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

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

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