Cloud Networking Adoption Drives Record Revenue and non-GAAP Net
Income
Arista Networks, Inc. (NYSE:ANET), an industry leader in software-driven
cloud networking solutions for large data center and computing
environments, today announced financial results for its second quarter
ended June 30, 2015.
Second Quarter Financial Highlights
-
Revenue of $195.6 million, an increase of 41.8% compared to the second
quarter of 2014, and an increase of 9.2% from the first quarter of
2015.
-
Non-GAAP gross margin of 65.8%, compared to non-GAAP gross margin of
67.9% in the second quarter of 2014 and 66.1% in the first quarter of
2015.
-
GAAP gross margin of 65.4%, compared to GAAP gross margin of 67.7% in
the second quarter of 2014 and 65.8% in the first quarter of 2015.
-
Non-GAAP net income of $38.8 million, or $0.54 per diluted share,
compared to non-GAAP net income of $23.7 million, or $0.35 per diluted
share, in the second quarter of 2014.
-
GAAP net income of $24.0 million, or $0.33 per diluted share, compared
to GAAP net income of $21.6 million, or $0.34 per diluted share, in
the second quarter of 2014.
-
Operating cash flow of $52.6 million, compared to $46.3 million of
operating cash flow in the second quarter of 2014.
"Arista has now shipped a cumulative five million cloud networking ports
worldwide,” stated Jayshree Ullal, Arista President and CEO. “I am
pleased with this important milestone for the company combined with our
continued Q2 2015 customer momentum and solid profitable growth."
Commenting on the company's financial results, Ita Brennan, Arista’s
CFO, said, "We continued to execute well in Q2 2015, achieving record
revenue with strong growth from our cloud and service provider
customers, while increasing non-GAAP diluted earnings per share by more
than 50% year-over-year.”
Company Highlights
-
Announced CloudVision®, a network-wide approach for
workload orchestration and workflow automation, delivering a turnkey
solution for cloud networking. This enables enterprises to more easily
realize the benefits of cloud-class automation.
-
Partnership with HP for a converged cloud networking solution;
delivering a path to cloud economics and agility, via the integration
of the Arista Extensible Operating System (EOS®) based 7000
series with HP OneView.
-
CloudVision was endorsed by many leading partners including VMware,
Microsoft, Dell, F5, HP, Infinera, Nuage, Palo Alto Networks,
Rackspace and Supermicro, Inc.
Financial Outlook
For the third quarter of 2015, we expect:
-
Revenue between $208 and $212 million.
-
Non-GAAP gross margin in the range of 63% to 65%, and
-
Non-GAAP operating margin of approximately 25%.
Guidance for non-GAAP financial measures excludes legal expenses
associated with the OptumSoft and Cisco litigation, stock-based
compensation and other non-recurring expenses. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis.
Prepared Materials and Conference Call Information
Arista executives will discuss second quarter 2015 financial results on
a conference call at 1:30 p.m. Pacific time today. To listen to the call
via telephone, dial 1-877-201-0168 in the United States or
1-647-788-4901 from outside the US. The Conference ID is 79004789.
The financial results conference call will also be available via live
webcast on our investor relations website at 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 FY 2015.
Forward-looking statements are subject to a number of uncertainties and
risks that could cause actual results to differ materially from those
anticipated in the forward-looking statements including: Arista
Networks’ limited operating history; risks associated with Arista
Networks’ rapid growth; Arista Networks’ customer concentration;
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 order patterns or customer mix; increased
competition in our products and service markets, including the data
center market; dependence on the introduction and market acceptance of
new product offerings and standards; rapid technological and market
change; the dispute with Cisco Systems, Inc. and OptumSoft, Inc.; the
evolution of the cloud networking market and the adoption by end
customers of Arista Networks’ cloud networking solutions; and general
market, political, economic and business conditions. Additional risks
and uncertainties that could affect Arista Networks can be found in
Arista’s Quarterly Report on Form 10-Q filed with the SEC on May 15,
2015, 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 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 expenses, expenses associated with the
OptumSoft and Cisco litigation, and other non-recurring charges. 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.
About Arista Networks
Arista Networks was founded to deliver software-driven cloud networking
solutions for large data center and computing environments. Arista’s
award-winning 10/40/100 GbE switches redefine scalability, robustness,
and price-performance. At the core of Arista’s platform is EOS, an
advanced network operating system. Arista Networks products are
available worldwide through distribution partners, systems integrators
and resellers.
