10-QPeriod: Q2 FY2014

Arista Networks, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 8, 2014For Securities:ANET

Summary

Arista Networks, Inc. (ANET) filed its Form 10-Q for the period ending June 29, 2014, shortly after its initial public offering (IPO). The filing highlights the company's status as an emerging growth company, allowing for certain regulatory exemptions, though Arista has opted out of extended transition periods for new accounting standards. Investors should note potential risks related to analyst reports and corporate governance provisions designed to prevent takeovers, which could affect stock price and management changes. Additionally, the company disclosed a contingent liability related to potential violations of the Securities Act of 1933 concerning communications for a terminated directed share program during its IPO. While the majority of IPO proceeds are accounted for, any liability stemming from these communications could require share repurchases and incur significant legal expenses.

Financial Highlights

50 data points
Beta

Revenue

$137.95M

67.7% Gross Margin

Net Income

$21.62M

15.7% Net Margin

EPS (Diluted)

$0.02

Total Assets

$642.78M

Cash & Equivalents

$397.20M

Free Cash Flow

$40.78M

Financial Statements
Beta
Revenue$137.95M
Cost of Revenue$44.57M
Gross Profit$93.38M
R&D Expenses$34.89M
Operating Expenses$62.73M
Operating Income$30.66M
Net Income$21.62M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)615.86M
Shares Outstanding (Diluted)704.91M

Key Highlights

  • 1Arista Networks is operating as an 'emerging growth company' post-IPO, benefiting from reduced regulatory disclosures but has chosen to comply with new accounting standards promptly.
  • 2The company acknowledges potential negative impacts on its stock price and trading volume if securities analysts issue unfavorable reports or cease coverage.
  • 3Corporate governance provisions, including a classified board and restrictions on stockholder actions, are in place, potentially deterring takeover attempts and entrenching management.
  • 4A contingent liability exists regarding potential violations of the Securities Act of 1933 in connection with communications for a terminated IPO directed share program.
  • 5If a violation of the Securities Act is confirmed, Arista may be required to repurchase shares sold to certain individuals at the original IPO price plus interest, and could face SEC enforcement action.
  • 6The company raised approximately $238.7 million in net proceeds from its IPO in June 2014, with no material change in the planned use of these funds.
  • 7Arista issued 22,103 unregistered shares of common stock to employees during the quarter via stock option exercises, relying on the Rule 701 exemption.

Frequently Asked Questions

The contingent liability could require Arista Networks to repurchase shares sold to participants in the terminated directed share program at the original IPO price ($43.00) plus statutory interest, if a violation of the Securities Act of 1933 is proven. This could also lead to significant legal expenses and potential SEC enforcement actions. The exact financial impact depends on the number of shares affected and the outcome of any claims or investigations.

Arista's charter documents and bylaws include provisions such as a classified board of directors, restrictions on stockholder actions by written consent, and specific requirements for calling special meetings. These measures, along with the ability to issue preferred stock without immediate stockholder approval, are designed to prevent hostile takeovers and may make it more difficult for stockholders to effect changes in management or board composition.

By opting out of the extended transition period for complying with new or revised accounting standards offered to emerging growth companies under the JOBS Act, Arista Networks will adopt these standards on the same timeline as larger, non-emerging growth companies. This decision is irrevocable and signals a commitment to earlier adoption of accounting changes, which can provide more timely and potentially comparable financial reporting, but may also require more immediate adjustments to accounting practices.

The IPO generated approximately $238.7 million in net proceeds after deducting underwriting discounts, commissions, and other issuance costs. The company stated in this filing that there has been no material change in the planned use of these proceeds as described in their final prospectus filed on June 6, 2014.