10-QPeriod: Q1 FY2017

Arista Networks, Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 8, 2017For Securities:ANET

Summary

Arista Networks, Inc. (ANET) reported strong revenue growth of 38.5% year-over-year for the first quarter of 2017, reaching $335.5 million. This growth was primarily driven by a 37.1% increase in product revenue and a significant 48.4% rise in service revenue, indicating expanding adoption of their cloud networking solutions. The company maintained healthy gross margins at 63.9%, demonstrating operational efficiency despite increased investment in research and development and sales and marketing. Net income surged by an impressive 135% to $83.0 million, or $1.07 per diluted share, reflecting effective cost management and operational leverage. The company ended the quarter with a robust cash position of $746.6 million, underscoring its strong financial health and liquidity.

Financial Highlights

49 data points
Beta

Revenue

$335.48M

63.9% Gross Margin

Net Income

$82.96M

24.7% Net Margin

EPS (Diluted)

$0.07

Total Assets

$1.94B

Cash & Equivalents

$746.57M

Free Cash Flow

$158.22M

Financial Statements
Beta
Revenue$335.48M
Cost of Revenue$121.27M
Gross Profit$214.21M
R&D Expenses$81.61M
Operating Expenses$140.79M
Operating Income$73.42M
Net Income$82.96M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.24B

Key Highlights

  • 1Total revenue for the first quarter of 2017 increased by 38.5% to $335.5 million, up from $242.2 million in the prior year period.
  • 2Product revenue saw a substantial increase of 37.1% to $291.4 million, driven by increased shipments and market acceptance of newer products.
  • 3Service revenue grew by 48.4% to $44.1 million, reflecting the expanding customer base and increased support contracts.
  • 4Gross margin remained strong and stable at 63.9%, demonstrating efficient cost management of goods sold.
  • 5Net income more than doubled, increasing by 135% to $83.0 million, from $35.2 million in the prior year period.
  • 6Diluted earnings per share (EPS) significantly increased to $1.07, up from $0.48 in the prior year period.
  • 7Operating cash flow was robust at $162.9 million, indicating strong cash generation from operations.

Frequently Asked Questions

Arista Networks reported a total revenue of $335.5 million for the first quarter of 2017, representing a significant year-over-year increase of 38.5%. This growth was fueled by both product revenue, which rose 37.1% to $291.4 million, and service revenue, which increased by 48.4% to $44.1 million.

Profitability saw substantial improvement. Net income increased by 135% to $83.0 million in Q1 2017, compared to $35.2 million in Q1 2016. Diluted earnings per share (EPS) rose to $1.07 from $0.48 in the prior year period. This strong performance was supported by maintained gross margins of 63.9% and effective management of operating expenses.

Arista Networks maintained a strong liquidity position. As of March 31, 2017, the company had $746.6 million in cash and cash equivalents and $296.7 million in marketable securities, totaling over $1.04 billion in liquid assets. Operating activities generated $162.9 million in cash during the quarter.

Yes, Arista Networks is involved in several significant legal proceedings, most notably ongoing patent and copyright litigation with Cisco Systems, Inc. The company is also involved in a license dispute with OptumSoft, Inc. While Arista intends to defend these vigorously, adverse outcomes could potentially result in significant damages, injunctive relief, or require product modifications, which could materially affect its business, financial condition, and results of operations. The company believes that while a loss is not probable, it is reasonably possible, and the range of potential loss cannot be estimated at this stage.