ARISTA, EOS, CloudVision and Spline 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: http://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,
|
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
$
|
174,072
|
|
|
$
|
126,390
|
|
|
$
|
334,213
|
|
|
$
|
232,883
|
|
|
Service
|
|
|
21,480
|
|
|
11,557
|
|
|
40,384
|
|
|
22,271
|
|
|
Total Revenue
|
|
|
195,552
|
|
|
137,947
|
|
|
374,597
|
|
|
255,154
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
60,014
|
|
|
40,032
|
|
|
114,453
|
|
|
73,059
|
|
|
Service
|
|
|
7,648
|
|
|
4,535
|
|
|
14,500
|
|
|
7,401
|
|
|
Total cost of revenue
|
|
|
67,662
|
|
|
44,567
|
|
|
128,953
|
|
|
80,460
|
|
|
Total gross profit
|
|
|
127,890
|
|
|
93,380
|
|
|
245,644
|
|
|
174,694
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
49,947
|
|
|
34,888
|
|
|
93,287
|
|
|
68,334
|
|
|
Sales and marketing
|
|
|
26,681
|
|
|
20,711
|
|
|
51,268
|
|
|
39,366
|
|
|
General and administrative
|
|
|
18,403
|
|
|
7,126
|
|
|
32,475
|
|
|
14,357
|
|
|
Total operating expenses
|
|
|
95,031
|
|
|
62,725
|
|
|
177,030
|
|
|
122,057
|
|
|
Income from operations
|
|
|
32,859
|
|
|
30,655
|
|
|
68,614
|
|
|
52,637
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
Interest expense—related party
|
|
|
—
|
|
|
(350
|
)
|
|
—
|
|
|
(782
|
)
|
|
Interest expense
|
|
|
(832
|
)
|
|
(1,854
|
)
|
|
(1,653
|
)
|
|
(3,965
|
)
|
|
Other income (expense), net
|
|
|
417
|
|
|
3,241
|
|
|
(51
|
)
|
|
3,249
|
|
|
Total other income (expense), net
|
|
|
(415
|
)
|
|
1,037
|
|
|
(1,704
|
)
|
|
(1,498
|
)
|
|
Income before provision for income taxes
|
|
|
32,444
|
|
|
31,692
|
|
|
66,910
|
|
|
51,139
|
|
|
Provision for income taxes
|
|
|
8,448
|
|
|
10,074
|
|
|
18,422
|
|
|
17,192
|
|
|
Net income
|
|
|
$
|
23,996
|
|
|
$
|
21,618
|
|
|
$
|
48,488
|
|
|
$
|
33,947
|
|
|
Net income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
23,607
|
|
|
$
|
14,212
|
|
|
$
|
47,594
|
|
|
$
|
19,985
|
|
|
Diluted
|
|
|
$
|
23,638
|
|
|
$
|
14,851
|
|
|
$
|
47,667
|
|
|
$
|
21,121
|
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.73
|
|
|
$
|
0.59
|
|
|
Diluted
|
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.67
|
|
|
$
|
0.54
|
|
|
Weighted-average shares used in computing net income per share
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
65,524
|
|
|
38,491
|
|
|
65,018
|
|
|
33,834
|
|
|
Diluted
|
|
|
71,215
|
|
|
44,057
|
|
|
70,919
|
|
|
38,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
GAAP gross profit
|
|
|
$127,890
|
|
$
|
93,380
|
|
|
$
|
245,644
|
|
|
$
|
174,694
|
|
|
GAAP gross margin
|
|
|
65.4
|
%
|
|
67.7
|
%
|
|
65.6
|
%
|
|
68.5
|
%
|
|
Stock-based compensation expense
|
|
|
784
|
|
|
301
|
|
|
1,420
|
|
|
512
|
|
|
Non-GAAP gross profit
