[February 16, 2017] |
|
Arista Networks, Inc. Reports Fourth Quarter and Full Year 2016 Financial Results
Arista Networks, Inc. (NYSE: ANET), an industry leader in
software-driven cloud networking solutions for large data center and
computing environments, today announced financial results for its fourth
quarter and year ended December 31, 2016.
Fourth Quarter Financial Highlights
-
Revenue of $328.0 million, an increase of 33.6% compared to the fourth
quarter of 2015, and an increase of 13.0% from the third quarter of
2016.
-
GAAP gross margin of 64.1%, compared to GAAP gross margin of 63.6% in
the fourth quarter of 2015 and 64.2% in the third quarter of 2016.
-
Non-GAAP gross margin of 64.4%, compared to non-GAAP gross margin of
64.0% in the fourth quarter of 2015 and 64.6% in the third quarter of
2016.
-
GAAP net income of $58.8 million, or $0.79 per diluted share, compared
to GAAP net income of $43.9 million, or $0.60 per diluted share, in
the fourth quarter of 2015.
-
Non-GAAP net income of $77.5 million, or $1.04 per diluted share,
compared to non-GAAP net income of $57.5 million, or $0.80 per diluted
share, in the fourth quarter of 2015.
"2016 was indeed a historic year for Arista, as we exceeded one billion
dollars in annual sales within two years of becoming a public company,"
stated Jayshree Ullal, Arista President and CEO. "Our customers are
adopting cloud networking at an unprecedented pace."
Full Year Financial Highlights
-
Revenue of $1.1 billion, an increase of 34.8% compared to fiscal year
2015.
-
GAAP gross margin of 64.0%, compared to GAAP gross margin of 64.9% in
fiscal year 2015.
-
Non-GAAP gross margin of 64.4%, compared to non-GAAP gross margin of
65.3% in fiscal year 2015.
-
GAAP net income of $184.2 million, or $2.50 per diluted share,
compared to GAAP net income of $121.1 million, or $1.67 per diluted
share, in fiscal year 2015.
-
Non-GAAP net income of $241.4 million or $3.30 per diluted share,
compared to non-GAAP net income of $174.2 million, or $2.44 per
diluted share, in fiscal year 2015.
Commenting on the company's financial results for the quarter, Ita
Brennan, Arista's CFO, said, "We are pleased with our outstanding
financial performance in the fourth quarter, reflecting strong customer
demand and consistent execution."
Fourth Quarter Company Highlights
-
Introduced Arista AlgoMatch™, an innovation that delivers advanced
network policy enforcement for modern cloud networking along with the
new Arista
7160 Series 25/100GbE programmable platforms. Arista AlgoMatch
provides customers with more flexible and scalable solutions for
access control, telemetry and secure cloud networking. The Arista 7160
Series utilizes new merchant silicon from Cavium to provide a
programmable platform that lowers operational costs by supporting
Flexible Profiles to reduce network complexity and delivers native
25GbE interfaces that support the new IEEE standard.
2016 Company Highlights
-
Delivered the Arista 7500R Universal Spine and Arista 7280R Universal
Leaf platforms.
-
Introduced the Arista FlexRoute™ Engine, which provides support for
the full internet routing table, in hardware, and scales to more than
one million routes on the Arista 7500R Universal Spine and Arista
7280R Universal Leaf platforms.
-
Positioned by Gartner, Inc. in the "Leaders" quadrant of the 16 May
2016 Magic
Quadrant for Data Center Networking.
-
Announced next-generation, real-time telemetry
and analytics capabilities that leverage Arista
EOS® and CloudVision®.
-
Initiated a strategic partnership with Hewlett Packard Enterprise
("HPE") to deliver on a common vision of secure Hybrid IT solutions.
-
Unveiled the next phase of Arista EOS (Extensible Operating System)
enabling network-wide state with NetDB™.
Financial Outlook
For the first quarter of 2017, we expect:
-
Revenue between $320 and $330 million.
-
Non-GAAP gross margin between 61% to 64%, and
-
Non-GAAP operating margin of approximately 27%.
Guidance for non-GAAP financial measures excludes legal expenses of
approximately $12 million associated with the OptumSoft and Cisco
litigation, stock-based compensation and other non-recurring expenses. A
reconciliation of non-GAAP guidance measures to corresponding GAAP
measures is not available on a forward-looking basis (see further
explanation below).
