10-QPeriod: Q1 FY2020

Arista Networks, Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 6, 2020For Securities:ANET

Summary

Arista Networks, Inc. (ANET) reported its first-quarter 2020 financial results, showing a year-over-year revenue decline of 12.2% to $523.0 million. This decrease was primarily attributed to a significant drop in product revenue, which fell 18.7%, partly due to a large deferred revenue recognition in the prior year's comparable period and decreased demand from key customers. Despite the revenue challenges, service revenue saw a healthy increase of 24.6%. The company's gross margin improved slightly to 64.7% from 63.9% in the prior year, benefiting from reduced product transition and inventory-related charges. Net income for the quarter was $138.4 million, a 31.1% decrease compared to $201.0 million in Q1 2019, leading to diluted EPS of $1.73, down from $2.47. The company highlighted the impact of the COVID-19 pandemic on its operations, supply chain, and anticipated future demand, noting potential revenue declines in the coming quarters. Arista also completed the acquisition of Big Switch Networks for $73.3 million in cash to enhance its data center networking solutions. The company maintained a strong balance sheet with approximately $2.6 billion in cash, cash equivalents, and marketable securities as of March 31, 2020.

Financial Highlights

52 data points
Beta

Revenue

$523.03M

64.7% Gross Margin

Net Income

$138.43M

26.5% Net Margin

EPS (Diluted)

$0.11

Total Assets

$4.11B

Cash & Equivalents

$765.64M

Free Cash Flow

$191.74M

Financial Statements
Beta
Revenue$523.03M
Cost of Revenue$184.78M
Gross Profit$338.25M
R&D Expenses$113.15M
Operating Expenses$188.59M
Operating Income$149.66M
Net Income$138.43M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)1.22B
Shares Outstanding (Diluted)1.28B

Key Highlights

  • 1Total revenue declined 12.2% year-over-year to $523.0 million, driven by an 18.7% decrease in product revenue.
  • 2Service revenue demonstrated strong growth, increasing 24.6% year-over-year.
  • 3Gross margin improved slightly to 64.7% from 63.9% in the prior year period.
  • 4Net income decreased by 31.1% to $138.4 million, resulting in diluted EPS of $1.73, down from $2.47.
  • 5The company acquired Big Switch Networks for $73.3 million in cash to bolster its data center offerings.
  • 6Arista reported approximately $2.6 billion in cash, cash equivalents, and marketable securities as of March 31, 2020.
  • 7Management indicated that COVID-19 is expected to negatively impact demand and supply chains, potentially leading to revenue declines in subsequent quarters.

Frequently Asked Questions

Arista Networks reported a 12.2% year-over-year decrease in total revenue for Q1 2020, amounting to $523.0 million. This was primarily due to an 18.7% decline in product revenue, although service revenue saw a significant increase of 24.6%.

The COVID-19 pandemic impacted Arista's operations and supply chain during Q1 2020, causing delays in manufacturing and component sourcing. Management anticipates that the pandemic will continue to negatively affect demand and supply chains, potentially leading to revenue declines in the second and third quarters of 2020.

Arista Networks maintained a strong liquidity position, with approximately $2.6 billion in cash, cash equivalents, and marketable securities as of March 31, 2020. This provides a solid financial foundation to navigate the current economic environment.

Yes, Arista Networks completed the acquisition of Big Switch Networks, Inc. for $73.3 million in cash. This acquisition is expected to enhance their data center networking solutions and network monitoring capabilities.