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Arista Networks, Inc. (ANET) SEC Filing 8-K Material Event for the period ending Tuesday, May 5, 2020

Arista Networks, Inc.

CIK: 1596532 Ticker: ANET
Exhibit 99.1
Arista Networks, Inc. Reports First Quarter 2020 Financial Results
SANTA CLARA, Calif.- May 5, 2020 -- 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 first quarter ended March 31, 2020.
First Quarter Financial Highlights
Revenue of $523.0 million, a decrease of 5.3% compared to the fourth quarter of 2019, and a decrease of 12.2% from the first quarter of 2019.
GAAP gross margin of 64.7%, compared to GAAP gross margin of 64.5% in the fourth quarter of 2019 and 63.9% in the first quarter of 2019.
Non-GAAP gross margin of 65.6%, compared to non-GAAP gross margin of 65.2% in the fourth quarter of 2019 and 64.5% in the first quarter of 2019.
GAAP net income of $138.4 million, or $1.73 per diluted share, compared to GAAP net income of $201.0 million, or $2.47 per diluted share in the first quarter of 2019.
Non-GAAP net income of $161.7 million, or $2.02 per diluted share, compared to non-GAAP net income of $187.7 million, or $2.31 per diluted share in the first quarter of 2019.
"Arista delivered solid Q1 2020 financial results despite the global pandemic that we all are experiencing. We are committed to our employees' safety while bringing value to our customers, shareholders and community in these unpredictable times and believe we will emerge stronger in the long term,” stated Jayshree Ullal, Arista’s President and CEO.
Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, “We are pleased with our business execution in the quarter, with the majority of our team effectively working from home, yet continuing to engage productively with our customers, supply chain and other partners.”
First Quarter Company Highlights
Arista Networks announced that it has acquired Big Switch Networks, a network monitoring and SDN (Software Defined Networking) pioneer. The acquisition of Big Switch further strengthens the company’s network monitoring and observability suite delivered through Arista’s software platform CloudVision and DANZ (Data ANalyZer) capabilities.
Arista Networks Announced an Optical Line System for 400G - The Arista OSFP-LS is a highly compact, low power and cost-effective solution for increasing bandwidth between data centers without the need for external optical line systems. This pluggable OSFP form factor simplifies DWDM network deployment and reduces valuable rack space, appealing in particular to Tier2 Cloud and Internet Service Providers.
Ciena and Arista Complete Interoperability Testing of 400GbE-Optimized Transport Solution - Ciena and Arista completed an interoperability test of the industry’s most dense and spectrally-efficient 400GbE transport solution with the industry’s highest density native 400GbE router.
COVID-19 Response - A Letter from Our CEO - Arista plays a critical role in supporting the cloud communications and computing infrastructure that will keep the world running during these difficult times. The rapid acceleration of Covid-19 developments across the world has brought a new perspective to Arista's business, customers and community goals.

1


Financial Outlook
For the second quarter of 2020, we expect:
Revenue between $520 million to $540 million;
Non-GAAP gross margin of 63% to 65% and
Non-GAAP operating margin of approximately 35%
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 first quarter 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 9769576.
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 second quarter of fiscal year 2020, and statements regarding the introduction of new products and the expected benefits from the acquisition of Big Switch. 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, 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 pandemics like the COVID-19 pandemic; 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 Annual Report on Form 10-K filed with the SEC on February 14, 2020, 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.



2


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, 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.

