Core Insights - Arista Networks, Inc. reported third-quarter earnings that exceeded expectations, with earnings of 75 cents per share against a consensus estimate of 71 cents [2] - The company's quarterly revenue reached $2.3 billion, surpassing the Street estimate of $2.25 billion [2] - Despite the positive earnings report, Arista Networks' stock price fell by 10.84% to $136.90 in after-hours trading [3] Financial Performance - Quarterly earnings per share: 75 cents, beating the consensus estimate of 71 cents [2] - Quarterly revenue: $2.3 billion, exceeding the Street estimate of $2.25 billion [2] - Expected revenue for the fourth quarter: between $2.3 billion and $2.4 billion [5] - Non-GAAP gross margin forecast: between 62% and 63% [5] - Non-GAAP operating margin forecast: between 47% and 48% [5] Management Commentary - CEO Jayshree Ullal highlighted that the company's data strategy is well-received by customers and analysts, enhancing the client experience from campus to cloud and AI centers [3]

Revenue Performance - Total revenue for Q3 2025 was $2,308.3 million, a 27.5% increase from $1,810.9 million in Q3 2024[86] - Product revenue increased by $387.9 million, or 25.5%, for Q3 2025 compared to Q3 2024, reflecting increased demand for switching and routing platforms[89] - Service revenue rose by $109.5 million, or 38.1%, for Q3 2025 compared to Q3 2024, driven by growth in support contracts[89] Profitability Metrics - Gross profit for Q3 2025 was $1,490.2 million, with a gross margin of 64.6%, compared to $1,161.7 million and 64.2% in Q3 2024[86] - Gross margin increased from 64.2% to 64.6% for the three months ended September 30, 2025[93] Geographic Revenue Distribution - Revenue from the Americas accounted for 79.8% of total revenue in Q3 2025, down from 81.7% in Q3 2024[87] - International revenue represented 20.2% of total revenue for Q3 2025, up from 18.3% in Q3 2024, influenced by changes in the geographic mix of sales[89] Operating Expenses - Cost of revenue increased by $168.9 million, or 26.0%, for the three months ended September 30, 2025, compared to the same period in 2024[91] - Research and development expenses increased by $90.2 million, or 38.3%, for the three months ended September 30, 2025, compared to the same period in 2024[97] - Sales and marketing expenses increased by $44.4 million, or 41.6%, for the three months ended September 30, 2025, compared to the same period in 2024[99] - Total operating expenses increased by $135.6 million, or 36.0%, for the three months ended September 30, 2025, compared to the same period in 2024[95] Cash Flow and Investments - Cash provided by operating activities was $3.1 billion for the nine months ended September 30, 2025, compared to $2.7 billion for the same period in 2024[110] - Cash used in investing activities was $2.6 billion for the nine months ended September 30, 2025, compared to $1.1 billion for the same period in 2024[113] Tax and Financial Management - Effective tax rate increased to 20.8% for the three months ended September 30, 2025, compared to 15.3% for the same period in 2024[105] - The company had no off-balance sheet arrangements or relationships with unconsolidated entities as of September 30, 2025[121] Strategic Initiatives - The company completed the acquisition of VeloCloud from Broadcom in June 2025, enhancing its cloud WAN portfolio[79] - The company expects continued investments in R&D and potential acquisitions to expand product offerings and maintain technology leadership[79] Market Risks - The company faces macroeconomic uncertainties, including inflation and supply chain disruptions, which may impact future performance[83] - Customer concentration remains high, with Microsoft and Meta Platforms representing significant portions of revenue, leading to variability in order timing[80] - The company is exposed to financial market risks, including foreign currency exchange rates and interest rates, with no material changes in exposure since December 31, 2024[124] Shareholder Returns - Cash used in financing activities for the nine months ended September 30, 2024, was $291.8 million, including $299.8 million for stock repurchases and $47.5 million for employee taxes, offset by $55.5 million from stock issuance[116] - The Prior Repurchase Program allowed for stock repurchases of up to $1.2 billion, completed in May 2025, while the New Repurchase Program permits an additional $1.5 billion in repurchases, with $921.0 million repurchased under the Prior Program and $62.0 million under the New Program as of September 30, 2025[117] Future Commitments - As of September 30, 2025, the company had $4.8 billion in purchase obligations, with $4.3 billion expected to be received within one year[119] - Estimated remaining capital expenditures for the property project in Santa Clara, California, are expected to be between $170.0 million and $200.0 million through the end of fiscal 2026[120] Financial Condition - Management's financial condition analysis is based on unaudited condensed consolidated financial statements prepared in accordance with GAAP, with no significant changes to critical accounting estimates since the last Annual Report[122]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, representing a year-over-year increase of 27.5%, exceeding guidance of $2.25 billion [21] - Non-GAAP gross margin was 65.2%, down from 65.6% in the previous quarter but up from 64.6% in the same quarter last year [21] - Operating income for the quarter was $1.12 billion, or 48.6% of revenue, with net income of $962.3 million, equating to 41.7% of revenue [21][22] - Diluted earnings per share increased by 25% year-over-year to $0.75 [22] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [7] - International revenues accounted for 20.2% of total revenue, down from 21.8% in the prior quarter [21] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [22] Market Data and Key Metrics Changes - The Americas region generated almost 80% of total revenue, while international markets contributed approximately 20% [7] - The total deferred revenue balance increased to $4.7 billion, up from $4.1 billion in Q2 [24] Company Strategy and Development Direction - The company aims for $1.5 billion in AI-related revenue for 2025, with a new target of $10.65 billion in total revenue for 2026, representing a 20% growth [8][27] - Arista is focusing on building a modern AI stack, emphasizing partnerships with major players like NVIDIA, AMD, and OpenAI [8][19] - The company is committed to investing in technology and customer relationships to drive growth in cloud and AI markets [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply chain constraints [32][49] - The outlook for Q4 2025 includes revenue guidance of $2.3-$2.4 billion and continued growth across various markets [25][26] - The company anticipates a gross margin range of 62%-63% for Q4, influenced by product mix and potential tariff impacts [25][26] Other Important Information - Cash, cash equivalents, and investments totaled $10.1 billion, with $1.4 billion remaining for share repurchase [23] - The company is experiencing unprecedented demand for AI buildouts, with significant investments in new product development [8][24] Q&A Session Summary Question: Concerns about deceleration in growth rates - Management reassured that demand remains strong, with shipment variability being the primary concern rather than a decline in demand [32] Question: Gross margin guidance and drivers - Management indicated that product gross margins may fall below 60% due to a mix shift towards cloud and AI customers, but overall management of margins remains strong [36] Question: Positioning for full rack solutions - Arista is actively involved in designing full rack solutions, focusing on partnerships and addressing the convergence of compute and networking [40][42] Question: Stability of market share with cloud titans - Management confirmed stable market share, emphasizing collaboration with both software and cloud titans in decision-making processes [45][46] Question: Variability in shipments and customer plans - Variability is largely supply-driven, with strong demand from tier-one customers, but lead times for components remain long [49] Question: Growth outlook for 2026 - Management emphasized a commitment to double-digit growth, with variability expected rather than a definitive deceleration [52][60] Question: Confidence in participating in large builds with cloud titans - Management expressed confidence in Arista's role in upcoming large builds, particularly in scale-out and scale-across use cases [66] Question: Economic model for Blue Box deployments - The economic model for Blue Box deployments is expected to be similar to existing models, with a focus on operational excellence among a limited number of customers [70][84]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, representing a year-over-year increase of 27.5%, exceeding guidance of $2.25 billion [21] - Non-GAAP gross margin was 65.2%, down from 65.6% in the previous quarter but up from 64.6% in the same quarter last year [21] - Operating income for the quarter was $1.12 billion, or 48.6% of revenue, with