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Arista Networks, Inc. Reports First Quarter 2023 Financial Results

Arista Networks, Inc. (NYSE: ANET), an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments, today announced financial results for its first quarter ended March 31, 2023.

“Amid macroeconomic uncertainty and a gradually recovering supply chain, Arista continues to bring innovative, leading-edge platforms to market, while delivering superior customer and financial outcomes," said Jayshree Ullal, President and CEO of Arista Networks. “Our Q1 results illustrate this with continued growth in revenue and profits.”

First Quarter Financial Highlights

  • Revenue of $1.351 billion, an increase of 5.9% compared to the fourth quarter of 2022, and an increase of 54.1% from the first quarter of 2022.
  • GAAP gross margin of 59.5%, compared to GAAP gross margin of 60.3% in the fourth quarter of 2022 and 63.1% in the first quarter of 2022.
  • Non-GAAP gross margin of 60.3%, compared to non-GAAP gross margin of 61.0% in the fourth quarter of 2022 and 63.9% in the first quarter of 2022.
  • GAAP net income of $436.5 million, or $1.38 per diluted share, compared to GAAP net income of $272.3 million, or $0.85 per diluted share in the first quarter of 2022.
  • Non-GAAP net income of $452.5 million, or $1.43 per diluted share, compared to non-GAAP net income of $268.5 million, or $0.84 per diluted share in the first quarter of 2022.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, “We are pleased with the continued strong revenue growth in the quarter, and with the team’s focus on improving broader financial metrics as we move through the year.”

Company Highlights

Financial Outlook

For the second quarter of 2023, we expect:

  • Revenue between $1.350 billion to $1.400 billion
  • Non-GAAP gross margin of approximately 61%; and
  • Non-GAAP operating margin of approximately 40%

Guidance for non-GAAP financial measures excludes stock-based compensation expense, amortization of acquisition-related intangible assets, and potential non-recurring charges or benefits. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward- looking basis because these exclusions can be uncertain or difficult to predict, including stock-based compensation expense which is impacted by the company’s future hiring and retention needs and the future fair market value of the company’s common stock. The actual amount of these exclusions will have a significant impact on the company’s GAAP gross margin and GAAP operating margin.

Prepared Materials and Conference Call Information

Arista's executives will discuss the first quarter 2023 financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial (888) 330-2502 in the United States or +1 (240) 789-2713 from international locations. The Conference ID is 5655862.

The financial results conference call will also be available via live webcast on Arista's investor relations website at https://investors.arista.com/. Shortly after the conclusion of the conference call, a replay of the audio webcast will be available on Arista’s investor relations website.

Forward-Looking Statements

This press release contains “forward-looking statements” regarding our future performance, including quotations from management, statements in the section entitled “Financial Outlook,” such as estimates regarding revenue, non-GAAP gross margin and non-GAAP operating margin for the second quarter of 2023 and statements regarding the benefits of Arista's products. Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause actual results, performance or achievements to differ materially from those anticipated in or implied by the forward-looking statements including risks associated with: dependence on a limited number of customers who represent a substantial portion of our revenue; adverse global economic and geopolitical conditions, including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending, the Russia/Ukraine conflict; interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including significant purchase commitments, excess inventory and extended lead times; the rapid evolution of the networking market; any failure to successfully pursue new products and service offerings and expand into adjacent markets; a decline in our revenue growth rate; fluctuations in our results of operations including as a result of seasonality; variability in our gross margins including as a result of changes in customer mix or product mix; intense competition; expansion of our international sales and operations; investments in or acquisitions of other businesses; fluctuations in currency exchange rates; any failure to raise any needed capital; our ability to attract new large end customers or sell products and services to existing end customers and dependence on large end customers; our ability to increase market awareness of our company and new products and services; a decline in the sales prices of our products and services; a decline in maintenance renewals by customers; product quality problems; our ability to anticipate technological shifts and develop products to meet those technological shifts; the management of the supply of our products and product components; our dependence on third-party manufacturers to build our products; our ability to protect, defend and maintain our intellectual property rights; vulnerabilities in our products and failure of our products to detect security breaches; tax, tariff, import/export restrictions or other trade barriers; and other future events. Additional risks and uncertainties that could affect us can be found in our most recent filings with the Securities and Exchange Commission including, but not limited to, our annual report on Form 10-K and quarterly reports on Form 10-Q. You can locate these reports through our website at https://investors.arista.com/ and on the SEC’s website at https://www.sec.gov/. All forward-looking statements in this press release are based on information available to the company as of the date hereof and we disclaim any obligation to publicly update or revise any forward-looking statement to reflect events that occur or circumstances that exist after the date on which they were made.

