What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 123 added, 183 removed, 416 unchanged (42% of the section changed)

3 unchanged sentences

(Unaudited, in thousands, except par value)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

CURRENT ASSETS:

23 unchanged sentences

Deferred revenue, non-current 420,574 403,814

Deferred tax liabilities, non-current — 129,074

Other long-term liabilities 58,385 58,442

2 unchanged sentences

STOCKHOLDERS’ EQUITY:

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of September 30, 2022 and December 31, 2021;

305,515 and 307,681 shares issued and outstanding as of September 30, 2022 and December 31, 2021

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of March 31, 2023 and December 31, 2022;

308,098 and 306,890 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Additional paid-in capital 1,857,467 1,780,714

5 unchanged sentences

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

Condensed Consolidated Income Statements

(Unaudited, in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Product $ 1,172,094 $ 724,718

22 unchanged sentences

Diluted 315,578 319,652

(1) Prior periods have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in November 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 436,473 $ 272,259

1 unchanged sentence

Foreign currency translation adjustments 292 ( 373 )

Net change in unrealized gains (losses) on available-for-sale securities ( 3,236 ) ( 118 ) ( 33,523 ) ( 1,145 )

Available-for-sale investments:

Change in net unrealized gains (losses) on available-for-sale securities 8,253 ( 21,828 )

Reclassification adjustment included in net income 3,858 —

Other comprehensive income (loss) 12,403 ( 22,201 )

4 unchanged sentences

(Unaudited, in thousands)

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Common Stock Additional

3 unchanged sentences

Income (Loss) Total

Stockholders’ Equity Common Stock Additional

Paid-In Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Stockholders’

Shares Amount Shares Amount

Stockholders’ Equity

Shares Amount

Balance at beginning of period 306,890 $ 31 $ 1,780,714 $ 3,138,983 $ ( 33,908 ) $ 4,885,820

Net income — — — 436,473 — 436,473

Other comprehensive loss, net of tax — — — — ( 5,810 ) ( 5,810 ) — — — — ( 38,829 ) ( 38,829 )

Other comprehensive income, net of tax — — — — 12,403 12,403

Stock-based compensation — — 62,881 — — 62,881

2 unchanged sentences

Tax withholding paid for net share settlement of equity awards ( 69 ) — ( 9,224 ) — — ( 9,224 )

Common stock issued for business acquisition — — — — — — 33 — 4,049 — — 4,049

Balance at end of period 308,098 $ 31 $ 1,857,467 $ 3,493,181 $ ( 21,505 ) $ 5,329,174

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Common Stock Additional

2 unchanged sentences

Comprehensive

Income (Loss) Total

Stockholders’

Equity Common Stock Additional

Paid-In Capital (1) Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Stockholders’

Shares (1) Amount (1) Shares (1) Amount (1)

Shares Amount

Balance at beginning of period 307,681 $ 31 $ 1,530,046 $ 2,456,823 $ ( 8,300 ) $ 3,978,600

5 unchanged sentences

Tax withholding paid for net share settlement of equity awards ( 105 ) — ( 12,741 ) — — ( 12,741 )

Common stock issued for business acquisition 33 $ — $ 4,049 $ — $ — 4,049

Balance at end of period 308,165 $ 31 $ 1,590,793 $ 2,592,854 $ ( 30,501 ) $ 4,153,177

(1) Prior periods have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in November 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

2 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Deferred income taxes ( 71,153 ) ( 81,822 )

Unrealized gain on equity investments ( 24,121 ) —

Amortization of investment premiums 14,167 19,193

Unrealized loss (gain) on equity investments 5,571 ( 28,497 )

Amortization (accretion) of investment premiums (discounts) ( 4,220 ) 7,033

Changes in operating assets and liabilities:

6 unchanged sentences

Deferred revenue 51,028 187,194

Income taxes payable 41,074 ( 3,565 )

Income taxes, net 108,200 106,992

Other liabilities ( 4,361 ) ( 2,704 )

2 unchanged sentences

Proceeds from maturities of marketable securities 824,021 404,176

Proceeds from sale of marketable securities 21,725 —

Purchases of marketable securities ( 861,612 ) ( 412,614 )

1 unchanged sentence

Business acquisitions, net of cash acquired — ( 37,610 )

