x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 20-1751121 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Large accelerated filer | ý | Accelerated filer | o | |
Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | o |
Emerging growth company | o |
Page | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
September 30, 2017 | December 31, 2016 | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 854,479 | $ | 567,923 | |||
Marketable securities | 488,635 | 299,910 | |||||
Accounts receivable, net of allowances of $7,495 and $1,521, respectively | 212,611 | 253,119 | |||||
Inventories | 333,157 | 236,490 | |||||
Prepaid expenses and other current assets | 186,657 | 168,684 | |||||
Total current assets | 2,075,539 | 1,526,126 | |||||
Property and equipment, net | 73,061 | 76,961 | |||||
Investments | 36,136 | 36,136 | |||||
Deferred tax assets | 95,697 | 70,960 | |||||
Other assets | 21,277 | 18,824 | |||||
TOTAL ASSETS | $ | 2,301,710 | $ | 1,729,007 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 32,893 | $ | 79,457 | |||
Accrued liabilities | 94,459 | 90,951 | |||||
Deferred revenue | 423,705 | 273,350 | |||||
Other current liabilities | 16,490 | 15,795 | |||||
Total current liabilities | 567,547 | 459,553 | |||||
Income taxes payable | 22,161 | 14,498 | |||||
Lease financing obligations, non-current | 38,199 | 39,593 | |||||
Deferred revenue, non-current | 141,440 | 99,585 | |||||
Other long-term liabilities | 7,811 | 7,958 | |||||
TOTAL LIABILITIES | 777,158 | 621,187 | |||||
Commitments and contingencies (Note 5) | |||||||
STOCKHOLDERS’ EQUITY: | |||||||
Preferred stock, $0.0001 par value—100,000 shares authorized, no shares issued and outstanding as of September 30, 2017 and December 31, 2016 | — | — | |||||
Common stock, $0.0001 par value—1,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 73,067 and 70,811 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 7 | 7 | |||||
Additional paid-in capital | 770,339 | 674,183 | |||||
Retained earnings | 755,281 | 435,105 | |||||
Accumulated other comprehensive loss | (1,075) | (1,475 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 1,524,552 | 1,107,820 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,301,710 | $ | 1,729,007 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue: | |||||||||||||||
Product | $ | 380,344 | $ | 254,238 | $ | 1,025,615 | $ | 702,329 | |||||||
Service | 57,289 | 36,023 | 152,704 | 98,869 | |||||||||||
Total revenue | 437,633 | 290,261 | 1,178,319 | 801,198 | |||||||||||
Cost of revenue: | |||||||||||||||
Product | 145,874 | 94,777 | 390,116 | 261,711 | |||||||||||
Service | 11,142 | 9,064 | 33,599 | 26,526 | |||||||||||
Total cost of revenue | 157,016 | 103,841 | 423,715 | 288,237 | |||||||||||
Total gross profit | 280,617 | 186,420 | 754,604 | 512,961 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 79,610 | 70,648 | 242,414 | 202,183 | |||||||||||
Sales and marketing | 40,640 | 33,216 | 116,297 | 92,566 | |||||||||||
General and administrative | 19,535 | 19,535 | 65,009 | 52,298 | |||||||||||
Total operating expenses | 139,785 | 123,399 | 423,720 | 347,047 | |||||||||||
Income from operations | 140,832 | 63,021 | 330,884 | 165,914 | |||||||||||
Other income (expense), net: | |||||||||||||||
Interest expense | (701 | ) | (735 | ) | (2,039 | ) | (2,218 | ) | |||||||
Other income (expense), net | 2,136 | 639 | 4,280 | 1,392 | |||||||||||
Total other income (expense), net | 1,435 | (96 | ) | 2,241 | (826 | ) | |||||||||
Income before provision for income taxes | 142,267 | 62,925 | 333,125 | 165,088 | |||||||||||
Provision for income taxes | 8,545 | 11,668 | 13,757 | 39,682 | |||||||||||
Net income | $ | 133,722 | $ | 51,257 | $ | 319,368 | $ | 125,406 | |||||||
Net income attributable to common stockholders: | |||||||||||||||
Basic | $ | 133,540 | $ | 50,962 | $ | 318,643 | $ | 124,475 | |||||||
Diluted | $ | 133,555 | $ | 50,980 | $ | 318,704 | $ | 124,531 | |||||||
Net income per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 1.84 | $ | 0.74 | $ | 4.43 | $ | 1.82 | |||||||
Diluted | $ | 1.68 | $ | 0.69 | $ | 4.06 | $ | 1.71 | |||||||
Weighted-average shares used in computing net income per share attributable to common stockholders: | |||||||||||||||
Basic | 72,588 | 69,076 | 71,903 | 68,365 | |||||||||||
Diluted | 79,322 | 73,453 | 78,528 | 72,811 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 133,722 | $ | 51,257 | $ | 319,368 | $ | 125,406 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Foreign currency translation adjustments | 343 | (165 | ) | 500 | (402 | ) | |||||||||
Net change in unrealized gains (losses) on available-for-sale securities | (165) | (113 | ) | (100 | ) | 94 | |||||||||
Other comprehensive income (loss) | 178 | (278) | 400 | (308) | |||||||||||
Comprehensive income | $ | 133,900 | $ | 50,979 | $ | 319,768 | $ | 125,098 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 319,368 | $ | 125,406 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 15,355 | 14,807 | |||||
Stock-based compensation | 54,991 | 42,708 | |||||
Deferred income taxes | (22,743 | ) | (13,720 | ) | |||
Amortization of investment premiums | 1,106 | 994 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | 40,508 | (65,980 | ) | ||||
Inventories | (96,667 | ) | (69,998 | ) | |||
Prepaid expenses and other current assets | (20,973 | ) | (98,050 | ) | |||
Other assets | (1,560 | ) | 3,208 | ||||
Accounts payable | (46,075 | ) | 35,510 | ||||
Accrued liabilities | 4,175 | 15,913 | |||||
Deferred revenue | 192,210 | 88,027 | |||||
Income taxes payable | 7,421 | 27,275 | |||||
Other liabilities | 847 | 2,628 | |||||
Net cash provided by operating activities(1) | 447,963 | 108,728 | |||||
Cash flows from investing activities | |||||||
Proceeds from marketable securities | 135,483 | 41,917 | |||||
Purchases of marketable securities | (325,414 | ) | (342,484 | ) | |||
Purchases of property and equipment | (12,159 | ) | (16,484 | ) | |||
Proceeds from repayment of notes receivable | 3,000 | — | |||||
Investment in privately-held companies | — | (2,500 | ) | ||||
Change in restricted cash | (1,257 | ) | — | ||||
Net cash used in investing activities | (200,347 | ) | (319,551 | ) | |||
Cash flows from financing activities | |||||||
Principal payments of lease financing obligations | (1,170 | ) | (960 | ) | |||
Proceeds from issuance of common stock under equity plans | 41,870 | 25,882 | |||||
Minimum tax withholding paid on behalf of employees for net share settlement | (2,457 | ) | (811 | ) | |||
Net cash provided by financing activities(1) | 38,243 | 24,111 | |||||
Effect of exchange rate changes | 697 | (133 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 286,556 | (186,845 | ) | ||||
CASH AND CASH EQUIVALENTS—Beginning of period | 567,923 | 687,326 | |||||
CASH AND CASH EQUIVALENTS—End of period | $ | 854,479 | $ | 500,481 | |||
Supplemental disclosures of non-cash investing activities: | |||||||
Property and equipment included in accounts payable and accrued liabilities | $ | 468 | $ | 1,313 |
1. | Organization and Summary of Significant Accounting Policies |
• | Income tax accounting - The standard eliminates additional paid-in-capital (“APIC”) pools and requires excess tax benefits and tax deficiencies on share-based awards to be recognized in the income statement prospectively as discrete items upon exercise or vesting of such awards. The standard also requires excess tax benefits to be recognized regardless of whether the benefit reduces taxes payable. We adopted the guidance related to the timing of previously unrecognized excess tax benefits on a modified retrospective basis, which resulted in the recognition of a cumulative |
• | Earnings per share - Because excess benefits are no longer recognized in APIC, the assumed proceeds from applying the treasury stock method when calculating dilutive shares was amended to exclude the amount of excess tax benefits that would be recognized upon exercise or vesting of such awards. As a result, this reduces the assumed shares to be repurchased under the treasury stock method, thereby increasing the amount of dilutive shares used to compute earnings per share. We adopted the guidance related to the exclusion of excess tax benefits in calculating earnings per share on a prospective basis. |
• | Forfeitures of stock options and awards - Under the new standard, we can make an accounting policy election to either estimate the number of share-based awards that are expected to vest, or account for forfeitures when they occur. We elected to account for forfeitures when they occur and adopted this change on a modified retrospective basis. As a result, we recorded the cumulative effect of the change as a $1.0 million decrease to retained earnings as of January 1, 2017. |
• | Cash flow presentation of excess tax benefits - Prior to the new standard, we were required to present excess tax benefits on share-based awards as a cash inflow from financing activities with a corresponding cash outflow from operating activities. The new standard required that these excess tax benefits be classified with other income tax cash flows as an operating activity. We elected to adopt the guidance related to the presentation of excess tax benefits in our condensed consolidated statements of cash flows on a retrospective basis. |
2. | Fair Value Measurements |
September 30, 2017 | |||||||||||||||
Level I | Level II | Level III | Total | ||||||||||||
Financial Assets: | |||||||||||||||
Money market funds | $ | 319,584 | $ | — | $ | — | $ | 319,584 | |||||||
Money market funds-restricted | 5,502 | — | — | 5,502 | |||||||||||
Commercial paper | 11,879 | — | — | 11,879 | |||||||||||
U.S. government notes | 104,722 | — | — | 104,722 | |||||||||||
Corporate bonds | — | 372,034 | — | 372,034 | |||||||||||
Total financial assets | $ | 441,687 | $ | 372,034 | $ | — | $ | 813,721 |
December 31, 2016 | |||||||||||||||
Level I | Level II | Level III | Total | ||||||||||||
Financial Assets: | |||||||||||||||
Money market funds | $ | 305,182 | $ | — | $ | — | $ | 305,182 | |||||||
Money market funds-restricted | 4,245 | — | — | 4,245 | |||||||||||
Commercial paper | 5,962 | — | — | 5,962 | |||||||||||
U.S. government notes | 110,756 | — | — | 110,756 | |||||||||||
Corporate bonds | — | 183,192 | — | 183,192 | |||||||||||
Total financial assets | $ | 426,145 | $ | 183,192 | $ | — | $ | 609,337 |
September 30, 2017 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Commercial paper | $ | 11,879 | $ | — | $ | — | $ | 11,879 | |||||||
U.S. government notes | 104,955 | — | (233 | ) | 104,722 | ||||||||||
Corporate bonds | 372,354 | 77 | (397 | ) | 372,034 | ||||||||||
Total marketable securities | $ | 489,188 | $ | 77 | $ | (630 | ) | $ | 488,635 |
December 31, 2016 | |||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
Commercial paper | $ | 5,962 | $ | — | $ | — | $ | 5,962 | |||||||
U.S. government notes | 110,945 | 5 | (194 | ) | 110,756 | ||||||||||
Corporate bonds | 183,455 | 109 | (372 | ) | 183,192 | ||||||||||
Total marketable securities | $ | 300,362 | $ | 114 | $ | (566 | ) | $ | 299,910 |
September 30, 2017 | ||||
Due in 1 year or less | $ | 300,957 | ||
Due in 1 year through 2 years | 187,678 | |||
Total marketable securities | $ | 488,635 |
September 30, 2017 | December 31, 2016 | ||||||
Accounts receivable | $ | 220,106 | $ | 254,640 | |||
Allowance for doubtful accounts | (81 | ) | (204 | ) | |||
Sales return reserve | (7,414 | ) | (1,317 | ) | |||
Accounts receivable, net | $ | 212,611 | $ | 253,119 |
September 30, 2017 | December 31, 2016 | ||||||
Raw materials | $ | 99,640 | $ | 99,190 | |||
Finished goods | 233,517 | 137,300 | |||||
Total inventories | $ | 333,157 | $ | 236,490 |
September 30, 2017 | December 31, 2016 | ||||||
Inventory deposit | $ | 31,957 | $ | 60,315 | |||
Prepaid income taxes | 14,583 | 17,383 | |||||
Other current assets | 126,190 | 79,140 | |||||
Other prepaid expenses and deposits | 13,927 | 11,846 | |||||
Total prepaid expenses and other current assets | $ | 186,657 | $ | 168,684 |
September 30, 2017 | December 31, 2016 | ||||||
Equipment and machinery | $ | 46,550 | $ | 40,721 | |||
Computer hardware and software | 21,527 | 17,420 | |||||
Furniture and fixtures | 2,993 | 2,879 | |||||
Leasehold improvements | 30,491 | 29,498 | |||||
Building | 35,154 | 35,154 | |||||
Construction-in-process | 135 | 421 | |||||
Property and equipment, gross | 136,850 | 126,093 | |||||
Less: accumulated depreciation | (63,789 | ) | (49,132 | ) | |||
Property and equipment, net | $ | 73,061 | $ | 76,961 |
September 30, 2017 | December 31, 2016 | ||||||
Accrued compensation costs | $ | 44,477 | $ | 52,854 | |||
Accrued warranty costs | 8,286 | 6,744 | |||||
Accrued manufacturing costs | 25,592 | 14,824 | |||||
Accrued professional fees | 6,666 | 6,829 | |||||
Accrued taxes | 1,315 | 1,098 | |||||
Other | 8,123 | 8,602 | |||||
Total accrued liabilities | $ | 94,459 | $ | 90,951 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Warranty accrual, beginning of period | $ | 6,744 | $ | 4,718 | |||
Liabilities accrued for warranties issued during the period | 5,020 | 3,420 | |||||
Warranty costs incurred during the period | (3,478 | ) | (2,541 | ) | |||
Warranty accrual, end of period | $ | 8,286 | $ | 5,597 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||
Cost of revenue | $ | 1,113 | $ | 955 | $ | 3,224 | $ | 2,616 | ||||||
Research and development | 11,048 | 8,010 | 30,977 | 23,062 | ||||||||||
Sales and marketing | 5,115 | 3,947 | 12,651 | 11,374 | ||||||||||
General and administrative | 2,876 | 2,204 | 8,139 | 5,656 | ||||||||||
Total stock-based compensation | $ | 20,152 | $ | 15,116 | $ | 54,991 | $ | 42,708 |
Options Outstanding | |||||||||||||
Number of Shares Underlying Outstanding Options (in thousands) | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Term (Years) of Stock Options | Aggregate Intrinsic Value of Stock Options Outstanding (in thousands) | ||||||||||
Outstanding—December 31, 2016 | 9,509 | $ | 28.79 | 6.9 | $ | 646,394 | |||||||
Options granted | 170 | 96.61 | |||||||||||
Options exercised | (1,730 | ) | 16.97 | ||||||||||
Options canceled | (322 | ) | 32.89 | ||||||||||
Outstanding—September 30, 2017 | 7,627 | $ | 32.81 | 6.4 | $ | 1,195,859 | |||||||
Vested and exercisable—September 30, 2017 | 3,035 | $ | 19.91 | 5.7 | $ | 515,111 | |||||||
Vested and expected to vest—September 30, 2017 | 7,627 | $ | 32.81 | 6.4 | $ | 1,195,859 |
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||
Unvested balance—December 31, 2016 | 1,375 | $ | 74.23 | 1.8 | $ | 133,081 | ||||||
RSUs granted | 666 | 137.26 | ||||||||||
RSUs vested | (339 | ) | 75.63 | |||||||||
RSUs forfeited | (60 | ) | 77.21 | |||||||||
Unvested and expected to vest balance—September 30, 2017 | 1,642 | $ | 99.41 | 1.8 | $ | 311,368 |
Number of Shares | |||
Balance at December 31, 2016 | 11,754 | ||
Authorized | 2,124 | ||
Options granted | (170 | ) | |
RSUs granted | (666 | ) | |
Options canceled | 322 | ||
Options repurchased | 2 | ||
RSUs forfeited | 60 | ||
Shares traded for taxes | 17 | ||
Balance at September 30, 2017 | 13,443 |
7. | Net Income Per Share Available to Common Stock |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator: | |||||||||||||||
Basic: | |||||||||||||||
Net income | $ | 133,722 | $ | 51,257 | $ | 319,368 | $ | 125,406 | |||||||
Less: undistributed earnings allocated to participating securities | (182 | ) | (295 | ) | (725 | ) | (931 | ) | |||||||
Net income available to common stockholders, basic | $ | 133,540 | $ | 50,962 | $ | 318,643 | $ | 124,475 | |||||||
Diluted: | |||||||||||||||
Net income attributable to common stockholders, basic | $ | 133,540 | $ | 50,962 | $ | 318,643 | $ | 124,475 | |||||||
Add: undistributed earnings allocated to participating securities | 15 | 18 | 61 | 56 | |||||||||||
Net income attributable to common stockholders, diluted | $ | 133,555 | $ | 50,980 | $ | 318,704 | $ | 124,531 | |||||||
Denominator: | |||||||||||||||
Basic: | |||||||||||||||
Weighted-average shares used in computing net income per share available to common stockholders, basic | 72,588 | 69,076 | 71,903 | 68,365 | |||||||||||
Diluted: | |||||||||||||||
Weighted-average shares used in computing net income per share available to common stockholders, basic | 72,588 | 69,076 | 71,903 | 68,365 | |||||||||||
Add weighted-average effect of dilutive securities: | |||||||||||||||
Stock options and RSUs | 6,636 | 4,357 | 6,528 | 4,429 | |||||||||||
Employee stock purchase plan | 98 | 20 | 97 | 17 | |||||||||||
Weighted-average shares used in computing net income per share available to common stockholders, diluted | 79,322 | 73,453 | 78,528 | 72,811 | |||||||||||
Net income per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 1.84 | $ | 0.74 | $ | 4.43 | $ | 1.82 | |||||||
Diluted | $ | 1.68 | $ | 0.69 | $ | 4.06 | $ | 1.71 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Stock options and RSUs to purchase common stock | 14 | 2,688 | 73 | 3,215 |
8. | Income Taxes |
9. | Segment Information |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
United States | $ | 306,637 | $ | 233,018 | $ | 869,383 | $ | 612,852 | |||||||
Other Americas | 2,681 | 4,081 | 8,818 | 8,205 | |||||||||||
Europe, Middle East and Africa | 79,143 | 37,728 | 199,244 | 124,111 | |||||||||||
Asia-Pacific | 49,172 | 15,434 | 100,874 | 56,030 | |||||||||||
Total revenue | $ | 437,633 | $ | 290,261 | $ | 1,178,319 | $ | 801,198 |
September 30, 2017 | December 31, 2016 | ||||||