Non-GAAP Financial Measures

This press release and accompanying table contain certain non-GAAP financial measures including non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margins, non-GAAP net income and non-GAAP diluted net income per share. These non-GAAP financial measures exclude stock-based compensation expense, amortization of acquisition-related intangible assets, unrealized gains/losses on equity investments, certain non-recurring charges or benefits, and the income tax effect of these non-GAAP exclusions. In addition, non-GAAP financial measures exclude net tax benefits associated with stock-based awards, which include excess tax benefits, and other discrete indirect effects of such awards. The company uses these non-GAAP financial measures internally in analyzing its financial results and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing operating results and trends. In addition, these measures are the primary indicators management uses as a basis for its planning and forecasting for future periods.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP financial measures. Non-GAAP financial measures are subject to limitations, and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. A description of these non-GAAP financial measures and a reconciliation of the company’s non-GAAP financial measures to their most directly comparable GAAP measures have been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

About Arista Networks

Arista Networks is an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments. Arista’s award-winning platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack. For more information, visit www.arista.com.

ARISTA and CloudVision, are among the registered and unregistered trademarks of Arista Networks, Inc. in jurisdictions around the world. Other company names or product names may be trademarks of their respective owners.

ARISTA NETWORKS, INC.

Condensed Consolidated Income Statements

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended March 31, 2023

 

 

2023

 

2022

Revenue:

 

 

 

 

Product

 

$

1,172,094

 

$

724,718

Service

 

 

179,257

 

 

152,348

Total revenue

 

 

1,351,351

 

 

877,066

Cost of revenue:

 

 

 

 

Product

 

 

508,862

 

 

293,809

Service

 

 

37,982

 

 

29,412

Total cost of revenue

 

 

546,844

 

 

323,221

Gross profit

 

 

804,507

 

 

553,845

Operating expenses:

 

 

 

 

Research and development

 

 

201,408

 

 

172,006

Sales and marketing

 

 

93,492

 

 

80,739

General and administrative

 

 

25,029

 

 

23,113

Total operating expenses

 

 

319,929

 

 

275,858

Income from operations

 

 

484,578

 

 

277,987

Other income, net

 

 

12,146

 

 

31,480

Income before income taxes

 

 

496,724

 

 

309,467

Provision for income taxes

 

 

60,251

 

 

37,208

Net income

 

$

436,473

 

$

272,259

Net income per share:

 

 

 

 

Basic

 

$

1.42

 

$

0.88

Diluted

 

$

1.38

 

$

0.85

Weighted-average shares used in computing net income per share:

 

 

 

 

Basic

 

 

306,985

 

 

308,045

Diluted

 

 

315,578

 

 

319,652

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(Unaudited, in thousands, except percentages and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

GAAP gross profit

 

$

804,507

 

 

$

553,845

 

GAAP gross margin

 

 

59.5

%

 

 

63.1

%

Stock-based compensation expense

 

 

2,975

 

 

 

1,309

 

Intangible asset amortization

 

 

6,820

 

 

 

5,721

 

Non-GAAP gross profit

 

$

814,302

 

 

$

560,875

 

Non-GAAP gross margin

 

 

60.3

%

 

 

63.9

%

 

 

 

 

 

GAAP income from operations

 

$

484,578

 

 

$

277,987

 

Stock-based compensation expense

 

 

62,881

 

 

 

50,279

 

Intangible asset amortization

 

 

9,315

 

 

 

7,311

 

Non-GAAP income from operations

 

$

556,774

 

 

$

335,577

 

Non-GAAP operating margin

 

 

41.2

%

 

 

38.3

%

 

 

 

 

 

GAAP net income

 

$

436,473

 

 

$

272,259

 

Stock-based compensation expense

 

 

62,881

 

 

 

50,279

 

Intangible asset amortization

 

 

9,315

 

 

 

7,311

 

Unrealized loss (gain) on equity investments

 

 

5,571

 

 

 

(28,497

)

Tax benefit on stock-based awards

 

 

(50,062

)

 

 

(30,964

)

Income tax effect on non-GAAP exclusions

 

 

(11,716

)

 

 

(1,880

)

Non-GAAP net income

 

$

452,462

 

 

$

268,508

 

 

 

 

 

 

GAAP diluted net income per share

 

$

1.38

 

 

$

0.85

 

Non-GAAP adjustments to net income

 

 

0.05

 

 

 

(0.01

)

Non-GAAP diluted net income per share

 

$

1.43

 

 

$

0.84

 

Weighted-average shares used in computing diluted net income per share

 

 

315,578

 

 

 

319,652

 

Summary of Stock-Based Compensation Expense:

 

 

 

 

Cost of revenue

 

$

2,975

 

 

$

1,309

 

Research and development

 

 

36,569

 

 

 

27,576

 

Sales and marketing

 

 

15,138

 

 

 

13,109

 

General and administrative

 

 

8,199

 

 

 

8,285

 

Total

 

$

62,881

 

