Arista networks, inc. reports third quarter 2021 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, 2021. third quarter financial highlights revenue of $748.7 million, an increase of 5.8% compared to the second quarter of 2021, and an increase of 23.7% from the third quarter of 2020. gaap gross margin of 63.9%, compared to gaap gross margin of 64.2% in the second quarter of 2021 and 63.6% in the third quarter of 2020. non-gaap gross margin of 64.9%, compared to non-gaap gross margin of 65.2% in the second quarter of 2021 and 64.6% in the third quarter of 2020. gaap net income of $224.3 million, or $2.81 per diluted share, compared to gaap net income of $168.4 million, or $2.12 per diluted share in the third quarter of 2020. non-gaap net income of $236.9 million, or $2.96 per diluted share, compared to non-gaap net income of $192.0 million, or $2.42 per diluted share in the third quarter of 2020. "we are experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors. despite a challenging supply chain environment, i am pleased with our delivery of another record quarter of arista's financial results in q3 2021," stated jayshree ullal, arista’s president and ceo. commenting on the company’s financial results, ita brennan, arista’s cfo said, “the business continued to perform well in the quarter, exceeding on all key financial metrics, while the team navigates a difficult supply environment.” third quarter company highlights arista extends cloud-grade routing to the network edge - arista announced the expansion of its cloud-grade routing solutions for next generation network edge roles in the multi cloud era. arista’s eos® (extensible operating system) enhancements for cloud and service provider customers transform edge and backbone routing, migrating from legacy routers to software-driven, highly available and scale-out architectures for faster time to revenue and lower operating expenses. arista selected to build australian securities exchange next generation campus network - arista to build next generation national campus network for australian securities exchange (asx), providing ultra high-performance networking for corporate sites in sydney, melbourne and perth. arista expands its cognitive campus with the latest generation wi-fi 6e solution - arista announced today the expansion of its cognitive campus edge portfolio with a new wi-fi 6e access point. as a result, customers can take advantage of the greater capacity, higher bandwidth and lower latency of wi-fi 6e to support high definition video collaboration applications and iot proliferation. share repurchase program in october 2021, arista’s board of directors increased the prior authorization to repurchase shares by authorizing an additional $1 billion. the actual timing and amount of repurchases will be dependent on market and business conditions, business requirements, stock price, acquisition opportunities and other factors. stock split authorization arista’s board of directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. each arista shareholder of record at the close of business on november 11, 2021 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on or about november 18, 2021. financial outlook for the fourth quarter of 2021, we expect: revenue between $775 million to $795 million; non-gaap gross margin of 63% to 65%; and non-gaap operating margin of approximately 37% 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 executives will discuss the third quarter financial results on a conference call at 1:15 p.m. pacific time today. to listen to the call via telephone, dial (833) 968-2211 in the united states or +1 (778) 560-2896 from international locations. the conference id is 1552223. 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. following the financial results conference call, arista networks will host its analyst day 2021 on monday, november 1st, 2021 beginning at 3:00 p.m. pt (6:00 p.m. et). interested participants will be able to join the virtual event through the investor relations section of the arista website at https://investors.arista.com/events/events/event-details/2021/analyst-day-placeholder/default.aspx. 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 2021 and statements regarding the benefits of new products and product enhancements, our plans to repurchase our stock, 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 impact of the covid-19 pandemic on our business; insufficient component supply and inventory and increased costs of components; manufacturing capacity impacted by covid-19 and increased lead times; interruptions or delays in shipments; excess inventory; deferral, reduction or cancellation of orders from end customers; 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; unpredictability of our results of operations; adverse economic conditions or reduced information technology and network infrastructure spending; intense competition; expansion of our international sales and operations; investment or acquisition in other businesses; seasonality; our ability to attract new large end customers or sell products and services to existing end customers; our ability to increase market awareness of our company and new products and services; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches our intellectual property rights; and tax, tariff, import/export restrictions; 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 cloudvision® and arista eos®, an advanced network operating system. for more information, visit www.arista.com. arista, cloudvision, cloudeos and mss 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 operations (unaudited, in thousands, except per share amounts) three months ended september 30, nine months ended september 30, 2021 2020 2021 2020 revenue: product $ 604,160 $ 480,242 $ 1,709,772 $ 1,312,561 service 144,537 125,189 413,806 356,469 total revenue 748,697 605,431 2,123,578 1,669,030 cost of revenue: product 243,342 199,465 687,554 539,526 service 26,740 21,004 77,959 62,202 total cost of revenue 270,082 220,469 765,513 601,728 gross profit 478,615 384,962 1,358,065 1,067,302 operating expenses: research and development 153,093 128,049 428,873 352,747 sales and marketing 69,740 