|
|
|
$
|
128,674
|
|
|
$
|
93,681
|
|
|
$
|
247,064
|
|
|
$
|
175,206
|
|
|
Non-GAAP gross margin
|
|
|
65.8
|
%
|
|
67.9
|
%
|
|
66.0
|
%
|
|
68.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP income from operations
|
|
|
$
|
32,859
|
|
|
$
|
30,655
|
|
|
$
|
68,614
|
|
|
$
|
52,637
|
|
|
Stock-based compensation expense
|
|
|
11,208
|
|
|
6,705
|
|
|
20,047
|
|
|
11,487
|
|
|
Litigation expense
|
|
|
9,909
|
|
|
—
|
|
|
16,579
|
|
|
—
|
|
|
Non-GAAP income from operations
|
|
|
$
|
53,976
|
|
|
$
|
37,360
|
|
|
$
|
105,240
|
|
|
$
|
64,124
|
|
|
Non-GAAP operating margin
|
|
|
27.6
|
%
|
|
27.1
|
%
|
|
28.1
|
%
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
|
$
|
23,996
|
|
|
$
|
21,618
|
|
|
$
|
48,488
|
|
|
$
|
33,947
|
|
|
Stock-based compensation expense
|
|
|
11,208
|
|
|
6,705
|
|
|
20,047
|
|
|
11,487
|
|
|
Litigation expense
|
|
|
9,909
|
|
|
—
|
|
|
16,579
|
|
|
—
|
|
|
Unrealized gain on note receivable
|
|
|
—
|
|
|
(4,000
|
)
|
|
—
|
|
|
(4,000
|
)
|
|
Income tax effect on non-GAAP exclusions
|
|
|
(6,335
|
)
|
|
(600
|
)
|
|
(10,804
|
)
|
|
(1,305
|
)
|
|
Non-GAAP net income
|
|
|
$
|
38,778
|
|
|
$
|
23,723
|
|
|
$
|
74,310
|
|
|
$
|
40,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing GAAP diluted income per
share attributable to common stockholders
|
|
|
71,215
|
|
|
44,057
|
|
|
70,919
|
|
|
38,962
|
|
|
Additional weighted average dilutive shares1
|
|
|
—
|
|
|
23,413
|
|
|
—
|
|
|
27,823
|
|
|
Non-GAAP weighted average diluted shares
|
|
|
71,215
|
|
|
67,470
|
|
|
70,919
|
|
|
66,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted net income per share attributable to common stockholders
|
|
|
$
|
0.33
|
|
|
$
|
0.34
|
|
|
$
|
0.67
|
|
|
$
|
0.54
|
|
|
Net income attributable to participating securities
|
|
|
—
|
|
|
0.15
|
|
|
0.01
|
|
|
0.33
|
|
|
Non-GAAP adjustments to net income
|
|
|
0.21
|
|
|
0.05
|
|
|
0.37
|
|
|
0.16
|
|
|
Non-GAAP adjustments to diluted shares
|
|
|
—
|
|
|
(0.19
|
)
|
|
—
|
|
|
(0.43
|
)
|
|
Non-GAAP diluted net income per share
|
|
|
$
|
0.54
|
|
|
$
|
0.35
|
|
|
$
|
1.05
|
|
|
$
|
0.60
|
|
|
Summary of Stock-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
$
|
784
|
|
|
$
|
301
|
|
|
$
|
1,420
|
|
|
$
|
512
|
|
|
Research and development
|
|
|
6,379
|
|
|
3,527
|
|
|
11,307
|
|
|
5,994
|
|
|
Sales and marketing
|
|
|
2,865
|
|
|
1,931
|
|
|
5,274
|
|
|
3,359
|
|
|
General and administrative
|
|
|
1,180
|
|
|
946
|
|
|
2,046
|
|
|
1,622
|
|
|
Total
|
|
|
$
|
11,208
|
|
|
$
|
6,705
|
|
|
$
|
20,047
|
|
|
$
|
11,487
|
|
______________________________
1Includes weighted average shares from the issuance of shares
upon our IPO and the assumed conversion of preferred stock and notes
payable at the beginning of the quarter.
