01—Abstract
Summary
Summary of the 10-K filed February 15, 2019. Cited figures are marked; the original filing is the authoritative source.
Arista Networks, Inc. (ANET) in its 2018 10-K filing, reported robust growth driven by its cloud networking solutions, characterized by its Extensible Operating System (EOS).
The company solidified its position as a leading supplier for cloud service providers and large internet companies, also expanding into enterprise campus solutions with strategic acquisitions. A significant event during the year was a substantial legal settlement with Cisco, which impacted operating expenses but resolved ongoing litigation. The company's financial performance showed continued revenue growth, though with a slight decrease in gross margin primarily due to customer mix and pricing pressures.
Investments in research and development remained high, reflecting a commitment to innovation. Arista ended the year with a strong cash position, underscoring its financial health and ability to fund future growth initiatives.
For investors, Arista's core strengths lie in its purpose-built, highly scalable cloud networking platform powered by its proprietary EOS software. The company's strategic focus on open standards, programmability, and automation continues to resonate with its target market, positioning it well for future expansion in both data center and enterprise campus networking segments.
02—Key points
Key Highlights
- Arista reported significant year-over-year revenue growth, showcasing strong demand for its cloud networking solutions.
- The company continued its expansion into enterprise campus networks with the acquisitions of Mojo Networks and Metamako.
- A major legal settlement was reached with Cisco, resolving ongoing litigation for a payment of $400 million plus legal fees.
- Arista maintained a strong financial position, ending the year with substantial cash and cash equivalents.
- Research and development expenses remained a significant investment area, emphasizing Arista's focus on innovation and software development.
- Gross margin saw a slight decrease, attributed to customer mix and competitive pricing pressures, though overall profitability remained strong.
- The company highlighted its proprietary Extensible Operating System (EOS) as a key competitive advantage, emphasizing its programmability and modularity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Arista Networks, Inc. kept $0.15.
- Revenue$2.15B100.0%
- Cost of revenue−$778.0M36.2%
- Gross profit$1.37B63.8%
- Operating costs−$1.10B51.1%
- Operating income$273.3M12.7%
- Interest, other & tax$54.8M2.5%
- Net income$328.1M15.3%
Where FY2018 revenue went
$2.15B- Cost of revenue: $778.0M, 36% of revenue
- Other operating costs: $657.6M, 31% of revenue
- R&D: $442.5M, 21% of revenue
- Operating income: $273.3M, 13% of revenue
Kept 13% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 15, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.15B$1.65B | +30.7% |
| Cost of Revenue | $777.99M$584.42M | +33.1% |
| Gross Profit | $1.37B$1.06B | +29.3% |
| R&D Expenses | $442.47M$349.59M | +26.6% |
| Operating Expenses | $1.10B$591.50M | +86.0% |
| Operating Income | $273.35M$470.27M | −41.9% |
| Interest Expense | $2.70M$2.78M | −2.8% |
| Net Income | $328.12M$423.20M | −22.5% |
| EPS (Basic) | $0.27$0.37 | −25.0% |
| EPS (Diluted) | $0.25$0.33 | −24.1% |
| Shares Outstanding (Basic) | 1.20B1.16B | +3.4% |
| Shares Outstanding (Diluted) | 1.29B1.26B | +2.4% |
05—Questions
Frequently Asked Questions
What is Arista Networks' core business and competitive advantage?
Arista Networks is a leading supplier of cloud networking solutions, including Ethernet switching and routing platforms powered by its proprietary Extensible Operating System (EOS). Its core competitive advantages lie in EOS's programmability, modularity, and automation capabilities, which enable customers to build scalable, high-performance, and reliable cloud networks. The company also focuses on open standards and integrates well with third-party applications, differentiating it from legacy network architectures.
How did the Cisco litigation settlement impact Arista?
Arista reached a significant settlement with Cisco for $400 million, plus legal fees, resolving multiple ongoing litigation matters. This settlement was recorded as a legal settlement expense of $405 million in the operating expenses for the year ended December 31, 2018. While impacting short-term profitability, the settlement resolved significant legal uncertainties and allowed Arista to re-incorporate certain features into its products.
What was Arista's revenue and profitability performance in 2018?
Arista Networks demonstrated strong revenue growth in 2018, increasing by 30.7% compared to 2017, reaching $2.15 billion. The company reported a net income of $328 million. However, gross margin slightly decreased from 64.5% to 63.8% due to factors like customer mix and pricing pressures, though operating expenses also saw a significant increase, primarily due to the Cisco settlement.
How is Arista expanding its market reach?
Arista is expanding its market reach through organic growth and strategic acquisitions. In 2018, the company acquired Mojo Networks to enhance its cloud-managed wireless networking offerings and Metamako to strengthen its low-latency solutions. These moves indicate a strategy to broaden its portfolio beyond data center networking and into enterprise campus and wireless solutions, leveraging its core cloud networking principles.
06—Continue