EX-99.1 2 ex991q42014.htm EXHIBIT 99.1 EX. 99.1 Q42014

Exhibit 99.1

Arista Networks Reports Fourth Quarter and Full Year 2014 Financial Results
Cloud Networking Adoption Drives Record 2014 Revenue, non-GAAP Net Income and Earnings per Diluted Share
SANTA CLARA, Calif., February 19, 2015 - 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, 2014.
Fourth Quarter Financial Highlights
•
Revenue of $173.5 million, an increase of 51.2% compared to the fourth quarter of 2013, and an increase of 11.6% from the third quarter of 2014.
•
GAAP gross margin of 67.1%, compared to GAAP gross margin of 67.5% in the fourth quarter of 2013 and 64.9% in the third quarter of 2014.
•
GAAP net income of $31.0 million, or $0.43 per diluted share, compared to GAAP net income of $13.7 million, or $0.23 per diluted share, in the fourth quarter of 2013.
•
Non-GAAP net income of $37.3 million or $0.53 per diluted share, compared to non-GAAP net income of $17.5 million, or $0.27 per diluted share, in the fourth quarter of 2013.
•
Operating cash flow of $15.8 million, compared to $6.0 million of operating cash used in the fourth quarter of 2013.
“We are pleased with our annual revenue growth in 2014 of 61.7% over 2013, with broad customer momentum across our key verticals,” stated Jayshree Ullal, Arista President and CEO. “Our pioneering innovations in EOS+, in combination with our flagship 7000 series spine and spline models have made cloud networking transition a reality.”
Full Year Financial Highlights
•
Revenue of $584.1 million, an increase of 61.7% compared to fiscal year 2013.
•
GAAP gross margin of 67.1%, compared to GAAP gross margin of 66.0% in fiscal year 2013.
•
GAAP net income of $86.9 million, or $1.29 per diluted share, compared to GAAP net income of $42.5 million, or $0.72 per diluted share, in fiscal year 2013.
•
Non-GAAP net income of $105.5 million or $1.54 per diluted share, compared to non-GAAP net income of $52.6 million, or $0.84 per diluted share, in fiscal year 2013.
•
Operating cash flow of $114.5 million, compared to $34.6 million in fiscal year 2013.
Commenting on the company's financial results, Kelyn Brannon, CFO of Arista Networks, said, "We executed strongly on our business model throughout 2014 and achieved impressive financial results. The fourth quarter capped off a year of record revenue, EPS and operating cash flow, while we also increased non-GAAP operating margin to 26% for the year.”
Financial Outlook
For the first quarter of 2015, we expect:
•
Revenue between $164 and $172 million.
•
Non-GAAP gross margin in the range of 63% to 66% and
•
Non-GAAP operating margin in the range of 22% to 25%.
Guidance for non-GAAP financial measures excludes legal expenses 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.
Prepared Materials and Conference Call Information
Arista executives will discuss fourth quarter 2014 financial results on a conference call at 1:30 p.m. Pacific time today. The conference call can be heard via webcast on our investor relations website: investors.arista.com, or by dialing 1-877-201-0168 in the United States or 1-647-788-4901 from international locations. The Conference ID is 78056197.
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 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 FY 2015. 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: Arista Networks’ limited operating history; risks associated with Arista Networks’ rapid growth; Arista Networks’ customer concentration; requests for more favorable terms and conditions from our large end customers; 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 dispute with Cisco Systems, Inc. and OptumSoft, Inc.; the evolution of the cloud networking market and the adoption by end customers of Arista Networks’ cloud networking solutions; and general market, political, economic and business conditions. Additional risks and uncertainties that could affect Arista Networks can be found in Arista’s Annual Report on Form 10-K that will be filed with the SEC for the year ended December 31, 2014, 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 non-GAAP results for gross margins, net income and net income per share in addition to, and not as a substitute for, financial measures calculated in accordance with GAAP. 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.
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. 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.
Arista Networks defines non-GAAP gross margins as total gross profit, excluding stock-based compensation expenses, divided by total revenue. Arista Networks defines non-GAAP net income as net income, excluding stock based compensation expense, realized gain on note receivable, and the related income tax effect of these exclusions. Arista Networks defines non-GAAP net income per share as non-GAAP net income divided by the diluted weighted average shares outstanding on a pro forma basis. In order to evaluate per share information on a comparative basis, the company believes it is meaningful to provide a non-GAAP financial measure that gives pro forma effect to the conversion of the preferred shares and notes payable into common shares and the issuance of common shares in connection with the company’s initial public offering as if each happened at the beginning of each period presented.
About Arista Networks
Arista Networks was founded to deliver software-driven cloud networking solutions for large data center and computing environments. Arista’s award-winning 10/40/100 GbE switches redefine scalability, robustness, and price-performance, with over 3,000 customers and more than three million cloud networking ports deployed worldwide. At the core of Arista’s platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers.
ARISTA, EOS and Spline 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.
Media Contact
Amanda Jaramillo
Corporate Communications
(408) 547-5798
amanda@arista.com

