10-KPeriod: FY2017

Arista Networks, Inc. Annual Report, Year Ended Dec 31, 2017

Filed February 20, 2018For Securities:ANET

Summary

Arista Networks, Inc. (ANET) demonstrated robust revenue growth of 45.8% in 2017, reaching $1.65 billion, driven primarily by increased product shipments to existing customers and the market acceptance of its newer switch products. The company maintains strong gross margins around 64%, indicating effective cost management and competitive pricing. Despite significant investments in research and development, which increased by 27.8% year-over-year, Arista Networks achieved a healthy net income of $423.2 million, a substantial increase from $184.2 million in 2016. The company's proprietary Extensible Operating System (EOS) remains a key differentiator, enabling programmability, automation, and integration capabilities crucial for cloud networking. Arista Networks continues to expand its customer base and geographic reach, with a particular strength in large Internet companies and cloud service providers. While facing intense competition and ongoing litigation with Cisco Systems, the company appears to be navigating these challenges effectively through product redesigns and strategic management of legal matters.

Financial Highlights

53 data points
Beta

Revenue

$1.65B

64.5% Gross Margin

Net Income

$423.20M

25.7% Net Margin

EPS (Diluted)

$0.33

Total Assets

$2.46B

Cash & Equivalents

$859.19M

Free Cash Flow

$616.35M

Financial Statements
Beta
Revenue$1.65B
Cost of Revenue$584.42M
Gross Profit$1.06B
R&D Expenses$349.59M
Operating Expenses$591.50M
Operating Income$470.27M
Interest Expense$2.78M
Net Income$423.20M
EPS (Basic)$0.37
EPS (Diluted)$0.33
Shares Outstanding (Basic)1.16B
Shares Outstanding (Diluted)1.26B

Key Highlights

  • 1Revenue growth of 45.8% year-over-year to $1.65 billion in 2017, demonstrating strong market demand.
  • 2Net income increased significantly to $423.2 million in 2017, up from $184.2 million in 2016, reflecting improved profitability.
  • 3Gross margin remained strong at 64.5% in 2017, indicating efficient operations and pricing power.
  • 4Continued significant investment in R&D (21.2% of revenue) to maintain technological leadership in cloud networking.
  • 5Expansion of customer base to over 4,900 end customers worldwide, including major cloud service providers.
  • 6Positive cash flow from operations of $631.6 million in 2017, underscoring financial health.
  • 7Ongoing litigation with Cisco Systems continues to be a material factor, with Arista actively managing design changes and legal defenses.

Frequently Asked Questions

Arista Networks specializes in cloud networking solutions, offering Ethernet switching and routing platforms powered by its proprietary Extensible Operating System (EOS). EOS is a key differentiator due to its programmability, modularity, and automation capabilities, which are highly valued by large Internet companies and cloud service providers seeking scalable and efficient network infrastructure.

The company demonstrated strong financial performance in 2017, with revenue growing by 45.8% to $1.65 billion and net income nearly doubling to $423.2 million. Gross margins remained robust at 64.5%, and the company generated significant positive cash flow from operations, indicating healthy business momentum.

The primary risks highlighted include intense competition from established players like Cisco Systems, ongoing litigation with Cisco over patent and copyright infringement which has required product redesigns and ongoing legal defense, reliance on key component suppliers, and the inherent risks of operating in a rapidly evolving technology market. Additionally, managing rapid growth and potential supply chain disruptions are key considerations.

Arista Networks plans to continue its growth by focusing on its core cloud networking solutions, investing heavily in R&D to enhance its EOS platform and develop new products, expanding its sales and marketing efforts globally, and deepening relationships with existing customers and channel partners. The company aims to capitalize on the ongoing shift towards cloud computing and next-generation data centers.