Escrow receipts from past business acquisitions — 1,299

Investments and notes receivable in privately-held companies ( 250 ) ( 11,691 )

Proceeds from sale of marketable securities 186,782 19,607

Net cash provided by (used in) investing activities 299,152 ( 861,363 )

Net cash used in investing activities ( 21,747 ) ( 72,615 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under equity plans 23,096 19,160

Tax withholdings paid on behalf of employees for net share settlement ( 25,542 ) ( 10,622 )

Tax withholding paid on behalf of employees for net share settlement ( 9,224 ) ( 12,741 )

Repurchases of common stock ( 82,275 ) ( 136,228 )

1 unchanged sentence

Effect of exchange rate changes 314 ( 481 )

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

284,647 14,233

2 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

Right-of-use assets obtained in exchange for new operating lease liabilities $ 7,300 $ 4,824

Right-of-use assets obtained in exchange for lease obligations $ 15,229 $ 6,022

Property and equipment included in accounts payable and accrued liabilities 4,926 2,759

5 unchanged sentences

Arista Networks, Inc.

(together with our subsidiaries, “we,” “our,” "Arista," "Company" 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 enterprises.

(together with our subsidiaries, “we,” “our,” "Arista," "Company" or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of next generation data center and campus workspace environments.

Our cloud networking solutions consist of our Extensible Operating System ("EOS"), a set of network applications and our Gigabit Ethernet switching and routing platforms.

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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, 2022, are not necessarily indicative of the results expected for the full fiscal year.

The results for the three months ended March 31, 2023, are not necessarily indicative of the results expected for the full fiscal year.

The condensed consolidated balance sheet as of December 31, 2022 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.

7 unchanged sentences

Risks and Uncertainties

Global economic and business activities continue to face widespread macroeconomic uncertainties, including supply chain and labor shortages, inflation and monetary policy shifts, recession risks, the ongoing global coronavirus ("COVID-19") pandemic and potential disruptions from the Russia-Ukraine conflict and the U.S.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, the recent banking crisis, recessio n risks, an d potential supply chain and other disruptions from the Russia-Ukraine conflict and the U.S.

trade war with China.

Our contract manufacturers and suppliers have experienced workforce disruptions, delays in component sourcing, production and export of their products and component shortages and increased component costs, which have disrupted our supply chain and have impacted and will likely continue to impact our ability to supply products to our customers on a timely basis.

While overall demand remains strong across our customers base, we believe ongoing supply disruptions combined with other supply chain related constraints could impact our ability to fulfill this increased demand and as a result could negatively impact our business in future periods.

In addition, inflation pressure in our supply chain and scarcity of some materials needed to build our products have increased our cost of revenue and have impacted, and may continue to negatively impact our gross margin.

Our operating cash flows have also been and may continue to be negatively impacted by increased component inventories on hand or at our contract manufacturers, awaiting supply of a limited number of scarce components necessary to build and ship the completed product.

The extent of the impact on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, and the impact of any initiatives and programs we may undertake to address financial and operational challenges, will depend on future developments, the impact to

our customers, partners, employees, contract manufacturers and supply chain, all of which continue to evolve and are unpredictable.

We have continued to work closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed component sourcing and workforce disruptions.

We have worked diligently to drive improvements in these areas, including funding additional working capital and incremental purchase commitments, and have begun to see some reduction in customer lead times on certain products.

As customer lead times improve more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to a somewhat shorter demand-planning horizon.

While inventory and working capital levels may continue to increase and remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times begin to shorten.

Although these elevated inventory positions largely relate to early life cycle products, we cannot be certain that we will be able to sell this inventory which may result in excess and obsolete inventory charges in the future.

In addition, inflation pressure in our supply chain, scarcity of some materials needed to build our products and disruptions to our manufacturing process have increased our cost of revenue and have impacted, and may continue to negatively

impact our gross margin.

Our operating cash-flows have also been and may continue to be negatively impacted by significant component inventories on hand or at our contract manufacturers .

While we have seen some improvements in our supply chain and manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact our business in future periods.

In addition, although our business has experienced limited disruption as a result of the Russia-Ukraine conflict, continued escalation of the conflict may negatively impact the global economy and our future operating results and financial condition.

