Q2 2018

Second Quarter Financial Highlights

Revenue of $519.8 million, an increase of 10.0% compared to the first quarter of 2018, and an increase of 28.3% from the second quarter of 2017.

GAAP gross margin of 64.2%, compared to
GAAP gross margin of 64.1% in the first quarter of 2018 and 64.1% in the second quarter of 2017.

Non-GAAP gross margin of 64.5%, compared to non-GAAP gross margin of 64.4% in the first quarter of 2018 and 64.4% in the second quarter of 2017.

GAAP net income of $150.7 million, or $1.86 per diluted share, compared to GAAP net income of $102.7 million, or $1.30 per diluted share, in the second quarter of 2017.

Non-GAAP net income of $155.7 million, or $1.93 per diluted share, compared to non-
GAAP net income of $105.5 million, or $1.34 per diluted share, in the second quarter of 2017.
“Arista is one of the fastest networking companies to achieve a $2 billion annual revenue rate, driven by its industry leadership in software-defined networking,” stated Jayshree Ullal, Arista President and CEO. “In Q2 2018 we comfortably surpassed the $500 million revenue mark with record profitability.”

Commenting on the companys financial results, Ita Brennan, Arista’s CFO, said, “The team continues to demonstrate consistent execution, driving healthy revenue growth and earnings expansion.”

Arista Extends the Campus to Cognitive WiFi™ Networking

Arista today also announced that it will acquire Mojo Networks, the inventor of Cognitive WiFi and a leader in cloud-managed wireless networking. The parties expect to close the transaction in Q3 2018. “We are excited about Arista's first acquisition transaction and its significance to Arista's cognitive campus vision. We welcome the Mojo Networks employees to the Arista family,” stated Ms. Ullal.
Arista Networks - Arista Networks, Inc. Reports Second Quarter 2018 Financial Results, with Record Earnings

A Arista Networks Inc. (NYSE: ANET) divulgou seu resultado trimestral na quinta-feira, 2 de agosto. A empresa reportou lucro de US $ 1,93 por ação no trimestre, superando a estimativa de consenso, que era de US $ 1,70, por US $ 0,23. A empresa teve receita de US $ 519,85 milhões no trimestre, ao passo que a estimativa de consenso era de US $ 509,62 milhões. A Arista Networks teve um retorno sobre o patrimônio líquido de 27,23% e uma margem líquida de 27,19%. A receita da Arista Networks no trimestre cresceu 28,3% em relação ao mesmo trimestre do ano passado. Durante o mesmo trimestre do ano anterior, a empresa registrou lucro de US $ 1,34 por ação.
NYSE:ANET - Arista Networks Stock Price, Price Target & More

Segue em velocidade de cruzeiro.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Chuck. Thank you, everyone for joining us this afternoon for our second quarter of 2018 earnings call. I am pleased to report that we had a record Q2, surpassing the $500 million mark. We exceeded our guidance comfortably with a non-GAAP revenue of $519.8 million as we grew more than 28% year over year, despite tough comparisons from 2017.

Our non-GAAP earnings per share was $1.93 with services contribution at 14.4% of overall sales. From a geographic perspective, our customers in the Americas contributed 73% of our total revenue, while the rest of the international theaters performed reasonably well. We delivered non-GAAP gross margins of 64.5% in our dynamic industry, exceeding our forecast due to customer mix.

In terms of vertical trends, our top ten customers included all five verticals. Cloud Titans contributed strongly in Q2 and ranked as our number one vertical, followed by enterprises and cloud specialized providers at number two, and financials and tier one/tier two service providers tied for third place.

Our new customer acquisition continues to be brisk and our million-dollar customers continue to be healthy as well. Were especially pleased with the software and services acceptance with CloudVision customers. In terms of new introductions in Q2, we had an analyst day on May 7th, 2018. Arista introduced our formal entry into the campus markets with our products and the cognitive management plane architecture.

So, you might be thinking why did we enter this market. The simple fact is our customers have been asking us to do so for some time. They have been deploying Arista products and campus use cases already to take advantage of Arista EOS quality and our state-driven software architecture. Overcoming the legacy three-tiered model from the market incumbents, the Arista X3 spline is another example of disrupting the status quo.

We are collapsing the aggregation and co-layers into a single tier. Chassis and fixed form factors are now available in Q3 2018 with wire speed layer 2, layer 3 switching rate and a cognitive suite of campus controls, such as high resilience, secure segmentation, and scale options for different range of protocols for L2, L3, and L2 over L3.

The Arista Cognitive Campus also works with a diverse suite of edge devices, including third-party. Today, Arista is also announcing its first acquisition, Mojo Networks, to expand into the cognitive Wi-Fi edge. We believe that cloud-managed cognitive Wi-Fi is a very natural complement to our next generation campus and cloud networking portfolio.

I want to take this opportunity to warmly welcome Rick Wilmer, the CEO of Mojo Networks, and Pravin Bhagwat, Founder and CTO of Mojo, as well as the entire Mojo team to the Arista family. This transaction will close in Q3 2018 and I expect this to be accretive in 2019.