 
Investor Contact
Chuck Elliott
Product and Investor Advocacy
(408) 547-5549
chuck@arista.com







ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
 
 
Revenue
$
173,489

 
$
114,766

 
$
584,106

 
$
361,224

Cost of revenue
57,049

 
37,293

 
192,015

 
122,686

Gross profit
116,440

 
77,473

 
392,091

 
238,538

Operating expenses:
 
 
 
 
 
 
 
Research and development
44,344

 
31,352

 
148,909

 
98,587

Sales and marketing
25,016

 
17,412

 
85,338

 
55,115

General and administrative
8,078

 
6,204

 
32,331

 
18,688

Total operating expenses
77,438

 
54,968

 
266,578

 
172,390

Income from operations
39,002

 
22,505

 
125,513

 
66,148

Other income (expense), net:
 
 
 
 
 
 
 
Interest expense—related party
—

 
(439
)
 
(782
)
 
(1,739
)
Interest expense
(768
)
 
(1,360
)
 
(5,498
)
 
(5,380
)
Other income (expense), net
(151
)
 
(631
)
 
2,275

 
(754
)
Total other income (expense), net
(919
)
 
(2,430
)
 
(4,005
)
 
(7,873
)
Income before provision for income taxes
38,083

 
20,075

 
121,508

 
58,275

Provision for income taxes
7,046

 
6,333

 
34,658

 
15,815

Net income
$
31,037

 
$
13,742

 
$
86,850

 
$
42,460

Net income attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
30,251

 
$
6,970

 
$
68,889

 
$
20,777

Diluted
$
30,328

 
$
7,415

 
$
70,524

 
$
21,780

Net income per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.48

 
$
0.24

 
$
1.42

 
$
0.76

Diluted
$
0.43

 
$
0.23

 
$
1.29

 
$
0.72

Weighted-average shares used in computing net income per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
63,186

 
28,487

 
48,427

 
27,320

Diluted
70,219

 
32,470

 
54,590

 
30,051





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,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
GAAP gross profit
$
116,440

 
$
77,473

 
$
392,091

 
$
238,538

GAAP gross margin
67.1
%
 
67.5
%
 
67.1
%
 
66.0
%
   Stock-based compensation expense
543

 
151

 
1,535

 
408

Non-GAAP gross profit
$
116,983

 
$
77,624

 
$
393,626

 
$
238,946

Non-GAAP gross margin
67.4
%
 
67.6
%
 
67.4
%
 
66.1
%
 
 
 
 
 
 
 
 
GAAP income from operations
$
39,002

 
$
22,505

 
$
125,513

 
$
66,148

   Stock-based compensation expense
8,050

 
3,760

 
27,619

 
10,159

Non-GAAP income from operations
$
47,052

 
$
26,265

 
$
153,132

 
$
76,307

Non-GAAP operating margin
27.1
%
 
22.9
%
 
26.2
%
 
21.1
%
 
 
 
 
 
 
 
 
GAAP net income
$
31,037

 
$
13,742

 
$
86,850

 
$
42,460

   Stock-based compensation expense
8,050

 
3,760

 
27,619

 
10,159

   Realized gain on note receivable
—

 
—

 
(4,000
)
 
—

   Income tax effect on non-GAAP exclusions
(1,750
)
 
—

 
(4,931
)
 
—

Non-GAAP net income
$
37,337

 
$
17,502

 
$
105,538

 
$
52,619

 
 
 
 
 
 
 
 
Weighted average shares used in computing GAAP diluted income per share attributable to common stockholders
70,219

 
32,470

 
54,590

 
30,051

Additional weighted average dilutive shares1
—

 
32,282

 
13,797

 
32,282

Non-GAAP weighted average diluted shares
70,219

 
64,752

 
68,387

 
62,333

 
 
 
 
 
 
 
 
GAAP diluted net income per share attributable to common stockholders
$
0.43

 
$
0.23

 
$
1.29

 
$
0.72

   Net income attributable to participating securities
0.01

 
0.19

 
0.30

 
0.69

   Non-GAAP adjustments to net income
0.09

 
0.12

 
0.34

 
0.34

   Non-GAAP adjustments to diluted shares
—

 
(0.27
)
 