Management continues to actively monitor the impact of these macroeconomic factors on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

As of the date of issuance of these condensed consolidated financial statements, the extent to which these factors may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

ASU 2021-08 requires companies to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination in accordance with ASC 606.

Under previous GAAP, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date.

2021-08 results in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606.

The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company adopted this ASU as of January 1, 2022 on a prospective basis and the adoption impact was immaterial to the condensed consolidated financial statements.

The standard did not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, the impact on our customers, partners, employees, contract manufacturers and supply chain, all of which continue to evolve and are unpredictable;

however, any continued or renewed disruption in manufacturing and supply resulting from these factors could negatively impact our business.

We also believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders.

In addition, any prolonged economic disruptions or further deterioration in the global economy could have a negative impact on demand from our customers in future periods.

Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.

Recent Accounting Pronouncements Not Yet Effective

We believe that all recently issued accounting pronouncements from the FASB will not have a material impact on our Consolidated Financial Statements or do not apply to our operations.

Fair Value Measurements

2 unchanged sentences

The following tables summarize the fair value of these financial assets by significant investment category and their levels within the fair value hierarchy (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Level I Level II Level III Total Level I Level II Level III Total

2 unchanged sentences

Money market funds $ 315,895 $ — $ — $ 315,895 $ 322,294 $ — $ — $ 322,294

Certificate of deposits (1)

— 14,556 — 14,556 — — — —

Commercial paper — — — — — 5,422 — 5,422

government notes 47,678 — — 47,678 51,986 — — 51,986

15 unchanged sentences

______________________________________

(1) As of September 30, 2022 and December 31, 2021, all of our certificates of deposits were domestic deposits.

(2) The $ 15.8 million represents the fair value of marketable equity securities as of September 30, 2022.

This amount includes $ 8.3 million that was reclassified from Investments on our condensed consolidated balance sheet following the commencement of public market trading of the issuer in January 2022.

This publicly-traded equity investment generated an unrealized gain of $ 7.5 million for the nine months ended September 30, 2022, and an unrealized loss of $ 0.9 million for the three months ended September 30, 2022.

(1) As of March 31, 2023 and December 31, 2022, all of our certificates of deposits were domestic deposits.

(2) The $ 13.5 million represents the fair value of marketable equity securities as of March 31, 2023.

This publicly-traded equity investment generated an unrealized loss of $ 5.6 million for the three months ended March 31, 2023, and an unrealized gain of $ 13.5 million for the three months ended March 31, 2022.

Total initial cost for this investment was $ 3.0 million with no changes since our initial investment.

The unrealized gains and losses are included in Other income (expense), net on the unaudited Condensed Consolidated Statements of Operations.

1 unchanged sentence

Financial Statements Details.

During the three and nine months ended on September 30, 2022, the Company did not make any transfers between the levels of the fair value hierarchy.

During the three months ended on March 31, 2023, the Company did not make any transfers between the levels of the fair value hierarchy.

Marketable debt securities

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of our debt securities measured at fair value on a recurring basis (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value

8 unchanged sentences

Given the short-term and conservative nature of our portfolio, the unrealized losses are not related to credit risk;

therefore, we did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable debt securities for the three and nine months ended September 30, 2022.

therefore, we did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable debt securities for the three months ended March 31, 2023.

All unrealized losses were recognized in other comprehensive income (loss).

Realized losses were immaterial for the three and nine months ended September 30, 2022.

Realized losses were immaterial for the three months ended March 31, 2023.

The following table is an analysis of our marketable debt securities in unrealized loss positions (in thousands):

September 30, 2022

March 31, 2023

Unrealized Losses within 12 months Unrealized Losses 12 months or greater Total

4 unchanged sentences

Total $ 814,619 $ ( 4,204 ) $ 871,880 $ ( 13,804 ) $ 1,686,499 $ ( 18,008 )

As of September 30, 2022, we had no marketable debt securities with contractual maturities that exceed 24 months.

As of March 31, 2023, we had no marketable debt securities with contractual maturities that exceed 24 months.

The fair values of marketable debt securities, by remaining contractual maturities, are as follows (in thousands):

September 30, 2022

March 31, 2023

Due in 1 year or less $ 1,608,879

1 unchanged sentence

Total debt securities $ 2,346,803

The weighted-average remaining duration of our marketable debt securities is approximately 0.6 years as of September 30, 2022.

