10-QPeriod: Q1 FY2019

Arista Networks, Inc. Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 6, 2019For Securities:ANET

Summary

Arista Networks, Inc. (ANET) reported strong revenue growth of 26.0% for the first quarter of 2019, reaching $595.4 million, driven by robust demand for its cloud networking solutions, particularly from existing customers expanding their networks. Product revenue saw a significant 24.0% increase, while service revenue jumped 38.7%. The company's gross margin remained strong at 63.9%, slightly down from the prior year's 64.1% due to product transition costs, but offset by improved service margins and a favorable customer mix. Operating expenses increased by 13.4%, primarily in R&D and Sales & Marketing, reflecting continued investment in product development and market expansion. Net income surged by 39.1% to $201.0 million. The company's liquidity position remains strong with $2.2 billion in cash, cash equivalents, and marketable securities. Key financial highlights include a substantial increase in cash from operations, partly due to effective accounts receivable management. The adoption of new lease accounting standards (ASC 842) led to the recognition of significant operating lease right-of-use assets and liabilities on the balance sheet, impacting property and equipment figures but not cash flow. Investors should note the ongoing litigation with OptumSoft, though Phase I favored Arista. Management expects continued revenue growth, albeit at a potentially slower rate due to scaling and some large customer demand slowdown, emphasizing ongoing investment in innovation and market expansion.

Financial Highlights

53 data points
Beta

Revenue

$595.42M

63.9% Gross Margin

Net Income

$201.03M

33.8% Net Margin

EPS (Diluted)

$0.15

Total Assets

$3.33B

Cash & Equivalents

$813.71M

Free Cash Flow

$164.86M

Financial Statements
Beta
Revenue$595.42M
Cost of Revenue$214.85M
Gross Profit$380.57M
R&D Expenses$119.67M
Operating Expenses$186.23M
Operating Income$194.34M
Interest Expense$0
Net Income$201.03M
EPS (Basic)$0.17
EPS (Diluted)$0.15
Shares Outstanding (Basic)1.21B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Total revenue increased by 26.0% year-over-year to $595.4 million.
  • 2Gross profit increased by 25.6% to $380.6 million, with gross margin at 63.9%.
  • 3Net income grew significantly by 39.1% to $201.0 million.
  • 4Research and Development expenses increased by 16.9% to $119.7 million, indicating continued investment in innovation.
  • 5Sales and Marketing expenses rose by 21.2% to $51.1 million, supporting business expansion.
  • 6Cash and cash equivalents and marketable securities totaled $2.2 billion as of March 31, 2019, indicating strong liquidity.
  • 7The company adopted ASC 842 (Leases), which impacted balance sheet presentation but not current period cash flow from operations.

Frequently Asked Questions

Arista Networks reported a 26.0% year-over-year increase in total revenue for the first quarter ended March 31, 2019, reaching $595.4 million. Product revenue grew 24.0% and service revenue increased by 38.7%.

The company demonstrated strong profitability, with gross profit increasing by 25.6% to $380.6 million and a gross margin of 63.9%. Net income saw a substantial increase of 39.1% to $201.0 million, translating to a diluted EPS of $2.47.

Arista adopted ASC 842 on January 1, 2019. This resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities on the balance sheet. For instance, operating lease right-of-use assets of $98.6 million and total operating lease liabilities of $107.8 million were recorded as of March 31, 2019. This adoption also led to the derecognition of a build-to-suit lease asset and liability, and property and equipment figures were adjusted. However, the adoption did not materially impact cash flows from operating activities in the reported period.

Arista Networks continues to invest significantly in Research and Development (R&D), with R&D expenses increasing by 16.9% year-over-year to $119.7 million. Sales and Marketing expenses also rose by 21.2% to $51.1 million, indicating ongoing strategic investments in product innovation and market expansion to drive future growth.