|
|
|
|
|
|
|
|
|
ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2015
|
|
December 31,
2014
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
342,958
|
|
|
$
|
240,031
|
|
|
Marketable securities
|
|
|
208,805
|
|
|
209,426
|
|
|
Accounts receivable, net
|
|
|
122,342
|
|
|
96,982
|
|
|
Inventories
|
|
|
100,304
|
|
|
78,006
|
|
|
Deferred tax assets
|
|
|
12,268
|
|
|
12,252
|
|
|
Prepaid expenses and other current assets
|
|
|
63,535
|
|
|
42,782
|
|
|
Total current assets
|
|
|
850,212
|
|
|
679,479
|
|
|
Property and equipment, net
|
|
|
73,178
|
|
|
71,558
|
|
|
Investments
|
|
|
36,636
|
|
|
36,636
|
|
|
Deferred tax assets
|
|
|
13,760
|
|
|
11,510
|
|
|
Other assets
|
|
|
17,053
|
|
|
11,840
|
|
|
TOTAL ASSETS
|
|
|
$
|
990,839
|
|
|
$
|
811,023
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
43,831
|
|
|
$
|
32,428
|
|
|
Accrued liabilities
|
|
|
43,347
|
|
|
40,369
|
|
|
Deferred revenue
|
|
|
107,245
|
|
|
60,327
|
|
|
Other current liabilities
|
|
|
8,075
|
|
|
11,249
|
|
|
Total current liabilities
|
|
|
202,498
|
|
|
144,373
|
|
|
Income taxes payable
|
|
|
17,850
|
|
|
17,323
|
|
|
Lease financing obligations, non-current
|
|
|
41,912
|
|
|
42,547
|
|
|
Deferred revenue, non-current
|
|
|
57,198
|
|
|
46,141
|
|
|
Other long-term liabilities
|
|
|
5,839
|
|
|
4,981
|
|
|
TOTAL LIABILITIES
|
|
|
325,297
|
|
|
255,365
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
—
|
|
|
Common stock
|
|
|
7
|
|
|
7
|
|
|
Additional paid-in capital
|
|
|
487,376
|
|
|
426,171
|
|
|
Retained earnings
|
|
|
178,302
|
|
|
129,814
|
|
|
Accumulated other comprehensive loss
|
|
|
(143
|
)
|
|
(334
|
)
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
665,542
|
|
|
555,658
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
$
|
990,839
|
|
|
$
|
811,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
|
$
|
48,488
|
|
|
$
|
33,947
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,246
|
|
|
4,713
|
|
|
Stock-based compensation
|
|
|
20,047
|
|
|
11,487
|
|
|
Deferred income taxes
|
|
|
(2,266
|
)
|
|
703
|
|
|
Provision for bad debts
|
|
|
481
|
|
|
374
|
|
|
Excess tax benefit on stock based-compensation
|
|
|
(22,975
|
)
|
|
(459
|
)
|
|
Amortization of investment premiums
|
|
|
883
|
|
|
—
|
|
|
Unrealized gain on notes receivable
|
|
|
—
|
|
|
(4,000
|
)
|
|
Amortization of debt discount
|
|
|
—
|
|
|
527
|
|
|
Write-off of debt discount on notes payable
|
|
|
—
|
|
|
680
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,841
|
)
|
|
9,678
|
|
|
Inventories
|
|
|
(22,297
|
)
|
|
2,291
|
|
|
Prepaid expenses and other current assets
|
|
|
(20,747
|
)
|
|
(5,621
|
)
|
|
Other assets
|
|
|
(3,257
|
)
|
|
(596
|
)
|
|
Accounts payable
|
|
|
11,822
|
|
|
4,789
|
|
|
Accrued liabilities
|
|
|
3,082
|
|
|
626
|
|
|
Deferred revenue
|
|
|
57,975
|
|
|
2,779
|
|
|
Income taxes payable
|
|
|
21,846
|
|
|
372
|
|
|
Other liabilities
|
|
|
(114
|
)
|
|
2,616
|
|
|
Interest payable
|
|
|
—
|
|
|
(1,630
|
)
|
|
Interest payable—related party
|
|
|
—
|
|
|
670
|
|
|
Net cash provided by operating activities
|
|
|
73,373
|
|
|
63,946
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(8,768
|
)
|
|
(8,579
|
)
|
|
Change in restricted cash
|
|
|
—
|
|
|
4,040
|
|
|
Purchases of intangible assets
|
|
|
(705
|
)
|
|
—
|
|
|
Net cash used in investing activities
|
|
|
(9,473
|
)
|
|
(4,539
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Principal payments of lease financing obligations
|
|
|
(514
|
)
|
|
(335
|
)
|
|
Payments—deferred offering costs
|
|
|
(261
|
)
|
|
—
|
|
|
Proceeds from issuance of common stock upon exercising options, net
of repurchases
|
|
|
11,991
|
|
|
2,078
|
|
|
Proceeds from issuance of common stock under employee stock purchase
plan
|
|
|
4,856
|
|
|
—
|
|
|
Excess tax benefit on stock-based compensation
|
|
|
22,975
|
|
|
459
|
|
|
Proceeds from initial public offering, net of issuance cost
|
|
|
—
|
|
|
241,862
|
|
|
Repayment on notes payable
|
|
|
—
|
|
|
(20,000
|
)
|
|
Net cash provided by financing activities
|
|
|
39,047
|
|
|
224,064
|
|
|
Effect of exchange rate changes
|
|
|
(20
|
)
|
|
63
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
102,927
|
|
|
283,534
|
|
|
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
|
240,031
|
|
|
113,664
|
|
|
CASH AND CASH EQUIVALENTS—End of period
|
|
|
$
|
342,958
|
|
|
$
|
397,198
|
|
|
|
|
|
|
|
|
|
|
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20150806006400/en/
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