The weighted-average remaining duration of our marketable debt securities is approximately 0.8 years as of March 31, 2023.

As we view these marketable debt securities as available to support current operations, we classify marketable debt securities with maturities beyond 12 months as current assets under the caption "Marketable securities" on the condensed consolidated balance sheets.

6 unchanged sentences

In addition, the valuation requires management judgment due to the absence of market price and lack of liquidity.

We did not record any realized gains or losses for our non-marketable equity securities measured at fair value on a non-recurring basis during the three and nine months ended September 30, 2022 and September 30, 2021.

We recorded unrealized gains of $ 1.7 million and $ 16.7 million on non-marketable equity securities based on observable price changes from orderly transactions of identical or similar securities in three and the nine months ended September 30, 2022.

We recorded immaterial unrealized losses in the three and nine months ended September 30, 2022.

We did not record any realized gains or losses for our non-marketable equity securities measured at fair value on a non-recurring basis during the three months ended March 31, 2023 and March 31, 2022.

We recorded unrealized gains of nil and $ 15.0 million on non-marketable equity securities based on observable price changes from orderly transactions of identical or similar securities in the three months ended March 31, 2023 and March 31, 2022, respectively.

We recorded immaterial unrealized losses in the three months ended March 31, 2023.

We evaluate our non-marketable equity securities for impairment at each reporting period via a qualitative assessment with various potential impairment indicators, including, but not limited to, an assessment of a significant adverse change in the economic environment, significant adverse changes in the general market condition of the geographies and industries in which our investees operate, and other publicly-available information that affected the value of the its non-marketable equity securities.

The following table summarizes the activity related to our non-marketable equity securities as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

The following table summarizes the activity related to our non-marketable equity securities as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Cost of investments $ 23,875 $ 23,625

2 unchanged sentences

Carrying amount of investments $ 39,401 $ 39,468

(1) During the nine months ended September 30, 2022, $ 3.0 million previously included in the Cost of investments and $ 5.3 million previously included in the Cumulative upward adjustment, or $ 8.3 million in aggregate, were reclassified from Investments to Marketable securities on our condensed consolidated balance sheet following the commencement of public market trading of the issuer.

There was no such activity in the three months ended September 30, 2022.

Financial Statements Details

1 unchanged sentence

The reconciliation of cash, cash equivalents and restricted cash reported on the unaudited condensed consolidated balance sheets to the total of the same such amounts in the unaudited condensed consolidated statements of cash flows is as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 956,341 $ 671,707

3 unchanged sentences

Accounts receivable, net consists of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Accounts receivable $ 871,282 $ 928,490

3 unchanged sentences

Inventories consist of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Raw materials $ 1,060,261 $ 759,519

3 unchanged sentences

Prepaid expenses and other current assets consist of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Inventory deposits $ 243,923 $ 162,047

Prepaid income taxes 1,409 8,977

Other current assets 125,353 124,357

3 unchanged sentences

Property and equipment, net consists of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Land $ 42,337 $ 41,500

8 unchanged sentences

Property and equipment, net $ 97,157 $ 95,009

Depreciation expense was $ 6.9 million and $ 4.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 18.7 million and $ 14.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense was $ 7.1 million and $ 5.6 million for the three months ended March 31, 2023 and 2022, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

September 30, 2022 December 31, 2021

Accrued payroll related costs $ 82,791 $ 99,571

March 31, 2023 December 31, 2022

Accrued compensation-related costs $ 57,776 $ 117,053

Accrued Supplier liability 78,168 71,481

Accrued manufacturing costs 138,530 45,379

Accrued product development costs 44,551 27,380

Accrued warranty costs 14,314 10,414

Other 32,739 31,194

Total accrued liabilities $ 351,764 $ 292,487

Warranty Accrual

The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):

Nine Months Ended September 30,

Warranty accrual, beginning of period $ 10,414 $ 9,314

Liabilities accrued for warranties issued during the period 13,887 8,643

Warranty costs incurred during the period ( 9,987 ) ( 8,429 )

Warranty accrual, end of period $ 14,314 $ 9,528

Contract Assets

The following table summarizes the beginning and ending balances of our contract assets included in "Prepaid and other current assets" on the condensed consolidated balance sheets (in thousands):

Nine Months Ended September 30,

Contract assets, beginning balance $ 24,388

Contract assets, ending balance 13,525

Contract Liabilities, Deferred Revenue and Other Performance Obligations

2 unchanged sentences

The following table summarizes the activity related to our contract liabilities (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Contract liabilities, beginning balance $ 103,448 $ 93,382

3 unchanged sentences

Contract liabilities, ending balance $ 105,047 $ 98,422

As of September 30, 2022 and December 31, 2021, $ 42.2 million and $ 38.7 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, $ 46.9 million and $ 45.2 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.