Prepared Materials and Conference Call Information
Arista executives will discuss fourth quarter and fiscal 2016 financial
results on a conference call at 1:30 p.m. Pacific time today. To listen
to the call via telephone, dial 1-877-201-0168 in the United States or
1-647-788-4901 from outside the US. The Conference ID is 49206884.
The financial results conference call will also be available via live
webcast on our investor relations website at 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 statements in the section entitled
"Financial Outlook," such as estimates regarding revenue, non-GAAP gross
margin and non-GAAP operating margin for the first quarter of fiscal
2017, statements regarding the adoption of cloud networking by our
customers at an unprecedented pace, and statements regarding the
benefits from the introduction of Arista AlgoMatch™ and the Arista 7160
Series platforms. Forward-looking statements are subject to a number of
uncertainties and risks that could cause actual results to differ
materially from those anticipated in the forward-looking statements
including risks associated with: Arista Networks' limited operating
history; risks associated with Arista Networks' rapid growth; Arista
Networks' customer concentration; Arista Networks' dispute with Cisco
Systems, Inc. including Arista Networks' ability to obtain a
determination that alternative product implementations are not covered
by remedial orders and our ability to manage our manufacturing and
supply chain including the sourcing of components on commercially
reasonable terms, if at all; risks associated with our customer's
adoption of our redesigned products and services and requests for more
favorable terms and conditions; declines in the sales prices of our
products and services; changes in customer order patterns or customer
mix; increased competition in our products and service markets,
including the data center market; dependence on the introduction and
market acceptance of new product offerings and standards; rapid
technological and market change; the evolution of the cloud networking
market and the adoption by end customers of Arista Networks' cloud
networking solutions; Arista's dispute with OptumSoft; and general
market, political, economic and business conditions. Additional risks
and uncertainties that could affect Arista Networks can be found in
Arista's Quarterly Reporting on Form 10-Q filed with the SEC on November
3, 2016, and other filings that the company makes to the SEC from time
to time. You can locate these reports through our website at http://investors.arista.com
and on the SEC's website at 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 Arista
Networks disclaims 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
The company reports certain non-GAAP financial measures that exclude
stock-based compensation expense, expenses associated with the OptumSoft
and Cisco litigation, and other non-recurring charges. The company uses
these non-GAAP financial measures internally in analyzing its financial
results and believes that the use of these non-GAAP financial measures
is 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 comparable GAAP net income, net income per
diluted share, gross margin, or operating margin. 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. 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 has
been provided in the financial statement tables included in this press
release, and investors are encouraged to review the reconciliation.
The Company's guidance for non-GAAP financial measures excludes
stock-based compensation, expenses associated with the OptumSoft and
Cisco litigation, and other non-recurring charges. The Company has not
reconciled its non-GAAP gross margin or its non-GAAP operating margin
guidance to GAAP gross margin or GAAP operating margin, because we do
not provide guidance on GAAP gross margin or GAAP operating margin or
the various reconciling cash and non-cash items between GAAP gross
margin and GAAP operating margin and non-GAAP gross margin and non-GAAP
operating margin. Stock-based compensation expense is impacted by the
Company's future hiring and retention needs, as well as the future fair
market value of the Company's common stock, all of which is difficult to
predict and subject to constant change. The actual amount of stock-based
compensation in the fiscal first quarter of 2017 will have a significant
impact on the Company's GAAP gross margin and GAAP operating margin.
Accordingly, a reconciliation of the non-GAAP financial measure guidance
to the corresponding GAAP measure is not available without unreasonable
effort.
About Arista Networks
Arista Networks was founded to pioneer and deliver software-driven cloud
networking solutions for large datacenter storage and computing
environments. Arista's award-winning platforms, ranging in Ethernet
speeds from 10 to 100 gigabits per second, redefine scalability, agility
and resilience. Arista has shipped more than ten million cloud
networking ports worldwide with CloudVision and EOS, an advanced network
operating system. Committed to open standards, Arista is a founding
member of the 25/50GbE consortium. Arista Networks products are
available worldwide directly and through partners.
ARISTA, EOS, CloudVision, and AlgoMatch 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.
