TechDogs-"Arista Networks, Inc. Reports Fourth Quarter and Year End 2022 Financial Results"

Networking Solutions

Arista Networks, Inc. Reports Fourth Quarter and Year End 2022 Financial Results

By Business Wire

Business Wire
Overall Rating

SANTA CLARA, Calif.--(BUSINESS WIRE)--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 fourth quarter and the full year ended December 31, 2022.

"Arista continues to help our customers deliver innovative network transformation platforms for data-driven cloud networking. Despite having to navigate industry wide supply chain challenges, FY22 was a year of record performance exceeding expectations in growth, revenue and profitability," stated Jayshree Ullal, President and CEO of Arista Networks.

Full Year Financial Results

  • Revenue of $4,381.3 million, an increase of 48.6% compared to fiscal year 2021.
  • GAAP gross margin of 61.1%, compared to GAAP gross margin of 63.8% in fiscal year 2021.
  • Non-GAAP gross margin of 61.9%, compared to non-GAAP gross margin of 64.8% in fiscal year 2021.
  • GAAP net income of $1,352.4 million, or $4.27 per diluted share, compared to GAAP net income of $840.9 million, or $2.63 per diluted share, in fiscal year 2021.
  • Non-GAAP net income of $1,448.3 million or $4.58 per diluted share, compared to non-GAAP net income of $915.0 million or $2.87 per diluted share, in fiscal year 2021.

Fourth Quarter Financial Results

  • Revenue of $1,275.6 million, an increase of 8.4% compared to the third quarter of 2022, and an increase of 54.7% from the fourth quarter of 2021.
  • GAAP gross margin of 60.3%, compared to GAAP gross margin of 60.3% in the third quarter of 2022 and 63.4% in the fourth quarter of 2021.
  • Non-GAAP gross margin of 61.0%, compared to non-GAAP gross margin of 61.2% in the third quarter of 2022 and 64.3% in the fourth quarter of 2021.
  • GAAP net income of $427.1 million, or $1.35 per diluted share, compared to GAAP net income of $239.3 million, or $0.75 per diluted share, in the fourth quarter of 2021.
  • Non-GAAP net income of $445.1 million, or $1.41 per diluted share, compared to non-GAAP net income of $262.4 million, or $0.82 per diluted share, in the fourth quarter of 2021.

Commenting on the company's financial results, Ita Brennan, Arista’s CFO said, “Our outstanding fourth quarter financial results epitomize our focus on profitable revenue growth, leveraging R&D and go-to-market investments across the business.”

Fourth Quarter Company Highlights

Full Year Company Highlights

Financial Outlook

For the first quarter of 2023, we expect:

  • Revenue between $1,275 million to $1,325 million;
  • Non-GAAP gross margin of approximately 60%; 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 other acquisition-related costs. 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 fourth quarter and year end 2022 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 first 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: interruptions or delays in shipments; the impact of supply shortages and manufacturing disruptions on our business including increased purchase commitments, excess inventory and extended lead times; adverse global economic and geopolitical conditions, including inflationary pressures which result in increased component costs and reduced information technology and network infrastructure spending, and the Russia/Ukraine conflict; dependence on a limited number of customers who represent a substantial portion of our revenue; 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, certain acquisition-related costs, unrealized gains on equity investments, 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.

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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 https://www.arista.com.

ARISTA, EOS, CloudVision, NetDL and AVA 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 www.arista.com.

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2022

2021

2022

2021

Revenue:

Product

$

1,096,866

$

667,955

$

3,716,079

$

2,377,727

Service

178,686

156,504

665,231

570,310

Total revenue

1,275,552

824,459

4,381,310

2,948,037

Cost of revenue:

Product

471,617

270,809

1,573,629

958,363

Service

35,329

30,936

131,985

108,895

Total cost of revenue

506,946

301,745

1,705,614

1,067,258

Total gross profit

768,606

522,714

2,675,696

1,880,779

Operating expenses:

Research and development

190,423

157,879

728,394

586,752

Sales and marketing

85,443

74,786

326,955

286,171

General and administrative

23,821

24,261

93,241

83,117

Total operating expenses

299,687

256,926

1,148,590

956,040

Income from operations

468,919

265,788

1,527,106

924,739

Other income, net

16,926

1,500

54,690

6,140

Income before income taxes

485,845

267,288

1,581,796

930,879

Provision for income taxes

58,756

27,993

229,350

90,025

Net income

$

427,089

$

239,295

$

1,352,446

$

840,854

Earnings per share:

Basic

$

1.39

$

0.78

$

4.41

$

2.74

Diluted

$

1.35

$

0.75

$

4.27

$

2.63

Weighted-average common shares outstanding:

Basic

306,162

307,521

306,473

306,512

Diluted

315,201

319,753

316,459

319,238

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2022

2021

2022

2021

GAAP gross profit

$

768,606

$

522,714

$

2,675,696

$

1,880,779

GAAP gross margin

60.3

%

63.4

%

61.1

%

63.8

%

Stock-based compensation expense

3,075

2,246

9,688

7,444

Intangible asset amortization

6,821

5,464

25,374

21,857

Non-GAAP gross profit

$

778,502

$

530,424

$

2,710,758

$

1,910,080

Non-GAAP gross margin

61.0

%

64.3

%

61.9

%

64.8

%

GAAP income from operations

$

468,919

$

265,788

$

1,527,106

$

924,739

Stock-based compensation expense

64,954

51,243

230,934

186,875

Intangible asset amortization

9,316

7,159

33,650

29,235

Acquisition-related costs(1)