United States | $ | 66,914 | $ | 69,352 | |||
International | 6,147 | 7,609 | |||||
Total | $ | 73,061 | $ | 76,961 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue: | |||||||||||||||
Product | $ | 380,344 | $ | 254,238 | $ | 1,025,615 | $ | 702,329 | |||||||
Service | 57,289 | 36,023 | 152,704 | 98,869 | |||||||||||
Total revenue | 437,633 | 290,261 | 1,178,319 | 801,198 | |||||||||||
Cost of revenue (1): | |||||||||||||||
Product | 145,874 | 94,777 | 390,116 | 261,711 | |||||||||||
Service | 11,142 | 9,064 | 33,599 | 26,526 | |||||||||||
Total cost of revenue | 157,016 | 103,841 | 423,715 | 288,237 | |||||||||||
Gross profit | 280,617 | 186,420 | 754,604 | 512,961 | |||||||||||
Operating expenses (1): | |||||||||||||||
Research and development | 79,610 | 70,648 | 242,414 | 202,183 | |||||||||||
Sales and marketing | 40,640 | 33,216 | 116,297 | 92,566 | |||||||||||
General and administrative | 19,535 | 19,535 | 65,009 | 52,298 | |||||||||||
Total operating expenses | 139,785 | 123,399 | 423,720 | 347,047 | |||||||||||
Income from operations | 140,832 | 63,021 | 330,884 | 165,914 | |||||||||||
Interest expense | (701 | ) | (735 | ) | (2,039 | ) | (2,218 | ) | |||||||
Other income (expense), net | 2,136 | 639 | 4,280 | 1,392 | |||||||||||
Total other income (expense), net | 1,435 | (96 | ) | 2,241 | (826 | ) | |||||||||
Income before provision for income taxes | 142,267 | 62,925 | 333,125 | 165,088 | |||||||||||
Provision for income taxes | 8,545 | 11,668 | 13,757 | 39,682 | |||||||||||
Net income | $ | 133,722 | $ | 51,257 | $ | 319,368 | $ | 125,406 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
(as a percentage of revenue) | |||||||||||
Revenue: | |||||||||||
Product | 86.9 | % | 87.6 | % | 87.0 | % | 87.7 | % | |||
Service | 13.1 | 12.4 | 13.0 | 12.3 | |||||||
Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | |||||||
Cost of revenue: | |||||||||||
Product | 33.4 | 32.7 | 33.1 | 32.7 | |||||||
Service | 2.5 | 3.1 | 2.9 | 3.3 | |||||||
Total cost of revenue | 35.9 | 35.8 | 36.0 | 36.0 | |||||||
Gross margin | 64.1 | 64.2 | 64.0 | 64.0 | |||||||
Operating expenses: | |||||||||||
Research and development | 18.2 | 24.3 | 20.5 | 25.2 | |||||||
Sales and marketing | 9.2 | 11.5 | 9.9 | 11.6 | |||||||
General and administrative | 4.5 | 6.7 | 5.5 | 6.5 | |||||||
Total operating expenses | 31.9 | 42.5 | 35.9 | 43.3 | |||||||
Income from operations | 32.2 | 21.7 | 28.1 | 20.7 | |||||||
Interest expense | (0.1 | ) | (0.2 | ) | (0.2 | ) | (0.3 | ) | |||
Other income (expense), net | 0.5 | 0.2 | 0.4 | 0.2 | |||||||
Total other income (expense), net | 0.4 | — | 0.2 | (0.1 | ) | ||||||
Income before provision for income taxes | 32.6 | 21.7 | 28.3 | 20.6 | |||||||
Provision for income taxes | 2.0 | 4.0 | 1.2 | 5.0 | |||||||
Net income | 30.6 | % | 17.7 | % | 27.1 | % | 15.6 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of revenue | $ | 1,113 | $ | 955 | $ | 3,224 | $ | 2,616 | |||||||
Research and development | 11,048 | 8,010 | 30,977 | 23,062 | |||||||||||
Sales and marketing | 5,115 | 3,947 | 12,651 | 11,374 | |||||||||||
General and administrative | 2,876 | 2,204 | 8,139 | 5,656 | |||||||||||
Total stock-based compensation | $ | 20,152 | $ | 15,116 | $ | 54,991 | $ | 42,708 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | Change in | 2017 | 2016 | Change in | ||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||
(in thousands, except percentages) | |||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||
Product | $ | 380,344 | $ | 254,238 | $ | 126,106 | 49.6% | $ | 1,025,615 | $ | 702,329 | $ | 323,286 | 46.0% | |||||||||||||
Service | 57,289 | 36,023 | 21,266 | 59.0 | 152,704 | 98,869 | 53,835 | 54.5 | |||||||||||||||||||
Total revenue | 437,633 | 290,261 | 147,372 | 50.8 | 1,178,319 | 801,198 | 377,121 | 47.1 | |||||||||||||||||||
Cost of revenue | |||||||||||||||||||||||||||
Product | 145,874 | 94,777 | 51,097 | 53.9 | 390,116 | 261,711 | 128,405 | 49.1 | |||||||||||||||||||
Service | 11,142 | 9,064 | 2,078 | 22.9 | 33,599 | 26,526 | 7,073 | 26.7 | |||||||||||||||||||
Total cost of revenue | 157,016 | 103,841 | 53,175 | 51.2 | 423,715 | 288,237 | 135,478 | 47.0 | |||||||||||||||||||
Gross profit | $ | 280,617 | $ | 186,420 | $ | 94,197 | 50.5% | $ | 754,604 | $ | 512,961 | $ | 241,643 | 47.1% | |||||||||||||
Gross margin | 64.1 | % | 64.2 | % | 64.0 | % | 64.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | % of Total | 2016 | % of Total | 2017 | % of Total | 2016 | % of Total | ||||||||||||||||||||
(in thousands, except percentages) | |||||||||||||||||||||||||||
Americas | $ | 309,318 | 70.7 | % | $ | 237,099 | 81.7 | % | $ | 878,201 | 74.5 | % | $ | 621,057 | 77.5 | % | |||||||||||
Europe, Middle East and Africa | 79,143 | 18.1 | 37,728 | 13.0 | 199,244 | 16.9 | 124,111 | 15.5 | |||||||||||||||||||
Asia-Pacific | 49,172 | 11.2 | 15,434 | 5.3 | 100,874 | 8.6 | 56,030 | 7.0 | |||||||||||||||||||
Total revenue | $ | 437,633 | 100.0 | % | $ | 290,261 | 100.0 | % | $ | 1,178,319 | 100.0 | % | $ | 801,198 | 100.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | Change in | 2017 | 2016 | Change in | ||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||
(in thousands, except percentages) | |||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||
Research and development | $ | 79,610 | $ | 70,648 | $ | 8,962 | 12.7% | $ | 242,414 | $ | 202,183 | $ | 40,231 | 19.9% | |||||||||||||
Sales and marketing | 40,640 | 33,216 | 7,424 | 22.4 | 116,297 | 92,566 | 23,731 | 25.6 | |||||||||||||||||||
General and administrative | 19,535 | 19,535 | — | — | 65,009 | 52,298 | 12,711 | 24.3 | |||||||||||||||||||
Total operating expenses | $ | 139,785 | $ | 123,399 | $ | 16,386 | 13.3% | $ | 423,720 | $ | 347,047 | $ | 76,673 | 22.1% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | Change in | 2017 | 2016 | Change in | ||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||
(in thousands, except percentages) | |||||||||||||||||||||||||||
Other income (expense), net: | |||||||||||||||||||||||||||
Interest expense | $ | (701 | ) | $ | (735 | ) | $ | 34 | 4.6% | $ | (2,039 | ) | $ | (2,218 | ) | $ | 179 | 8.1% | |||||||||
Other income (expense), net | 2,136 | 639 | 1,497 | 234.3 | 4,280 | 1,392 | 2,888 | (207.5) | |||||||||||||||||||
Total other income (expense), net | $ | 1,435 | $ | (96 | ) | $ | 1,531 | 1,594.8% | $ | 2,241 | $ | (826 | ) | $ | 3,067 | 371.3% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | Change in | 2017 | 2016 | Change in | ||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | ||||||||||||||||||||
(in thousands, except percentages) | |||||||||||||||||||||||||||
Provision (benefit) for income taxes | $ | 8,545 | $ | 11,668 | $ | (3,123 | ) | (26.8)% | $ | 13,757 | $ | 39,682 | $ | (25,925 | ) | (65.3)% | |||||||||||
Effective tax rate | 6.0 | % | 18.5 | % | 4.1 | % | 24.0 | % |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
(in thousands) | |||||||
Cash provided by operating activities | $ | 447,963 | $ | 108,728 | |||
Cash used in investing activities | (200,347 | ) | (319,551 | ) | |||
Cash provided by financing activities | 38,243 | 24,111 | |||||
Effect of exchange rate changes | 697 | (133 | ) | ||||
Net increase (decrease) in cash and cash equivalents | $ | 286,556 | $ | (186,845 | ) |
• | our ability to increase sales to existing customers and attract new end customers, including large end customers; |
• | the budgeting cycles and purchasing practices of end customers, including large end customers who may receive lower pricing terms due to volume discounts; |
• | the buying patterns of our large end customers in which large bulk purchases may or may not occur in certain quarters; |
• | the cost and potential outcomes of existing and future litigation, including Cisco and Optumsoft litigation matters; |
• | our ability to comply with any remedial orders issued in connection with the Cisco litigation; |
• | our ability to develop, market and sell redesigned products that are not covered by any USITC remedial orders and that are acceptable to our customers; |
• | the qualification and testing of our redesigned products by our customers and any delays or cancellations of purchases caused by such activities; |
• | the rate of expansion and productivity of our sales force; |
• | changes in our pricing policies, whether initiated by us or as a result of competition; |
• | our inability to fulfill our end customers’ orders due to supply chain delays, access to key commodities or technologies or events that impact our manufacturers or their suppliers; |
• | the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business; |
• | changes in end-customer, distributor or reseller requirements or market needs; |
• | deferral or cancellation of orders from end customers, including in anticipation of new products or product enhancements announced by us or our competitors, or warranty returns; |
• | the inclusion of any acceptance provisions in our customer contracts or any delays in acceptance of those products; |
• | changes in the growth rate of the networking market; |
• | the actual or rumored timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end customers; |
• | our ability to successfully expand our business domestically and internationally; |
• | our ability to increase the size of our distribution channel; |
• | decisions by potential end customers to purchase cloud networking solutions from larger, more established vendors, white box vendors or their primary network equipment vendors; |
• | price competition; |
• | insolvency or credit difficulties confronting our end customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain; |
• | any disruption in our sales channel or termination of our relationship with important channel partners; |
• | seasonality or cyclical fluctuations in our markets; |
• | future accounting pronouncements or changes in our accounting policies; |
• | stock-based compensation expense; |
• | our overall effective tax rate, including impacts caused by any reorganization in our corporate structure, any changes in our valuation allowance for domestic deferred tax assets and any new legislation or regulatory developments; |
• | increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing portion of our expenses are incurred and paid in currencies other than the U.S. dollar; |
• | general economic conditions, both domestically and in foreign markets; and |
• | other risk factors described in this Quarterly Report on Form 10-Q. |
• | greater name recognition and longer operating histories; |
• | larger sales and marketing budgets and resources; |
• | broader distribution and established relationships with channel partners and end customers; |
• | greater access to larger end-customer bases; |
• | greater end-customer support resources; |
• | greater manufacturing resources; |
• | the ability to leverage their sales efforts across a broader portfolio of products; |
• | the ability to leverage purchasing power with vendor subcomponents; |
• | the ability to bundle competitive offerings with other products and services; |
• | the ability to develop their own silicon chips; |
• | the ability to set more aggressive pricing policies; |
• | lower labor and development costs; |
• | greater resources to make acquisitions; |
• | larger intellectual property portfolios; and |
• | substantially greater financial, technical, research and development or other resources. |
• | greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods; |
• | increased expenses incurred in establishing and maintaining our international operations; |
• | fluctuations in exchange rates between the U.S. dollar and foreign currencies where we do business; |
• | greater difficulty and costs in recruiting local experienced personnel; |
• | wage inflation in certain growing economies; |
• | general economic and political conditions in these foreign markets; |
• | economic uncertainty around the world as a result of sovereign debt issues; |
• | communication and integration problems resulting from cultural and geographic dispersion; |
• | limitations on our ability to access cash resources in our international operations; |
• | ability to establish necessary business relationships and to comply with local business requirements; |
• | risks associated with trade restrictions and foreign legal requirements, including the importation, certification and localization of our products required in foreign countries; |
• | greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties; |
• | the uncertainty of protection for intellectual property rights in some countries; |
• | greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including antitrust regulations, the FCPA and any trade regulations ensuring fair trade practices; and |
• | heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements. |
• | changes in end-customer or product mix, including mix of configurations within each product group; |
• | introduction of new products, including products with price-performance advantages; |
• | increases in material, labor or other manufacturing-related costs, which could be significant especially during periods of supply constraints, or as a result of changes in our manufacturing process or supply chain; |
• | our ability to reduce production costs; |
• | entry into new markets or growth in lower margin markets; |
• | entry in markets with different pricing and cost structures; |
• | pricing discounts; |
• | increases in material costs in the event we are restricted from sourcing components and manufacturing products internationally. |
• | costs associated with defending intellectual property infringement and other claims and the potential outcomes of such disputes, such as those claims discussed in “Legal Proceedings,” including the Cisco and Optumsoft litigation matters; |
• | excess inventory and inventory holding charges; |
• | obsolescence charges; |
• | changes in shipment volume; |
• | the timing of revenue recognition and revenue deferrals; |
• | increased cost, loss of cost savings or dilution of savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand or if the financial health of either contract manufacturers or suppliers deteriorates; |
• | lower than expected benefits from value engineering; |
• | increased price competition; |
• | changes in distribution channels; |
• | increased warranty costs; and |
• | how well we execute our strategy and operating plans. |
• | evolve or enhance our products and services; |
• | continue to expand our sales and marketing and research and development organizations; |
• | acquire complementary technologies, products or businesses; |
• | expand operations, in the U.S. or internationally; |
• | hire, train and retain employees; or |
• | respond to competitive pressures or unanticipated working capital requirements. |
• | sensitive data regarding our business, including intellectual property, financial information and other proprietary data, could be stolen; |
• | our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored; |
• | our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition; |
• | defects and security vulnerabilities could be introduced into our software, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data loss and cyber incidents; and |
• | personally identifiable data of our customers, employees and business partners could be compromised. |
• | actual or anticipated announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors; |
• | forward looking statements related to future revenue, gross margins and earnings per share; |
• | price and volume fluctuations in the overall stock market from time to time; |
• | litigation involving us, our industry, or both including events occurring in our litigation with Cisco Systems and Optumsoft; |
• | manufacturing, supply or distribution shortages or constraints, or challenges with adding or changing our manufacturing process or supply chain; |
• | significant volatility in the market price and trading volume of technology companies in general and of companies in the IT security industry in particular; |
• | fluctuations in the trading volume of our shares or the size of our public float; |
• | sales by our officers, directors or significant stockholders; |
• | actual or anticipated changes or fluctuations in our results of operations; |
• | adverse changes to our relationships with any of our channel partners; |
• | whether our results of operations or our financial outlook for future fiscal periods meet the expectations of securities analysts or investors; |
• | actual or anticipated changes in the expectations of investors or securities analysts; |
• | regulatory developments in the U.S., foreign countries or both; |
• | general economic conditions and trends; |
• | major catastrophic events; |
• | sales of large blocks of our common stock; or |
• | departures of key personnel. |
• | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; |
• | the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
• | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
• | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
• | the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; |
• | the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; |
• | the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and |
• | advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
Exhibit Number | Description of Document | |
31.1 | ||
31.2 | ||
32.1 | * | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
