Arista Networks (NYSE:ANET) Q4 2025 Earnings call February 12, 2026 04:30 PM ET Company ParticipantsAmit Daryanani - Senior Managing DirectorBen Reitzes - Managing Director, Partner, and Head of Technology ResearchChantelle Breithaupt - CFOJayshree Ullal - Chairperson and CEOKarl Ackerman - Managing Director of Semiconductors and Networking HardwareKenneth Duda - Founder and CTOMeta Marshall - Executive DirectorRudolph Araujo - VP of Investor AdvocacyRyan Koontz - Managing DirectorConference Call Participan ...

Financial Data and Key Metrics Changes - In Q4 2025, total revenues reached $2.49 billion, reflecting a year-over-year increase of 28.9% and exceeding guidance of $2.3 billion to $2.4 billion [18] - For the fiscal year 2025, total revenue was $9 billion, with a non-GAAP gross margin of 64.6% and an operating margin of 48.2% [6][22] - Net income for Q4 was $1.05 billion, marking the first time the company surpassed $1 billion in net income for a quarter [22] - Diluted earnings per share for Q4 was $0.82, up 24.2% year-over-year, while for the fiscal year, it was $2.98, a 28.4% increase [23] Business Line Data and Key Metrics Changes - Cloud and AI titans contributed 48% to annual customer sector revenue, while enterprise and financials accounted for 32%, and AI and specialty providers contributed 20% [7] - Services and subscription software represented approximately 17.1% of revenue in Q4, down from 18.7% in Q3 [18] - The core sector revenue was driven by high-performance switching, contributing 65% of total revenue [9] Market Data and Key Metrics Changes - International revenues for Q4 were $528.3 million, or 21.2% of total revenue, up from 20.2% in the previous quarter [19] - The company reported strong growth in both Asia and Europe, with international growth exceeding 40% annually [6] Company Strategy and Development Direction - The company aims for aggressive growth in AI networking, raising its 2026 revenue guidance to $3.25 billion for AI centers and maintaining a goal of $1.25 billion for cognitive campus and branch [27] - The strategy includes expanding into new markets and enhancing product offerings, particularly in AI and cloud networking [12][14] - The company is focused on maintaining its leadership in high-performance switching and expanding its partnerships with AI and cloud titans [9][64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 25% annual growth in 2026, despite challenges related to supply chain constraints and rising costs [17][28] - The company is optimistic about the demand for networking solutions driven by AI and cloud technologies, indicating a growing total addressable market exceeding $100 billion [17] - Management acknowledged the impact of inflation and supply chain issues on operations but emphasized a commitment to innovation and customer satisfaction [16][28] Other Important Information - The company repurchased $620.1 million of its common stock in Q4 at an average price of $127.84 per share, with a total of $1.6 billion repurchased in fiscal year 2025 [23][24] - The total deferred revenue balance increased to $5.4 billion, with product deferred revenue rising by approximately $469 million compared to the previous quarter [26] Q&A Session Summary Question: What are the factors affecting the potential new 10% customers? - Management indicated that acceptance criteria and timing are critical factors, along with demand and supply chain considerations [33] Question: What is the cautious outlook for the rest of the year? - Management clarified that visibility is affected by customer CapEx and the timing of new product shipments, particularly related to AI [41] Question: Can you quantify the revenue and gross margin impact from memory dynamics? - Management acknowledged challenges in the memory market and indicated that while they are comfortable with their guidance, there may be price increases for certain products [50][51] Question: How much of the AI revenue guidance is based on scale-up networking opportunities? - Management noted that current configurations are a mix of scale-out and scale-up, with expectations for significant growth in AI networking [58] Question: How does the company plan to participate in the build-out of model builders' infrastructure? - Management highlighted the importance of network infrastructure for model builders and indicated plans to collaborate with cloud titans [64]

Financial Data and Key Metrics Changes - Arista Networks achieved record revenue of $9 billion for fiscal year 2025, reflecting a growth of 28.6% year-over-year [5] - Q4 2025 revenues were $2.49 billion, up 28.9% year-over-year, exceeding guidance of $2.3 billion to $2.4 billion [19] - Non-GAAP gross margin for the year was 64.6%, with Q4 gross margin at 63.4%, slightly above guidance [5][20] - Operating income for Q4 was $1.2 billion, or 47.5% of revenue, contributing to an annual operating income of $4.3 billion, or 48.2% of revenue [22] - Net income for Q4 was $1.05 billion, marking the first time Arista delivered over $1 billion in net income in a quarter [22] Business Line Data and Key Metrics Changes - Cloud and AI titans contributed 48% to annual customer sector revenue, while enterprise and financials accounted for 32%, and AI and specialty providers contributed 20% [6] - Services and subscription software represented approximately 17.1% of revenue in Q4, down from 18.7% in Q3 [19] - The core cloud AI and data center products drove 65% of revenue, with significant adoption of 800 gigabit products [9] Market Data and Key Metrics Changes - International revenues for Q4 were $528.3 million, or 21.2% of total revenue, up from 20.2% in the previous quarter [20] - Arista's customer base exceeded 10,000 cumulative customers, with strong traction in the 5-10 million and 1 million customer categories [12] Company Strategy and Development Direction - Arista aims for aggressive growth in AI networking, raising its 2026 AI centers revenue goal from $2.75 billion to $3.25 billion [17][28] - The company is committed to investing in innovation, sales, and scaling the business to maintain its status as a leading pure-play networking company [29] - Arista is focusing on expanding its cognitive campus and branch solutions, targeting $1.25 billion in revenue for 2026 [10][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 25% annual growth in 2026, raising revenue guidance to approximately $11.25 billion [17][28] - The company acknowledged challenges related to supply chain constraints and rising costs but remains optimistic about demand for its products [17][29] - Management highlighted the importance of customer acceptance criteria and the timing of shipments as variables affecting future growth [35][44] Other Important Information - Arista's cash, cash equivalents, and marketable securities totaled approximately $10.74 billion at the end of Q4 [23] - The company repurchased $620.1 million of its common stock in Q4, with a total of $1.6 billion repurchased in fiscal year 2025 [24][25] - Deferred revenue balance increased to $5.4 billion, with product-related deferred revenue rising by approximately $469 million [27] Q&A Session Summary Question: What are the factors affecting the potential for new 10% customers? - Management indicated that variables such as acceptance criteria and demand are critical, with confidence in meeting these criteria despite supply chain challenges [35] Question: What is the outlook for growth visibility in 2026? - Management clarified that while demand is strong, the timing of shipments and acceptance criteria for new products are key factors influencing visibility [44] Question: How do memory dynamics impact revenue and gross margin? - Management acknowledged that supply chain constraints are affecting memory prices, which may lead to a one-time increase in selected SKUs [51][103] Question: What is the expected behavior of product deferred revenue? - Management noted that product deferred revenue can fluctuate based on new deployments and acceptance criteria, making it difficult to predict future movements [73][112]