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News   Press Releases

Arista Networks, Inc. Reports Fourth Quarter and Full Year 2015 Financial Results

ANET | February 18, 2016

Cloud Networking Adoption Drives Record 2015 Revenue and EPS

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 fourth quarter and year ended December 31, 2015.

Fourth Quarter Financial Highlights

  • Revenue of $245.4 million, an increase of 41.5% compared to the fourth quarter of 2014, and an increase of 12.8% from the third quarter of 2015.
  • Non-GAAP gross margin of 64.0%, compared to non-GAAP gross margin of 67.4% in the fourth quarter of 2014 and 65.5% in the third quarter of 2015.
  • GAAP gross margin of 63.6%, compared to GAAP gross margin of 67.1% in the fourth quarter of 2014 and 65.2% in the third quarter of 2015.
  • Non-GAAP net income of $57.5 million, or $0.80 per diluted share, compared to non-GAAP net income of $37.3 million, or $0.53 per diluted share, in the fourth quarter of 2014.
  • GAAP net income of $43.9 million, or $0.60 per diluted share, compared to GAAP net income of $31.0 million, or $0.43 per diluted share, in the fourth quarter of 2014.

"Arista has delivered a spectacular 2015. I have been pleased with the rapid acceptance by our customers of Arista’s programmable cloud networking,” stated Jayshree Ullal, Arista President and CEO. “The inevitable shift from legacy enterprises to cloud workloads has fueled Arista’s strong performance of profitable revenue growth and increasing market share.”

Full Year Financial Highlights

  • Revenue of $837.6 million, an increase of 43.4% compared to fiscal year 2014.
  • Non-GAAP gross margin of 65.3%, compared to non-GAAP gross margin of 67.4% in fiscal year 2014.
  • GAAP gross margin of 64.9%, compared to GAAP gross margin of 67.1% in fiscal year 2014.
  • Non-GAAP net income of $174.2 million or $2.44 per diluted share, compared to non-GAAP net income of $105.5 million, or $1.54 per diluted share, in fiscal year 2014.
  • GAAP net income of $121.1 million, or $1.67 per diluted share, compared to GAAP net income of $86.9 million, or $1.29 per diluted share, in fiscal year 2014.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, "We are pleased with another quarter of double digit quarter over quarter revenue growth, record EPS and enhanced free cash-flow generation.”

Fourth Quarter Company Highlights

  • Introduced Cloud Connect solutions that extend its spine networking platforms to provide optimized interconnect solutions for private and public cloud data centers, leveraging the technology and operational advantages of Arista’s EOS and CloudVision® to reduce both capital and operational costs.
  • In January 2016, the next phase of Arista EOS (Extensible Operating System) was unveiled enabling customers to focus on real-time migration from legacy enterprise silos to private, public and hybrid cloud networking, based on three powerful building blocks: Infrastructure, Hybrid Cloud and Container Support.

Financial Outlook

For the first quarter of 2016, we expect:

  • Revenue between $232 and $240 million.
  • Non-GAAP gross margin between 62% to 65%, and
  • Non-GAAP operating margin of approximately 26%.

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 fourth quarter and fiscal year 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 21363750.

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 first quarter of FY 2016, statements regarding the inevitable shift from legacy enterprises to cloud workloads and statements regarding the anticipated benefits from the next phase of Arista EOS. 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 risks associated with: Arista Networks’ limited operating history; risks associated with Arista Networks’ rapid growth; Arista Networks’ customer concentration; Arista Networks’ dispute with Cisco Systems, Inc. including Arista Networks’ ability to obtain a determination that alternative product implementations are not covered by remedial orders; Arista Networks’ dispute with OptumSoft, Inc.; 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 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 November 6, 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 pioneer and deliver software-driven cloud networking solutions for large data center storage and computing environments. Arista’s award-winning platforms, ranging in Ethernet speeds from 10 to 100 gigabits per second, redefine scalability, agility and resilience. Arista has shipped more than five million cloud networking ports worldwide with CloudVision and EOS, an advanced network operating system. Committed to open standards, Arista is a founding member of the 25/50GbE consortium. Arista Networks products are available worldwide directly and through partners.