ARISTA NETWORKS, INC. | ||||
Date: | November 2, 2017 | By: | /s/ JAYSHREE ULLAL | |
Jayshree Ullal | ||||
President, Chief Executive Officer and Director | ||||
(Principal Executive Officer) | ||||
Date: | November 2, 2017 | By: | /s/ ITA BRENNAN | |
Ita Brennan | ||||
Chief Financial Officer | ||||
(Principal Accounting and Financial Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Arista Networks, Inc. for the quarter ended September 30, 2017; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ JAYSHREE ULLAL |
Jayshree Ullal |
President, Chief Executive Officer and Director |
(Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Arista Networks, Inc. for the quarter ended September 30, 2017; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ ITA BRENNAN |
Ita Brennan |
Chief Financial Officer |
(Principal Accounting and Financial Officer) |
By: | /s/ JAYSHREE ULLAL |
Name: | Jayshree Ullal |
Title: | President, Chief Executive Officer and Director |
(Principal Executive Officer) |
By: | /s/ ITA BRENNAN |
Name: | Ita Brennan |
Title: | Chief Financial Officer |
(Principal Accounting and Financial Officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Oct. 27, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Arista Networks, Inc. | |
Entity Central Index Key | 0001596532 | |
Trading Symbol | ANET | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus (Q1,Q2,Q3,FY) | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 73,100,644 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, net of allowances | $ 7,495 | $ 1,521 |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized (in shares) | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued (in shares) | 73,067,000 | 70,811,000 |
Common stock, shares outstanding (in shares) | 73,067,000 | 70,811,000 |
Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Revenue: | ||||
Product | $ 380,344 | $ 254,238 | $ 1,025,615 | $ 702,329 |
Service | 57,289 | 36,023 | 152,704 | 98,869 |
Total revenue | 437,633 | 290,261 | 1,178,319 | 801,198 |
Cost of revenue: | ||||
Product | 145,874 | 94,777 | 390,116 | 261,711 |
Service | 11,142 | 9,064 | 33,599 | 26,526 |
Total cost of revenue | 157,016 | 103,841 | 423,715 | 288,237 |
Total gross profit | 280,617 | 186,420 | 754,604 | 512,961 |
Operating expenses: | ||||
Research and development | 79,610 | 70,648 | 242,414 | 202,183 |
Sales and marketing | 40,640 | 33,216 | 116,297 | 92,566 |
General and administrative | 19,535 | 19,535 | 65,009 | 52,298 |
Total operating expenses | 139,785 | 123,399 | 423,720 | 347,047 |
Income from operations | 140,832 | 63,021 | 330,884 | 165,914 |
Other income (expense), net: | ||||
Interest expense | (701) | (735) | (2,039) | (2,218) |
Other income (expense), net | 2,136 | 639 | 4,280 | 1,392 |
Total other income (expense), net | 1,435 | (96) | 2,241 | (826) |
Income before provision for income taxes | 142,267 | 62,925 | 333,125 | 165,088 |
Provision for income taxes | 8,545 | 11,668 | 13,757 | 39,682 |
Net income | 133,722 | 51,257 | 319,368 | 125,406 |
Net income attributable to common stockholders: | ||||
Basic | 133,540 | 50,962 | 318,643 | 124,475 |
Diluted | $ 133,555 | $ 50,980 | $ 318,704 | $ 124,531 |
Net income per share attributable to common stockholders: | ||||
Basic (in dollars per share) | $ 1.84 | $ 0.74 | $ 4.43 | $ 1.82 |
Diluted (in dollars per share) | $ 1.68 | $ 0.69 | $ 4.06 | $ 1.71 |
Weighted-average shares used in computing net income per share attributable to common stockholders: | ||||
Basic (in shares) | 72,588 | 69,076 | 71,903 | 68,365 |
Diluted (in shares) | 79,322 | 73,453 | 78,528 | 72,811 |
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 133,722 | $ 51,257 | $ 319,368 | $ 125,406 |
Other comprehensive income (loss), net of tax: | ||||
Foreign currency translation adjustments | 343 | (165) | 500 | (402) |
Net change in unrealized gains (losses) on available-for-sale securities | (165) | (113) | (100) | 94 |
Other comprehensive income (loss) | 178 | (278) | 400 | (308) |
Comprehensive income | $ 133,900 | $ 50,979 | $ 319,768 | $ 125,098 |
Condensed Consolidated Statements of Cash Flows (Footnote) $ in Thousands |
9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2016
USD ($)
| ||||
Increase to net cash provided by operating activities | $ 108,728 | [1] | ||
Decrease in net cash provided by financing activities | (24,111) | [1] | ||
Accounting Standards Update 2016-09, Excess Tax Benefit | ||||
Increase to net cash provided by operating activities | 30,000 | |||
Decrease in net cash provided by financing activities | $ 30,000 | |||
|
Organization and Summary of Significant Accounting Policies |
9 Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||
Organization and Summary of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies Arista Networks, Inc. (together with our subsidiaries, “we,” “our” or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation enterprise. Our cloud networking solutions consist of our Extensible Operating System (“EOS”), a set of network applications and our 10/25/40/50/100 Gigabit Ethernet switching and routing platforms. We were incorporated in October 2004 in the State of California under the name Arastra, Inc. In March 2008, we reincorporated in the State of Nevada and in October 2008 changed our name to Arista Networks, Inc. We reincorporated in the state of Delaware in March 2014. Our corporate headquarters are located in Santa Clara, California, and we have wholly-owned subsidiaries throughout the world, including North America, Europe, Asia and Australia. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial information. The results for the three and nine months ended September 30, 2017, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. Our unaudited condensed consolidated financial statements ("consolidated financial statements") include the accounts of Arista Networks, Inc. and its wholly-owned subsidiaries and are prepared in accordance with GAAP. All significant intercompany accounts and transactions have been eliminated. Our consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 17, 2017. Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition and deferred revenue; allowance for doubtful accounts and sales return reserve; determination of fair value for stock-based awards; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; valuation of inventory; valuation of warranty accruals; contract manufacturing liabilities; and recognition and measurement of contingent liabilities. We evaluate our estimates and assumptions based on historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates. Recently Adopted Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (the “FASB”) amended the existing accounting standard for stock-based compensation, issuing Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which impacts several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted this standard during our first fiscal quarter of 2017. The impact of the adoption was as follows:
In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing guidance on fees paid in a cloud computing arrangement. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements. In July 2015, the FASB issued ASU No, 2015-11, Inventory: Simplifying the Measurement of Inventory, which simplifies the measurement of inventory to be measured at the lower of cost or net realizable value. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), (as amended in June 2016, by ASU No. 2016-12-Revenue-Narrow-Scope Improvements and Practical Expedients, and in December 2016, by ASU No. 2016-20-Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly expanded disclosures about revenue recognition. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date of the new revenue standard by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts With Customers-Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and ASU No. 2016-10, Revenue From Contracts With Customers-Identifying Performance Obligations and Licensing. ASU No. 2016-08 clarifies the implementation guidance regarding principal versus agent identification and related considerations. Specifically, the guidance provides clarification around performance obligations for goods or services provided by another entity, assisting in determining whether the entity is the provider of the goods or services, the principal, or whether the entity is providing for the arrangement of the goods or services, the agent. ASU No. 2016-10 provides guidance around identifying whether promised goods or services are distinct and separately identifiable, whether promised goods or services are material or immaterial to the contract, and whether shipping and handling is considered an activity to fulfill a promise or an additional promised service. ASU No. 2016-10 also provides guidance around an entity's promise to grant a license providing a customer with either a right to use or a right to access the license, which then determines whether the obligation is satisfied at a point in time or over time, respectively. In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)") ("ASU 2016-11"), which rescinds various standards codified as part of Topic 605, Revenue Recognition in relation to the future adoption of Topic 606. These rescissions include changes to topics pertaining to revenue and expense recognition including accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. The above standards are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The guidance is effective for us beginning in our first quarter of fiscal 2018. Early adoption would be permitted for all entities but not until the fiscal year beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The retrospective method requires a retrospective approach to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance. The cumulative approach requires a retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance. The standards are expected to impact the amount and timing of revenue recognized and the related disclosures on our consolidated financial statements. The standard will also require that we defer all incremental commission costs to obtain a customer contract. We are currently evaluating the accounting, transition and disclosure requirements of the standard and are in the process of assessing the financial statement impact upon adoption. We will adopt ASU 2014-09 during the first quarter of 2018, and expect to adopt the guidance under the modified retrospective method which we anticipate will result in a cumulative effect adjustment as of the date of adoption. In January 2016, the FASB issued ASU No, 2016-01, Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The guidance will address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard is effective for us for our first quarter of fiscal 2018, and may be early adopted under early application guidance. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we expect the adoption of this standard to increase the variability of other income (expense), net on our consolidated financial statements as a result of changes in the fair value of our marketable equity securities. In February 2016, the FASB issued ASU No, 2016-02, Leases, which addresses the classification and recognition of lease assets and liabilities formerly classified as operating leases under GAAP. The guidance will address certain aspects of recognition and measurement, and quantitative and qualitative aspects of presentation and disclosure. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is effective for us for our first quarter of fiscal 2019. The guidance will be applied to the earliest period presented using a modified retrospective approach. The guidance includes practical expedients that relate to identification, classification, and initial direct costs associated with leases commencing prior to the effective date, and the ability to apply hindsight in evaluating lease options related to extensions, terminations or asset purchases. A practical expedient also exists to treat leases entered into prior effective date under existing GAAP unless the lease has been modified. The guidance may be early adopted. We are currently assessing the impact this guidance may have on our consolidated financial statements as well as the transition method that we will use to adopt the guidance. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This standard is effective for us for our first quarter of 2020. We are currently assessing the impact this guidance may have on our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Task Force), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The guidance may be adopted early as of the beginning of an annual reporting period. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we do not expect the guidance to have a material impact on our consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which addresses recognition of current and deferred income taxes for intra-entity asset transfers when assets are sold to an outside party. Current GAAP prohibits the recognition of current and deferred income taxes until the asset has been sold to an outside party. This prohibition on recognition is considered an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The new guidance requires an entity to recognize the income tax consequences when the transfer occurs eliminating the exception. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. We are currently assessing the impact this guidance may have on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force which requires that amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a material impact on our consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting which addresses providing clarity to reduce diversity in practice, cost and complexity in the application of modification accounting when there is a change in terms or conditions of a share-based payment award. The guidance will be applied on a prospective basis to awards modified on or after the adoption date. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a material impact on our consolidated financial statements. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements Our assets and liabilities which require fair value measurement consist of cash and cash equivalents, marketable securities, accounts receivable, investments, accounts payable, and accrued liabilities. Cash equivalents, accounts receivable, accounts payable and accrued liabilities are stated at carrying amounts as reported in the condensed consolidated financial statements, which approximates fair value due to their short-term nature. Assets and liabilities recorded at fair value on a recurring basis in the accompanying consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. We use a fair value hierarchy to measure fair value, maximizing the use of observable inputs and minimizing the use of unobservable inputs. The three-tiers of the fair value hierarchy are as follows: Level I-Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level II-Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level III-Unobservable inputs that are supported by little or no market data for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. We measure and report our cash equivalents and available-for-sale marketable securities at fair value. The following table sets forth the fair value of our financial assets by level within the fair value hierarchy (in thousands):
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Balance Sheet Components |
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Balance Sheet Components [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Components | Balance Sheet Components Marketable Securities The following table summarizes the unrealized gains and losses and fair value of our short term available-for-sale securities (in thousands):
As of September 30, 2017 and December 31, 2016, there have been no other-than-temporary losses on our marketable securities. None of our marketable securities have been in continuous unrealized loss positions for greater than twelve months as of September 30, 2017. We invest in marketable securities that have maximum maturities of up to two years and are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those marketable securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We expect to realize the full value of these investments upon maturity or sale. As of September 30, 2017, the contractual maturities of our investments did not exceed 24 months. The fair values of available-for-sale investments, by remaining contractual maturity, are as follows (in thousands):
The weighted average remaining duration of our current marketable securities is approximately 0.8 years as of September 30, 2017. As we view these securities as available to support current operations, we classify securities with maturities beyond 12 months as current assets under the caption marketable securities in the accompanying unaudited condensed consolidated balance sheets. Accounts Receivable, net Accounts receivable, net consists of the following (in thousands):
Inventories Inventories consist of the following (in thousands):
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands):
Property and Equipment, net Property and equipment, net consists of the following (in thousands):