At the core of our campus strategy is our powerful cognitive management architecture, whereby the network auto-discovers connected devices, applications, and streaming data. CMP based on CloudVision assesses profile-based parameters such as configlets, bandwidth, packet size, inner-packet gap, open ports, whitelists, etc.

Arista Networks, Inc. (ANET) Q2 2018 Earnings Conference Call Transcript -- The Motley Fool

Kenneth Duda -- Chief Technology Officer and Senior Vice President of Software Engineering

Thanks, Jayshree. With the CloudVision cognitive management plane, Arista is fundamentally advancing the way networks are operated and managed. CloudVision gathers all network states to a single place, keeping historical information as long as the customer wants it and analyzing and learning from all of that state.

Operators enforce networkwide policy centrally and CloudVision autonomously ensures that policy is implemented correctly across the entire network, flagging any compliance issues and creating workflows applied on approval to bring devices back into full compliance.

What sets CloudVision apart is the confidence that it brings, confidence that things are working and working the way youd expect. So, you can now imagine how delighted we were to integrate Mojo Networks technology. Mojo pioneered cognitive Wi-Fi, in which Wi-Fi states streams from access points to a centralized open source data store for analysis.

By itself, it's a big help for network operators, helping with capacity planning, upgrades, troubleshooting performance issues, but in combination with CloudVision, it's even better. We can now extend CloudVision's reach enterprisewide, from the Wi-Fi client across the campus to the enterprise data center and all the way to the cloud.

This gives CloudVision customers a single pane of glass through which they can see everything going on end to end through their network. They can use one assistant that both ensures security compliance for physical switches, and also generates alerts about Wi-Fi connection issues. They can apply the same security policies to the network edge, whether that edge is wired, wireless, or virtual. They can monitor for unauthorized or misbehaving IoT devices, again, wherever and however connected.

But at a higher level, our campus strategy is very simple. We're bringing the benefits of Arista's data center switches to the enterprise campus. These benefits are high-quality, trouble-free devices. A single software image across all switches for consistency and simplicity of operations and cognitive management, lowering operational costs through automation and providing advanced compliance, visibility, and telemetry features.

Arista Networks, Inc. (ANET) Q2 2018 Earnings Conference Call Transcript -- The Motley Fool

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Ken. Your passion and enthusiasm on technology is always infectious. So, I want to get that CMP right now and install it at home. We are witnessing an architectural shift in the campus thats really similar to the data center migration. When you look at what we're doing, it's an important step to what's taking these silo places in the network, or pins of yesteryear, to the cloud-first strategy with PICs, or places in the cloud, as an important evolution to our customers.

During this time, we remain committed to our HPE/Aruba partnership for mutual customers and to also promote open and multi-vendor interoperability. In Q2, we also introduced an exciting programmable product, the Arista 7170. The new 7170 series is bringing a new generation of programmable packet processors for 64 ports of 100 GB Ethernet all in a single, fixed leaf form factor, using a new merchant silicon vendor, Barefoot Networks, to make this possible.

Traditionally, building such a chip that was both programmable and extremely fast wasn't so doable without trade-offs, but with the Arista 7170, this defies tradition. It's integrating a suite of capabilities that previously ran on a host or VM or NIC into a single one-rack unit switch. Examples of this programmability include advanced layer 4 to layer 7 features, tunnel termination, traffic filtering, network address translation, and deeper packet inspection.

The 7170 embodies Arista's EOS cognitive features at scale with modern P4 language. Use cases include tunnel scaling in multi-tenant data center, applying network security segmentation, real time network telemetry, timestamping, visibility, and packet capture.

As I took at our progress in Q2 2018 and in fact step back and reflect on the first half of 2018, I'm pleased by our progress on many fronts, as we have moved from point products to software-driven cloud platforms with best of breed capabilities. We are gratified by the continued recognition from Gartner as a leader in their Magic Quadrant for data center networking for the fourth consecutive year, as well Forrester's SDN Wave leader in the hardware category with the top score.

Arista was also recognized by Forbes as a Global 2000 company for the first time in June 2018. Clearly, we're one of the fastest growing networking companies in recent history, achieving $2 billion in annual revenue run rate with profitability metrics. I'm definitely excited by our future ahead.

With that, I'd like to turn it over to Ita, our Chief Financial Officer, for more financial specifics. Ita?

Arista Networks, Inc. (ANET) Q2 2018 Earnings Conference Call Transcript -- The Motley Fool

Ita Brennan -- Chief Financial Officer

Thanks, Jayshree, and good afternoon. This analysis of our Q2 results and our guidance for Q3 18 is based on non-GAAP and excludes all non-cash stock-based compensation impacts and impairment of our private company equity investments and legal costs associated with the ongoing lawsuits. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release.

Total revenues in Q2 were $519.8 million, up 28% year over year and above our guidance of $500 million to $514 million. We were pleased with overall demand in the quarter, with ongoing strengths from our productizing vertical. Service revenues for the quarter were approximately 14.4% of revenue, up from prior periods and reflecting higher renewal activity.