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 December 31, Year Ended December 31,
2015   2014 2015   2014
Revenue:
Product $ 217,325 $ 157,205 $ 744,877 $ 531,543
Service 28,121   16,284   92,714   52,563  
Total revenue 245,446   173,489   837,591   584,106  
Cost of revenue:
Product 81,142 51,312 263,585 174,004
Service 8,136   5,737   30,446   18,011  
Total cost of revenue 89,278   57,049   294,031   192,015  
Gross profit 156,168 116,440 543,560 392,091
Operating expenses:
Research and development 57,413 44,344 209,448 148,909
Sales and marketing 31,308 25,016 109,084 85,338
General and administrative 18,050   8,078   75,720   32,331  
Total operating expenses 106,771   77,438   394,252   266,578  
Income from operations 49,397 39,002 149,308 125,513
Other income (expense), net:
Interest expense—related party — — — (782 )
Interest expense (746 ) (768 ) (3,152 ) (5,498 )
Other income (expense), net (109 ) (151 ) (147 ) 2,275  
Total other income (expense), net (855 ) (919 ) (3,299 ) (4,005 )
Income before provision for income taxes 48,542 38,083 146,009 121,508
Provision for income taxes 4,618   7,046   24,907   34,658  
Net income $ 43,924   $ 31,037   $ 121,102   $ 86,850  
Net income attributable to common stockholders:
Basic $ 43,431   $ 30,251   $ 119,115   $ 68,889  
Diluted $ 43,464   $ 30,328   $ 119,264   $ 70,524  
Net income per share attributable to common stockholders:
Basic $ 0.65   $ 0.48   $ 1.81   $ 1.42  
Diluted $ 0.60   $ 0.43   $ 1.67   $ 1.29  
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic 67,111   63,186   65,964   48,427  
Diluted 72,062   70,219   71,411   54,590  

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, Year Ended December 31,
2015   2014 2015   2014
GAAP gross profit $ 156,168 $ 116,440 $ 543,560 $ 392,091
GAAP gross margin 63.6 % 67.1 % 64.9 % 67.1 %
Stock-based compensation expense 842   543   3,048   1,535  
Non-GAAP gross profit $ 157,010   $ 116,983   $ 546,608   $ 393,626  
Non-GAAP gross margin 64.0 % 67.4 % 65.3 % 67.4 %
 
GAAP income from operations $ 49,397 $ 39,002 $ 149,308 $ 125,513
Stock-based compensation expense 12,978 8,050 45,303 27,619
Litigation expense 8,956   —   41,424   —  
Non-GAAP income from operations $ 71,331   $ 47,052   $ 236,035   $ 153,132  
Non-GAAP operating margin 29.1 % 27.1 % 28.2 % 26.2 %
 
GAAP net income $ 43,924 $ 31,037 $ 121,102 $ 86,850
Stock-based compensation expense 12,978 8,050 45,303 27,619
Litigation expense 8,956 — 41,424 —
Release of income tax reserve (968 ) — (7,344 ) (4,931 )
Realized gain on note receivable — — — (4,000 )
Income tax effect on non-GAAP exclusions (7,424 ) (1,750 ) (26,292 ) —  
Non-GAAP net income $ 57,466   $ 37,337   $ 174,193   $ 105,538  
 
Weighted average shares used in computing GAAP diluted income per share attributable to common stockholders 72,062 70,219 71,411 54,590
Additional weighted average dilutive shares1 —   —   —   13,797  
Non-GAAP weighted average diluted shares 72,062   70,219   71,411   68,387  
 
GAAP diluted net income per share attributable to common stockholders $ 0.60 $ 0.43 $ 1.67 $ 1.29
Net income attributable to participating securities 0.01 0.01 0.03 0.30
Non-GAAP adjustments to net income 0.19 0.09 0.74 0.34
Non-GAAP adjustments to diluted shares —   —   —   (0.39 )
Non-GAAP diluted net income per share $ 0.80   $ 0.53   $ 2.44   $ 1.54  
Summary of Stock-Based Compensation Expense
Cost of revenue $ 842 $ 543 $ 3,048 $ 1,535
Research and development 7,171 4,688 25,515 14,986
Sales and marketing 3,316 1,897 11,454 7,643
General and administrative 1,649   922   5,286   3,455  
Total $ 12,978   $ 8,050   $ 45,303   $ 27,619  

______________________

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 each quarter.

