Core Viewpoint - Arista Networks, Inc. (ANET) reported strong first-quarter 2025 results, with significant year-over-year increases in revenues and adjusted earnings, driven by robust demand in key sectors such as cloud, AI-focused data centers, and campus enterprises [1] Financial Performance - GAAP net income improved to $813.8 million or 64 cents per share from $637.7 million or 50 cents in the year-ago quarter, primarily due to higher revenues [2] - Non-GAAP net income reached a record high of $826.2 million or 65 cents per share compared to $637.7 million or 50 cents in the previous year, beating the Zacks Consensus Estimate by 6 cents [2] - Revenues surged to $2 billion from $1.57 billion in the prior-year quarter, exceeding the consensus estimate of $1.96 billion, driven by strength in the enterprise vertical [3] Product and Service Performance - Net quarterly sales from Products totaled $1.69 billion compared to $1.32 billion in the year-ago quarter, while Service revenues increased to $312.3 million from $242.6 million [4] - The company introduced various solutions for cloud, Internet service providers, and enterprise networks to meet rising demands for AI/ML-driven network architectures, enhancing customer experience and engagement [3][4] Geographic Revenue Distribution - Net sales from the Americas contributed 80% to total revenues, with international revenues accounting for the remainder, reflecting Arista's strong leadership in the Data Center and Cloud Networking vertical [5] Cost and Margin Analysis - Non-GAAP gross profit rose to $1.28 billion from $1 billion, with respective margins of 64.1% and 64.2% [6] - Total operating expenses increased to $417.3 million from $341.2 million, with R&D costs rising to $266.4 million from $208.4 million and sales and marketing expenses increasing to $116.6 million from $105.1 million [6] Cash Flow and Liquidity - Arista generated $641.7 million of net cash from operating activities compared to $513.8 million in the year-ago period, with $1.84 billion in cash and cash equivalents as of March 31, 2025 [7] - The company repurchased $787.1 million worth of shares, marking the largest repurchase in its history [7] Future Outlook - For the second quarter of 2025, management expects revenues in the range of $2.1 billion, with a non-GAAP gross margin estimated at 63% and a non-GAAP operating margin approximated at 46% [8] - The company anticipates healthy demand trends in 2025, supported by its existing portfolio strength, new product introductions, and traction in cloud, AI, and enterprise markets [8] - Management reiterated its gross margin guidance of 60-62% for 2025, although tariffs may pose a challenge in the second half of the year [9]

Financial Performance & Growth - Arista's Q1 2025 revenue reached $2.005 billion, a 27.6% year-over-year increase[52] - The company's non-GAAP gross margin for Q1 2025 was 64.1%[52] - Arista achieved a non-GAAP operating margin of 47.8% in Q1 2025[52] - Non-GAAP EPS for Q1 2025 was $0.65[52] - Arista anticipates approximately $2.1 billion in revenue for Q2 2025[73] Market Position & Opportunity - Arista is targeting a $70 billion serviceable addressable market (SAM) by 2028[8, 29, 30] - The company is aiming for a revenue goal of approximately $8.2 billion in 2025, representing roughly 17% year-over-year annual growth[74] - Arista is a leader in the 100/400G market[8] - Arista is gaining market share versus Cisco in high-speed data center switching[38, 39, 40] Corporate Responsibility - Arista has committed to a 42% absolute reduction in Scope 1, 2, and 3 emissions by 2030 and Net Zero by 2050[27]

Core Viewpoint - Arista Networks reported quarterly earnings of $0.65 per share, exceeding the Zacks Consensus Estimate of $0.59 per share, and showing an increase from $0.50 per share a year ago, indicating a strong performance in the cloud networking sector [1][2]. Financial Performance - The company achieved revenues of $2 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.30%, and up from $1.57 billion in the same quarter last year [2]. - Over the last four quarters, Arista Networks has consistently exceeded consensus EPS estimates and revenue expectations [2]. Stock Performance - Arista Networks shares have declined approximately 18.2% since the beginning of the year, contrasting with the S&P 500's decline of 3.9% [3]. - The stock currently holds a Zacks Rank 3 (Hold), suggesting it is expected to perform in line with the market in the near future [6]. Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.60 on revenues of $2.02 billion, while for the current fiscal year, the estimate is $2.47 on revenues of $8.28 billion [7]. - The trend of earnings estimate revisions is mixed, which may influence future stock performance [6]. Industry Context - The Internet - Software industry, to which Arista Networks belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36468 Arista Networks, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 20-1751121 (State or Other Jurisdic ...

