,010 $ 5,734,429 arista networks, inc. condensed consolidated statements of cash flows (unaudited, in thousands) nine months ended september 30, 2022 2021 cash flows from operating activities: net income $ 925,357 $ 601,559 adjustments to reconcile net income to net cash provided by operating activities: depreciation, amortization and other 45,169 37,864 stock-based compensation 165,980 135,632 noncash lease expense 13,837 12,738 deferred income taxes (148,355 ) (573 ) unrealized gain on equity investments (24,121 ) — amortization of investment premiums 14,167 19,193 changes in operating assets and liabilities: accounts receivable, net (129,947 ) (6,050 ) inventories (449,792 ) (95,997 ) prepaid expenses and other current assets (68,996 ) (71,300 ) other assets (17,899 ) (2,915 ) accounts payable 73,480 (1,075 ) accrued liabilities 14,690 31,316 deferred revenue (1,245 ) 149,613 income taxes payable 41,074 (3,565 ) other liabilities (1,059 ) (15,820 ) net cash provided by operating activities 452,340 790,620 cash flows from investing activities: proceeds from maturities of marketable securities 1,277,821 1,158,723 purchases of marketable securities (973,489 ) (1,974,853 ) purchases of property and equipment (34,184 ) (55,455 ) business acquisitions, net of cash acquired (145,087 ) — escrow receipts from past business acquisitions — 1,299 investments and notes receivable in privately-held companies (12,691 ) (10,684 ) proceeds from sale of marketable securities 186,782 19,607 net cash provided by (used in) investing activities 299,152 (861,363 ) cash flows from financing activities: proceeds from issuance of common stock under equity plans 43,073 56,154 tax withholdings paid on behalf of employees for net share settlement (25,542 ) (10,622 ) repurchases of common stock (667,470 ) (235,512 ) net cash used in financing activities (649,939 ) (189,980 ) effect of exchange rate changes (6,090 ) (1,513 ) net increase (decrease) in cash, cash equivalents and restricted cash 95,463 (262,236 ) cash, cash equivalents and restricted cash —beginning of period 625,050 897,454 cash, cash equivalents and restricted cash —end of period $ 720,513 $ 635,218
