10-QPeriod: Q3 FY2018

Arista Networks, Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 5, 2018For Securities:ANET

Summary

Arista Networks reported strong revenue growth in the third quarter of 2018, with total revenue increasing by 28.7% year-over-year to $563.3 million. This growth was driven by a 27.6% increase in product revenue and a significant 35.9% rise in service revenue, indicating expanding customer adoption and increased post-contract support. The company also reported a substantial increase in operating expenses, largely due to significant investments in research and development and the impact of two recent acquisitions (Mojo Networks and Metamako). Despite increased R&D and sales and marketing expenses, general and administrative expenses decreased due to reduced litigation activity following the settlement with Cisco. Net income for the quarter was $168.5 million, a 25.9% increase over the prior year, demonstrating robust profitability despite increased operational spending.

Financial Statements
Beta
Revenue$563.31M
Cost of Revenue$201.73M
Gross Profit$361.58M
R&D Expenses$117.59M
Operating Expenses$180.81M
Operating Income$180.77M
Interest Expense$673K
Net Income$168.52M
EPS (Basic)$0.14
EPS (Diluted)$0.13
Shares Outstanding (Basic)1.20B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Total revenue for the third quarter of 2018 was $563.3 million, an increase of 28.7% compared to the prior year's quarter, driven by strong performance in both product and service segments.
  • 2Product revenue grew by 27.6% year-over-year, reaching $485.5 million, indicating continued demand for Arista's core networking solutions.
  • 3Service revenue saw a significant increase of 35.9% to $77.8 million, reflecting the expansion of Arista's customer base and increased adoption of its post-contract support services.
  • 4Net income for the quarter was $168.5 million, a 25.9% increase from $133.7 million in the same period last year, showcasing improved profitability.
  • 5Research and development expenses increased significantly by 47.7% to $117.6 million, reflecting continued investment in innovation and new product development, including costs associated with recent acquisitions.
  • 6The company completed two acquisitions in the third quarter: Mojo Networks for WiFi solutions and Metamako for low-latency applications, strengthening its cloud networking architecture and next-generation platforms.
  • 7A significant legal settlement with Cisco was finalized in August 2018, resulting in a $405 million charge in the second quarter, which positively impacted general and administrative expenses in the third quarter due to reduced litigation activity.

Frequently Asked Questions

Arista Networks reported total revenue of $563.3 million for the third quarter of 2018, a significant increase of 28.7% compared to $437.6 million in the third quarter of 2017. Product revenue grew by 27.6% to $485.5 million, and service revenue increased by 35.9% to $77.8 million.

Net income for the third quarter of 2018 was $168.5 million, a 25.9% increase from $133.7 million in the same period last year. This demonstrates strong profitability growth, with net income per diluted share rising to $2.08 from $1.68 in Q3 2017.

Research and development expenses saw a substantial increase of 47.7% to $117.6 million, reflecting Arista's commitment to innovation and integration of two recent acquisitions (Mojo Networks and Metamako). Sales and marketing expenses also increased by 17.9% to $47.9 million, supporting business expansion. General and administrative expenses decreased by 21.6% due to reduced litigation related to the Cisco settlement.

Arista Networks completed two strategic acquisitions: Mojo Networks, Inc. and Metamako Holding PTY LTD. These acquisitions are intended to enhance Arista's cloud networking architecture and its next-generation platforms. Additionally, the company finalized a significant legal settlement with Cisco Systems, Inc. in August 2018.