4,691

Non-GAAP income from operations

$

543,189

$

324,190

$

1,796,381

$

1,140,849

Non-GAAP operating margin

42.6

%

39.3

%

41.0

%

38.7

%

GAAP net income

$

427,089

$

239,295

$

1,352,446

$

840,854

Stock-based compensation expense

64,954

51,243

230,934

186,875

Intangible asset amortization

9,316

7,159

33,650

29,235

Acquisition-related costs

4,691

Unrealized gain on equity investments

(3,358

)

(27,479

)

Tax benefit on stock-based awards

(37,177

)

(30,470

)

(113,502

)

(115,154

)

Income tax effect on non-GAAP exclusions

(15,677

)

(4,814

)

(32,482

)

(26,813

)

Non-GAAP net income

$

445,147

$

262,413

$

1,448,258

$

914,997

GAAP diluted net income per share

$

1.35

$

0.75

$

4.27

$

2.63

Non-GAAP adjustments to net income

0.06

0.07

0.31

0.24

Non-GAAP diluted net income per share

$

1.41

$

0.82

$

4.58

$

2.87

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

315,201

319,753

316,459

319,238

Summary of Stock-Based Compensation Expense:

Cost of revenue

$

3,075

$

2,246

$

9,688

$

7,444

Research and development

37,174

27,097

130,897

99,770

Sales and marketing

15,532

12,388

57,571

46,521

General and administrative

9,173

9,512

32,778

33,140

Total

$

64,954

$

51,243

$

230,934

$

186,875

___________________

(1)

Represents one-time costs associated with our acquisitions, which primarily include retention bonuses, professional and consulting fees.

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

December 31, 2022

December 31, 2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

671,707

$

620,813

Marketable securities

2,352,022

2,787,502

Accounts receivable

923,096

516,509

Inventories

1,289,706

650,117

Prepaid expenses and other current assets

314,217

237,735

Total current assets

5,550,748

4,812,676

Property and equipment, net

95,009

78,634

Acquisition-related intangible assets, net

122,205

93,555

Goodwill

265,924

188,397

Investments

39,468

20,247

Operating lease right-of-use assets

53,390

65,182

Deferred tax assets

574,912

442,295

Other assets

73,754

33,443

TOTAL ASSETS

$

6,775,410

$

5,734,429

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$

232,572

$

202,636

Accrued liabilities

292,487

226,643

Deferred revenue

637,432

593,578

Other current liabilities

131,040

86,972

Total current liabilities

1,293,531

1,109,829

Income taxes payable

89,839

69,916

Operating lease liabilities, non-current

43,964

56,527

Deferred revenue, non-current

403,814

335,734

Deferred tax liabilities, non-current

42

129,074

Other long-term liabilities

58,400

54,749

TOTAL LIABILITIES

1,889,590

1,755,829

STOCKHOLDERS’ EQUITY:

Common stock

31

31

Additional paid-in capital

1,780,714

1,530,046

Retained earnings

3,138,983

2,456,823

Accumulated other comprehensive income (loss)

(33,908

)

(8,300

)

TOTAL STOCKHOLDERS’ EQUITY

4,885,820

3,978,600

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

6,775,410

$

5,734,429

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Twelve Months Ended December 31,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

1,352,446

$

840,854

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

Depreciation, amortization and other

62,700

50,334

Noncash lease expense

18,648

17,112

Stock-based compensation

230,934

186,875

Deferred income taxes

(244,382

)

(99,290

)

Unrealized gain on equity investments

(27,479

)

Amortization of investment premiums

12,767

26,847

Changes in operating assets and liabilities:

Accounts receivable, net

(401,531

)

(126,969

)

Inventories

(638,948

)

(170,449

)

Prepaid expenses and other current assets

(85,166

)

(126,002

)

Other assets

(32,299

)

(4,220

)

Accounts payable

31,436

66,681

Accrued liabilities

66,586

83,524

Deferred revenue

98,957

278,485

Income taxes, net

44,026

(2,589

)

Other liabilities

4,118

(5,337

)

Net cash provided by operating activities

492,813

1,015,856

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of marketable securities

1,643,824

1,455,465

Purchases of marketable securities

(1,418,857

)

(2,317,264

)

Business combinations, net of cash acquired

(145,087

)

Purchases of property, equipment and intangible assets

(44,644

)

(64,736

)

Escrow receipts from past business acquisitions

1,299

Investments and notes receivable in privately-held companies

(12,691

)

(19,933

)

Proceeds from sale of marketable securities

193,782

19,607

Net cash provided by (used in) investing activities

216,327

(925,562

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under equity plans

48,411

67,245

Tax withholding paid on behalf of employees for net share settlement

(32,725

)

(16,482

)

Repurchase of common stock

(670,287

)

(411,645

)

Net cash used in financing activities

(654,601

)

(360,882

)

Effect of exchange rate changes

(3,611

)

(1,816

)

NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

50,928

(272,404

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period

625,050

897,454

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period

$

675,978

$

625,050


Contacts

Investor Contacts:
Arista Networks, Inc.
Liz Stine, 408-547-5885
Director, Investor Relations
liz@arista.com

First published on Tue, Feb 14, 2023

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