Deferred Revenue

1 unchanged sentence

The following table summarizes the activity related to our deferred revenue (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Deferred revenue, beginning balance

4 unchanged sentences

Other Performance Obligations

Other performance obligations include unbilled contract revenue for services and products that will be recognized in future periods.

As of September 30, 2022, other performance obligations of $ 178.6 million were comprised mainly of unbilled multi-year PCS contract amounts that will be recognized as revenue in future periods.

In addition, as of September 30, 2022 the company had entered into $ 844.2 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Other performance obligations totaling $ 1.0 billion as of March 31, 2023 include unbilled multi-year PCS and service contract amounts of $ 120.1 million and $ 908.6 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Revenue from Total Remaining Performance Obligations

Revenue from total remaining performance obligations represents contract liabilities, deferred revenue and unbilled contract revenue that will be recognized in future periods.

As of September 30, 2022, approximately $ 1,220.5 million of revenue is expected to be recognized from remaining performance obligations, of which approximately 82 % is expected to be

recognized over the next two years and approximately 18 % is expected to be recognized during the third to the fifth year.

These amounts do not include the $ 844.2 million of binding contractual agreements related primarily to future product shipments outlined above.

As of September 30, 2022, it is expected that the majority of the amounts allocated to these specific performance obligations will be recognized as revenue upon product shipment over the next two years ;

however, given the current uncertain supply chain environment and industry wide supply constraints, we may experience manufacturing and shipment delays or cancellations related to these performance obligations, which could impact revenue recognition.

T otal revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods amounts to $ 2.2 billion.

Included in this amount is the $ 908.6 million of binding contractual agreements related primarily to future product shipments.

As of March 31, 2023, it is expected that the majority of the amounts allocated to these specific performance obligations will be recognized as revenue upon product shipment over the next two years .

In addition, as of March 31, 2023, approximately 82 % of the remaining $ 1.3 billion of this future revenue is expected to be recognized over the next two years and approximately 18 % is expected to be recognized during the third to the fifth year.

Other Income (Expense), net

Other income (expense), net consists of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Interest income $ 22,509 $ 2,428

Unrealized gain on equity investments 708 — 24,121 —

Unrealized gain (loss) on equity investments ( 5,571 ) 28,497

Other income (expense), net ( 4,792 ) 555

1 unchanged sentence

Acquisition, Goodwill and Acquisition-Related Intangible Assets

During the nine months ended September 30, 2022, we completed two acquisitions of private companies for total consideration of $ 158.9 million including $ 4.0 million in common stock and the remainder in cash.

During the year ended December 31, 2022, we completed two acquisitions of private companies for total consideration of $ 158.9 million including $ 4.0 million in common stock and the remainder in cash.

The purchase prices included $ 62.3 million of intangible assets, $ 77.5 million of goodwill and $ 19.1 million of net tangible assets acquired.

We also incurred certain acquisition-related expenses of $ 4.7 million, which primarily consisted of retention bonuses to continuing employees as well as professional and consulting fees.

The intangible assets are amortized on a straight-line basis over their estimated useful lives, as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except years):

Acquisition Date Fair Value Weighted Average Estimated Useful Life (in years)

Developed technology $ 30,200 5.7

Customer relationships 28,700 7.0

Trade name 3,400 3.0

Total intangible assets acquired $ 62,300

The changes in the carrying values of goodwill for the three and nine months ended September 30, 2022 are as follows (in thousands):

Balance at December 31, 2021 $ 188,397

Additions related to the acquisition completed in January 2022 28,518

Balance at March 31, 2022 $ 216,915

Additions related to the acquisition completed in June 2022 56,530

Measurement-period adjustments 49

Balance at June 30, 2022 $ 273,494

Measurement-period adjustments ( 2,476 )

Balance at September 30, 2022 $ 271,018

The purchase price allocation for one of the acquisitions has been finalized, while for the other acquisition it is still subject to continuing management analysis.