Additional information and resources can be found at: http://www.arista.com
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ARISTA NETWORKS, INC.
Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
289,008
|
|
|
$
|
217,325
|
|
|
$
|
991,337
|
|
|
$
|
744,877
|
|
Service
|
|
38,961
|
|
|
28,121
|
|
|
137,830
|
|
|
92,714
|
|
Total revenue
|
|
327,969
|
|
|
245,446
|
|
|
1,129,167
|
|
|
837,591
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Product
|
|
108,057
|
|
|
81,142
|
|
|
369,768
|
|
|
263,585
|
|
Service
|
|
9,757
|
|
|
8,136
|
|
|
36,283
|
|
|
30,446
|
|
Total cost of revenue
|
|
117,814
|
|
|
89,278
|
|
|
406,051
|
|
|
294,031
|
|
Gross profit
|
|
210,155
|
|
|
156,168
|
|
|
723,116
|
|
|
543,560
|
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Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
71,398
|
|
|
57,413
|
|
|
273,581
|
|
|
209,448
|
|
Sales and marketing
|
|
38,321
|
|
|
31,308
|
|
|
130,887
|
|
|
109,084
|
|
General and administrative
|
|
22,941
|
|
|
18,050
|
|
|
75,239
|
|
|
75,720
|
|
Total operating expenses
|
|
132,660
|
|
|
106,771
|
|
|
479,707
|
|
|
394,252
|
|
Income from operations
|
|
77,495
|
|
|
49,397
|
|
|
243,409
|
|
|
149,308
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(918
|
)
|
|
(746
|
)
|
|
(3,136
|
)
|
|
(3,152
|
)
|
Other income (expense), net
|
|
560
|
|
|
(109
|
)
|
|
1,952
|
|
|
(147
|
)
|
Total other income (expense), net
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|
(358
|
)
|
|
(855
|
)
|
|
(1,184
|
)
|
|
(3,299
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)
|
Income before provision for income taxes
|
|
77,137
|
|
|
48,542
|
|
|
242,225
|
|
|
146,009
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Provision for income taxes
|
|
18,354
|
|
|
4,618
|
|
|
58,036
|
|
|
24,907
|
|
Net income
|
|
$
|
58,783
|
|
|
$
|
43,924
|
|
|
$
|
184,189
|
|
|
$
|
121,102
|
|
Net income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
58,527
|
|
|
$
|
43,431
|
|
|
$
|
182,965
|
|
|
$
|
119,115
|
|
Diluted
|
|
$
|
58,542
|
|
|
$
|
43,464
|
|
|
$
|
183,039
|
|
|
$
|
119,264
|
|
Net income per share attributable to common stockholders:
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|
|
|
|
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Basic
|
|
$
|
0.84
|
|
|
$
|
0.65
|
|
|
$
|
2.66
|
|
|
$
|
1.81
|
|
Diluted
|
|
$
|
0.79
|
|
|
$
|
0.60
|
|
|
$
|
2.50
|
|
|
$
|
1.67
|
|
Weighted-average shares used in computing net income per share
attributable to common stockholders:
|
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|
|
|
|
|
|
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Basic
|
|
69,980
|
|
|
67,111
|
|
|
68,771
|
|
|
65,964
|
|
Diluted
|
|
74,384
|
|
|
72,062
|
|
|
73,222
|
|
|
71,411
|
|
|
|
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ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to Non-GAAP Financial Measures