(0.39
)
 
(0.91
)
Non-GAAP diluted net income per share
$
0.53

 
$
0.27

 
$
1.54

 
$
0.84

Summary of Stock-Based Compensation Expense
 
 
 
 
 
 
 
Cost of revenue
$
543

 
$
151

 
$
1,535

 
$
408

Research and development
4,688

 
2,015

 
14,986

 
5,464

Sales and marketing
1,897

 
1,126

 
7,643

 
2,985

General and administrative
922

 
468

 
3,455

 
1,302

Total
$
8,050

 
$
3,760

 
$
27,619

 
$
10,159

______________________
1Includes weighted average shares from the issuance of shares upon our IPO and the assumed conversion of preferred stock and notes payable at the beginning of each quarter.




ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited in thousands)
 
December 31,
2014
 
December 31,
2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
240,031

 
$
113,664

Marketable securities
209,426

 
—

Accounts receivable, net
96,982

 
77,999

Inventories
80,519

 
67,094

Deferred tax assets
12,252

 
12,356

Prepaid expenses and other current assets
40,269

 
7,653

Notes receivable
—

 
4,000

Total current assets
679,479

 
282,766

Property and equipment, net
71,558

 
67,204

Deferred tax assets
11,510

 
4,541

Other assets
48,476

 
10,009

TOTAL ASSETS
$
811,023

 
$
364,520

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
32,428

 
$
20,111

Accrued liabilities
40,369

 
21,539

Deferred revenue
60,327

 
41,306

Convertible notes payable, related party
—

 
24,743

Accrued interest payable, related party
—

 
4,484

Convertible notes payable
—

 
74,050

Accrued interest payable
—

 
12,967

Other current liabilities
11,249

 
10,144

Total current liabilities
144,373

 
209,344

Income taxes payable
17,323

 
14,716

Lease financing obligations, non-current
42,547

 
43,152

Other long-term liabilities
51,122

 
19,576

TOTAL LIABILITIES
255,365

 
286,788

STOCKHOLDERS’ EQUITY:
 
 
 
Convertible preferred stock
—

 
5,992

Common stock
7

 
3

Additional paid-in capital
426,171

 
28,737

Retained earnings
129,814

 
42,964

Accumulated other comprehensive income (loss)
(334)

 
36

TOTAL STOCKHOLDERS’ EQUITY
555,658

 
77,732

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
811,023

 
$
364,520





ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)
 
Year Ended December 31,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
86,850

 
$
42,460

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
10,021

 
5,044

Stock-based compensation
27,619

 
10,159

Deferred income taxes
(6,774
)
 
(8,831
)
Provision for bad debts
860

 
191

Realized gain on notes receivable
(4,000
)
 
—

Amortization of debt discount
527

 
1,118

Write-off of debt discount on notes payable
680

 
—

Excess tax benefit on stock based-compensation
(17,436
)
 
(882
)
Other
348

 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(19,844
)
 
(28,289
)
Inventories
(13,425
)
 
(49,179
)
Prepaid expenses and other current assets
(32,616
)
 
2,981

Other assets
(4,261
)
 
(305
)
Accounts payable
14,007

 
3,865

Accrued liabilities
18,874

 
11,967

Deferred revenue
47,564

 
34,127

Interest payable
(1,630
)
 
4,501

Interest payable—related party
670

 
1,500

Income taxes payable
4,377

 
2,141

Other liabilities
2,105

 
2,080

Net cash provided by operating activities
114,516

 
34,648

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(13,134
)
 
(20,316
)
Purchases of marketable securities
(210,019
)
 
—

Proceeds from repayment of notes receivable
8,000

 
1,000

Change in restricted cash
4,040

 
—

Other investing activities
(38,249
)
 
(175
)
Net cash used in investing activities
(249,362
)
 
(19,491
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from initial public offering, net of issuance cost
239,315

 
—

Repayment on notes payable
(20,000
)
 
—

Principal payments of lease financing obligations
(793
)
 
—

Proceeds from issuance of common stock upon exercising options, net of repurchases
25,379

 
9,004

Excess tax benefit on stock-based compensation
17,436

 
882

Net cash provided by financing activities
261,337

 
9,886

Effect of exchange rate changes
(124
)
 
(34
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
126,367

 
25,009

CASH AND CASH EQUIVALENTS—Beginning of period
113,664

 
88,655

CASH AND CASH EQUIVALENTS—End of period
$
240,031

 
$
113,664