10-QPeriod: Q3 FY2021

Arista Networks, Inc. Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 2, 2021For Securities:ANET

Summary

Arista Networks, Inc. reported strong revenue growth of 23.7% year-over-year for the third quarter of 2021, reaching $748.7 million. This growth was driven by a significant increase in product revenue, up 25.8%, and a steady rise in service revenue. The company demonstrated robust profitability, with gross margin holding steady at 63.9% and net income increasing by 33.2% to $224.3 million. Despite ongoing supply chain challenges related to the COVID-19 pandemic, Arista managed its inventory effectively, showing an increase in inventory levels to $575.7 million from $479.7 million in the prior year-end, likely to mitigate further disruptions. The company's financial position remains strong, with total assets growing to $5.4 billion and a healthy cash and marketable securities balance of $3.4 billion. Arista continues to invest in research and development, with R&D expenses increasing by 19.6% to $153.1 million in the quarter, underscoring its commitment to innovation in cloud networking solutions. Sales and marketing expenses also saw a notable increase of 30.7%, reflecting the company's efforts to expand its market reach. The company has a significant backlog, with remaining performance obligations totaling $1.13 billion, providing good visibility for future revenue. Arista's proactive management of supply chain issues and continued investment in growth areas position it well for continued performance, though supply chain constraints remain a key factor to monitor.

Financial Highlights

52 data points
Beta

Revenue

$748.70M

63.9% Gross Margin

Net Income

$224.31M

30.0% Net Margin

EPS (Diluted)

$0.17

Total Assets

$5.44B

Cash & Equivalents

$635.22M

Free Cash Flow

$226.69M

Financial Statements
Beta
Revenue$748.70M
Cost of Revenue$270.08M
Gross Profit$478.62M
R&D Expenses$153.09M
Operating Expenses$245.32M
Operating Income$233.29M
Net Income$224.31M
EPS (Basic)$0.18
EPS (Diluted)$0.17
Shares Outstanding (Basic)1.23B
Shares Outstanding (Diluted)1.28B

Key Highlights

  • 1Q3 2021 Total Revenue increased by 23.7% year-over-year to $748.7 million.
  • 2Product Revenue saw a significant increase of 25.8% year-over-year, reaching $604.2 million.
  • 3Net Income grew by 33.2% year-over-year to $224.3 million.
  • 4Gross Margin remained strong at 63.9% in Q3 2021.
  • 5Research and Development expenses increased by 19.6% to $153.1 million, reflecting continued investment in innovation.
  • 6The company ended the quarter with $3.4 billion in cash and marketable securities, indicating a strong liquidity position.
  • 7Remaining performance obligations stood at $1.13 billion, providing good revenue visibility.

Frequently Asked Questions

The primary driver of Arista Networks' revenue growth in Q3 2021 was the strong performance in product revenue, which increased by 25.8% year-over-year. This indicates robust demand for their core switching and routing platforms.

Arista Networks is actively managing supply chain challenges by increasing purchase commitments and investing in working capital to secure components and mitigate disruptions. They have also increased inventory levels to ensure product availability. Despite these efforts, supply chain constraints remain a factor that could impact their ability to fulfill demand.

The company has significant revenue visibility, with remaining performance obligations totaling approximately $1.13 billion as of September 30, 2021. Approximately 80% of this is expected to be recognized over the next two years, suggesting a positive outlook for continued revenue generation.

Arista Networks has maintained strong gross margins at 63.9% while increasing investments in Research and Development (up 19.6%) and Sales and Marketing (up 30.7%). This indicates a strategic allocation of resources to drive future growth while preserving profitability. Net income increased significantly by 33.2%, demonstrating effective management of expenses relative to revenue growth.