8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 8-K

____________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): November 3, 2016

ARISTA NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-36468	20-1751121
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification Number)

5453 Great America Parkway

Santa Clara, CA 95054

(Address of principal executive offices)

(408) 547-5500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 Results of Operations and Financial Condition

On November 3, 2016, Arista Networks, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2016. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

This information and Exhibit 99.1 are intended to be furnished under Item 2.02, “Results of Operations and Financial Condition,” and Item 9.01, “Financial Statements and Exhibits,” of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01Financial Statements and Exhibits

(d)    Exhibits

Exhibit No.	Description
99.1	Press release issued by Arista Networks, Inc. dated November 3, 2016

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ARISTA NETWORKS, INC.
November 3, 2016	/s/ ITA BRENNAN
	Ita Brennan
	Chief Financial Officer
	(Principal Accounting and Financial Officer)

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release issued by Arista Networks, Inc. dated November 3, 2016

EX-99.1

Exhibit 99.1

Arista Networks, Inc. Reports Third Quarter 2016 Financial Results

Cloud Networking Adoption Drives Record Earnings and Cumulative Shipments of 10 Million Cloud Networking Ports

SANTA CLARA, Calif., November 3, 2016 - 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 third quarter ended September 30, 2016.

Third Quarter Financial Highlights

• Revenue of $290.3 million, an increase of 8.0% compared to the second quarter of 2016, and an increase of 33.4% from the third quarter of 2015.

• GAAP gross margin of 64.2%, compared to GAAP gross margin of 63.8% in the second quarter of 2016 and 65.2% in the third quarter of 2015.

• Non-GAAP gross margin of 64.6%, compared to non-GAAP gross margin of 64.2% in the second quarter of 2016 and 65.5% in the third quarter of 2015.

• GAAP net income of $51.3 million, or $0.69 per diluted share, compared to GAAP net income of $28.7 million, or $0.39 per diluted share, in the third quarter of 2015.

• Non-GAAP net income of $61.2 million, or $0.83 per diluted share, compared to non-GAAP net income of $42.4 million, or $0.59 per diluted share, in the third quarter of 2015.

"I am pleased with our record Q3 2016 earnings and our cumulative shipments of 10 million cloud networking ports,” stated Jayshree Ullal, Arista President and CEO. “These milestones highlight Arista's customer enthusiasm for our new 7000 series products and the inevitable shift from legacy to cloud networking.”

Commenting on the company's financial results, Ita Brennan, Arista’s CFO, said, “We are pleased with our revenue and earnings per share performance in the third quarter which reflects broad-based customer demand for our products.”

Company Highlights

• Introduced next-generation, real-timetelemetry and analytics capabilities that leverage Arista EOS^(R) and CloudVision^(R) to deliver deep visibility into workloads, workflows, and workstreams on a network-wide basis, accelerating completion of day-to-day tasks and reducing operational costs.

• Entered an exciting new strategic partnership with Hewlett Packard Enterprise ("HPE") that expands on the existing HPE Converged Architecture agreement announced last June.  HPE customers and partners will now have the ability to purchase Arista Networks switching products directly from HPE starting November 7, 2016, helping deliver on a common vision of secure Hybrid IT solutions and experiences built on industry-leading software-defined infrastructure.

Financial Outlook

For the fourth quarter of 2016, we expect:

• Revenue between $310 and $320 million.

• Non-GAAP gross margin between 61% to 64%, and

• Non-GAAP operating margin of approximately 26%.

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 third quarter 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 93512126.

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 fourth quarter of fiscal 2016, statements regarding the ongoing shift to cloud networking, and statements regarding the benefits from the introduction of next-generation telemetry and analytics capabilities. 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; Arista Networks’ dispute with OptumSoft, Inc.; 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 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 Quarterly Reporting on Form 10-Q filed with the SEC on August 5, 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 expenses, 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. Share-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 share-based compensation in the fiscal fourth quarter of 2016 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 data center 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, Spline, NetDB and FlexRoute 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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenue:
Product	$	254,238		$	193,339		$	702,329		$	527,552
Service	36,023			24,209			98,869			64,593
Total revenue	290,261			217,548			801,198			592,145
Cost of revenue:
Product	94,777			67,990			261,711			182,443
Service	9,064			7,810			26,526			22,310
Total cost of revenue	103,841			75,800			288,237			204,753
Gross profit	186,420			141,748			512,961			387,392
Operating expenses:
Research and development	70,648			58,748			202,183			152,035
Sales and marketing	33,216			26,508			92,566			77,776
General and administrative	19,535			25,195			52,298			57,670
Total operating expenses	123,399			110,451			347,047			287,481
Income from operations	63,021			31,297			165,914			99,911
Other income (expense), net:
Interest expense	(735		)	(753		)	(2,218		)	(2,406		)
Other income (expense), net	639			13			1,392			(38		)
Total other income (expense), net	(96		)	(740		)	(826		)	(2,444		)
Income before provision for income taxes	62,925			30,557			165,088			97,467
Provision for income taxes	11,668			1,867			39,682			20,289
Net income	$	51,257		$	28,690		$	125,406		$	77,178
Net income attributable to common stockholders:
Basic	$	50,962		$	28,301		$	124,475		$	75,864
Diluted	$	50,980		$	28,329		$	124,531		$	75,967
Net income per share attributable to common stockholders:
Basic	$	0.74		$	0.42		$	1.82		$	1.16
Diluted	$	0.69		$	0.39		$	1.71		$	1.07
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic	69,076			66,629			68,365			65,609
Diluted	73,453			71,887			72,811			71,232