(Unaudited in thousands, except percentages and per share
amounts)
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|
|
|
|
|
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Three Months Ended December 31,
|
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Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
GAAP gross profit
|
|
$
|
210,155
|
|
|
$
|
156,168
|
|
|
$
|
723,116
|
|
|
$
|
543,560
|
|
GAAP gross margin
|
|
64.1
|
%
|
|
63.6
|
%
|
|
64.0
|
%
|
|
64.9
|
%
|
Stock-based compensation expense
|
|
1,004
|
|
|
842
|
|
|
3,620
|
|
|
3,048
|
|
Non-GAAP gross profit
|
|
$
|
211,159
|
|
|
$
|
157,010
|
|
|
$
|
726,736
|
|
|
$
|
546,608
|
|
Non-GAAP gross margin
|
|
64.4
|
%
|
|
64.0
|
%
|
|
64.4
|
%
|
|
65.3
|
%
|
|
|
|
|
|
|
|
|
|
GAAP income from operations
|
|
$
|
77,495
|
|
|
$
|
49,397
|
|
|
$
|
243,409
|
|
|
$
|
149,308
|
|
Stock-based compensation expense
|
|
16,324
|
|
|
12,978
|
|
|
59,032
|
|
|
45,303
|
|
Litigation expense
|
|
12,209
|
|
|
8,956
|
|
|
35,833
|
|
|
41,424
|
|
Non-GAAP income from operations
|
|
$
|
106,028
|
|
|
$
|
71,331
|
|
|
$
|
338,274
|
|
|
$
|
236,035
|
|
Non-GAAP operating margin
|
|
32.3
|
%
|
|
29.1
|
%
|
|
30.0
|
%
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
58,783
|
|
|
$
|
43,924
|
|
|
$
|
184,189
|
|
|
$
|
121,102
|
|
Stock-based compensation expense
|
|
16,324
|
|
|
12,978
|
|
|
59,032
|
|
|
45,303
|
|
Litigation expense
|
|
12,209
|
|
|
8,956
|
|
|
35,833
|
|
|
41,424
|
|
Release of income tax reserve
|
|
-
|
|
|
(968
|
)
|
|
(6,293
|
)
|
|
(7,344
|
)
|
Income tax effect on non-GAAP exclusions
|
|
(9,836
|
)
|
|
(7,424
|
)
|
|
(31,340
|
)
|
|
(26,292
|
)
|
Non-GAAP net income
|
|
$
|
77,480
|
|
|
$
|
57,466
|
|
|
$
|
241,421
|
|
|
$
|
174,193
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing GAAP diluted income per
share attributable to common stockholders
|
|
74,384
|
|
|
72,062
|
|
|
73,222
|
|
|
71,411
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted net income per share attributable to common stockholders
|
|
$
|
0.79
|
|
|
$
|
0.60
|
|
|
$
|
2.50
|
|
|
$
|
1.67
|
|
Net income attributable to participating securities
|
|
-
|
|
|
0.01
|
|
|
0.02
|
|
|
0.03
|
|
Non-GAAP adjustments to net income
|
|
0.25
|
|
|
0.19
|
|
|
0.78
|
|
|
0.74
|
|
Non-GAAP diluted net income per share
|
|
$
|
1.04
|
|
|
$
|
0.80
|
|
|
$
|
3.30
|
|
|
$
|
2.44
|
|
Summary of Stock-Based Compensation Expense
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
1,004
|
|
|
$
|
842
|
|
|
$
|
3,620
|
|
|
$
|
3,048
|
|
Research and development
|
|
8,830
|
|
|
7,171
|
|
|
31,892
|
|
|
25,515
|
|
Sales and marketing
|
|
4,292
|
|
|
3,316
|
|
|
15,666
|
|
|
11,454
|
|
General and administrative
|
|
2,198
|
|
|
1,649
|
|
|
7,854
|
|
|
5,286
|
|
Total
|
|
$
|
16,324
|
|
|
$
|
12,978
|
|
|
$
|
59,032
|
|
|
$
|
45,303
|
|
|
|
|
ARISTA NETWORKS, INC.