Arista Networks (ANET) Q1 2025 Earnings Call May 06, 2025 04:30 PM ET Company Participants Rudolph Araujo - Head of Investor AdvocacyJayshree Ullal - President, CEO & ChairpersonChantelle Breithaupt - Chief Financial OfficerDavid Vogt - Managing DirectorAmit Daryanani - Senior Managing Director - Equity ResearchBen Reitzes - Managing Director – Head of Technology ResearchSamik Chatterjee - Executive Director Conference Call Participants Atif Malik - AnalystAaron Rakers - Managing Director & Technology Analy ...

Financial Data and Key Metrics Changes - Total revenues for Q1 2025 were $2,005,000,000, representing a year-over-year increase of 27.6% and exceeding guidance of $1,930,000,000 to $1,970,000,000 [20][21] - Non-GAAP gross margin was 64.1%, slightly down from 64.2% in the previous quarter but above guidance of approximately 63% [21][23] - Net income for the quarter was $826,200,000, or 41.2% of revenue, with diluted earnings per share at $0.65, up 30% from the prior year [23] Business Line Data and Key Metrics Changes - Software and service renewals contributed approximately 17.1% of total revenue [6] - International revenue accounted for 20% of total revenue, up from 16% in the last quarter [20] - Operating expenses were CAD327.4 million, or 16.3% of revenue, down slightly from CAD332.4 million in the previous quarter [21] Market Data and Key Metrics Changes - The Americas contributed 80% of international revenue, indicating strong performance in that region [7] - The company is experiencing momentum in the cloud and AI sectors, with a goal of achieving $750,000,000 in front-end AI revenue by 2025 [7][30] Company Strategy and Development Direction - The company aims to redefine data-driven networking and is focusing on AI, cloud, and campus enterprises [7][30] - Arista is positioning itself as a preferred network for GPUs and AI accelerators, emphasizing its unique networking solutions [8][10] - The company is expanding its leadership team to support its growth strategy and maintain operational excellence [15][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand from cloud enterprise customers despite macroeconomic uncertainties [30][31] - The company is taking a cautious approach to guidance due to potential tariff impacts, indicating a focus on operational discipline and innovation [31][32] - Management noted that while there is uncertainty regarding tariffs, they are optimistic about the current momentum and demand across sectors [96][98] Other Important Information - The company repurchased $787,100,000 of its common stock in Q1, marking the largest repurchase in its history [23][24] - Capital expenditures for the quarter were $32,000,000, with plans for approximately $100,000,000 in CapEx for facility expansion during FY 2025 [29] Q&A Session Summary Question: Impact of tariffs on top-line perspective - Management indicated that they are absorbing some tariffs and are uncertain about future impacts, but they are taking a quarter-by-quarter approach to assess the situation [35][38] Question: Progress of AI back-end customers - Management confirmed that all four key customers are progressing well, with two expected to reach 50,000 GPU deployments by year-end [45][46] Question: Seasonal strength in Q2 - Management acknowledged some pull forwards due to tariff concerns but emphasized that it is not significant [52] Question: Product deferred revenue balance - Management explained that the increase in deferred revenue is tied to new product introductions and customer acceptance, which can vary significantly [55][56] Question: Visibility on customer spending plans - Management stated that they have good visibility for 2025 but are cautious about the impact of tariffs on future orders [70][72] Question: General cadence of hyperscalers deploying 800 gig switch ports - Management noted that 800 gig activity has increased in 2025, contributing to deferred revenue growth [72][74] Question: Confidence in achieving midterm revenue targets - Management expressed optimism about reaching the $10,000,000,000 revenue target sooner than expected, driven by strong demand [76][78] Question: Coexistence with white box competitors - Management clarified that while white box solutions exist, Arista's superior hardware and software integration provide a competitive edge [80][81] Question: Macro trends affecting spending plans - Management reported strong demand across all customer segments and did not see signs of a recession impacting their business [95][98]