ARISTA NETWORKS, INC.

Consolidated Balance Sheets

(Unaudited in thousands)

 
December 31,
2015   2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 687,326 $ 240,031
Marketable securities — 209,426
Accounts receivable 144,263 96,982
Inventories 92,129 78,006
Deferred tax assets — 12,252
Prepaid expenses and other current assets 50,610   42,782  
Total current assets 974,328 679,479
Property and equipment, net 79,706 71,558
Investments 36,636 36,636
Deferred tax assets 48,429 11,510
Other assets 20,791   11,840  
TOTAL ASSETS $ 1,159,890   $ 811,023  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 43,966 $ 32,428
Accrued liabilities 60,971 40,369
Deferred revenue 122,049 60,327
Other current liabilities 8,025   11,249  
Total current liabilities 235,011 144,373
Income taxes payable 14,060 17,323
Lease financing obligations, non-current 41,210 42,547
Deferred revenue, non-current 74,759 46,141
Other long-term liabilities 6,698   4,981  
TOTAL LIABILITIES 371,738   255,365  
Commitments and contingencies
STOCKHOLDERS’ EQUITY:
Preferred stock — —
Common stock 7 7
Additional paid-in capital 537,904 426,171
Retained earnings 250,915 129,814
Accumulated other comprehensive loss (674 ) (334 )
TOTAL STOCKHOLDERS’ EQUITY 788,152   555,658  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,159,890   $ 811,023  

ARISTA NETWORKS, INC.

Consolidated Statements of Cash Flows

(Unaudited in thousands)

 
Year Ended December 31,
2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 121,102 $ 86,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,671 10,021
Stock-based compensation 45,303 27,619
Deferred income taxes (24,409 ) (6,774 )
Amortization of investment premiums 1,471 348
Realized gain on notes receivable — (4,000 )
Amortization of debt discount — 527
Write-off of debt discount on notes payable — 680
Excess tax benefit on stock based-compensation (37,251 ) (17,436 )
Changes in operating assets and liabilities:
Accounts receivable (47,281 ) (18,984 )
Inventories (14,123 ) (13,425 )
Prepaid expenses and other current assets (7,827 ) (15,257 )
Other assets (3,087 ) (4,261 )
Accounts payable 9,037 14,007
Accrued liabilities 20,398 18,874
Deferred revenue 90,340 47,564
Interest payable — (1,630 )
Interest payable—related party — 670
Income taxes payable 32,018 4,377
Other liabilities 1,171   2,105  
Net cash provided by operating activities 200,533   131,875  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities — (210,019 )
Proceeds from marketable securities 208,200 —
Purchases of property and equipment (19,238 ) (13,134 )
Proceeds from repayment of notes receivable — 8,000
Change in restricted cash (4,041 ) 4,040
Purchases of intangible assets (751 ) —
Other investing activities

—

  (38,249 )
Net cash provided by (used) in investing activities 184,170   (249,362 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of issuance cost — 239,315
Repayment on notes payable — (20,000 )
Principal payments of lease financing obligations (1,086 ) (793 )
Payments made for deferred offering costs (261 )

—

Excess tax benefit on stock-based compensation 37,251 17,436
Proceeds from issuance of common stock upon exercising options, net of repurchases 17,835 8,020
Proceeds from issuance of common stock, employee stock purchase plan 9,366   —  
Net cash provided by financing activities 63,105   243,978  
Effect of exchange rate changes (513 ) (124 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 447,295 126,367
CASH AND CASH EQUIVALENTS—Beginning of year 240,031   113,664  
CASH AND CASH EQUIVALENTS—End of year $ 687,326   $ 240,031  

Arista Networks, Inc.
Media Contact
Amanda Jaramillo, 408-547-5798
Corporate Communications
amanda@arista.com
or
Investor Contact
Chuck Elliott, 408-547-5549
Product and Investor Advocacy
chuck@arista.com

Copyright Business Wire 2016
Business Wire
February 18, 2016 - 4:05 PM EST

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