net income of $962.3 million, equating to 41.7% of revenue [21][22] - Diluted earnings per share increased by 25% year-over-year to $0.75 [22] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [7] - International revenues accounted for 20.2% of total revenue, down from 21.8% in the prior quarter [21] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [22] Market Data and Key Metrics Changes - The Americas region contributed almost 80% of total revenue, while international markets contributed approximately 20% [7] - The total addressable market (TAM) for the company is now over $100 billion, indicating significant growth potential [19] Company Strategy and Development Direction - The company aims for $1.5 billion in AI-related revenue for 2025, with a new target of $10.65 billion in total revenue for 2026, representing a 20% growth [8][27] - The focus is on building a modern AI stack that includes compute, memory storage, and a robust network foundation [8] - The company is committed to partnerships with major players in the AI space, including NVIDIA, AMD, and OpenAI, to enhance its product offerings [8][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply chain constraints [32][49] - The outlook for Q4 2025 includes revenue guidance of $2.3 billion to $2.4 billion, with continued growth expected across cloud, AI, and enterprise markets [25][26] - The company anticipates a gross margin range of 62%-63% for Q4, influenced by product mix and potential tariff impacts [25][26] Other Important Information - The company has a cash balance of $10.1 billion and a remaining $1.4 billion available for share repurchase [23] - Deferred revenue increased to $4.7 billion, with a significant portion being product-related [24] Q&A Session Summary Question: Concerns about deceleration in growth rates - Management reassured that demand remains strong, and shipment variability is the primary reason for perceived deceleration [32] Question: Gross margin guidance and product mix - Management clarified that a mix shift towards cloud and AI customers may pressure product gross margins, but overall management remains confident [36] Question: Positioning for full rack solutions - The company is actively involved in designing full rack solutions and anticipates significant growth in this area [40][42] Question: Share stability within cloud titans - Management confirmed stable market share and emphasized collaboration with both software and cloud titans in decision-making [44][46] Question: Variability in shipments and customer plans - Management indicated that supply chain constraints are affecting shipment capabilities, but demand remains robust [49] Question: Growth expectations for 2026 - Management expressed optimism about achieving double-digit growth, with AI and campus segments expected to drive significant revenue [60][61] Question: Blue Box deployment and economic model - Management discussed the potential for Blue Box deployments to grow, particularly in specialized use cases, while acknowledging lower margins [70][84]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, up 27.5% year-over-year, exceeding guidance of $2.25 billion [19] - Non-GAAP gross margin was 65.2%, down from 65.6% last quarter but up from 64.6% in the prior year [19] - Operating income for the quarter was $1.12 billion, representing 48.6% of revenue [20] - Net income for the quarter was $962.3 million, or 41.7% of revenue, with diluted earnings per share of $0.75, up 25% from the prior year [20] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [5] - International revenues were $468.3 million, accounting for 20.2% of total revenue, down from 21.8% in the prior quarter [19] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [20] Market Data and Key Metrics Changes - The Americas accounted for almost 80% of total revenue, while international markets contributed approximately 20% [5] - The company is experiencing momentum across cloud and AI titans, near cloud providers, and campus enterprises [6] Company Strategy and Development Direction - The company aims for $1.5 billion in AI aggregate revenue for 2025, with a new target of $10.65 billion in revenue for 2026, representing 20% growth [6][25] - The focus is on building a modern AI stack that includes compute, memory storage, and a solid network foundation [6] - The company is committed to partnerships with major players in the AI ecosystem, including NVIDIA, AMD, and OpenAI [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply constraints [31] - The outlook for Q4 2025 is revenue guidance of $2.3-$2.4 