Financial Data and Key Metrics Changes - Total revenues for Q1 2025 were $2,005 million, up 27.6% year-over-year, exceeding guidance of $1,930 million to $1,970 million [20][21] - Non-GAAP gross margin was 64.1%, slightly down from 64.2% in the previous quarter but above guidance of approximately 63% [21][24] - Net income for the quarter was $826.2 million, representing 41.2% of revenue, with diluted earnings per share of $0.65, up 30% from the prior year [24] Business Line Data and Key Metrics Changes - Software and service renewals contributed approximately 17.1% of revenue [7] - International revenue accounted for 20% of total revenue, up from 16% in the last quarter [20] - Operating expenses were $327.4 million, or 16.3% of revenue, down slightly from the previous quarter [21] Market Data and Key Metrics Changes - The Americas contributed 80% of international revenue, indicating strong performance in this region [8] - The company is experiencing momentum in the cloud and AI sectors, with a goal of $750 million in front-end AI revenue by 2025 [8][9] Company Strategy and Development Direction - The company is focusing on redefining data-driven networking and expanding its presence in AI, cloud, and campus enterprises [8][9] - Arista aims to achieve $10 billion in revenue sooner than previously expected, driven by strong customer demand and operational discipline [18][30] - The company is also investing in expanding its facilities in Santa Clara, with an expected capital expenditure of approximately $100 million for this project [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand from cloud enterprise and providers despite macroeconomic uncertainties [30][31] - The company is taking a cautious approach to guidance due to potential tariff impacts and is committed to updating forecasts as conditions evolve [30][31] - Management noted that they do not currently see signs of a recession and are experiencing strong demand across various sectors [99][100] Other Important Information - The company repurchased $787.1 million of its common stock during the quarter, marking the largest repurchase in its history [24][25] - Deferred revenue balance increased to $3.1 billion, primarily linked to service contracts [27] Q&A Session Summary Question: Impact of tariffs on revenue - Management indicated that they are absorbing some tariffs and expect to manage the impact on gross margins, but the situation remains uncertain [37][40] Question: Progress of AI customers - All four key AI customers are progressing well, with two expected to reach 50,000 GPU deployments by year-end [46][47] Question: Seasonal strength in Q2 - Some pull forwards in orders were noted due to tariff concerns, but not significantly material [52] Question: Product deferred revenue balance - The increase in deferred revenue is tied to new product introductions and customer interest in AI-related products [55][57] Question: Visibility on customer spending - Management expressed confidence in 2026 based on current execution and customer visibility, despite uncertainties around tariffs [70][71] Question: Traditional cloud demand - There is a balanced demand between AI and traditional cloud services, with no significant pivot away from cloud spending [115][116]

