10-QPeriod: Q3 FY2016

Arista Networks, Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 3, 2016For Securities:ANET

Summary

Arista Networks reported strong year-over-year revenue growth for the third quarter and the first nine months of 2016, driven by increased demand from existing customers and new product introductions. The company demonstrated robust profitability, with net income rising significantly compared to the prior year. While gross margins experienced a slight dip due to customer mix and capacity expansion costs, overall financial performance remained healthy, with significant improvements in income from operations. Key areas of focus for management include continued investment in research and development to drive product innovation and expansion of sales and marketing efforts globally. Despite ongoing litigation with Cisco and OptumSoft, Arista continues to execute on its growth strategy, underscoring its position as a key player in the cloud networking solutions market. Investors should note the continued growth in service revenue and the company's focus on expanding its installed base and international presence.

Financial Highlights

49 data points
Beta

Revenue

$290.26M

64.2% Gross Margin

Net Income

$51.26M

17.7% Net Margin

EPS (Diluted)

$0.04

Total Assets

$1.52B

Cash & Equivalents

$500.48M

Free Cash Flow

-$37.01M

Financial Statements
Beta
Revenue$290.26M
Cost of Revenue$103.84M
Gross Profit$186.42M
R&D Expenses$70.65M
Operating Expenses$123.40M
Operating Income$63.02M
Net Income$51.26M
EPS (Basic)$0.05
EPS (Diluted)$0.04
Shares Outstanding (Basic)1.11B
Shares Outstanding (Diluted)1.18B

Key Highlights

  • 1Revenue increased by 33.4% year-over-year for the three months ended September 30, 2016, reaching $290.3 million.
  • 2Net income for the third quarter of 2016 was $51.3 million, a significant increase from $28.7 million in the same period last year.
  • 3For the nine months ended September 30, 2016, revenue grew by 35.3% to $801.2 million, with net income rising to $125.4 million from $77.2 million in the prior year.
  • 4Gross margin slightly decreased from 65.2% to 64.2% for the three months ended September 30, 2016, attributed to customer mix and capacity expansion costs.
  • 5Research and development expenses increased by 20.3% for the third quarter, reflecting continued investment in product innovation and litigation-related design changes.
  • 6The company maintained a strong liquidity position with $500.5 million in cash and cash equivalents and $299.7 million in marketable securities as of September 30, 2016.
  • 7Arista Networks continues to be involved in significant litigation with Cisco Systems, Inc., which could materially impact future results.

Frequently Asked Questions

Arista Networks reported a 33.4% year-over-year increase in revenue for the third quarter ended September 30, 2016, with total revenue reaching $290.3 million.

Net income for the third quarter of 2016 was $51.3 million, a substantial increase from $28.7 million reported in the same period of 2015. This indicates a significant improvement in profitability.

As of September 30, 2016, Arista Networks had $500.5 million in cash and cash equivalents and an additional $299.7 million in marketable securities, indicating a strong liquidity position.

Key risks highlighted include intense competition, particularly from Cisco Systems, ongoing litigation with Cisco and OptumSoft, dependence on key suppliers and contract manufacturers, potential product quality issues, and the need to manage rapid growth effectively. The company also faces risks related to market adoption of cloud networking solutions and potential disruptions in its supply chain.