ARISTA NETWORKS, INC.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
GAAP gross profit	$	186,420		$	141,748		$	512,961		$	387,392
GAAP gross margin	64.2		%	65.2		%	64.0		%	65.4		%
Stock-based compensation expense	955			786			2,616			2,206
Non-GAAP gross profit	$	187,375		$	142,534		$	515,577		$	389,598
Non-GAAP gross margin	64.6		%	65.5		%	64.4		%	65.8		%
GAAP income from operations	$	63,021		$	31,297		$	165,914		$	99,911
Stock-based compensation expense	15,116			12,278			42,708			32,325
Litigation expense	9,025			15,889			23,624			32,468
Non-GAAP income from operations	$	87,162		$	59,464		$	232,246		$	164,704
Non-GAAP operating margin	30.0		%	27.3		%	29.0		%	27.8		%
GAAP net income	$	51,257		$	28,690		$	125,406		$	77,178
Stock-based compensation expense	15,116			12,278			42,708			32,325
Litigation expense	9,025			15,889			23,624			32,468
Release of income tax reserve	(6,293		)	(6,376		)	(6,293		)	(6,376		)
Income tax effect on non-GAAP exclusions	(7,924		)	(8,064		)	(21,504		)	(18,868		)
Non-GAAP net income	$	61,181		$	42,417		$	163,941		$	116,727
Weighted-average shares used in computing diluted net income per share attributable to common stockholders	73,453			71,887			72,811			71,232
GAAP diluted net income per share attributable to common stockholders	$	0.69		$	0.39		$	1.71		$	1.07
Net income attributable to participating securities	—			0.01			0.01			0.02
Non-GAAP adjustments to net income	0.14			0.19			0.53			0.55
Non-GAAP adjustments to diluted shares	—			—			—			—
Non-GAAP diluted net income per share	$	0.83		$	0.59		$	2.25		$	1.64
Summary of Stock-Based Compensation Expense
Cost of revenue	$	955		$	786		$	2,616		$	2,206
Research and development	8,010			7,037			23,062			18,344
Sales and marketing	3,947			2,864			11,374			8,138
General and administrative	2,204			1,591			5,656			3,637
Total	$	15,116		$	12,278		$	42,708		$	32,325

ARISTA NETWORKS, INC.

Consolidated Balance Sheets

(Unaudited in thousands)

	September 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	500,481		$	687,326
Marketable securities	299,667			—
Accounts receivable	210,243			144,263
Inventories	162,128			92,129
Prepaid expenses and other current assets	151,659			50,610
Total current assets	1,324,178			974,328
Property and equipment, net	78,147			79,706
Investments	36,136			36,636
Deferred tax assets	62,221			48,429
Other assets	18,398			20,791
TOTAL ASSETS	$	1,519,080		$	1,159,890
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	77,048		$	43,966
Accrued liabilities	77,163			60,971
Deferred revenue	191,094			122,049
Other current liabilities	9,777			8,025
Total current liabilities	355,082			235,011
Income taxes payable	11,896			14,060
Lease financing obligations, non-current	40,041			41,210
Deferred revenue, non-current	93,741			74,759
Other long-term liabilities	6,900			6,698
TOTAL LIABILITIES	507,660			371,738
STOCKHOLDERS’ EQUITY:
Common stock	7			7
Additional paid-in capital	636,074			537,904
Retained earnings	376,322			250,916
Accumulated other comprehensive loss	(983		)	(675		)
TOTAL STOCKHOLDERS’ EQUITY	1,011,420			788,152
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,519,080		$	1,159,890

ARISTA NETWORKS, INC.

Consolidated Statements of Cash Flows

(Unaudited in thousands)

	Nine Months Ended September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	125,406		$	77,178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,807			9,724
Stock-based compensation	42,708			32,325
Deferred income taxes	(13,720		)	(15,483		)
Excess tax benefit on stock-based compensation	(30,043		)	(32,381		)
Amortization of investment premiums	994			1,332
Changes in operating assets and liabilities:
Accounts receivable	(65,980		)	(63,248		)
Inventories	(69,998		)	(31,915		)
Prepaid expenses and other current assets	(98,050		)	(19,352		)
Other assets	3,208			(3,092		)
Accounts payable	35,510			(145		)
Accrued liabilities	15,913			18,102
Deferred revenue	88,027			84,238
Income taxes payable	27,275			24,759
Other liabilities	2,628			1,980
Net cash provided by operating activities	78,685			84,022
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of marketable securities	41,917			58,200
Purchases of marketable securities	(342,484		)	—
Purchases of property and equipment	(15,787		)	(13,974		)
Investment in privately-held companies	(2,500		)	—
Changes in restricted cash	—			(4,039		)
Purchases of intangible assets	(697		)	(743		)
Net cash (used in) provided by investing activities	(319,551		)	39,444
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of lease financing obligations	(960		)	(778		)
Proceeds from issuance of common stock upon exercising options, net of repurchases	15,556			14,562
Minimum tax withholding paid on behalf of employees for net share settlement	(811		)	—
Proceeds from issuance of common stock, employee stock purchase plan	10,326			9,366
Excess tax benefit on stock-based compensation	30,043			32,381
Issuance costs from initial public offering	—			(261		)
Net cash provided by financing activities	54,154			55,270
Effect of exchange rate changes	(133		)	(267		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(186,845		)	178,469
CASH AND CASH EQUIVALENTS—Beginning of year	687,326			240,031
CASH AND CASH EQUIVALENTS—End of year	$	500,481		$	418,500