Investor Contacts
Curtis McKee
Corporate and Investor Development
(408) 547-5701
curtism@arista.com
 
Charles Yager
Product and Investor Advocacy
(408) 547-5892
cyager@arista.com

3


ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Operations
(Unaudited in thousands, except per share amounts)

 
Three Months Ended March 31,

 
2020
 
2019
Revenue:
 

 

Product
 
$
410,906

 
$
505,415

Service
 
112,123

 
90,009

Total revenue
 
523,029

 
595,424

Cost of revenue: 
 

 

Product
 
163,629

 
198,152

Service
 
21,149

 
16,702

Total cost of revenue
 
184,778

 
214,854

Gross profit
 
338,251

 
380,570

Operating expenses:
 

 

Research and development
 
113,154

 
119,669

Sales and marketing
 
57,086

 
51,053

General and administrative
 
18,349

 
15,506

Total operating expenses
 
188,589

 
186,228

Income from operations
 
149,662

 
194,342

Other income, net
 
12,157

 
12,333

Income before income taxes
 
161,819

 
206,675

Provision for income taxes
 
23,388

 
5,646

Net income
 
$
138,431

 
$
201,029

Net income attributable to common stockholders:
 

 

Basic
 
$
138,431

 
$
200,911

Diluted
 
$
138,431

 
$
200,918

Net income per share attributable to common stockholders:
 

 

Basic
 
$
1.82

 
$
2.65

Diluted
 
$
1.73

 
$
2.47

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

 

Basic
 
76,264

 
75,920

Diluted
 
79,939

 
81,201



4


ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to Non-GAAP Financial Measures
(Unaudited, in thousands, except percentages and per share amounts)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
GAAP gross profit
 
$
338,251

 
$
380,570

GAAP gross margin
 
64.7
%
 
63.9
%
Stock-based compensation expense
 
1,327

 
1,098

Intangible asset amortization
 
3,660

 
2,625

Non-GAAP gross profit
 
$
343,238

 
$
384,293

Non-GAAP gross margin
 
65.6
%
 
64.5
%
 
 
 
 
 
GAAP income from operations
 
$
149,662

 
$
194,342

Stock-based compensation expense
 
27,556

 
24,291

Litigation expense
 

 
1,448

Intangible asset amortization
 
4,902

 
3,499

Acquisition-related costs (1)
 
11,860

 

Non-GAAP income from operations
 
$
193,980

 
$
223,580

Non-GAAP operating margin
 
37.1
%
 
37.5
%
 
 
 
 
 
GAAP net income
 
$
138,431

 
$
201,029

Stock-based compensation expense
 
27,556

 
24,291

Litigation expense
 

 
1,448

Intangible asset amortization
 
4,902

 
3,499

Acquisition-related costs
 
11,860

 

Gain on investment in privately-held companies
 

 
(1,150
)
Tax benefit on stock-based awards
 
(14,502
)
 
(37,054
)
Income tax effect on non-GAAP exclusions
 
(6,555
)
 
(4,333
)
Non-GAAP net income
 
$
161,692

 
$
187,730

 
 
 
 
 
GAAP diluted net income per share attributable to common stockholders
 
$
1.73

 
$
2.47

Non-GAAP adjustments to net income
 
0.29

 
(0.16
)
Non-GAAP diluted net income per share
 
$
2.02

 
$
2.31

 
 
 
 
 
Weighted-average shares used in computing diluted net income per share attributable to common stockholders
 
79,939

 
81,201

 
 
 
 
 
Summary of Stock-Based Compensation Expense:
 
 
 
 
Cost of revenue
 
$
1,327

 
$
1,098

Research and development
 
15,928

 
13,131

Sales and marketing
 
6,396

 
6,534

General and administrative
 
3,905

 
3,528

Total
 
$
27,556

 
$
24,291

(1) Represents non-recurring costs associated with our acquisition of Big Switch, and primarily include severance, retention bonuses, professional and consulting fees, and facilities restructuring costs.