International revenue for the quarter came in at $142 million or 27% of total revenue, down from 33% in the prior period. The lower international mix on a quarter over quarter basis primarily reflecting the timing of some cloud deployments and the inclusion of some larger in-region EMEA deals last quarter.

Our international base is still relatively small and we'll experience some volatility on a quarterly basis as the business develops. Overall gross margins in Q2 are 64.5%, up from 64.4% last quarter and above the midpoint of our guidance, up 62% to 64%. This outperformance versus guidance primarily reflected increased leverage on our fixed cost base in the quarter.

Operating expenses for the quarter were $143.9 million, up from $137.4 million last quarter. R&D spending came in at $92.3 million or 17.8% of revenue, up from $91.4 million in the prior period with increased headcount and related expenses. Sales and marketing expense was $39.9 million or 7.7% of revenue, up from $36.2 million last quarter, reflecting increased marketing and demo-related expenses. Our GAA costs included some legal and accounting fees associated with Mojo acquisition announced today.

Our operating income for the quarter was $191.2 million, or 36.8% of revenue. Other income and expense for the quarter was a favorable $6.9 million and our effective tax rate was 21.4%. This resulted in net income for the quarter of $155.7 million or 30% of revenue. Our diluted share number for the quarter was 80.8 million shares, resulting in a diluted earnings per share number of $1.93, up 44% from the prior year.

Legal expenses associated with the ongoing lawsuits came in at $3.6 million for the quarter. In addition, we recorded a $9.1 million impairment of our private company equity investments, projecting evaluation adjustments based on a recent funding lapse. Both of theses amounts are excluded from the non-GAAP results discussed above.

Now turning to the balance sheet, cash-cash equivalents and investments entered the quarter at approximately $1.9 billion. We generated $130.6 million of cash from operations in the June quarter. This reflects strong net income performance offset by changes in working capital requirements. DSOs came at 46 days, up from 39 in Q1, reflecting the timing of billings and collections in the quarter.

Inventory terms were 2.7 times, up from 2.2 in Q1 and inventory decreased to 245.4 million in the quarter, down from 268.1 million in the prior period. This reflects reductions primarily in finished goods as we continued to optimize our supply chain. In addition, we maintain the further 25.3 million of inventory deposits recorded in other assets compared to 24 million last quarter.

Our total deferred revenue balance was $448.6 million, down from $456.1 million in Q1. Product-deferred revenue declined by $15 million in the quarter, with customers completing final 945-related qualifications. At this point, we believed we've reached a somewhat normalized level of product-deferred revenue. While the underlying transactions will cycle on a quarter by quarter basis, the magnitude of the balance should stabilize. Accounts payable days were 26 days, down from 38 days in Q1, reflecting the timing of inventory receipts and payments. Capital expenditures in the quarter were $6.7 million.

Now turning to guidance -- as we look forward to the remainder of 2018, we believe that we are well-positioned to benefit from the continuing growth in cloud networking across our customer base. Our revenue guidance for the third quarter is consistent with our previous outlook, which calls for mid-20% revenue growth for the second half of the year.

The operations team is currently working to understand and attempt to mitigate any potential gross margin headwind related to the trade tariff announcement. We would ultimately look to pass on any un-remediated costs to customers.

We announced earlier today that we are acquiring Mojo Networks. This represents a small but strategic transaction which we expect to play an important role in our overall expansion into campus. We are just beginning the business and accounting integration and the acquisition will be recorded in our financials for the third quarter.

With this as a backdrop, our guidance for the third quarter, which is based on non-GAAP and excludes any non-cash stock-based compensation impacts and any legal costs associated with the ongoing lawsuits is as follows -- revenues of approximately $540 million to $552 million, gross margin of approximately 63% to 65%, operating margins of approximately 32% to 34%.

Our effective tax rate is expected to be approximately 21.5% with diluted shares of approximately 81.1 million. Please note that based on our current outlook, expect costs associated with ongoing to lawsuits to be approximately $6 million for the quarter.

Arista Networks, Inc. (ANET) Q2 2018 Earnings Conference Call Transcript -- The Motley Fool

@Huoya porque nos quadros aparece um prejuizo de 155 milhoes de dolares no q2 2018?

GAAP net income of $150.7 million, or $1.86 per diluted share, compared to GAAP net income of $102.7
million, or $1.30 per diluted share, in the second quarter of 2017.

Non-GAAP net income of $155.7 million, or $1.93 per diluted share, compared to non-GAAP net income
of $105.5 million, or $1.34 per diluted share, in the second quarter of 2017.

https://s21.q4cdn.com/861911615/files/doc_news/Arista-Networks-Inc-Reports-Second-Quarter-2018-Financial-Results-with-Record-Earnings.pdf

Mas esse valor não iria entrar no q3 2018? Já que foi pago ou será pago após o q2?

Esses 400mi não deveriam ser considerados não recorrente ?