Depreciation and amortization expense was $5.2 million and $5.1 million, for the three months ended September 30, 2017 and 2016, respectively, and $15.0 million and $14.8 million for the nine months ended September 30, 2017 and 2016, respectively. Accrued Liabilities Accrued liabilities consist of the following (in thousands):
Warranty Accrual We offer a one-year warranty on all of our hardware products and a 90-day warranty against defects in the software embedded in the products. The accrued warranty liability is recorded in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):
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Investments |
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Investments, All Other Investments [Abstract] | |
Investments | Investments Investments in Privately-held Companies As of September 30, 2017 and December 31, 2016, we held non-marketable equity investments of approximately $36.1 million in privately-held companies which are accounted for under the cost method. To date, we have not recognized any impairment losses on our investments. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Operating Leases We lease various operating spaces in North America, Europe, Asia and Australia under non-cancelable operating lease arrangements that expire on various dates through 2025. We recognize rent expense under these arrangements on a straight-line basis over the term of the lease. Rent expense for all operating leases amounted to $2.5 million and $2.3 million for the three months ended September 30, 2017 and 2016, respectively, and $7.5 million and $7.0 million for the nine months ended September 30, 2017 and 2016, respectively. There have been no material changes in our operating lease commitments under contractual obligation, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. Financing Obligation—Build-to-Suit Lease In August 2012, we executed a lease for a building then under construction in Santa Clara, California to serve as our headquarters. The lease term is 120 months and commenced in August 2013. The underlying building asset is depreciated over the building’s estimated useful life of 30 years. At the conclusion of the initial lease term, we will de-recognize both the net book values of the asset and the remaining financing obligation. There have been no material changes in our operating lease commitments under contractual obligation, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. As of September 30, 2017 and December 31, 2016, we have recorded assets of $53.4 million, representing the total costs of the building and improvements incurred, including the costs paid by the lessor (the legal owner of the building) and additional improvement costs paid by us, and a corresponding financing obligation of $40.0 million and $41.2 million, respectively. As of September 30, 2017, $1.8 million and $38.2 million were recorded as short-term and long-term financing obligations, respectively. Land lease expense related to our lease financing obligation is classified as rent expense in our unaudited condensed consolidated statements of income, and amounted to $0.3 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2016, respectively. Purchase Commitments We outsource most of our manufacturing and supply chain management operations to third-party contract manufacturers, who procure components and assemble products on our behalf based on our forecasts in order to reduce manufacturing lead times and ensure adequate component supply. We issue purchase orders to our contract manufacturers for finished product and a significant portion of these orders consist of firm non-cancelable commitments. In addition, we purchase strategic component inventory from certain suppliers under purchase commitments that in some cases are non-cancelable, including integrated circuits, which are consigned to our contract manufacturers. As of September 30, 2017, we had non-cancelable purchase commitments of $131.8 million. In addition, we have provided deposits to secure our obligations to purchase inventory. We had $34.7 million and $63.1 million in deposits as of September 30, 2017 and December 31, 2016, respectively. These deposits are classified in other current and long term assets in our accompanying unaudited condensed consolidated balance sheets. Guarantees We have entered into agreements with some of our direct customers and channel partners that contain indemnification provisions relating to potential situations where claims could be alleged that our products infringe the intellectual property rights of a third party. We have at our option and expense the ability to repair any infringement, replace product with a non-infringing equivalent-in-function product or refund our customers all or a portion of the value of the product. Other guarantees or indemnification agreements include guarantees of product and service performance and standby letters of credit for lease facilities and corporate credit cards. We have not recorded a liability related to these indemnification and guarantee provisions and our guarantee and indemnification arrangements have not had any significant impact on our consolidated financial statements to date. Legal Proceedings OptumSoft, Inc. Matters On April 4, 2014, OptumSoft filed a lawsuit against us in the Superior Court of California, Santa Clara County titled OptumSoft, Inc. v. Arista Networks, Inc., in which it asserts (i) ownership of certain components of our EOS network operating system pursuant to the terms of a 2004 agreement between the companies; and (ii) breaches of certain confidentiality and use restrictions in that agreement. Under the terms of the 2004 agreement, OptumSoft provided us with a non-exclusive, irrevocable, royalty-free license to software delivered by OptumSoft comprising a software tool used to develop certain components of EOS and a runtime library that is incorporated into EOS. The 2004 agreement places certain restrictions on our use and disclosure of the OptumSoft software and gives OptumSoft ownership of improvements, modifications and corrections to, and derivative works of, the OptumSoft software that we develop. In its lawsuit, OptumSoft has asked the Court to order us to (i) give OptumSoft access to our software for evaluation by OptumSoft; (ii) cease all conduct constituting the alleged confidentiality and use restriction breaches; (iii) secure the return or deletion of OptumSoft’s alleged intellectual property provided to third parties, including our customers; (iv) assign ownership to OptumSoft of OptumSoft’s alleged intellectual property currently owned by us; and (v) pay OptumSoft’s alleged damages, attorney’s fees, and costs of the lawsuit. David Cheriton, one of our founders and a former member of our board of directors, who resigned from our board of directors on March 1, 2014 and has no continuing role with us, is a founder and, we believe, the largest stockholder and director of OptumSoft. The 2010 David R. Cheriton Irrevocable Trust dtd July 28, 2010, a trust for the benefit of the minor children of Mr. Cheriton, is one of our largest stockholders. On April 14, 2014, we filed a cross-complaint against OptumSoft, in which we assert our ownership of the software components at issue and our interpretation of the 2004 agreement. Among other things, we assert that the language of the 2004 agreement and the parties’ long course of conduct support our ownership of the disputed software components. We ask the Court to declare our ownership of those software components, all similarly-situated software components developed in the future and all related intellectual property. We also assert that, even if we are found not to own certain components, such components are licensed to us under the terms of the 2004 agreement. However, there can be no assurance that our assertions will ultimately prevail in litigation. On the same day, we also filed an answer to OptumSoft’s claims, as well as affirmative defenses based in part on OptumSoft’s failure to maintain the confidentiality of its claimed trade secrets, its authorization of the disclosures it asserts and its delay in claiming ownership of the software components at issue. We have also taken additional steps to respond to OptumSoft’s allegations that we improperly used and/or disclosed OptumSoft confidential information. While we believe we have meritorious defenses to these allegations, we believe we have (i) revised our software to remove the elements we understand to be the subject of the claims relating to improper use and disclosure of OptumSoft confidential information and made the revised software available to our customers and (ii) removed information from our website that OptumSoft asserted disclosed OptumSoft confidential information. The parties tried Phase I of the case, relating to contract interpretation and application of the contract to certain claimed source code, in September 2015. On December 16, 2015, the Court issued a Proposed Statement of Decision Following Phase 1 Trial, and on January 8, 2016, OptumSoft filed objections to that Proposed Statement of Decision. On March 23, 2016, the Court issued a Final Statement of Decision Following Phase I Trial, in which it agreed with and adopted our interpretation of the 2004 agreement and held that we, and not OptumSoft, own all the software at issue in Phase I. The remaining issues that were not addressed in the Phase I trial are set to be tried in Phase II including the application of the Court’s interpretation of the 2004 agreement as set forth in the Final Statement of Decision Following Phase I Trial to any other source code that OptumSoft claims to own following a review. Phase II was previously scheduled to be tried in April 2016; however, that trial date has been vacated and a new trial date has not yet been set. We intend to vigorously defend against any claims brought against us by OptumSoft. However, we cannot be certain that, if litigated, any claims by OptumSoft would be resolved in our favor. For example, if it were determined that OptumSoft owned components of our EOS network operating system, we would be required to transfer ownership of those components and any related intellectual property to OptumSoft. If OptumSoft were the owner of those components, it could make them available to our competitors, such as through a sale or license. An adverse litigation ruling could result in a significant damages award against us and injunctive relief. In addition, OptumSoft could assert additional or different claims against us, including claims that our license from OptumSoft is invalid. With respect to the legal proceedings described above, it is our belief that while a loss is not probable, it may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be estimated. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us in a reporting period for a material amount, our consolidated financial statements for that reporting period could be materially adversely affected. Cisco Systems, Inc. (“Cisco”) Matters We are currently involved in several litigation matters with Cisco Systems, Inc. These matters are summarized below. Cisco Systems, Inc. v. Arista Networks, Inc. (Case No. 4:14-cv-05343) (“’43 Case”) On December 5, 2014, Cisco filed a complaint against us in the District Court for the Northern District of California alleging that we infringe U.S. Patent Nos. 6,377,577; 6,741,592; 7,023,853; 7,061,875; 7,162,537; 7,200,145; 7,224,668; 7,290,164; 7,340,597; 7,460,492; 8,051,211; and 8,356,296 (respectively, “the ’577 patent,” “the ’592 patent,” “the ’853 patent,” “the 875 patent,” “the ’537 patent,” “the ’145 patent,” “the ’668 patent,” “the ’164 patent,” “the ’597 patent,” “the ’492 patent,” “the ’211 patent,” and “the ’296 patent”). Cisco seeks, as relief for our alleged infringement in the ’43 Case, lost profits and/or reasonable royalty damages in an unspecified amount, including treble damages, attorney’s fees, and associated costs. Cisco also seeks injunctive relief in the ’43 Case. On February 10, 2015, the Court granted our unopposed motion to stay the ’43 Case until the proceedings before the United States International Trade Commission (“USITC”) pertaining to the same patents (as discussed below) became final. Trial has not been scheduled in the ’43 Case. Cisco Systems, Inc. v. Arista Networks, Inc. (Case No. 5:14-cv-05344) (“’44 Case”) On December 5, 2014, Cisco filed a complaint against us in the District Court for the Northern District of California alleging that we infringe numerous copyrights pertaining to Cisco’s “Command Line Interface” or “CLI” and U.S. Patent Nos. 7,047,526 and 7,953,886 (respectively, “the ’526 patent” and “the ’886 patent”). As relief for our alleged patent infringement in the ’44 Case, Cisco seeks lost profits and/or reasonable royalty damages in an unspecified amount including treble damages, attorney’s fees, and associated costs as well as injunctive relief. As relief for our alleged copyright infringement, Cisco seeks monetary damages for alleged lost profits, profits from our alleged infringement, statutory damages, attorney’s fees, and associated costs. As described below, on May 25, 2016, our petition for Inter Partes Review (“IPR”) of the ’886 patent was instituted by the United States Patent Trial and Appeal Board (“PTAB”). Cisco subsequently agreed to dismiss its claims as to the ‘886 patent with prejudice. On December 14, 2016, following a two-week trial, the jury found that we had proven our copyright defense of scenes a faire and that Cisco had failed to prove infringement of the ’526 patent, and on that basis judgment was entered in our favor on all claims on December 19, 2016. On January 17, 2017, Cisco filed a motion for judgment as a matter of law, challenging the sufficiency of the evidence in support of our scenes a faire defense. Cisco did not file any post-trial motion regarding the ’526 patent, nor did it file a motion for a new trial. We also filed a conditional motion for judgment as a matter of law and/or for a new trial on several grounds, which would be at issue only if the court granted Cisco’s motion. The hearing on both parties’ motions was held on April 27, 2017. On May 10, 2017, the court denied Cisco’s motion and denied our motions as moot. Cisco filed a notice of appeal on June 6, 2017, and the parties are in the process of submitting their appeal briefs. Arista Networks, Inc. v. Cisco Systems, Inc. (Case No. 5:16-cv-00923) (“’23 Case”) On February 24, 2016, we filed a complaint against Cisco in the District Court for the Northern District of California alleging antitrust violations and unfair competition. On August 23, 2016, the Court granted Cisco’s motion to stay the ’23 Case until judgment was entered on Cisco’s copyright claims in the ’44 Case. On March 2, 2017, the Court lifted the stay and trial is set for August 3, 2018. On March 23, 2017, Cisco filed a motion to dismiss our complaint in the ’23 Case. On October 10, 2017, the Court issued an order granting in part and denying in part Cisco’s motion to dismiss, with leave for us to amend to cure any deficiencies as to the claims that were dismissed. Certain Network Devices, Related Software, and Components Thereof (Inv. No. 337-TA-944) (“944 Investigation”) On December 19, 2014, Cisco filed a complaint against us in the USITC alleging that we violated 19 U.S.C. § 1337 (“Section 337”). The USITC instituted Cisco’s complaint as Investigation No. 337-TA-944. Cisco initially alleged that certain of our switching products infringe the ’592, ’537, ’145, ’164, ’597, and ’296 patents. Cisco subsequently dropped the ’296 patent from the 944 Investigation. Cisco sought, among other things, a limited exclusion order barring entry into the United States of accused switch products (including our 7000 Series of switches) and components and software therein and a cease and desist order against us restricting our activities with respect to our imported accused switch products and components and software therein. On February 2, 2016, the Administrative Law Judge (“ALJ”) issued his initial determination finding a violation of Section 337. More specifically, the ALJ found that a violation has occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation, of certain network devices, related software, and components thereof that the ALJ found infringed asserted claims 1, 2, 8-11, and 17-19 of the ’537 patent; asserted claims 6, 7, 20, and 21 of the ’592 patent; and asserted claims 5, 7, 45, and 46 of the ’145 patent. The ALJ did not find a violation of Section 337 with respect to any asserted claims of the ’597 and ’164 patents. On June 23, 2016, the Commission issued its Final Determination, which found a violation with respect to the ’537, ’592, and ’145 patents, and found no violation with respect to the ’597 and ’164 patents. The Commission also issued a limited exclusion order and a cease and desist order pertaining to network devices, related software and components thereof that infringe one or more of claims 1, 2, 8-11, and 17-19 of the ’537 patent; claims 6, 7, 20, and 21 of the ’592 patent; and claims 5, 7, 45, and 46 of the ’145 patent. On August 22, 2016, the Presidential review period for the 944 Investigation expired. The USITC orders will be in effect until the expiration of the ’537, ’592, and ’145 patents. Both we and Cisco filed petitions for review of the USITC’s Final Determination to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). The appeal was fully briefed and oral argument was held on June 6, 2017. On September 27, 2017, the Federal Circuit