5


ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)

 
March 31, 2020
 
December 31, 2019
ASSETS
 

 

CURRENT ASSETS:
 

 

Cash and cash equivalents
 
$
761,333

 
$
1,111,286

Marketable securities
 
1,875,660

 
1,613,082

Accounts receivable, net
 
352,159

 
391,987

Inventories
 
261,798

 
243,825

Prepaid expenses and other current assets
 
85,949

 
111,456

Total current assets
 
3,336,899

 
3,471,636

Property and equipment, net
 
37,806

 
39,273

Acquisition-related intangible assets, net
 
89,373

 
45,235

Goodwill
 
84,781

 
54,855

Investments
 
4,150

 
4,150

Operating lease right-of-use assets
 
83,377

 
87,770

Deferred tax assets
 
448,432

 
452,025

Other assets
 
27,027

 
30,346

TOTAL ASSETS
 
$
4,111,845

 
$
4,185,290

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 


CURRENT LIABILITIES:
 

 


Accounts payable
 
$
84,815

 
$
92,105

Accrued liabilities
 
100,443

 
140,249

Deferred revenue
 
332,175

 
312,668

Other current liabilities
 
55,574

 
52,052

Total current liabilities
 
573,007

 
597,074

Income taxes payable
 
58,507

 
55,485

Operating lease liabilities, non-current
 
78,502

 
83,022

Deferred revenue, non-current
 
264,600

 
262,620

Deferred tax liabilities, non-current
 
250,304

 
254,710

Other long-term liabilities
 
38,099

 
37,693

TOTAL LIABILITIES
 
1,263,019

 
1,290,604

STOCKHOLDERS’ EQUITY:
 

 


Common stock
 
8

 
8

Additional paid-in capital
 
1,149,224

 
1,106,305

Retained earnings
 
1,698,766

 
1,788,230

Accumulated other comprehensive income
 
828

 
143

TOTAL STOCKHOLDERS’ EQUITY
 
2,848,826

 
2,894,686

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
4,111,845

 
$
4,185,290



6


ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

 
Three Months Ended March 31,

 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 

Net income
 
$
138,431

 
$
201,029

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

 

Depreciation, amortization and other
 
10,208

 
8,362

Stock-based compensation
 
27,556

 
24,291

Noncash lease expense
 
4,073

 
3,689

Deferred income taxes
 
457

 
(718
)
(Gain) on investments in privately-held companies
 

 
(1,150
)
Amortization (accretion) of investment premiums (discounts)
 
1,042

 
(2,069
)
Changes in operating assets and liabilities:
 

 

Accounts receivable, net
 
46,329

 
60,531

Inventories
 
(17,691
)
 
(82,596
)
Prepaid expenses and other current assets
 
25,751

 
30,664

Other assets
 
3,946

 
(2,475
)
Accounts payable
 
(6,386
)
 
(2,391
)
Accrued liabilities
 
(39,450
)
 
(19,014
)
Deferred revenue
 
21

 
(50,756
)
Income taxes payable
 
3,982

 
2,040

Other liabilities
 
(3,422
)
 
660

Net cash provided by operating activities
 
194,847

 
170,097

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 

Proceeds from maturities of marketable securities
 
414,503

 
302,264

Purchases of marketable securities
 
(674,649
)
 
(332,247
)
Business acquisitions, net of cash acquired
 
(66,225
)
 

Purchases of property and equipment
 
(3,107
)
 
(5,237
)
Net cash used in investing activities
 
(329,478
)
 
(35,220
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 

Proceeds from issuance of common stock under equity plans
 
17,082

 
26,323

Tax withholding paid on behalf of employees for net share settlement
 
(1,740
)
 
(1,850
)
Repurchase of common stock
 
(227,895
)
 

Net cash provided by (used in) financing activities
 
(212,553
)
 
24,473

Effect of exchange rate changes
 
(2,691
)
 
195

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
(349,875
)
 
159,545

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period
 
1,115,515

 
654,164

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period
 
$
765,640

 
$
813,709


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Ticker: ANET
CIK: 1596532
Form Type: 8-K Corporate News
Accession Number: 0001628280-20-006442
Submitted to the SEC: Tue May 05 2020 4:26:18 PM EST
Accepted by the SEC: Tue May 05 2020
Period: Tuesday, May 5, 2020
Industry: Computer Communications Equipment
Events:
  1. Earnings Release
  2. Financial Exhibit

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