53,372 211,385 161,695 general and administrative 22,488 15,146 58,856 47,814 total operating expenses 245,321 196,567 699,114 562,256 income from operations 233,294 188,395 658,951 505,046 other income, net 1,346 13,224 4,640 33,637 income before income taxes 234,640 201,619 663,591 538,683 provision for income taxes 10,335 33,244 62,032 87,084 net income $ 224,305 $ 168,375 $ 601,559 $ 451,599 net income per share: basic $ 2.92 $ 2.22 $ 7.86 $ 5.94 diluted $ 2.81 $ 2.12 $ 7.54 $ 5.68 weighted-average shares used in computing net income per share: basic 76,864 75,999 76,544 76,024 diluted 79,909 79,313 79,744 79,519 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, 2021 2020 2021 2020 gaap gross profit $ 478,615 $ 384,962 $ 1,358,065 $ 1,067,302 gaap gross margin 63.9 % 63.6 % 64.0 % 63.9 % stock-based compensation expense 2,002 1,806 5,198 4,718 intangible asset amortization 5,464 4,178 16,393 12,016 non-gaap gross profit $ 486,081 $ 390,946 $ 1,379,656 $ 1,084,036 non-gaap gross margin 64.9 % 64.6 % 65.0 % 65.0 % gaap income from operations $ 233,294 $ 188,395 $ 658,951 $ 505,046 stock-based compensation expense 53,135 36,469 135,632 96,947 intangible asset amortization 7,281 5,811 22,076 16,524 acquisition-related costs (1) — 858 — 12,718 non-gaap income from operations $ 293,710 $ 231,533 $ 816,659 $ 631,235 non-gaap operating margin 39.2 % 38.2 % 38.5 % 37.8 % gaap net income $ 224,305 $ 168,375 $ 601,559 $ 451,599 stock-based compensation expense 53,135 36,469 135,632 96,947 intangible asset amortization 7,281 5,811 22,076 16,524 acquisition-related costs (1) — 858 — 12,718 tax benefit on stock-based awards (39,665 ) (14,894 ) (84,684 ) (41,078 ) income tax effect on non-gaap exclusions (8,137 ) (4,624 ) (21,999 ) (15,975 ) non-gaap net income $ 236,919 $ 191,995 $ 652,584 $ 520,735 gaap diluted net income per share $ 2.81 $ 2.12 $ 7.54 $ 5.68 non-gaap adjustments to net income 0.15 0.30 0.64 0.87 non-gaap diluted net income per share $ 2.96 $ 2.42 $ 8.18 $ 6.55 weighted-average shares used in computing diluted net income per share 79,909 79,313 79,744 79,519 summary of stock-based compensation expense: cost of revenue $ 2,002 $ 1,806 $ 5,198 $ 4,718 research and development 27,552 21,423 72,673 56,729 sales and marketing 12,680 9,083 34,133 23,756 general and administrative 10,901 4,157 23,628 11,744 total $ 53,135 $ 36,469 $ 135,632 $ 96,947 (1) represents non-recurring costs associated with our acquisition of big switch, and primarily includes severance, retention bonuses, professional and consulting fees, and facilities restructuring costs. arista networks, inc. condensed consolidated balance sheets (unaudited, in thousands) september 30, 2021 december 31, 2020 assets current assets: cash and cash equivalents $ 630,982 $ 893,219 marketable securities 2,755,499 1,979,649 accounts receivable 395,590 389,540 inventories 575,665 479,668 prepaid expenses and other current assets 166,222 94,922 total current assets 4,523,958 3,836,998 property and equipment, net 75,373 32,231 acquisition-related intangible assets, net 100,713 122,790 goodwill 188,397 189,696 investments 18,247 8,314 operating lease right-of-use assets 69,374 77,288 deferred tax assets 428,764 441,531 other assets 32,524 30,071 total assets $ 5,437,350 $ 4,738,919 liabilities and stockholders’ equity current liabilities: accounts payable $ 135,252 $ 134,235 accrued liabilities 174,425 143,357 deferred revenue 511,354 396,259 other current liabilities 72,356 94,392 total current liabilities 893,387 768,243 income taxes payable 62,563 53,053 operating lease liabilities, non-current 61,628 72,397 deferred revenue, non-current 289,086 254,568 deferred tax liabilities, non-current 214,261 227,936 other long-term liabilities 51,165 42,431 total liabilities 1,572,090 1,418,628 stockholders’ equity: common stock 8 8 additional paid-in capital 1,473,595 1,292,431 retained earnings 2,393,661 2,027,614 accumulated other comprehensive income (loss) (2,004 ) 238 total stockholders’ equity 3,865,260 3,320,291 total liabilities and stockholders’ equity $ 5,437,350 $ 4,738,919 arista networks, inc. condensed consolidated statements of cash flows (unaudited, in thousands) nine months ended september 30, 2021 2020 cash flows from operating activities: net income $ 601,559 $ 451,599 adjustments to reconcile net income to net cash provided by operating activities: depreciation, amortization and other 37,864 31,975 stock-based compensation 135,632 96,947 noncash lease expense 12,738 12,606 deferred income taxes (573 ) 3,261 gain on sale of marketable securities — (9,432 ) amortization of investment premiums 19,193 6,030 changes in operating assets and liabilities: accounts receivable, net (6,050 ) 98,271 inventories (95,997 ) (193,996 ) prepaid expenses and other current assets (71,300 ) 38,654 other assets (2,915 ) 7,850 accounts payable (1,075 ) 71,803 accrued liabilities 31,316 (29,811 ) deferred revenue 149,613 (34,449 ) income taxes payable (3,565 ) (1,667 ) other liabilities (15,820 ) (1,451 ) net cash provided by operating activities 790,620 548,190 cash flows from investing activities: proceeds from maturities of marketable securities 1,158,723 1,183,601 purchases of marketable securities (1,974,853 ) (2,216,436 ) purchases of property and equipment (55,455 ) (7,701 ) business acquisitions, net of cash acquired — (66,317 ) escrow receipts from past business acquisitions 1,299 — sale (purchase) of investments in privately-held companies and intangible assets (10,684 ) 3,399 proceeds from sale of marketable securities 19,607 772,978 net cash used in investing activities (861,363 ) (330,476 ) cash flows from financing activities: proceeds from issuance of common stock under equity plans 56,154 42,704 tax withholding paid on behalf of employees for net share settlement (10,622 ) (5,932 ) repurchase of common stock (235,512 ) (395,173 ) net cash used in financing activities (189,980 ) (358,401 ) effect of exchange rate changes (1,513 ) (246 ) net decrease in cash, cash equivalents and restricted cash (262,236 ) (140,933 ) cash, cash equivalents and restricted cash —beginning of period 897,454 1,115,515 cash, cash equivalents and restricted cash —end of period $ 635,218 $ 974,582