affirmed the USITC’s Final Determination. On August 26, 2016, Cisco filed an enforcement complaint under Section 337 with the USITC. Cisco alleges that we are violating the cease and desist and limited exclusion orders issued in the 944 Investigation by engaging in the “marketing, distribution, offering for sale, selling, advertising, and/or aiding or abetting other entities in the sale and/or distribution of products that Cisco alleges continue to infringe claims 1-2, 8-11, and 17-19 of the ’537 patent,” despite the design changes we have made to those products. Cisco asks the USITC to (1) enforce the cease and desist order; (2) modify the Commission’s limited exclusion order and/or cease and desist order “in any manner that would assist in the prevention of the unfair practices that were originally the basis for issuing such Order or assist in the detection of violations of such Order”; (3) impose the maximum statutory civil penalties for violation of the cease and desist order “including monetary sanctions for each day’s violation of the cease and desist order of the greater of $100,000 or twice the domestic value of the articles entered or sold, whichever is higher”; (4) bring a civil action in U.S. district court “requesting collection of such civil penalties and the issuance of a mandatory injunction preventing further violation of Cease and Desist Order”; and (5) impose “such other remedies and sanctions as are appropriate and within the Commission’s authority.” On September 28, 2016, the Commission instituted the enforcement proceeding. The proceeding has been assigned to ALJ Judge Shaw, who presided over the underlying investigation. The target date for the investigation was initially set for September 20, 2017. On June 20, 2017, the ALJ issued his initial determination finding that we did not violate the June 23, 2016 cease and desist order. The initial determination also recommended a civil penalty of $307 million if the Commission decided to overturn the finding of no violation. On July 3, 2017, the parties filed petitions for review of certain findings in the initial determination. On August 4, 2017, the Commission issued an order remanding the investigation to the ALJ to make additional findings on certain issues and issue a remand initial determination. The Commission ordered the ALJ to set a schedule for completion of any necessary remand proceedings and a new target date for the enforcement action. On August 25, 2017 the ALJ issued an Initial Determination setting a June 4, 2018 deadline for the remand initial determination and September 4, 2018 as the new target date for the enforcement action. The ALJ also set a briefing schedule and a February 1, 2018 hearing. On September 18, 2017, the Commission determined not to review the Initial Determination setting the target date. Certain Network Devices, Related Software, and Components Thereof (Inv. No. 337-TA-945) (“945 Investigation”) On December 19, 2014, Cisco filed a complaint against us in the USITC alleging that we violated Section 337. The USITC instituted Cisco’s complaint as Investigation No. 337-TA-945. Cisco alleges that certain of our switching products infringe the ’577, ’853, ’875, ’668, ’492, and ’211 patents. Cisco seeks, among other things, a limited exclusion order barring entry into the United States of accused switch products (including our 7000 Series of switches) related software, and components thereof and a cease and desist order against us restricting our activities with respect to our imported accused switch products, related software, and components thereof. On December 9, 2016, the ALJ issued her initial determination finding a violation of Section 337. More specifically, the ALJ found that a violation has occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation, of certain network devices, related software, and components thereof that the ALJ found infringe asserted claims 1, 7, 9, 10, and 15 of the ’577 patent and asserted claims 1, 2, 4, 5, 7, 8, 10, 13, 19, 56, and 64 of the ’668 patent. The ALJ did not find a violation of Section 337 with respect to asserted claim 2 of the ’577 patent or any asserted claims of the ’853, ’492, ’875, and ’211 patents. On December 29, 2016, we, Cisco and the Office of Unfair Import Investigation (“OUII”) filed petitions for review of certain findings contained in the initial determination. On March 1, 2017, the Commission issued a notice that it was reviewing the final initial determination in part on certain issues. On May 4, 2017, the Commission issued its Final Determination, which found a violation with respect to the ’577 and ’668 patents, and found no violation with respect to the ’211, ’853, ’875 and ’492 patents. The Commission also issued a limited exclusion order and a cease and desist order pertaining to network devices, related software and components thereof that infringe one or more of claims 1, 7, 9, 10, and 15 of the ’577 patent and 1, 2, 4, 5, 7, 8, 10, 13, 18, 56, and 64 of the ’668 patent. The 60-day Presidential review period for the 945 Investigation expired on July 4, 2017. During the 60-day Presidential review period, the USITC Orders permitted Arista to continue importing and selling products covered by the orders so long as we paid a 5% bond. Because the United States Trade Representative did not disapprove the USITC’s final determination, the limited exclusion order and cease and desist order are now in full effect. On May 25, 2017 and June 1, 2017, the PTAB issued final written decisions finding all claims of the ’577 and ’668 patents that we were found to have infringed in the 945 Investigation unpatentable. On June 1, 2017 and June 2, 2017, we filed emergency petitions to suspend the remedial orders in the 945 Investigation. On July 20, 2017, the Commission issued a notice denying our petition to suspend the remedial orders. On July 21, 2017, we filed a motion to stay the remedial orders in the 945 Investigation pending disposition of the relevant appeals and sought expedited consideration of our motion. On September 11, 2017, the Commission denied our motion to stay. On June 30, 2017, Cisco filed a petition for review of the USITC’s Final Determination to the Federal Circuit regarding the ’853, ’492, ’875 and ’211 patents. On July 21, 2017, we filed a petition for review of the Final Determination to the Federal Circuit. On August 25, 2017 we filed a motion with the U.S. Court of Appeals for the Federal Circuit requesting that the Federal Circuit stay the remedial orders pending the completion of the appeal of the 945 Investigation. On September 22, 2017, the Federal Circuit issued an order denying our motion to stay, but ordered that our redesigned products be allowed to enter the country “unless and until Commission proceedings are initiated and completed to produce an enforceable determination that such a redesign is barred” by a Commission remedial order. On September 27, 2017, Cisco filed a petition with the USITC requesting that the Commission institute a modification proceeding to determine whether our redesigned products infringe the patent claims underlying the remedial orders in the 945 Investigation. On October 27, 2017, the Commission instituted the modification proceeding. The USITC has assigned Mary Joan McNamara as the ALJ to oversee the proceeding. The Commission has set a deadline of five months for the ALJ to issue a recommended determination on what, if any, modifications to the remedial orders issued in the 945 Investigation are appropriate. This deadline may be extended by one month upon a showing of good cause. The recommended determination will be subject to review by the Commission after which the Commission will issue a final determination. The Commission has not set a target date for the final determination. On November 1, 2017, Cisco filed a request for an expedited “limited recommended determination” on certain issues relating to the ’577 patent. Cisco’s request seeks completion of briefing by December 11, 2017 and a recommended determination “as soon as practicable” after that. Inter Partes Reviews We have filed petitions for Inter Partes Review of the ’597, ’211, ’668, ’853, ’537, ’577, ’886, and ’526 patents. IPRs relating to the ’597 (IPR No. 2015-00978) and ’211 (IPR No. 2015-00975) patents were instituted in October 2015 and hearings on these IPRs were completed in July 2016. On September 28, 2016, the PTAB issued a final written decision finding claims 1, 14, 39-42, 71, 72, 84, and 85 of the ’597 patent unpatentable. The PTAB also found that claims 29, 63, 64, 73, and 86 of the ’597 patent had not been shown to be unpatentable. On October 5, 2016, the PTAB issued a final written decision finding claims 1 and 12 of the ’211 patent unpatentable. The PTAB also found that claims 2, 6-9, 13, 17-20 of the ’211 patent had not been shown to be unpatentable. Both parties have appealed the final written decisions on the ’211 and ’537 patent IPRs. The IPR relating to the ’886 patent was instituted on May 25, 2016. Following that decision, Cisco agreed to dismiss its claims as to the ʼ886 patent with prejudice, and we dismissed our counterclaims as to the ʼ886 patent without prejudice. IPRs relating to the ’668 (IPR No. 2016-00309), ’577 (IPR No. 2016-00303), ’853 (IPR No. 2016-0306), and ’537 (IPR No. 2016-0308) patents were instituted in June 2016 and hearings were held on March 7, 2017. On May 25, 2017, the PTAB issued final written decisions finding claims 1, 7-10, 12-16, 18-22, 25, and 28-31 of ’577 patent unpatentable, and that claim 2 of the ’577 patent, claim 63 of the ’853 patent, and claims 1, 10, 19, and 21 of the ’537 patent had not been shown to be unpatentable. On June 1, 2017, the PTAB issued a final written decision finding claims 1-10, 12-13, 15-28, 30-31, 33-36, 55-64, 66-67, and 69-72 of the ’668 patent unpatentable. We filed a Notice of Appeal concerning the ’577 patent on July 21, 2017, and Notices of Appeal concerning the ‘853 and ’537 patents on July 26, 2017. Cisco cross-appealed concerning the ’577 patent on July 26, 2017 and filed a Notice of Appeal concerning the ’668 patent on August 1, 2017. For the appeals of the IPRs on the ’668 and ’577 patents, the Federal Circuit granted our motion for an expedited briefing schedule, and the briefing will be completed in November 2017. * * * * * We intend to vigorously defend against each of the Cisco lawsuits, as summarized in the preceding paragraphs. However, we cannot be certain that any claims by Cisco will be resolved in our favor regardless of the merit of the claims. Any adverse litigation ruling could result in injunctive relief, including the above described injunctive relief, could lead to significant penalties assessed or damages awarded against us or a requirement that we make substantial royalty payments to Cisco, and/or could require that we modify our products. For example, in the 944 Investigation, the USITC issued a limited exclusion order barring entry into the United States of our network devices (including our 7000 Series of switches), related software, and components thereof that infringe one or more of the claims of the ’537, ʼ592, and ʼ145 patents specified above and a cease and desist order restricting our activities with respect to such imported products. In the 945 Investigation, the USITC issued a limited exclusion order barring entry into the United States of our network devices, related software, and components thereof that infringe one or more of the claims of the ’577 and ’668 patents specified above and a cease and desist order restricting our activities with respect to such imported products. To comply with these orders, we have sought to develop technical redesigns that no longer infringe the patents that are the subject of the orders. In any efforts to develop these technical redesigns for our products, we may be unable to do so in a manner that does not continue to infringe the patents or that is acceptable to our customers. Our redesign efforts could be extremely costly and time consuming as well as disruptive to our other development activities and distracting to management. Moreover, our ability to import redesigned products into the United States is based on rulings from U.S. Customs and Border Protection (“CBP”) and the Federal Circuit. While these favorable rulings currently allow us to import our redesigned products into the United States, the USITC could determine in an enforcement action or modification proceeding that our redesigned products continue to infringe the patents that are the subject of any USITC orders. In addition, the Federal Circuit or CBP could decide to withdraw or alter their rulings based on a change in circumstances. Any failure to effectively redesign our products, obtain customer acceptance of those redesigned products, retain authorization to import those redesigned products, or address the USITC findings in a manner that complies with the USITC orders, may cause a disruption to our product shipments, a rejection or return of our redesigned products by (or a delay or loss of sales to) customers, subject us to penalties or damage awards, and materially and adversely affect our business, revenues, prospects, reputation, results of operations, and financial condition. Specifically, in response to the USITC’s findings in the 944 Investigation, we have made design changes to our products for sale in the United States to address the features that were found to infringe the ’537, ’592, and ’145 patents. Following the issuance of the final determination in the 944 Investigation, we submitted a Section 177 ruling request to CBP seeking approval to import these redesigned products into the United States. On November 18, 2016, we received a 177 ruling from CBP finding that our redesigned products did not infringe the relevant claims of the ʼ537, ’592, and ʼ145 patents, and approving the importation of those redesigned products into the United States. On January 13, 2017, at the request of Cisco and without our input, CBP issued a letter to us revoking its prior November 18 ruling. CBP subsequently conducted an inter partes proceeding between Arista and Cisco to determine whether our redesigned products infringe and whether to approve them for importation into the United States. On April 7, 2017, following the inter partes proceeding, CBP again ruled that our redesigned products do not infringe the relevant claims of the ’537, ’592, and ’145 patents and again approved those redesigns for importation into the United States. On September 12, 2017, Cisco filed a second request with CBP seeking to revoke our approval to import our redesigns relating to the 944 Investigation. We have opposed Cisco’s request, and CBP has not yet ruled on Cisco’s request. Similarly, on May 4, 2017, the USITC issued a limited exclusion order and cease and desist order in the 945 Investigation with respect to the ’668 and ’577 patents. We have made design changes to our products for sale in the United States to address the features that were found to infringe the ’577 and ’668 patents. We are making ongoing modifications to our products to also ensure that they continue to meet customer requirements, and we are working with our customers to qualify those modified products for use in our customers’ networks. In particular, the ’577 patent was directed to a feature that is implemented in the merchant silicon chips that we purchase from third-party suppliers. Because we do not design, build or manufacture these merchant silicon chips, we are limited in further modifications that we can make to our products for this patent. We are deploying these additional modifications for a subset of our products, and for all of our products we will remove the features found to infringe until the ’577 patent expires on June 30, 2018. These redesign and qualification efforts could be extremely costly and time consuming for us and our customers as well as disruptive to our other development activities and distracting to management. We may not be able to complete, and our customers may not be able to qualify these redesigned products in a timely fashion, if at all. For example, some of our customers continue to test and qualify our redesigned products which address the ’577 and ’668 patents to ensure that they meet their network requirements. This could result in an inability to ship those redesigned products to our customers, a delay or cancellation of purchases by, some customers until those further modifications are completed and/or qualified or a rejection or return of our redesigned products or a delay or loss of sales to some customers, any of which could materially and adversely affect our business, revenues, deferred revenue balances, prospects, reputation, results of operations or financial condition. Because the USITC did not suspend its orders in the 945 Investigation, despite a PTAB finding that every relevant claim of the ’668 and ’577 patents is unpatentable, we were previously barred from importing our redesigned products into the United States until we received approval from CBP. On July 21, 2017, we submitted a Part 177 request to CBP seeking approval to import our redesigned products into the United States. Following the Federal Circuit’s order on September 22, 2017, allowing us to import our redesigned products, we withdrew our request. On October 12, 2017, CBP, over Cisco’s objection, terminated the Part 177 proceedings, and confirmed that it will permit entry of