Financial Performance - Revenue reached $2.005 billion, a 3.9% increase from Q4 2024 and a 27.6% increase from Q1 2024[5] - GAAP net income was $813.8 million, or $0.64 per diluted share, compared to $637.7 million, or $0.50 per diluted share in Q1 2024[5] - GAAP gross profit for Q1 2025 was $1,276.1 million, up from $1,001.4 million in Q1 2024, reflecting a growth of 27.4%[26] - Non-GAAP net income increased to $826.2 million in Q1 2025, compared to $637.7 million in Q1 2024, representing a growth of 29.6%[26] - GAAP diluted net income per share rose to $0.64 in Q1 2025, compared to $0.50 in Q1 2024, an increase of 28%[26] Margins and Expenses - Non-GAAP gross margin was 64.1%, slightly down from 64.2% in Q4 2024 and Q1 2024[5] - Research and development expenses increased to $266.4 million from $208.4 million in Q1 2024[23] - Total operating expenses rose to $417.3 million compared to $341.2 million in Q1 2024[23] - Non-GAAP gross margin for Q1 2025 was 64.1%, slightly down from 64.2% in Q1 2024[26] Cash Flow and Assets - Net cash provided by operating activities for Q1 2025 was $641.7 million, compared to $513.8 million in Q1 2024, an increase of 24.9%[31] - Total current assets as of March 31, 2025, were $12,276.3 million, up from $11,910.9 million at the end of 2024, indicating a growth of 3.1%[29] - Cash and cash equivalents decreased to $1,845.1 million from $2,762.4 million, a decline of 33.1%[29] Liabilities and Deferred Revenue - Total liabilities increased to $4,395.5 million as of March 31, 2025, from $4,049.1 million at the end of 2024, a rise of 8.5%[29] - Deferred revenue increased to $2,072.7 million in Q1 2025, up from $1,727.3 million in Q4 2024, reflecting a growth of 20%[29] Stock Repurchase and Shareholder Returns - The company completed stock repurchases totaling $787 million in Q1 2025, the highest level in its history[2] - Arista's Board authorized an additional $1.5 billion stock repurchase program in May 2025[3] - The company repurchased common stock amounting to $787.1 million in Q1 2025, compared to $62.7 million in Q1 2024, indicating a significant increase in share buybacks[31] Product Development and Recognition - Arista introduced advanced capabilities for AI networking, including Cluster Load Balancing and AI job-centric observability[6] - The company was recognized in the Leaders Quadrant of the 2025 Gartner Magic Quadrant for Data Center Switching[6] Future Outlook - For Q2 2025, the company expects revenue of approximately $2.1 billion and a non-GAAP gross margin of around 63%[11]

Core Viewpoint - The current market volatility presents an opportunity for investors to initiate positions in high-quality stocks that have been undervalued due to recent market conditions [1][2]. Group 1: ServiceNow - ServiceNow's shares have decreased by nearly 9.6% in 2025, creating a potential entry point for investors as the company is well-positioned to benefit from the AI transformation in enterprise software [4][5]. - The company reported a 20% year-over-year increase in subscription revenue and a 22% rise in current remaining performance obligations (cRPO), indicating strong demand for its solutions [5]. - ServiceNow's AI offerings have seen significant traction, with Pro Plus deals quadrupling year over year, and the average annual contract value increasing by one-third quarter over quarter [6]. - The stock is trading at a forward P/E of 57.8, but its resilient business model and strong cash position of $10.9 billion make it an attractive buy [7]. Group 2: PayPal - PayPal's stock has fallen nearly 30% from its December 2024 high, presenting a favorable entry point as the company transitions from a payments platform to a comprehensive commerce platform [8]. - The company's revenue grew by 1% year over year to $7.8 billion, while operating income surged by 31% to $1.5 billion, and GAAP EPS increased by 56% to $1.29 [9]. - PayPal is experiencing strong momentum in various business areas, including branded checkouts and its Venmo service, and is actively entering the AI-powered commerce space [10]. - With a solid balance sheet showing $15.8 billion in cash and a low forward P/E of 13.1 compared to its five-year average of 30.6, the stock appears to be a compelling investment [11]. Group 3: Arista Networks - Arista Networks' stock has declined over 31% since January 2025, yet the company remains attractive due to the rising demand for high-performance networking solutions for cloud and AI applications [12]. - The company holds a 45% market share in high-speed Ethernet switch solutions for data centers and offers AI-powered networking capabilities [13]. - Major clients include Microsoft, Meta Platforms, Apple, and Oracle, which collectively account for 48% of Arista's revenue, providing a strong foundation despite economic uncertainties [14]. - The stock is trading at a forward earnings ratio of 30.9, lower than its five-year average of 39.1, suggesting it is a good investment opportunity [15].

Core Insights - The article emphasizes the importance of experience in analyzing diverse industries and understanding macroeconomic factors, highlighting a continuous learning process in investment banking [1]. Group 1 - The analyst has over 30 years of experience in critically analyzing various industries, including airlines, oil, retail, mining, fintech, and ecommerce [1]. - The article mentions the analyst's exposure to multiple crises, such as the dotcom bubble, 9/11, the great recession, and the Covid-19 pandemic, which enriches their analytical perspective [1]. - The analyst's background includes entrepreneurial ventures in export, factoring, and printing, providing a broad base of experience applicable across multiple disciplines [1].