No changes were made to the purchase price allocation for the three months ended March 31, 2023.

No changes were made to the carrying values of goodwill for the three months ended March 31, 2023.

Acquisition-Related Intangible Assets

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December 31, 2022

Additions September 30, 2022 December 31, 2021

Amortization September 30, 2022 December 31, 2021

September 30, 2022

Additions March 31, 2023 December 31, 2022

Amortization March 31, 2023 December 31, 2022

March 31, 2023

Developed technology $ 154,930 $ — $ 154,930 $ ( 79,036 ) $ ( 6,820 ) $ ( 85,856 ) $ 75,894 $ 69,074 4.3

3 unchanged sentences

Total $ 227,660 $ — $ 227,660 $ ( 105,455 ) $ ( 9,315 ) $ ( 114,770 ) $ 122,205 $ 112,890 4.6

Amortization expense related to acquisition-related intangible assets was $ 9.3 million, and $ 7.3 million for the three months ended September 30, 2022 and 2021, and $ 24.3 million and $ 22.1 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):

Amortization expense related to acquisition-related intangible assets was $ 9.3 million, and $ 7.3 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):

Future Amortization Expense

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In addition, we purchase strategic component inventory from certain suppliers under non-cancellable purchase commitments, including integrated circuits, which are consigned to our contract manufacturers.

As of September 30, 2022, we had non-cancellable purchase commitments of $ 4.3 billion, of which $ 3.1 billion have confirmed receipt dates within 12 months, and $ 1.2 billion have confirmed receipt dates greater than 12 months.

As of March 31, 2023, we had non-cancellable purchase commitments of $ 2.9 billion, of which $ 2.4 billion have confirmed receipt dates within 12 months, and $ 0.5 billion have confirmed receipt dates greater than 12 months.

These open purchase orders are considered enforceable and legally binding, and while we may have some limited ability to reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services, this can only occur with the agreement of the related supplier.

We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 124.7 million and $ 49.1 million as of September 30, 2022 and December 31, 2021, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the condensed consolidated balance sheets.

We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 246.7 million and $ 192.5 million as of March 31, 2023 and December 31, 2022, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the condensed consolidated balance sheets.

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.

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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, 2022, provisions recorded for contingent losses related to other claims and matters have not been significant.

As of March 31, 2023, 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;

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Stock Repurchase Program

In April 2019, our board of directors authorized a $ 1.0 billion stock repurchase program (the "Repurchase Program").

This authorization allowed us to repurchase shares of our common stock over three years , and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021.

In the fourth quarter of 2021, our board of directors authorized an additional $ 1.0 billion stock repurchase program (the “New Repurchase Program”), which allows us to repurchase shares of our common stock to be funded from working capital.

Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing.

The New Repurchase Program commenced in November 2021 and expires on the three-year anniversary thereof.

The New Repurchase Program does not obligate us to acquire any of our common stock, and may be suspended or discontinued by us at any time without prior notice.

As of September 30, 2022, the remaining authorized amount for stock repurchases under this program was approximately $ 259.6 million.

A summary of the stock repurchase activity under the New Repurchase Program for the nine months ended September 30, 2022 is as follows (in thousands, except per share amounts):

Nine Months Ended

September 30, 2022

Our board of directors has authorized a $ 1.0 billion stock repurchase program (the “Repurchase Program”).

This authorization allows us to repurchase shares of our common stock that will be funded from working capital and expires in the fourth quarter of 2024.

The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by the company at any time without prior notice.

As of March 31, 2023, the remaining authorized amount for stock repurchases under the Repurchase Program was approximately $ 174.5 million.

A summary of the stock repurchase activity under the New Repurchase Program for the three months ended March 31, 2023 is as follows (in thousands, except per share amounts):

Three Months Ended

March 31, 2023

Aggregate purchase price $ 82,275

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The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3 % of the outstanding shares of our common stock on the immediately preceding December 31, but not to exceed 50,000,000 shares (the “2014 Plan Evergreen Increase”), unless our board of directors, in its discretion, determines to make a smaller increase.