our redesigns pursuant to the Federal Circuit’s September 22, 2017 order. In either the 944 or 945 Investigations, if the USITC determines that our redesigned products infringe patents that are the subject of USITC remedial orders, those products will be barred from import into the United States, or sale after importation. In addition, the USITC may impose the maximum statutory civil penalties for violation of the cease and desist order “including monetary sanctions for each day’s violation of the cease and desist order of the greater of $100,000 or twice the domestic value of the articles entered or sold, whichever is higher,” bring a civil action in U.S. district court “requesting collection of such civil penalties and the issuance of a mandatory injunction preventing further violation of Cease and Desist Order,” or impose “such other remedies and sanctions as are appropriate and within the Commission’s authority.” In the 944 Investigation, the ALJ recommended a civil penalty of $307 million if the Commission were to reverse ALJ’s finding of no violation. Any such finding by the USITC could materially and adversely affect our business, prospects, reputation, results of operations and financial condition. An adverse finding in an enforcement action or modification proceeding would take effect immediately upon USITC’s issuance of the final determination, without any Presidential review period. To address such a finding, we would have to further redesign our products to make them non-infringing, and until we made such changes we would not be able to import or ship our products to customers. In such a situation, we may not be able to do so in a manner that does not continue to infringe the patents or that is acceptable to customers. We may not be able to complete, and our customers may not be able to qualify, such redesigned products in a timely fashion, if at all, following the issuance of an adverse final determination, leading to an inability to sell or ship products to customers. Our redesign efforts could be extremely costly and time consuming as well as disruptive to our other development activities and distracting to management. For example, in the enforcement action for the 944 Investigation, although the ALJ issued an initial determination finding that our redesigned products did not violate the June 23, 2016 cease and desist order, if the ALJ modifies the initial determination during the remand proceeding, or if the Commission finds a violation in its final determination on September 4, 2018, we will no longer be able to import or ship our products in the U.S. until we make further changes to address those findings, which could materially and adversely affect our business, revenues, prospects, reputation, results of operations or financial condition. We would also need to obtain USITC or CBP approval to resume importation of such redesigned products into the United States. In addition, the USITC would not provide a service and support exception for our previously redesigned products, and customers may be required to upgrade to new products to obtain service and support. If we are unable to obtain such approvals or provide such service and support exception, our business, prospects, reputation, results of operations or financial condition could be materially and adversely affected. In the 945 Investigation, while the USITC orders are based upon patent claims that the PTAB has found to be invalid, these orders will remain in effect unless and until the PTAB decisions are affirmed on appeal and the PTO cancels the patents. If the Commission finds a violation in its final determination for the modification proceeding, we will no longer be able to import or ship our products in the U.S. until we make further changes to address those findings and/or until the PTAB decisions are so affirmed and the PTO cancels the patents, which could materially and adversely affect our business, revenues, prospects, reputation, results of operations or financial condition. We would also need to obtain USITC or CBP approval to resume importation of any such redesigned products into the United States. In addition, the USITC would not provide a service and support exception for our previously redesigned products, and customers may be required to upgrade to new products to obtain service and support. If we are unable to obtain such approvals or provide such service and support exception, our business, revenues, prospects, reputation, results of operations or financial condition could be materially and adversely affected. In addition, even if the PTAB decisions are affirmed on appeal, and the patent claims are canceled, if we are found to have violated the USITC’s orders while those orders remain in effect, we may be subject to penalties. To comply with the USITC’s remedial orders, we have also made certain changes to our manufacturing, importation and shipping workflows. These changes have included shifting manufacturing and integration of our products to be sold in the United States to U.S. facilities. Such changes may be extremely costly, time consuming, and we may not be able to implement such changes successfully. Any failure to successfully change our manufacturing and importation processes or shipping workflows in a manner that is compliant with the limited exclusion order and cease and desist order may cause a disruption in our product shipments and materially and adversely affect our business, prospects, reputation, results of operations, and financial condition. In connection with these changes, to the extent that we are required to make further modifications to our supply chain to obtain alternative U.S. sources for subcomponents, we may be unable to obtain a sufficient quantity of these components on commercially reasonable terms or in a timely manner, if at all, which could delay or halt entirely production of our products or require us to make further modifications to our products to incorporate new components that are available in the United States. Any of these events could result in lost sales, reduced gross margins or damage to our end-customer relationships, which would materially and adversely impact our business, financial condition, results of operations and prospects. Additionally, the existence of Ciscoʼs lawsuits against us could cause concern among our customers and partners and could adversely affect our business and results of operations. Many of our customers and partners require us to indemnify and defend them against third party infringement claims and pay damages in the case of adverse rulings. These claims could harm our relationships with our customers or channel partners, cause them to delay or defer purchasing decisions or deter them from doing business with us. From time to time, we may also be required to provide additional assurances beyond our standard terms. Whether or not we prevail in the lawsuit, we expect that the litigation will be expensive, time-consuming and a distraction to management in operating our business. With respect to the various legal proceedings described above, it is our belief that while a loss is not probable, it may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be estimated. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us in a reporting period for a material amount, our consolidated financial statements for that reporting period could be materially adversely affected. In the Matter of Certain Semiconductor Devices, Semiconductor Device Packages, and Products Containing Same (U.S. International Trade Commission Investigation No. 337-TA-1010) (the “1010 Investigation”) On May 23, 2016, Tessera Technologies, Inc., Tessera, Inc., and Invensas Corp. (“Tessera”) filed a complaint in the USITC alleging that Broadcom Limited, Broadcom Corporation, Avago Technologies Limited, and Avago Technologies U.S. Inc. (“Broadcom”) and certain of Broadcom's customers violated 19 U.S.C. § 1337 (“Section 337”). On June 20, 2016, the USITC instituted Tessera’s complaint as Investigation No. 337-TA-1010. Tessera alleges that certain Broadcom semiconductor devices infringe U.S. Patent Nos. 6,856,007; 6,849,946; and 6,133,136. Tessera further alleges that Broadcom’s downstream customers, Arista Networks, Inc.; ARRIS International plc; ARRIS Group, Inc.; ARRIS Technology, Inc.; ARRIS Enterprises LLC; ARRIS Solutions, Inc.; Pace Ltd.; Pace Americas, LLC; Pace USA; LLC, ASUSteK Computer Inc.; ASUS Computer International; Comcast Cable Communications, LLC; Comcast Cable Communications Management, LLC; Comcast Business Communications, LLC; HTC Corporation; HTC America, Inc.; NETGEAR, Inc.; Technicolor S.A.; Technicolor USA, Inc.; and Technicolor Connected Home USA LLC (“Downstream Respondents”) are violating Section 337 by importing, selling after importation, or selling for importation products that incorporate the accused Broadcom semiconductor devices. The accused Company products include certain models of our switching products. Tessera seeks the following relief: (1) a permanent limited exclusion order excluding from importation into the U.S. all of Broadcom’s semiconductor devices and semiconductor device packages, as well as Downstream Respondents’ products containing Broadcom’s semiconductor devices that infringe one or more of the three patents-in-suit and (2) a permanent cease and desist order prohibiting Broadcom and the Downstream Respondents and related companies from importing, marketing, advertising, demonstrating, warehousing inventory for distribution, offering for sale, selling, qualifying for use in the products of others, distributing, or using the accused Broadcom semiconductor devices and Downstream Respondents’ products containing Respondents’ semiconductor devices and semiconductor device packages that infringe one or more of the three patents subject to the USITC Investigation. An evidentiary hearing was held from March 27-31, 2017. On June 30, 2017, the ALJ issued an initial determination that found a violation with respect to the ’946 patent and no violation with respect the ’136 and ’007 patents. The ALJ recommended that the Commission issue limited exclusion and cease and desist orders and recommended a 100% bond for imports during the Presidential review period. The Commission has indicated it will review the initial determination, and the target date for the final determination is December 1, 2017. To the extent claims made by Tessera in the USITC Investigation against us are based solely on functionality residing in Broadcom’s products, Broadcom has agreed to defend us at no cost to us. * * * * * An adverse final determination from the Commission could result in issuance of remedial orders that could prevent Broadcom, Arista, and the other Downstream Respondents from selling infringing products for import into the United States, importing infringing products into the United States, or selling infringing products after importation into the United States. This could include both the infringing semiconductor devices as well as downstream products, including our Ethernet switches, that incorporate those devices. During the 60-day Presidential review period following the final determination, Broadcom, Arista, and the other Downstream Respondents could continue to import and sell infringing products by paying a bond. The ALJ’s recommended bond is 100% of the entered value of the product. Following the end of the Presidential review period, if the U.S. Trade Representative chooses not to disapprove the final determination, the remedial orders would go into full effect. If the USITC orders go into full effect, to continue importing and selling products found to be infringing, Broadcom and its manufacturers would need to develop redesigned products that do not infringe, and we would have to integrate these devices into its own products, or Broadcom and/or the Downstream Respondents would need to obtain a license from Tessera. It may not be possible to do this in a timely fashion, if at all. Because the asserted patents are directed towards technology used in the manufacture of the semiconductor devices not manufactured or designed by us, we would be dependent on Broadcom and its manufacturers to create such redesigned products. Before Broadcom, Arista, or the other Downstream Respondents could import redesigned products into the United States, the products would have to be approved by CBP or the USITC. We may not be successful in any efforts to obtain such approvals in a timely manner, or at all. While a favorable ruling from CBP would allow Broadcom, Arista, and the other Downstream Respondents to resume importation of our redesigned products into the United States, the USITC could ultimately determine in an enforcement action that such redesigned products continue to infringe the patents that are the subject of the USITC orders. Any failure to effectively redesign these products and obtain timely clearance from CBP or USITC to import such redesigned products or to obtain a license from Tessera may cause a disruption to our product shipments and materially and adversely affect our business, revenues, prospects, reputation, results of operations, and financial condition. However, it is our belief that at this stage of the legal proceedings, the likelihood of a loss is remote. Other Matters In the ordinary course of business, we are a party to other claims and legal proceedings including matters relating to commercial, employee relations, business practices and intellectual property. We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of September 30, 2017, provisions recorded for contingent losses related to other claims and matters have not been significant. Based on currently available information, management does not believe that any additional liabilities relating to other unresolved matters are probable or that the amount of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and our view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods. |
Equity Award Plan Activities |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Award Plan Activities | Equity Award Plan Activities Total stock-based compensation expense related to options, restricted stock awards, employee stock purchases, restricted stock units and stock purchase rights granted were allocated as follows (in thousands):
Stock Option Activities On February 6, 2017, the board authorized an increase to shares available for future issuance under the 2014 Equity Incentive Plan (“EIP”). Per the EIP, the increase is determined based on the lesser of 3% of total shares outstanding as of the first day of each fiscal year, 12,500,000 shares, or such amount as determined by our board of directors. The approved increase for 2017 amounted to 2,124,333 shares. As of September 30, 2017, there remain 13.4 million shares available for issuance under the EIP. The following table summarizes the option activity under our equity stock plans and related information:
As of September 30, 2017, the total unrecognized stock-based compensation expense related to unvested stock options was $75.0 million, which is expected to be recognized over a weighted-average period of 3.6 years. Restricted Stock Unit (RSU) Activities A summary of the RSU activity under our stock plans during the reporting period and a summary of information related to RSUs expected to vest are presented below (in thousands, except per share and year amounts):
As of September 30, 2017, there was $152.4 million of unrecognized stock-based compensation cost related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of 3.3 years. Equity Incentive Plan Shares Available for Grant The following table presents EIP stock activity and the total number of shares available for future grant as of September 30, 2017 (in thousands):
Employee Stock Purchase Plan Activities During the nine months ended September 30, 2017, we issued 204,918 shares at a weighted average purchase price of $61.15 under the 2014 Employee Stock Purchase Plan ("ESPP"). On February 6, 2017, the board authorized an increase to shares available for future issuance under the ESPP. Per the ESPP, the increase is determined based on the lesser of 1% of total shares outstanding as of the first day of each fiscal year, 2,500,000 shares, or such amount as determined by our board of directors. The approved increase for 2017 amounted to 708,111 shares. As of September 30, 2017, there remain 1,987,039 shares available for issuance under the ESPP. As of September 30, 2017, the total unrecognized stock-based compensation expense related to unvested ESPP options was $2.8 million, which is expected to be recognized over a weighted-average period of 1.4 years. |
Net Income Per Share Available to Common Stock |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Share Available to Common Stock | Net Income Per Share Available to Common Stock The following table sets forth the computation of our basic and diluted net income per share available to common stock (in thousands, except per share amounts):
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share available to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
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Income Taxes |
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Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes We had a provision for income taxes of $8.5 million and $13.8 million in the three and nine months ended September 30, 2017, respectively as compared to an income tax provision of $11.7 million and $39.7 million in the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2017, the change in our income taxes as compared to the same periods in 2016 was primarily due to the recognition of excess tax benefits of $23.8 million and $71.7 million as a component of the provision for income taxes resulting from the adoption of ASU 2016-09, offset by an increase in the tax provision driven by higher profits before income taxes. We operate in a number of tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. As we expand internationally, our marginal tax rate may decrease; however, there can be no certainty that our marginal tax rate will decrease, and we may experience changes in tax rates that are not reflective of actual changes in our business or operations. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. Generally, the U.S. tax obligation is reduced by a credit for foreign income taxes paid on these earnings avoiding double taxation. We have been selected for examination by the Internal Revenue Service ("IRS") for our 2014 tax year and the subsequent years remain open for audit. It is difficult to determine when the examinations will ultimately be settled. We believe that we have adequately provided reserves for any reasonably foreseeable adjustment to our tax returns. It is likely that within the next 12 months that either the IRS examination for tax year 2014 will be settled or the statute of limitations will run for jurisdictions in which we have unrecognized tax benefits recorded. The settlement or statute lapse would result in a reduction of the unrecognized tax benefit recorded. The reduction may range from no change up to approximately $2.2 million. Our gross unrecognized tax benefits as of September 30, 2017 were $34.4 million. If the gross unrecognized tax benefits as of September 30, 2017 were realized in future periods, this could result in a tax benefit of $21.3 million within our provision of income taxes. |
Segment Information |
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Segment Information | Segment Information We have determined that we operate as one reportable segment. The following table represents revenue based on the customer’s location, as determined by the customer’s shipping address (in thousands):
The following table presents our property, plant and equipment, net by geographic region for the periods presented (in thousands):
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Organization and Summary of Significant Accounting Policies (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||
Basis of Presentation and Principles of Consolidation | The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial information. The results for the three and nine months ended September 30, 2017, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. Our unaudited condensed consolidated financial statements ("consolidated financial statements") include the accounts of Arista Networks, Inc. and its wholly-owned subsidiaries and are prepared in accordance with GAAP. All significant intercompany accounts and transactions have been eliminated. Our consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 17, 2017. |
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Use of Estimates | The preparation of the accompanying consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition and deferred revenue; allowance for doubtful accounts and sales return reserve; determination of fair value for stock-based awards; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; valuation of inventory; valuation of warranty accruals; contract manufacturing liabilities; and recognition and measurement of contingent liabilities. We evaluate our estimates and assumptions based on historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates. |
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Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements | In March 2016, the Financial Accounting Standards Board (the “FASB”) amended the existing accounting standard for stock-based compensation, issuing Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which impacts several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted this standard during our first fiscal quarter of 2017. The impact of the adoption was as follows:
In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing guidance on fees paid in a cloud computing arrangement. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements. In July 2015, the FASB issued ASU No, 2015-11, Inventory: Simplifying the Measurement of Inventory, which simplifies the measurement of inventory to be measured at the lower of cost or net realizable value. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), (as amended in June 2016, by ASU No. 2016-12-Revenue-Narrow-Scope Improvements and Practical Expedients, and in December 2016, by ASU No. 2016-20-Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly expanded disclosures about revenue recognition. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date of the new revenue standard by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts With Customers-Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and ASU No. 2016-10, Revenue From Contracts With Customers-Identifying Performance Obligations and Licensing. ASU No. 2016-08 clarifies the implementation guidance regarding principal versus agent identification and related considerations. Specifically, the guidance provides clarification around performance obligations for goods or services provided by another entity, assisting in determining whether the entity is the provider of the goods or services, the principal, or whether the entity is providing for the arrangement of the goods or services, the agent. ASU No. 2016-10 provides guidance around identifying whether promised goods or services are distinct and separately identifiable, whether promised goods or services are material or immaterial to the contract, and whether shipping and handling is considered an activity to fulfill a promise or an additional promised service. ASU No. 2016-10 also provides guidance around an entity's promise to grant a license providing a customer with either a right to use or a right to access the license, which then determines whether the obligation is satisfied at a point in time or over time, respectively. In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)") ("ASU 2016-11"), which rescinds various standards codified as part of Topic 605, Revenue Recognition in relation to the future adoption of Topic 606. These rescissions include changes to topics pertaining to revenue and expense recognition including accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. The above standards are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The guidance is effective for us beginning in our first quarter of fiscal 2018. Early adoption would be permitted for all entities but not until the fiscal year beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The retrospective method requires a retrospective approach to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance. The cumulative approach requires a retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance. The standards are expected to impact the amount and timing of revenue recognized and the related disclosures on our consolidated financial statements. The standard will also require that we defer all incremental commission costs to obtain a customer contract. We are currently evaluating the accounting, transition and disclosure requirements of the standard and are in the process of assessing the financial statement impact upon adoption. We will adopt ASU 2014-09 during the first quarter of 2018, and expect to adopt the guidance under the modified retrospective method which we anticipate will result in a cumulative effect adjustment as of the date of adoption. In January 2016, the FASB issued ASU No, 2016-01, Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The guidance will address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard is effective for us for our first quarter of fiscal 2018, and may be early adopted under early application guidance. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we expect the adoption of this standard to increase the variability of other income (expense), net on our consolidated financial statements as a result of changes in the fair value of our marketable equity securities. In February 2016, the FASB issued ASU No, 2016-02, Leases, which addresses the classification and recognition of lease assets and liabilities formerly classified as operating leases under GAAP. The guidance will address certain aspects of recognition and measurement, and quantitative and qualitative aspects of presentation and disclosure. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is effective for us for our first quarter of fiscal 2019. The guidance will be applied to the earliest period presented using a modified retrospective approach. The guidance includes practical expedients that relate to identification, classification, and initial direct costs associated with leases commencing prior to the effective date, and the ability to apply hindsight in evaluating lease options related to extensions, terminations or asset purchases. A practical expedient also exists to treat leases entered into prior effective date under existing GAAP unless the lease has been modified. The guidance may be early adopted. We are currently assessing the impact this guidance may have on our consolidated financial statements as well as the transition method that we will use to adopt the guidance. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This standard is effective for us for our first quarter of 2020. We are currently assessing the impact this guidance may have on our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Task Force), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The guidance may be adopted early as of the beginning of an annual reporting period. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we do not expect the guidance to have a material impact on our consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which addresses recognition of current and deferred income taxes for intra-entity asset transfers when assets are sold to an outside party. Current GAAP prohibits the recognition of current and deferred income taxes until the asset has been sold to an outside party. This prohibition on recognition is considered an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The new guidance requires an entity to recognize the income tax consequences when the transfer occurs eliminating the exception. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. We are currently assessing the impact this guidance may have on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force which requires that amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a material impact on our consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting which addresses providing clarity to reduce diversity in practice, cost and complexity in the application of modification accounting when there is a change in terms or conditions of a share-based payment award. The guidance will be applied on a prospective basis to awards modified on or after the adoption date. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a material impact on our consolidated financial statements. |
Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of financial assets by level | The following table sets forth the fair value of our financial assets by level within the fair value hierarchy (in thousands):
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Balance Sheet Components (Tables) |
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Balance Sheet Components [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Unrealized Gains and Losses and Fair Value of Available for Sale Securities | The following table summarizes the unrealized gains and losses and fair value of our short term available-for-sale securities (in thousands):
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Schedule of Available-For-Sale Securities by Remaining Contractual Maturity | As of September 30, 2017, the contractual maturities of our investments did not exceed 24 months. The fair values of available-for-sale investments, by remaining contractual maturity, are as follows (in thousands):
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Schedule of Accounts Receivable | Accounts receivable, net consists of the following (in thousands):
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Schedule of Inventories | Inventories consist of the following (in thousands):
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Schedule of Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets consist of the following (in thousands):
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Schedule of Property and Equipment, net | Property and equipment, net consists of the following (in thousands):
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Schedule of Accrued Liabilities | Accrued liabilities consist of the following (in thousands):
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Schedule of Warranty Accrual | The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):
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Equity Award Plan Activities (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock-Based Compensation Expense | Total stock-based compensation expense related to options, restricted stock awards, employee stock purchases, restricted stock units and stock purchase rights granted were allocated as follows (in thousands):
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Schedule of Option Activity under Equity Stock Plans | The following table summarizes the option activity under our equity stock plans and related information:
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Schedule of Restricted Stock Units Activity | A summary of the RSU activity under our stock plans during the reporting period and a summary of information related to RSUs expected to vest are presented below (in thousands, except per share and year amounts):
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Schedule of EIP Stock Activity and Shares Available for Future Grant | The following table presents EIP stock activity and the total number of shares available for future grant as of September 30, 2017 (in thousands):
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Net Income Per Share Available to Common Stock (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic and Diluted Net Income Per Share Available to Common Stock | The following table sets forth the computation of our basic and diluted net income per share available to common stock (in thousands, except per share amounts):
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share available to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands):
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Segment Information (Tables) |
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Schedule of Net Revenue and Long Lived Assets, by Location | The following table represents revenue based on the customer’s location, as determined by the customer’s shipping address (in thousands):
The following table presents our property, plant and equipment, net by geographic region for the periods presented (in thousands):
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Organization and Summary of Significant Accounting Policies (Details) $ in Millions |
Jan. 01, 2017
USD ($)
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Accounting Standards Update 2016-09, Forfeiture Rate Component | Retained Earnings | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Cumulative effect of new accounting principle | $ (1.0) |
New Accounting Pronouncement, Early Adoption, Effect | Accounting Standards Update 2016-09 | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Increase to long-term income tax | 1.8 |
New Accounting Pronouncement, Early Adoption, Effect | Accounting Standards Update 2016-09 | Retained Earnings | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Cumulative effect of new accounting principle | $ 1.8 |
Fair Value Measurements (Details) - Financial Assets: - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
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Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | $ 813,721 | $ 609,337 |
Money market funds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 319,584 | 305,182 |
Money market funds-restricted | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 5,502 | 4,245 |
Commercial paper | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 11,879 | 5,962 |
U.S. government notes | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 104,722 | 110,756 |
Corporate bonds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 372,034 | 183,192 |
Level I | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 441,687 | 426,145 |
Level I | Money market funds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 319,584 | 305,182 |
Level I | Money market funds-restricted | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 5,502 | 4,245 |
Level I | Commercial paper | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 11,879 | 5,962 |
Level I | U.S. government notes | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 104,722 | 110,756 |
Level I | Corporate bonds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level II | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 372,034 | 183,192 |
Level II | Money market funds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level II | Money market funds-restricted | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level II | Commercial paper | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level II | U.S. government notes | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level II | Corporate bonds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 372,034 | 183,192 |
Level III | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level III | Money market funds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level III | Money market funds-restricted | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level III | Commercial paper | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level III | U.S. government notes | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | 0 | 0 |
Level III | Corporate bonds | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total financial assets | $ 0 | $ 0 |
Balance Sheet Components - Marketable Securities (Details) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017
USD ($)
security
|
Dec. 31, 2016
USD ($)
|
|
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | $ 489,188,000 | $ 300,362,000 |
Unrealized Gains | 77,000 | 114,000 |
Unrealized Losses | (630,000) | (566,000) |
Fair Value | 488,635,000 | 299,910,000 |
Other-than-temporary losses | $ 0 | 0 |
Securities in an unrealized loss position, greater than or equal to one year | security | 0 | |
Maximum maturity of marketable securities | 2 years | |
Commercial paper | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | $ 11,879,000 | 5,962,000 |
Unrealized Gains | 0 | 0 |
Unrealized Losses | 0 | 0 |
Fair Value | 11,879,000 | 5,962,000 |
U.S. government notes | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | 104,955,000 | 110,945,000 |
Unrealized Gains | 0 | 5,000 |
Unrealized Losses | (233,000) | (194,000) |
Fair Value | 104,722,000 | 110,756,000 |
Corporate bonds | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | 372,354,000 | 183,455,000 |
Unrealized Gains | 77,000 | 109,000 |
Unrealized Losses | (397,000) | (372,000) |
Fair Value | $ 372,034,000 | $ 183,192,000 |
Balance Sheet Components - Available-For-Sale Security Fair Value Maturity (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Investments, Debt and Equity Securities [Abstract] | ||
Due in 1 year or less | $ 300,957 | |
Due in 1 year through 2 years | 187,678 | |
Total marketable securities | $ 488,635 | $ 299,910 |
Weighted-average remaining duration (in years) | 9 months |
Balance Sheet Components - Accounts Receivable, net (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Balance Sheet Components [Abstract] | ||
Accounts receivable | $ 220,106 | $ 254,640 |
Allowance for doubtful accounts | (81) | (204) |
Sales return reserve | (7,414) | (1,317) |
Accounts receivable, net | $ 212,611 | $ 253,119 |
Balance Sheet Components - Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventories | ||
Raw materials | $ 99,640 | $ 99,190 |
Finished goods | 233,517 | 137,300 |
Total inventories | $ 333,157 | $ 236,490 |
Balance Sheet Components - Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Balance Sheet Components [Abstract] | ||
Inventory deposit | $ 31,957 | $ 60,315 |
Prepaid income taxes | 14,583 | 17,383 |
Other current assets | 126,190 | 79,140 |
Other prepaid expenses and deposits | 13,927 | 11,846 |
Total prepaid expenses and other current assets | $ 186,657 | $ 168,684 |
Balance Sheet Components - Property and Equipment, net (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | $ 136,850 | $ 136,850 | $ 126,093 | ||
Less: accumulated depreciation | (63,789) | (63,789) | (49,132) | ||
Property and equipment, net | 73,061 | 73,061 | 76,961 | ||
Depreciation | 5,200 | $ 5,100 | 15,000 | $ 14,800 | |
Equipment and machinery | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 46,550 | 46,550 | 40,721 | ||
Computer hardware and software | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 21,527 | 21,527 | 17,420 | ||
Furniture and fixtures | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 2,993 | 2,993 | 2,879 | ||
Leasehold improvements | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 30,491 | 30,491 | 29,498 | ||
Building | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 35,154 | 35,154 | 35,154 | ||
Construction-in-process | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | $ 135 | $ 135 | $ 421 |
Balance Sheet Components - Accrued Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|---|---|
Balance Sheet Components [Abstract] | ||||
Accrued compensation costs | $ 44,477 | $ 52,854 | ||
Accrued warranty costs | 8,286 | 6,744 | $ 5,597 | $ 4,718 |
Accrued manufacturing costs | 25,592 | 14,824 | ||
Accrued professional fees | 6,666 | 6,829 | ||
Accrued taxes | 1,315 | 1,098 | ||
Other | 8,123 | 8,602 | ||
Total accrued liabilities | $ 94,459 | $ 90,951 |
Balance Sheet Components - Warranty Accrual (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Balance Sheet Components [Abstract] | ||
Warranty term on hardware products (in years) | 1 year | |
Warranty term on software embedded products (in days) | 90 days | |
Warranty [Roll Forward] | ||
Warranty accrual, beginning of period | $ 6,744 | $ 4,718 |
Liabilities accrued for warranties issued during the period | 5,020 | 3,420 |
Warranty costs incurred during the period | (3,478) | (2,541) |
Warranty accrual, end of period | $ 8,286 | $ 5,597 |
Investments (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Investments, All Other Investments [Abstract] | ||
Non-marketable equity investments in privately-held companies | $ 36,100,000 | $ 36,100,000 |
Impairments losses on investments | $ 0 |
Commitments and Contingencies (Details) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Jun. 20, 2017
USD ($)
|
May 04, 2017
USD ($)
|
Aug. 26, 2016
USD ($)
|
May 23, 2016
patent
|
Aug. 30, 2013 |
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
Long-term Purchase Commitment [Line Items] | ||||||||||
Rent expense | $ 2,500,000 | $ 2,300,000 | $ 7,500,000 | $ 7,000,000 | ||||||
Lease term | 120 months | |||||||||
Recorded assets | 136,850,000 | 136,850,000 | $ 126,093,000 | |||||||
Lease financing obligation | 40,000,000 | 40,000,000 | 41,200,000 | |||||||
Lease financing obligations, current | 1,800,000 | 1,800,000 | ||||||||
Lease financing obligations, non-current | 38,199,000 | 38,199,000 | 39,593,000 | |||||||
Contract manufacturer liability | 131,800,000 | 131,800,000 | ||||||||
Cisco Systems, Inc. | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Minimum monetary sanction for violation of cease and desist order | $ 100,000 | |||||||||
Civil penalty | $ 307,000,000 | |||||||||
USITC | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Minimum monetary sanction for violation of cease and desist order | $ 100,000 | |||||||||
Tessera vs. Broadcom | Tessera | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Number of patents allegedly infringed upon | patent | 3 | |||||||||
Other current and long term assets | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Restricted deposits | 34,700,000 | 34,700,000 | 63,100,000 | |||||||
Building and improvements | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Useful life | 30 years | |||||||||
Recorded assets | 53,400,000 | 53,400,000 | $ 53,400,000 | |||||||
Land | ||||||||||
Long-term Purchase Commitment [Line Items] | ||||||||||
Land lease expense | $ 300,000 | $ 300,000 | $ 1,000,000 | $ 1,000,000 |
Equity Award Plan Activities - Total Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation | $ 20,152 | $ 15,116 | $ 54,991 | $ 42,708 |
Cost of revenue | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation | 1,113 | 955 | 3,224 | 2,616 |
Research and development | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation | 11,048 | 8,010 | 30,977 | 23,062 |
Sales and marketing | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation | 5,115 | 3,947 | 12,651 | 11,374 |
General and administrative | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation | $ 2,876 | $ 2,204 | $ 8,139 | $ 5,656 |
Equity Award Plan Activities - Stock Option Activities (Details) - USD ($) $ / shares in Units, $ in Thousands |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Feb. 06, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Approved increase of shares available (in shares) | 2,124,000 | ||
Shares available for issuance (in shares) | 13,443,000 | 11,754,000 | |
Number of Shares Underlying Outstanding Options (in thousands) | |||
Options granted (in shares) | 170,000 | ||
Options canceled (in shares) | (322,000) | ||
Weighted- Average Remaining Contractual Term and Aggregate Intrinsic Value of Stock Options Outstanding | |||
Unrecognized stock-based compensation expense | $ 75,000 | ||
Stock Option | |||
Number of Shares Underlying Outstanding Options (in thousands) | |||
Beginning balance, options (in shares) | 9,509,000 | ||
Options granted (in shares) | 170,000 | ||
Options exercised (in shares) | (1,730,000) | ||
Options canceled (in shares) | (322,000) | ||
Ending balance, options (in shares) | 7,627,000 | 9,509,000 | |
Vested and exercisable (in shares) | 3,035,000 | ||
Vested and expected to vest (in shares) | 7,627,000 | ||
Weighted- Average Exercise Price per Share | |||
Outstanding beginning balance (in dollars per share) | $ 28.79 | ||
Options granted (in dollars per share) | 96.61 | ||
Options exercised (in dollars per share) | 16.97 | ||
Options canceled (in dollars per share) | 32.89 | ||
Outstanding beginning balance (in dollars per share) | 32.81 | $ 28.79 | |
Vested and exercisable (in dollars per share) | 19.91 | ||
Vested and expected to vest (in dollars per share) | $ 32.81 | ||
Weighted- Average Remaining Contractual Term and Aggregate Intrinsic Value of Stock Options Outstanding | |||
Weighted-average remaining contractual term of stock options outstanding | 6 years 5 months | 6 years 10 months 24 days | |
Weighted-average remaining contractual term of stock options vested and exercisable | 5 years 8 months | ||
Weighted-average remaining contractual term of stock options vested and expected to vest | 6 years 5 months | ||
Aggregate intrinsic value of stock options outstanding | $ 1,195,859 | $ 646,394 | |
Aggregate intrinsic value of stock options outstanding vested and exercisable | 515,111 | ||
Aggregate intrinsic value of stock options outstanding vested and expected to vest | $ 1,195,859 | ||
Weighted-average amortization period (in years) | 3 years 7 months | ||
Stock Option | 2014 Equity Incentive Plan | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Increase of shares available for issuance as a percent | 3.00% | ||
Maximum number of additional shares for authorization (in shares) | 12,500,000 | ||
Approved increase of shares available (in shares) | 2,124,333 | ||
Shares available for issuance (in shares) | 13,400,000 |
- Restricted Stock Unit Awards (Details) - Restricted Stock Units (RSUs) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Number of Shares (in shares) | ||
Unvested beginning balance (in shares) | 1,375 | |
RSUs granted (in shares) | 666 | |
RSUs vested (in shares) | (339) | |
RSUs forfeited (in shares) | (60) | |
Unvested ending balance (in shares) | 1,642 | 1,375 |
Restricted Stock Awards, Weighted Average Grant Date Fair Value | ||
Unvested beginning balance (in dollars per share) | $ 74.23 | |
RSUs granted (in dollars per share) | 137.26 | |
RSUs vested (in dollars per share) | 75.63 | |
RSUs forfeited (in dollars per share) | 77.21 | |
Unvested beginning balance (in dollars per share) | $ 99.41 | $ 74.23 |
Weighted- Average Remaining Contractual Term and Aggregate Intrinsic Value of Stock Options Outstanding | ||
Unvested balance, weighted-average remaining contractual term (in years) | 1 year 10 months | 1 year 10 months |
Unvested balance, aggregate intrinsic value | $ 311,368 | $ 133,081 |
Unrecognized stock-based compensation expense for unvested options, net of expected forfeitures | $ 152,400 | |
Weighted-average amortization period (in years) | 3 years 4 months |
Equity Award Plan Activities - Equity Incentive Plan Shares Available for Grant (Details) shares in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2017
shares
| |
Shares Available for Grant [Roll Forward] | |
Shares available for grant beginning balance (in shares) | 11,754 |
Authorized (in shares) | 2,124 |
Options granted (in shares) | (170) |
Options canceled (in shares) | 322 |
Options repurchased (in shares) | 2 |
Shares traded for taxes (in shares) | 17 |
Shares available for grant ending balance (in shares) | 13,443 |
Restricted Stock Units (RSUs) | |
Shares Available for Grant [Roll Forward] | |
RSUs granted (in shares) | (666) |
RSUs forfeited (in shares) | 60 |
Equity Award Plan Activities - Employee Stock Purchase Plan Activities (Details) - USD ($) $ / shares in Units, $ in Millions |
9 Months Ended | |
---|---|---|
Feb. 06, 2017 |
Sep. 30, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Approved increase of shares available (in shares) | 2,124,000 | |
Employee Stock Purchase Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
ESPP shares purchased (in shares) | 204,918 | |
Weighted-average price of ESPP shares purchased (in dollars per share) | $ 61.15 | |
Increase of shares available for issuance as a percent | 1.00% | |
Maximum number of additional shares for authorization (in shares) | 2,500,000 | |
Approved increase of shares available (in shares) | 708,111 | |
Unrecognized stock-based compensation expense for unvested options, net of expected forfeitures | $ 2.8 | |
Weighted-average amortization period (in years) | 1 year 5 months | |
Employee Stock Purchase Plan | 2014 Employee Stock Purchase Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares available for grant beginning balance (in shares) | 1,987,039 |
Net Income Per Share Available to Common Stock - Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Numerator: | ||||
Net income | $ 133,722 | $ 51,257 | $ 319,368 | $ 125,406 |
Less: undistributed earnings allocated to participating securities | (182) | (295) | (725) | (931) |
Net income attributable to common stockholders, basic | 133,540 | 50,962 | 318,643 | 124,475 |
Add: undistributed earnings allocated to participating securities | 15 | 18 | 61 | 56 |
Net income attributable to common stockholders, diluted | $ 133,555 | $ 50,980 | $ 318,704 | $ 124,531 |
Denominator: | ||||
Weighted-average shares used in computing net income per share available to common stockholders, basic (in shares) | 72,588 | 69,076 | 71,903 | 68,365 |
Add weighted-average effect of dilutive securities: | ||||
Stock options and RSUs (in shares) | 6,636 | 4,357 | 6,528 | 4,429 |
Employee stock purchase plan (in shares) | 98 | 20 | 97 | 17 |
Weighted-average shares used in computing net income per share available to common stockholders, diluted (in shares) | 79,322 | 73,453 | 78,528 | 72,811 |
Net income per share attributable to common stockholders: | ||||
Basic (in dollars per share) | $ 1.84 | $ 0.74 | $ 4.43 | $ 1.82 |
Diluted (in dollars per share) | $ 1.68 | $ 0.69 | $ 4.06 | $ 1.71 |
Net Income Per Share Available to Common Stock - Antidilutive Securities Excluded from Earnings Per Share (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Stock options and RSUs to purchase common stock | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options and RSUs to purchase common stock (in shares) | 14 | 2,688 | 73 | 3,215 |
Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Tax Disclosure [Abstract] | ||||
Provision for income taxes | $ 8,545,000 | $ 11,668,000 | $ 13,757,000 | $ 39,682,000 |
Excess tax benefit | 23,800,000 | 71,700,000 | ||
Income Tax Contingency [Line Items] | ||||
Gross unrecognized tax benefits | $ 34,400,000 | 34,400,000 | ||
Income tax benefit resulting from unrecognized tax benefits recognized in future periods | 21,300,000 | |||
Minimum | ||||
Income Tax Contingency [Line Items] | ||||
Reduction in unrecognized tax benefit recorded | 0 | |||
Maximum | ||||
Income Tax Contingency [Line Items] | ||||
Reduction in unrecognized tax benefit recorded | $ 2,200,000 |
Segment Information (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2017
USD ($)
segment
|
Sep. 30, 2016
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
Segment Reporting [Abstract] | |||||
Number of reportable segments | segment | 1 | ||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue | $ 437,633 | $ 290,261 | $ 1,178,319 | $ 801,198 | |
Long lived assets | 73,061 | 73,061 | $ 76,961 | ||
United States | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue | 306,637 | 233,018 | 869,383 | 612,852 | |
Long lived assets | 66,914 | 66,914 | 69,352 | ||
Other Americas | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue | 2,681 | 4,081 | 8,818 | 8,205 | |
Europe, Middle East and Africa | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue | 79,143 | 37,728 | 199,244 | 124,111 | |
Asia-Pacific | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Revenue | 49,172 | $ 15,434 | 100,874 | $ 56,030 | |
International | |||||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||||
Long lived assets | $ 6,147 | $ 6,147 | $ 7,609 |
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