billion, with continued growth expected across cloud, AI, enterprise, and provider markets [25] - The effective tax rate is expected to be approximately 21.5% for Q4 [25] Other Important Information - Cash, cash equivalents, and investments totaled $10.1 billion at the end of the quarter [21] - The company has a $1.5 billion repurchase program, with $1.4 billion remaining for future repurchases [21] - The total deferred revenue balance was $4.7 billion, up from $4.1 billion in Q2 [23] Q&A Session Summary Question: What are the underlying drivers for the deceleration in growth? - Management indicated that there is no concern regarding demand, attributing shipment variability to supply constraints rather than a decrease in demand [31] Question: Can you unpack the gross margin drivers for this quarter? - Management explained that a mix of product margins, particularly with cloud and AI customers, is influencing gross margins, which may be under 60% for products [34] Question: How is Arista positioned as it moves into more full rack solutions? - Management noted that Arista is involved in multiple projects with different accelerator options and is being sought for its expertise in networking solutions [36] Question: What is the status of partnerships with large language model providers? - Management confirmed that their market share remains stable and that decisions on networking hardware are a joint responsibility between software and cloud titans [40] Question: What is driving the variability in shipments? - Management stated that variability is largely supply-driven, with long lead times on components affecting shipment capabilities [43] Question: How does the convergence of front-end and back-end networks impact Arista? - Management believes that the convergence is advantageous, as it allows Arista to offer a consistent solution across infrastructure [64]

Investor Presentation November 2025 Safe Harbor Forward-Looking Statements - This presentation and accompanying oral presentation contain "forward-looking statements" regarding our future performance, including but not limited to estimates regarding revenue, non-GAAP gross margin, and non-GAAP operating margin for the fourth quarter and fiscal year 2025 and 2026, statements regarding Arista's addressable market, products and services, innovation and leadership in data-driven networking. Forward-looking stat ...

Financial Performance - Revenue for Q3 2025 was $2.308 billion, representing a 4.7% increase from Q2 2025 and a 27.5% increase from Q3 2024[5] - GAAP net income for Q3 2025 was $853.0 million, or $0.67 per diluted share, compared to $747.9 million, or $0.58 per diluted share in Q3 2024[5] - Non-GAAP net income for Q3 2025 was $962.3 million, or $0.75 per diluted share, compared to $769.0 million, or $0.60 per diluted share in Q3 2024[5] - Non-GAAP EPS growth for Q3 2025 was 25% year-over-year, reflecting strong demand and disciplined execution[3] - GAAP gross profit for Q3 2025 was $1,490.2 million, up from $1,161.7 million in Q3 2024, representing a 28.4% increase[21] - Non-GAAP net income for the nine months ended September 30, 2025, reached $2,712.0 million, compared to $2,079.4 million in the same period of 2024, reflecting a 30.5% growth[21] - GAAP diluted net income per share for Q3 2025 was $0.67, up from $0.58 in Q3 2024, a 15.5% increase[21] - The company reported a net cash provided by operating activities of $3,110.0 million for the nine months ended September 30, 2025, compared to $2,677.3 million in 2024, a growth of 16.1%[27] Margins - GAAP gross margin for Q3 2025 was 64.6%, slightly down from 65.2% in Q2 2025 and up from 64.2% in Q3 2024[5] - Non-GAAP gross margin for Q3 2025 was 65.2%, compared to 65.6% in Q2 2025 and 64.6% in Q3 2024[5] - For Q4 2025, the company expects revenue between $2.3 billion and $2.4 billion, with a non-GAAP gross margin of 62-63% and a non-GAAP operating margin of 47-48%[10] Assets and Liabilities - Total current assets increased to $15,184.8 million as of September 30, 2025, from $11,910.9 million at the end of 2024, marking a 27.0% rise[25] - Cash and cash equivalents decreased to $2,326.6 million from $2,762.4 million, indicating a decline of 15.8%[25] - Total liabilities rose to $6,141.7 million as of September 30, 2025, compared to $4,049.1 million at the end of 2024, an increase of 51.6%[25] - Deferred revenue increased significantly to $3,520.7 million in Q3 2025 from $1,727.3 million in Q4 2024, a rise of 103.4%[25] Expenses - Stock-based compensation expense for the nine months ended September 30, 2025, was $306.1 