 

$

50,279

 

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

March 31,

2023

 

December 31,

2022

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

956,341

 

 

$

671,707

 

Marketable securities

 

 

2,374,789

 

 

 

2,352,022

 

Accounts receivable

 

 

862,875

 

 

 

923,096

 

Inventories

 

 

1,682,703

 

 

 

1,289,706

 

Prepaid expenses and other current assets

 

 

393,825

 

 

 

314,217

 

Total current assets

 

 

6,270,533

 

 

 

5,550,748

 

Property and equipment, net

 

 

97,157

 

 

 

95,009

 

Acquisition-related intangible assets, net

 

 

112,890

 

 

 

122,205

 

Goodwill

 

 

265,924

 

 

 

265,924

 

Investments

 

 

39,401

 

 

 

39,468

 

Operating lease right-of-use assets

 

 

64,003

 

 

 

53,390

 

Deferred tax assets

 

 

646,066

 

 

 

574,912

 

Other assets

 

 

47,092

 

 

 

73,754

 

TOTAL ASSETS

 

$

7,543,066

 

 

$

6,775,410

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable

 

$

330,171

 

 

$

232,572

 

Accrued liabilities

 

 

351,764

 

 

 

292,487

 

Deferred revenue

 

 

671,700

 

 

 

637,432

 

Other current liabilities

 

 

231,274

 

 

 

131,040

 

Total current liabilities

 

 

1,584,909

 

 

 

1,293,531

 

Income taxes payable

 

 

94,733

 

 

 

89,839

 

Operating lease liabilities, non-current

 

 

55,291

 

 

 

43,964

 

Deferred revenue, non-current

 

 

420,574

 

 

 

403,814

 

Other long-term liabilities

 

 

58,385

 

 

 

58,442

 

TOTAL LIABILITIES

 

 

2,213,892

 

 

 

1,889,590

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

Common stock

 

 

31

 

 

 

31

 

Additional paid-in capital

 

 

1,857,467

 

 

 

1,780,714

 

Retained earnings

 

 

3,493,181

 

 

 

3,138,983

 

Accumulated other comprehensive income (loss)

 

 

(21,505

)

 

 

(33,908

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

5,329,174

 

 

 

4,885,820

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

7,543,066

 

 

$

6,775,410

 

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

436,473

 

 

$

272,259

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation, amortization and other

 

 

20,905

 

 

 

13,091

 

Stock-based compensation

 

 

62,881

 

 

 

50,279

 

Noncash lease expense

 

 

4,633

 

 

 

4,532

 

Deferred income taxes

 

 

(71,153

)

 

 

(81,822

)

Unrealized loss (gain) on equity investments

 

 

5,571

 

 

 

(28,497

)

Amortization (accretion) of investment premiums (discounts)

 

 

(4,220

)

 

 

7,033

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

60,221

 

 

 

(131,861

)

Inventories

 

 

(392,997

)

 

 

(43,531

)

Prepaid expenses and other current assets

 

 

(82,278

)

 

 

(107,999

)

Other assets

 

 

26,361

 

 

 

(640

)

Accounts payable

 

 

94,564

 

 

 

2,478

 

Accrued liabilities

 

 

58,655

 

 

 

(29,666

)

Deferred revenue

 

 

51,028

 

 

 

187,194

 

Income taxes, net

 

 

108,200

 

 

 

106,992

 

Other liabilities

 

 

(4,361

)

 

 

(2,704

)

Net cash provided by operating activities

 

 

374,483

 

 

 

217,138

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds from maturities of marketable securities

 

 

824,021

 

 

 

404,176

 

Proceeds from sale of marketable securities

 

 

21,725

 

 

 

 

Purchases of marketable securities

 

 

(861,612

)

 

 

(412,614

)

Purchases of property and equipment

 

 

(5,631

)

 

 

(14,876

)

Business acquisitions, net of cash acquired

 

 

 

 

 

(37,610

)

Investments and notes receivable in privately-held companies

 

 

(250

)

 

 

(11,691

)

Net cash used in investing activities

 

 

(21,747

)

 

 

(72,615

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from issuance of common stock under equity plans

 

 

23,096

 

 

 

19,160

 

Tax withholding paid on behalf of employees for net share settlement

 

 

(9,224

)

 

 

(12,741

)

Repurchases of common stock

 

 

(82,275

)

 

 

(136,228

)

Net cash used in financing activities

 

 

(68,403

)

 

 

(129,809

)

Effect of exchange rate changes

 

 

314

 

 

 

(481

)

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

284,647

 

 

 

14,233

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

 

 

675,978

 

 

 

625,050

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

 

$

960,625

 

 

$

639,283

 

 

Contacts

Investor Contacts:

Arista Networks, Inc.

Liz Stine, 408-547-5885

Investor Relations

liz@arista.com

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