10-QPeriod: Q1 FY2018

Arista Networks, Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 4, 2018For Securities:ANET

Summary

Arista Networks, Inc. (ANET) reported strong performance in its Q1 2018 earnings, with total revenue growing 40.8% year-over-year to $472.5 million. Product revenue saw a significant increase of 39.9%, driven by existing customer expansion and the market acceptance of newer switch products. Service revenue also grew robustly at 47.1%. The company demonstrated healthy profitability, with net income soaring 74.2% to $144.5 million. Despite increased operating expenses, particularly in R&D and Sales & Marketing to support growth, Arista maintained strong operational income growth. The company's balance sheet remains solid, with substantial cash and marketable securities. Arista continues to invest in its cloud networking platform and R&D to enhance its software and hardware offerings. The company is navigating ongoing legal proceedings with Cisco, which have involved product redesigns to comply with USITC orders. While these legal matters present ongoing risks, Arista has made progress in customer certification of redesigned products. The company anticipates continued revenue growth, though at a moderating rate as the business scales. Overall, the report indicates a company experiencing substantial top-line growth and improving profitability, while strategically managing investments and potential legal headwinds.

Financial Highlights

49 data points
Beta

Revenue

$472.49M

64.1% Gross Margin

Net Income

$144.54M

30.6% Net Margin

EPS (Diluted)

$0.11

Total Assets

$2.58B

Cash & Equivalents

$891.67M

Free Cash Flow

$189.21M

Financial Statements
Beta
Revenue$472.49M
Cost of Revenue$169.57M
Gross Profit$302.92M
R&D Expenses$102.36M
Operating Expenses$164.18M
Operating Income$138.74M
Interest Expense$687K
Net Income$144.54M
EPS (Basic)$0.12
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.18B
Shares Outstanding (Diluted)1.29B

Key Highlights

  • 1Total revenue increased by 40.8% to $472.5 million compared to Q1 2017.
  • 2Product revenue grew by 39.9% to $407.6 million, driven by existing customer expansion and new product adoption.
  • 3Service revenue saw a significant increase of 47.1% to $64.9 million.
  • 4Net income surged by 74.2% to $144.5 million.
  • 5Gross margin remained strong and slightly improved to 64.1% from 63.9% in the prior year.
  • 6Operating expenses increased by 16.6%, primarily due to investments in R&D and Sales & Marketing to support growth.
  • 7The company ended the quarter with a strong liquidity position, holding $1.7 billion in cash, cash equivalents, and marketable securities.

Frequently Asked Questions

Arista Networks reported a total revenue of $472.5 million for the first quarter of 2018, representing a significant year-over-year increase of 40.8%. This growth was driven by both product revenue, which increased by 39.9% to $407.6 million, and service revenue, which grew by 47.1% to $64.9 million.

Arista Networks demonstrated strong profitability in Q1 2018, with net income increasing by 74.2% to $144.5 million, up from $83.0 million in Q1 2017. Earnings per diluted share also saw a substantial rise to $1.79, compared to $1.07 in the prior year.

Arista Networks is involved in several ongoing litigation matters with Cisco Systems, Inc. These include patent infringement claims and USITC investigations. While the company has made progress in redesigning products to comply with USITC orders and has seen some favorable rulings, these legal proceedings continue to present risks, including potential penalties, product import restrictions, and the need for ongoing product modifications. The company is actively defending its position in these matters.

Arista's operating expenses increased by 16.6% in Q1 2018 compared to Q1 2017, totaling $164.2 million. This increase was primarily driven by strategic investments in Research and Development ($102.4 million, up 25.4%) and Sales and Marketing ($42.1 million, up 13.8%) to support its growth initiatives, expand its product capabilities, and reach new customers. General and administrative expenses decreased by 11.2% mainly due to lower litigation expenses.