8-KEarnings & ResultsMaterial AgreementsFinancial Events

Arista Networks, Inc. 8-K Report, Material Agreement (Aug 6, 2018)

Filed August 6, 2018For Securities:ANET

Summary

Arista Networks (ANET) announced a significant development in its ongoing litigation with Cisco Systems. The company entered into a binding term sheet to settle all pending lawsuits, agreeing to pay Cisco $400 million by August 20, 2018. This settlement also includes mutual releases of claims, a five-year stand-down period for utility patent infringement claims on current products, and a three-year dispute resolution process for new or modified features. Additionally, Arista will make certain modifications to its Command Line Interface (CLI). This settlement has a material impact on Arista's second quarter 2018 GAAP financial results. The company will record a $405 million legal settlement charge and a $99 million reduction in its provision for income taxes. This results in a revised GAAP net loss of $155.3 million for the quarter. Importantly, these adjustments do not affect Arista's non-GAAP financial results, as the company excludes litigation-related costs from its non-GAAP reporting.

Key Highlights

  • 1Arista Networks has reached a binding term sheet with Cisco Systems to settle all pending litigation.
  • 2The settlement involves a payment of $400 million to Cisco, due by August 20, 2018.
  • 3Mutual releases of claims between Arista and Cisco, extending to customers, manufacturers, and partners, are part of the agreement.
  • 4A five-year stand-down period for utility patent infringement claims on existing products and a three-year dispute resolution process for new features are included.
  • 5Arista has agreed to make certain modifications to its Command Line Interface (CLI).
  • 6The settlement necessitates a $405 million GAAP legal settlement charge and a $99 million tax provision reduction for Q2 2018.
  • 7Revised Q2 2018 GAAP net loss is $155.3 million, but non-GAAP results remain unaffected by these litigation costs.

Frequently Asked Questions

The settlement will result in a $405 million GAAP legal settlement charge and a $99 million reduction in the provision for income taxes for the second quarter of 2018. This leads to a revised GAAP net loss of $155.3 million for the quarter.

No, these settlement costs, including the $400 million payment and associated legal fees, do not impact Arista's non-GAAP financial results. The company consistently excludes costs related to the Cisco and OptumSoft, Inc. lawsuits from its non-GAAP reporting.

The parties have agreed to a five-year stand-down period concerning any utility patent infringement claims that either party may have against features currently implemented in the other party's products and services, with certain exceptions for acquired company products.

The binding term sheet is intended to lead to the dismissal of all pending district court and ITC litigation between Arista and Cisco upon the execution of a final agreement. The parties are also seeking a continuance or stay of their jury trial scheduled to commence on August 6, 2018.