million, compared to $254.6 million in the same period of 2024, an increase of 20.2%[21] Corporate Developments - Arista Networks appointed Kenneth Duda as President and Chief Technology Officer, and Tyson Lamoreaux as Senior Vice President of Cloud and AI Networking[5] - The company announced the introduction of AI agents to streamline network operations and an observability blueprint for modern AI workloads[5] - Arista Networks is collaborating with industry leaders to deliver Ethernet for Scale-Up Networks (ESUN), promoting open standards-based solutions[5] Business Combinations - The company completed cash paid for business combinations amounting to $300.0 million during the nine months ended September 30, 2025[27]

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Core Insights - Arista Networks Inc. reported a record non-GAAP operating income of $1.08 billion in Q2, marking the first time it exceeded $1 billion, with an operating margin increase to 48.8% from 46.5% year-over-year [1][8] - The company's business model shows strong momentum, particularly in AI networking, with significant renewals in software and services despite a 13.2% increase in operating expenses [2] - Efficient supply chain and inventory management contributed to an improved gross margin of 65.6%, surpassing the guidance of 63% and up from 65.4% a year ago [3] Financial Performance - Accounts payable days increased to 65 from 49 in the previous quarter, enhancing cash flow and liquidity, allowing for more investment in R&D and marketing [4] - Arista projects an operating margin of 47% for Q3 and 48% for 2025, indicating continued operational strength [4][8] Competitive Landscape - Arista faces competition from Hewlett Packard Enterprise and Cisco Systems, with HPE reporting a non-GAAP operating profit of $777 million, a 0.8% year-over-year increase, while Cisco's non-GAAP operating income rose to $5.03 billion, up 13.3% year-over-year [5][6] Market Performance - Arista's shares have increased by 56.1% over the past year, outperforming the industry growth of 28.6% [7] - The company trades at a forward price-to-sales ratio of 19.43, which is above the industry average [10] Earnings Estimates - The Zacks Consensus Estimate for Arista's earnings for 2025 has seen an upward revision over the past 60 days, reflecting positive market sentiment [11]

Core Insights - Arista Networks, Inc. (ANET) is set to report Q3 2025 earnings on November 4, with revenue and earnings estimates of $2.24 billion and $0.72 per share, respectively, reflecting increases from $1.81 billion and $0.60 in the same quarter last year [1][5] - Earnings estimates for Arista have risen by 0.4% to $2.82 per share for 2025 and by 2.2% to $3.25 for 2026 over the past 60 days [1][2] Earnings Surprise History - Arista has a four-quarter average earnings surprise of 12.8%, consistently beating estimates, with a surprise of 12.3% in the last reported quarter [2][3] Factors Influencing Performance - The company is gaining traction in high-performance switching products and maintaining leadership in 100-gigabit Ethernet switches, driven by strong demand from enterprise customers [6] - Investments in AI for Networking centers in India are expected to enhance local production capabilities and spur innovation [7] - The acquisition of VeloCloud's SD-WAN portfolio is anticipated to expand Arista's product offerings and customer base, enhancing its end-to-end networking solutions [8] Market Performance - Over the past year, Arista's stock has increased by 58.3%, outperforming the industry average of 29% and competitors like Hewlett Packard (19.2%) and Cisco (30.6%) [10] Valuation Metrics - Arista is currently trading at a premium valuation, with a price/earnings ratio of 49.79, compared to the industry average of 38.83 and its own historical mean of 36.86 [12] Investment Considerations - The company benefits from strong momentum and diversification across its product lines, positioning itself well for growth in the data-driven cloud networking sector [14] - Arista's cloud networking solutions offer high capacity, predictable performance, and programmability, with ongoing innovations in various technical areas [15] Competitive Landscape - Arista faces significant competition in cloud networking, particularly from Cisco, which dominates the data center networking market, as well as other large vendors like Brocade and Dell [16] Long-term Outlook - With solid fundamentals and improving earnings estimates, Arista is expected to benefit in the long run, supported by a focus on quality and operational execution [17]