Consolidated Balance Sheets
(Unaudited in thousands)
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
567,923
|
|
|
$
|
687,326
|
|
Marketable securities
|
|
299,910
|
|
|
-
|
|
Accounts receivable
|
|
253,119
|
|
|
144,263
|
|
Inventories
|
|
236,490
|
|
|
92,129
|
|
Prepaid expenses and other current assets
|
|
168,684
|
|
|
50,610
|
|
Total current assets
|
|
1,526,126
|
|
|
974,328
|
|
Property and equipment, net
|
|
76,961
|
|
|
79,706
|
|
Investments
|
|
36,136
|
|
|
36,636
|
|
Deferred tax assets
|
|
70,960
|
|
|
48,429
|
|
Other assets
|
|
18,824
|
|
|
20,791
|
|
TOTAL ASSETS
|
|
$
|
1,729,007
|
|
|
$
|
1,159,890
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
Accounts payable
|
|
$
|
79,457
|
|
|
$
|
43,966
|
|
Accrued liabilities
|
|
90,951
|
|
|
60,971
|
|
Deferred revenue
|
|
273,350
|
|
|
122,049
|
|
Other current liabilities
|
|
15,795
|
|
|
8,025
|
|
Total current liabilities
|
|
459,553
|
|
|
235,011
|
|
Income taxes payable
|
|
14,498
|
|
|
14,060
|
|
Lease financing obligations, non-current
|
|
39,593
|
|
|
41,210
|
|
Deferred revenue, non-current
|
|
99,585
|
|
|
74,759
|
|
Other long-term liabilities
|
|
7,958
|
|
|
6,698
|
|
TOTAL LIABILITIES
|
|
621,187
|
|
|
371,738
|
|
Commitments and contingencies
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
Common stock
|
|
7
|
|
|
7
|
|
Additional paid-in capital
|
|
674,183
|
|
|
537,904
|
|
Retained earnings
|
|
435,105
|
|
|
250,916
|
|
Accumulated other comprehensive loss
|
|
(1,475
|
)
|
|
(675
|
)
|
TOTAL STOCKHOLDERS' EQUITY
|
|
1,107,820
|
|
|
788,152
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
1,729,007
|
|
|
$
|
1,159,890
|
|
|
|
|
ARISTA NETWORKS, INC.
Consolidated Statements of Cash Flows
(Unaudited in thousands)
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net income
|
|
$
|
184,189
|
|
|
$
|
121,102
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
19,749
|
|
|
13,671
|
|
Stock-based compensation
|
|
59,032
|
|
|
45,303
|
|
Deferred income taxes
|
|
(21,720
|
)
|
|
(24,409
|
)
|
Excess tax benefit on stock based-compensation
|
|
(42,855
|
)
|
|
(37,251
|
)
|
Amortization of investment premiums
|
|
1,493
|
|
|
1,471
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
|
(108,856
|
)
|
|
(47,281
|
)
|
Inventories
|
|
(144,361
|
)
|
|
(14,123
|
)
|
Prepaid expenses and other current assets
|
|
(115,074
|
)
|
|
(7,827
|
)
|
Other assets
|
|
2,866
|
|
|
(3,087
|
)
|
Accounts payable
|
|
38,678
|
|
|
9,037
|
|
Accrued liabilities
|
|
30,629
|
|
|
20,398
|
|
Deferred revenue
|
|
176,126
|
|
|
90,340
|
|
Income taxes payable
|
|
42,650
|
|
|
32,018
|
|
Other liabilities
|
|
8,894
|
|
|
1,171
|
|
Net cash provided by operating activities
|
|
131,440
|
|
|
200,533
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Proceeds from marketable securities
|
|
137,855
|
|
|
208,200
|
|
Purchases of marketable securities
|
|
(439,711
|
)
|
|
-
|
|
Purchases of property and equipment
|
|
(21,419
|
)
|
|
(19,989
|
)
|
Other investing activities
|
|
(2,500
|
)
|
|
-
|
|
Change in restricted cash
|
|
(204
|
)
|
|
(4,041
|
)
|
Net cash provided by (used) in investing activities
|
|
(325,979
|
)
|
|
184,170
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Principal payments of lease financing obligations
|
|
(1,336
|
)
|
|
(1,086
|
)
|
Proceeds from issuance of common stock upon exercising options, net
of repurchases
|
|
24,855
|
|
|
17,835
|
|
Minimum tax withholding paid on behalf of employees for net share
settlement
|
|
(1,100
|
)
|
|
-
|
|
Proceeds from issuance of common stock, employee stock purchase plan
|
|
10,326
|
|
|
9,366
|
|
Excess tax benefit on stock-based compensation
|
|
42,855
|
|
|
37,251
|
|
Issuance costs from initial public offering
|
|
-
|
|
|
(261
|
)
|
Net cash provided by financing activities
|
|
75,600
|
|
|
63,105
|
|
Effect of exchange rate changes
|
|
(464
|
)
|
|
(513
|
)
|
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(119,403
|
)
|
|
447,295
|
|
CASH AND CASH EQUIVALENTS-Beginning of year
|
|
687,326
|
|
|
240,031
|
|
CASH AND CASH EQUIVALENTS-End of year
|
|
$
|
567,923
|
|
|
$
|
687,326
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20170216006185/en/
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