01—Abstract
Summary
Summary of the 10-K/A filed May 15, 2015. Cited figures are marked; the original filing is the authoritative source.
Arista Networks, Inc.'s 2014 Annual Report (filed May 15, 2015) highlights a period of significant growth, with revenue increasing by 61.7% to $584.1 milliona.
The company experienced strong demand for its cloud networking solutions, driven by an 82.4%b increase in switch ports shipped. Despite this growth, Arista is actively managing challenges including a decrease in average selling price per port due to product mix and large customer discounts, and has identified material weaknesses in its internal controls over financial reporting related to the cash flow statement. The company is also facing ongoing intellectual property litigation with Cisco Systems, which presents a notable risk.
Arista continues to invest heavily in research and development and sales and marketing to support its growth strategy. Arista completed its Initial Public Offering (IPO) in June 2014, raising significant capital and strengthening its financial position. The company generated positive net income and cash flow from operations, indicating a healthy operational performance.
However, investors should note the company's focus on growth over short-term profitability, which may impact operating profit margins in the near to medium term. Key risks include dependence on component suppliers, manufacturing partners, intellectual property disputes, and the competitive nature of the networking industry.
02—Key points
Key Highlights
- Revenue grew by 61.7% year-over-year to $584.1 million in 2014, driven by a substantial increase in switch ports shipped.
- The company completed its Initial Public Offering (IPO) in June 2014, raising $239.1 million in net proceeds.
- Arista reported a net income of $86.9 million for 2014, a significant increase from $42.5 million in 2013.
- Despite revenue growth, the average selling price per port decreased by 15.0% due to product mix and discounts for large customers.
- The company identified a material weakness in its internal controls over financial reporting related to the cash flow statement and is implementing remediation efforts.
- Arista is involved in significant ongoing patent litigation with Cisco Systems, which could materially impact its business if an adverse ruling occurs.
- Research and development expenses increased by 51.0% to $148.9 million, reflecting continued investment in product innovation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Arista Networks, Inc. kept $0.15.
- Revenue$584.1M100.0%
- Cost of revenue−$192.0M32.9%
- Gross profit$392.1M67.1%
- Operating costs−$266.6M45.6%
- Operating income$125.5M21.5%
- Interest, other & tax−$38.7M6.6%
- Net income$86.8M14.9%
Where FY2014 revenue went
$584.1M- Cost of revenue: $192.0M, 33% of revenue
- R&D: $148.9M, 25% of revenue
- Other operating costs: $117.7M, 20% of revenue
- Net income: $86.8M, 15% of revenue
- Interest, other & tax: $38.7M, 6.6% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2014filed May 15, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $584.11M$361.22M | +61.7% |
| Cost of Revenue | $192.01M$122.69M | +56.5% |
| Gross Profit | $392.09M$238.54M | +64.4% |
| R&D Expenses | $148.91M$98.59M | +51.0% |
| Operating Expenses | $266.58M$172.39M | +54.6% |
| Operating Income | $125.51M$66.15M | +89.7% |
| Net Income | $86.85M$42.46M | +104.5% |
| EPS (Basic) | $0.09$0.05 | +86.8% |
| EPS (Diluted) | $0.08$0.04 | +79.2% |
| Shares Outstanding (Basic) | 774.83M437.12M | +77.3% |
| Shares Outstanding (Diluted) | 873.44M480.82M | +81.7% |
05—Questions
Frequently Asked Questions
What is Arista Networks' primary business and revenue driver?
Arista Networks is a leading supplier of cloud networking solutions, which include their Extensible Operating System (EOS), network applications, and 10/40/100 Gigabit Ethernet switches. The primary revenue driver is the sale of these switching products, complemented by post-contract support (PCS) services.
What were the key financial performance highlights for 2014?
In 2014, Arista experienced strong revenue growth of 61.7% to $584.1 million, with a significant increase in switch ports shipped. Net income more than doubled to $86.9 million. The company also successfully completed its IPO, strengthening its financial position.
What are the main risks and challenges Arista Networks faces?
Key risks include significant ongoing intellectual property litigation with Cisco Systems, dependence on third-party suppliers and manufacturers, potential supply chain disruptions, price competition leading to lower average selling prices, and material weaknesses in internal controls over financial reporting. The company also faces risks associated with rapid growth and expansion, including attracting and retaining talent.
How did the IPO impact Arista's financial situation?
The IPO in June 2014 provided Arista with significant capital ($239.1 million in net proceeds), strengthening its liquidity and providing funds for growth strategies. It also led to the conversion of convertible preferred stock and debt, simplifying the capital structure.
06—Continue