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Arista Networks, Inc. Reports Second Quarter 2024 Financial Results

Business Wire 30-Jul-2024 4:05 PM

Arista Networks, Inc. (NYSE:ANET), an industry leader in data-driven, client-to-cloud networking for large AI, data center, campus and routing environments, today announced financial results for its second quarter ended June 30, 2024.

Second Quarter Financial Highlights

"On the heels of our June celebration of 10 years as a public company, I would again like to thank our customers, employees and partners for contributing to our success as we arrived at this important milestone," said Jayshree Ullal, Chairperson and CEO of Arista Networks. "Our Q2 2024 financial results demonstrate Arista's powerful combination of growth, profitability and best of breed platforms."

  • Revenue of $1.690 billion, an increase of 7.6% compared to the first quarter of 2024, and an increase of 15.9% from the second quarter of 2023.
  • GAAP gross margin of 64.9%, compared to GAAP gross margin of 63.7% in the first quarter of 2024 and 60.6% in the second quarter of 2023.
  • Non-GAAP gross margin of 65.4%, compared to non-GAAP gross margin of 64.2% in the first quarter of 2024 and 61.3% in the second quarter of 2023.
  • GAAP net income of $665.4 million, or $2.08 per diluted share, compared to GAAP net income of $491.9 million, or $1.55 per diluted share in the second quarter of 2023.
  • Non-GAAP net income of $672.6 million, or $2.10 per diluted share, compared to non-GAAP net income of $501.2 million, or $1.58 per diluted share in the second quarter of 2023.

Commenting on the company's financial results, Chantelle Breithaupt, Arista's CFO, said, "We achieved an EPS increase of 33% in Q2 2024 compared to the same period last year, driven by our strong revenue and gross margin performance."

Company Highlights

  • Arista Launches Next Generation Multi-Domain Segmentation for Zero Trust Networking - Arista announced a significant update to its Arista MSS? (Multi-Domain Segmentation Service) offerings that address the challenge of creating a truly enterprise-wide zero trust network. Without the need for endpoint software agents and proprietary network protocols, Arista MSS enables effective microperimeters that restrict lateral movement in campus and data center networks and thus reduces the blast radius of security breaches such as ransomware.
  • Arista Delivers Holistic AI Solutions in Collaboration with NVIDIA - Arista announced a technology demonstration of AI Data Centers in order to align compute and network domains as a single managed AI entity, in collaboration with NVIDIA. In order to build optimal generative AI networks with lower job completion times, customers can configure, manage, and monitor AI clusters uniformly across key building blocks including networks, NICs, and servers.
  • Arista Unveils Etherlink AI Networking Platforms – Arista announced the Arista Etherlink™ AI platforms, designed to deliver optimal network performance for the most demanding AI workloads, including training and inferencing. Powered by new AI-optimized Arista EOS features, the Arista Etherlink AI portfolio supports AI cluster sizes ranging from thousands to 100,000s of XPUs with highly efficient one and 2-tier network topologies that deliver superior application performance compared to more complex multi-tier networks while offering advanced monitoring capabilities including flow-level visibility.

Financial Outlook

For the third quarter of 2024, we expect:

  • Revenue between $1.72 billion to $1.75 billion
  • Non-GAAP gross margin of approximately 63% - 64%; and
  • Non-GAAP operating margin of approximately 44%.

Guidance for non-GAAP financial measures excludes certain items, including stock-based compensation expense, amortization of acquisition-related intangible assets, and potential non-recurring charges or benefits. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort because these exclusions can be uncertain or difficult to predict, including stock-based compensation expense which is impacted by the timing of employee stock transactions, the company's future hiring and retention needs and the future fair market value of the company's common stock. The actual amount of these exclusions will have a significant impact on the company's GAAP gross margin and GAAP operating margin.

Prepared Materials and Conference Call Information

Arista's executives will discuss the second quarter 2024 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 third quarter of 2024 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: large purchases by a limited number of customers who represent a substantial portion of our revenue; adverse economic and geopolitical conditions and conflicts, including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending, the Russia/Ukraine, Israel/Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea and the outcome of the upcoming U.S. presidential election; changes in our customers technology roadmaps and priorities including the need for the deployment of artificial intelligence ("AI") and related technologies; the impact of sole or limited sources of supply, supply shortages and extended lead times or supply changes; volatility in our revenue growth rate; variations in our results of operations; the rapid evolution of the networking market; failure to successfully carry out new products and service offerings and expand into adjacent markets; variability in our gross margins; intense competition and industry consolidation; expansion of our international sales and operations; investments in or acquisitions of other businesses; seasonality and industry cyclicality; fluctuations in currency exchange rates; failure to raise additional capital on favorable terms; our inability to attract new large customers or sell additional products and services to our existing customers; sales of our switches generating most of our product revenue; large customers requiring more favorable terms; inability to increase market awareness or acceptance of our new products and services; the inclusion of any acceptance provisions in our customer contracts and any delays in acceptance, or rejection, of those products; decreases in the sales prices of our products and services; long and unpredictable sales cycles; declines in maintenance renewals by customers; product quality problems; failure to anticipate technological shifts; managing the supply of our products and product components; our dependence on third-party manufacturers to build our products; assertions by third parties of intellectual property rights infringement; failure or inability to protect or assert our intellectual property rights; defects, errors or vulnerabilities in our products, the failure of our products to detect security breaches or incidents, the misuse of our products or the risks or product liability; enhanced U.S. tax, tariff, import/export restrictions, Chinese regulations or other trade barriers; failure to comply with government law and regulations; issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment; 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 margin, 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 intangibles, gains/losses on strategic investments, 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.

About Arista Networks

Arista Networks is an industry leader in data-driven, client-to-cloud networking for large AI, data center, campus and routing environments. Its award-winning platforms deliver availability, agility, automation, analytics, and security through an advanced network operating stack. For more information, visit www.arista.com.

ARISTA, MSS, EOS and Etherlink 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 Income Statements

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2024

 

2023

 

2024

 

2023

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

1,423,271

 

$

1,261,537

 

$

2,752,116

 

$

2,433,631

Service

 

 

267,129

 

 

 

197,387

 

 

 

509,658

 

 

 

376,644

 

Total revenue

 

 

1,690,400

 

 

 

1,458,924

 

 

 

3,261,774

 

 

 

2,810,275

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

540,393

 

 

 

533,613

 

 

 

1,062,072

 

 

 

1,042,475

 

Service

 

 

52,794

 

 

 

41,182

 

 

 

101,110

 

 

 

79,164

 

Total cost of revenue

 

 

593,187

 

 

 

574,795

 

 

 

1,163,182

 

 

 

1,121,639

 

Gross profit

 

 

1,097,213

 

 

 

884,129

 

 

 

2,098,592

 

 

 

1,688,636

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

267,482

 

 

 

229,676

 

 

 

475,877

 

 

 

431,084

 

Sales and marketing

 

 

104,403

 

 

 

97,971

 

 

 

209,483

 

 

 

191,463

 

General and administrative

 

 

25,755

 

 

 

26,420

 

 

 

53,518

 

 

 

51,449

 

Total operating expenses

 

 

397,640

 

 

 

354,067

 

 

 

738,878

 

 

 

673,996

 

Income from operations

 

 

699,573

 

 

 

530,062

 

 

 

1,359,714

 

 

 

1,014,640

 

Other income (expense), net

 

 

70,863

 

 

 

56,339

 

 

 

133,483

 

 

 

68,485

 

Income before income taxes

 

 

770,436

 

 

 

586,401

 

 

 

1,493,197

 

 

 

1,083,125

 

Provision for income taxes

 

 

105,008

 

 

 

94,516

 

 

 

190,077

 

 

 

154,767

 

Net income

 

$

665,428

 

 

$

491,885

 

 

$

1,303,120

 

 

$

928,358

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

2.12

 

 

$

1.59

 

 

$

4.16

 

 

$

3.02

 

Diluted

 

$

2.08

 

 

$

1.55

 

 

$

4.07

 

 

$

2.94

 

Weighted-average shares used in computing net income per share:

 

 

 

 

 

 

 

 

Basic

 

 

313,711

 

 

 

308,636

 

 

 

313,372

 

 

 

307,810

 

Diluted

 

 

319,921

 

 

 

316,485

 

 

 

319,893

 

 

 

316,031

 

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,

 

 

2024

 

2023

 

2024

 

2023

GAAP gross profit

 

$

1,097,213

 

 

$

884,129

 

 

$

2,098,592

 

 

$

1,688,636

 

GAAP gross margin

 

 

64.9

%

 

 

60.6

%

 

 

64.3

%

 

 

60.1

%

Stock-based compensation expense

 

 

3,983

 

 

 

2,824

 

 

 

7,433

 

 

 

5,799

 

Intangible asset amortization

 

 

4,195

 

 

 

6,820

 

 

 

8,390

 

 

 

13,640

 

Non-GAAP gross profit

 

$

1,105,391

 

 

$

893,773

 

 

$

2,114,415

 

 

$

1,708,075

 

Non-GAAP gross margin

 

 

65.4

%

 

 

61.3

%

 

 

64.8

%

 

 

60.8

%

 

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

699,573

 

 

$

530,062

 

 

$

1,359,714

 

 

$

1,014,640

 

Stock-based compensation expense

 

 

79,292

 

 

 

67,127

 

 

 

156,507

 

 

 

130,008

 

Intangible asset amortization

 

 

6,690

 

 

 

9,315

 

 

 

13,380

 

 

 

18,630

 

Non-GAAP income from operations

 

$

785,555

 

 

$

606,504

 

 

$

1,529,601

 

 

$

1,163,278

 

Non-GAAP operating margin

 

 

46.5

%

 

 

41.6

%

 

 

46.9

%

 

 

41.4

%

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

665,428

 

 

$

491,885

 

 

$

1,303,120

 

 

$

928,358

 

Stock-based compensation expense

 

 

79,292

 

 

 

67,127

 

 

 

156,507

 

 

 

130,008

 

Intangible asset amortization

 

 

6,690

 

 

 

9,315

 

 

 

13,380

 

 

 

18,630

 

Gain on strategic investments

 

 

 

 

 

(24,743

)

 

 

 

 

 

(19,172

)

Tax benefits on stock-based awards

 

 

(64,548

)

 

 

(37,832

)

 

 

(135,381

)

 

 

(87,894

)

Income tax effect on non-GAAP exclusions

 

 

(14,218

)

 

 

(4,519

)

 

 

(27,266

)

 

 

(16,235

)

Non-GAAP net income

 

$

672,644

 

 

$

501,233

 

 

$

1,310,360

 

 

$

953,695

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

2.08

 

 

$

1.55

 

 

$

4.07

 

 

$

2.94

 

Non-GAAP adjustments to net income

 

 

0.02

 

 

 

0.03

 

 

 

0.03

 

 

 

0.08

 

Non-GAAP diluted net income per share

 

$

2.10

 

 

$

1.58

 

 

$

4.10

 

 

$

3.02

 

Weighted-average shares used in computing diluted net income per share

 

 

319,921

 

 

 

316,485

 

 

 

319,893

 

 

 

316,031

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

3,983

 

 

$

2,824

 

 

$

7,433

 

 

$

5,799

 

Research and development

 

 

50,769

 

 

 

41,137

 

 

 

94,557

 

 

 

77,706

 

Sales and marketing

 

 

16,769

 

 

 

15,833

 

 

 

35,670

 

 

 

30,971

 

General and administrative

 

 

7,771

 

 

 

7,333

 

 

 

18,847

 

 

 

15,532

 

Total

 

$

79,292

 

 

$

67,127

 

 

$

156,507

 

 

$

130,008

 

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

June 30, 2024

 

December 31, 2023

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

2,429,031

 

 

$

1,938,606

 

Marketable securities

 

 

3,844,923

 

 

 

3,069,362

 

Accounts receivable, net

 

 

1,226,795

 

 

 

1,024,569

 

Inventories

 

 

1,853,776

 

 

 

1,945,180

 

Prepaid expenses and other current assets

 

 

487,793

 

 

 

412,518

 

Total current assets

 

 

9,842,318

 

 

 

8,390,235

 

Property and equipment, net

 

 

96,282

 

 

 

101,580

 

Acquisition-related intangible assets, net

 

 

75,388

 

 

 

88,768

 

Goodwill

 

 

268,531

 

 

 

268,531

 

Deferred tax assets

 

 

1,177,172

 

 

 

945,792

 

Other assets

 

 

163,544

 

 

 

151,900

 

TOTAL ASSETS

 

$

11,623,235

 

 

$

9,946,806

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

297,832

 

 

$

435,059

 

Accrued liabilities

 

 

320,071

 

 

 

407,302

 

Deferred revenue

 

 

1,329,450

 

 

 

915,204

 

Other current liabilities

 

 

214,526

 

 

 

152,041

 

Total current liabilities

 

 

2,161,879

 

 

 

1,909,606

 

Income taxes payable

 

 

107,833

 

 

 

95,751

 

Deferred revenue, non-current

 

 

789,336

 

 

 

591,000

 

Other long-term liabilities

 

 

133,379

 

 

 

131,390

 

TOTAL LIABILITIES

 

 

3,192,427

 

 

 

2,727,747

 

STOCKHOLDERS' EQUITY:

 

 

 

 

Common stock

 

 

31

 

 

 

31

 

Additional paid-in capital

 

 

2,263,356

 

 

 

2,108,331

 

Retained earnings

 

 

6,182,479

 

 

 

5,114,025

 

Accumulated other comprehensive income (loss)

 

 

(15,058

)

 

 

(3,328

)

TOTAL STOCKHOLDERS' EQUITY

 

 

8,430,808

 

 

 

7,219,059

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

11,623,235

 

 

$

9,946,806

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Six Months Ended June 30,

 

 

2024

 

2023

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

1,303,120

 

 

$

928,358

 

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

 

 

 

 

Depreciation, amortization and other

 

 

31,112

 

 

 

39,227

 

Stock-based compensation

 

 

156,507

 

 

 

130,008

 

Noncash lease expense

 

 

9,292

 

 

 

9,154

 

Deferred income taxes

 

 

(228,460

)

 

 

(130,287

)

Gain on strategic investments

 

 

 

 

 

(19,172

)

Amortization (accretion) of investment premiums (discounts)

 

 

(27,843

)

 

 

(11,998

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

(202,226

)

 

 

143,370

 

Inventories

 

 

91,404

 

 

 

(574,628

)

Other assets

 

 

(92,577

)

 

 

(120,864

)

Accounts payable

 

 

(136,236

)

 

 

114,905

 

Accrued liabilities

 

 

(87,063

)

 

 

70,418

 

Deferred revenue

 

 

612,582

 

 

 

43,658

 

Income taxes, net

 

 

74,067

 

 

 

198,100

 

Other liabilities

 

 

(863

)

 

 

(11,676

)

Net cash provided by operating activities

 

 

1,502,816

 

 

 

808,573

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

 

952,572

 

 

 

1,265,305

 

Proceeds from sale of marketable securities

 

 

36,750

 

 

 

21,725

 

Purchases of marketable securities

 

 

(1,749,308

)

 

 

(1,392,020

)

Purchases of property and equipment

 

 

(12,555

)

 

 

(17,212

)

Cash paid for business combinations, net of cash acquired

 

 

 

 

 

1,799

 

Investments in notes and privately-held companies

 

 

(1,000

)

 

 

(4,250

)

Net cash used in investing activities

 

 

(773,541

)

 

 

(124,653

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

34,517

 

 

 

30,410

 

Tax withholding paid on behalf of employees for net share settlement

 

 

(35,999

)

 

 

(15,766

)

Repurchases of common stock

 

 

(234,666

)

 

 

(112,279

)

Net cash used in financing activities

 

 

(236,148

)

 

 

(97,635

)

Effect of exchange rate changes

 

 

(2,692

)

 

 

429

 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

490,435

 

 

 

586,714

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

1,939,464

 

 

 

675,978

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

2,429,899

 

 

$

1,262,692

 

 

Image for Press Release 1938574