Effective January 1, 2022, our board of directors authorized an increase of 9,230,434 shares to the shares available for issuance under the 2014 Plan.

As of September 30, 2022, there remained approximately 93.4 million shares available for issuance under the 2014 Plan.

Effective January 1, 2023, our board of directors authorized an increase of 9.2 million shares to the shares available for issuance under the 2014 Plan.

As of March 31, 2023, there remained approximately 99.4 million shares available for issuance under the 2014 Plan.

2014 Employee Stock Purchase Plan

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The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1 % of our shares outstanding on the immediately preceding December 31, but not to exceed 10,000,000 shares, unless our board of directors, in its discretion, determines to make a smaller increase.

Effective January 1, 2022, our board of directors authorized an increase of 3,076,811 shares to the shares available for issuance under the ESPP.

During the nine months ended September 30, 2022, we issued 485,303 shares at a weighted-average purchase price of $ 50.37 per share under the ESPP.

As of September 30, 2022, there remained approximately 20.6 million shares available for issuance under the ESPP.

Effective January 1, 2023, our board of directors authorized an increase of 3.1 million shares to the shares available for issuance under the ESPP.

During the three months ended March 31, 2023, we issued 139,758 shares at a weighted-average purchase price of $ 102.66 per share under the ESPP.

As of March 31, 2023, there remained approximately 23.5 million shares available for issuance under the ESPP.

Stock Option Activities

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Options canceled ( 1 ) 9.26

Balance—September 30, 2022 6,570 $ 13.19 2.1 $ 654,987

Vested and exercisable—September 30, 2022 5,759 $ 10.91 1.8 $ 587,246

Balance—March 31, 2023 4,636 $ 15.65 1.9 $ 705,637

Vested and exercisable—March 31, 2023 4,225 $ 13.43 1.6 $ 652,547

Restricted Stock Unit (RSU) Activities

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RSUs forfeited/canceled ( 86 ) 94.48

Unvested balance—September 30, 2022 8,895 $ 83.91 1.8 $ 1,004,214

Unvested balance—March 31, 2023 8,118 $ 89.89 1.7 $ 1,362,671

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense related to our equity awards (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Cost of revenue $ 2,975 $ 1,309

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Total stock-based compensation $ 62,881 $ 50,279

As of September 30, 2022, there were $ 667.1 million of unamortized compensation costs related to all unvested awards.

As of March 31, 2023, there were $ 602.9 million of unamortized compensation costs related to all unvested awards.

The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 3.2 years.

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The following table sets forth the computation of our basic and diluted net income per share (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 (1) 2022 2021 (1)

Three Months Ended March 31,

Net income $ 436,473 $ 272,259

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Diluted $ 1.38 $ 0.85

(1) Prior periods have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in November 2021.

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 (1) 2022 2021 (1)

Three Months Ended March 31,

Stock options and RSUs 21 64

Employee stock purchase plan 353 16

Total 587 60 483 368

(1) Prior periods have been adjusted to reflect the four -for-one stock split effected in the form of a stock dividend in November 2021.

Income Taxes (in thousands, except percentages)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Income before income taxes $ 496,724 $ 309,467

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Effective tax rate 12.1 % 12.0 %

The increase in the effective tax rates in the three and nine months ended September 30, 2022, as compared to the same periods in 2021, was primarily due to a decrease in the proportion of tax benefits attributable to stock-based compensation versus total pre-tax income.

Our provision for income taxes increased in the three months ended March 31, 2023, as compared to the same period in 2022, due to a corresponding increase in income before taxes, while our effective tax rate remained relatively stable over those same periods.

Geographical Information

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The following table represents revenue based on customers’ shipping addresses (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ 1,115,011 $ 664,377

Americas $ 977,674 $ 557,814 $ 2,487,106 $ 1,573,835

Europe, Middle East and Africa 128,316 134,805

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Total revenue $ 1,351,351 $ 877,066

(1) Includes $ 1.1 billion and $ 648.9 million revenue generated from the U.S.

for the three months ended March 31, 2023 and March 31, 2022, respectively.

Long-lived assets, net, excluding intercompany receivables, investments in subsidiaries, privately-held equity investments and deferred tax assets, by location are summarized as follows (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

United States $ 74,239 $ 71,540

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements