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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-01 · 82 added, 91 removed, 138 unchanged (56% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Arista Networks pioneered data-driven, cognitive cloud networking for large-scale data center and campus workspace environments.

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

We are a leader in cloud networking solutions delivering high performance, scalability, availability, programmability, workload orchestration, automation and visibility.

In recent years, we have sought to bring the operational consistency and principles of cloud networking to the broader enterprise and campus markets with our cognitive cloud networking approach, extending EOS across the enterprise data center and campus wired and wireless workspaces.

Arista Networks is an industry leader in data-driven, cognitive cloud networking for next-generation data center and campus workspace environments.

At the core of Arista's platform is our EOS software, combined with a set of network applications and our Ethernet switching and routing products using merchant silicon, delivering a cloud networking solution with high performance scale and availability, and enabling network automation, visibility, and security.

This flexible EOS-based platform provides customers with improved price/performance and accelerated time to market.

We generate revenue primarily from sales of our switching and routing platforms, which incorporate our EOS software, and related network applications.

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As of December 31, 2022, we had delivered our cloud networking solutions to over 9,000 end customers worldwide.

Our end customers span a range of industries and include large internet companies, service providers, financial services organizations, government agencies, media and entertainment companies, and others.

Historically, large purchases by a relatively limited number of end customers have accounted for a significant portion of our revenue.

We have experienced unpredictability in the timing of orders from these large end customers primarily due to changes in demand patterns specific to these customers, the time it takes these end customers to evaluate, test, qualify and accept our products, and the overall complexity of these large orders.

For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2019 collectively represented 40% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 and 2021 amounted to 21.5% and 15.0% of our revenues, respectively, with our end customer Meta Platforms representing less than 10% of our revenues in both fiscal 2020 and 2021.

In addition, we have experienced and expect the collective revenue contribution from these same customers to return to more elevated levels during fiscal 2022 as they broadly adopt our newer 400 GbE and related networking products.

We have experienced unpredictability in the timing of or ders from these large end customers primarily due to the time it takes these end customers to evaluate, test, qualify and accept our newer products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.

For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2022 represented 16% and 26% of our total revenue, respectively, whereas sales to our end customer Microsoft in fiscal 2020 and 2021 amounted to 22% and 15% of our total revenue, respectively, with our end customer Meta Platforms representing less than 10% of our total revenue in both fiscal 2020 and 2021.

This variability in customer concentration has been linked to the timing of new product deployments and spending cycles with these customers, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.

Furthermore, we typically provide pricing discounts to large end customers, which may result in lower margins for the period in which such sales occur.

In addition, some of our large customers have announced various cost reduction measures, including optimization and increased efficiency in their capital expenditures.

In some instances, such measures have had, or may have, an impact on certain current or future projects and have reduced our visibility to customer demand, which may result in reductions in future demand and negatively impact our revenue.

Furthermore, we typically provide pricing discounts to large end customers, which reduces gross margins for the period in which such sales occur.

We believe that cloud computing represents a fundamental shift from traditional legacy network architectures.

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Macroeconomic Update

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

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

trade war with China.

Our manufacturing and supply chain operations continue to experience significant constraints, with component shortages, increased component and supply chain costs and delays broadly impacting the industry as a whole.

We continue to work closely with our contract manufacturers and supply chain partners who have experienced delays in component sourcing, workforce disruptions and governmental restrictions on the production and export of their products.

Although we have worked diligently to drive improvements in these areas, including funding additional working capital and incremental purchase commitments, these delays have negatively impacted our ability to supply products to our customers on a timely basis.

We have extended our demand planning horizon, increased our purchase commitments and expect to continue to invest in working capital to address delays in component sourcing and the risk of future supply chain disruptions, but we cannot be certain that such delays or disruptions will not occur.

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.

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.

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.

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 are uncertain and cannot be predicted;

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

We also believe that any extended or renewed economic disruptions or deterioration in the global economy could have a negative impact on demand from our customers in future periods.

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.

Results of Operations

Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Revenue, Cost of Revenue and Gross Margin (in thousands, except percentages)

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

2022 2021 Change in 2022 2021 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2023 2022 Change in

Product $ 1,172,094 $ 724,718 $ 447,376 61.7 %

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Revenue by Geography (in thousands, except percentages)

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

2022 % of Total 2021 % of Total 2022 % of Total 2021 % of Total

Three Months Ended March 31,

2023 % of Total 2022 % of Total

Americas $ 1,115,011 82.5 % $ 664,377 75.7 %

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We expect our revenue may vary from period to period based on, among other things, the timing, size, and complexity of orders, especially with respect to our large end customers.

Product revenue increased $404.5 million, or 67.0%, and $909.4 million, or 53.2%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

These increases reflect strong demand for our switching and routing platforms from across our customer base, including healthy contributions from our large cloud customers.

Supply chain constraints continued to impact our revenue performance in these periods and while changes in product deferred revenue impacted the timing of revenue recognition on a quarterly basis, it was not a net contributor to revenue for the nine-month period ended September 30, 2022.

In addition, service revenue increased $23.6 million, or 16.3%, and $72.7 million, or 17.6%, in the three and nine months ended September 30, 2022, compared to the same periods in 2021, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

International revenues represented 16.9% and 19.9% o f total revenues in the three and nine months ended September 30, 2022, respectively, decreasing from 25.5% and 25.8% for the same periods in the prior year, which was primarily driven by increased purchases from large global customers in our Americas region.

We continued to experience competitive pricing pressure on our products and services.

Product revenue increased $447.4 million, or 61.7%, for the three months ended March 31, 2023 compared to the same period in 2022.

The increase reflects strong demand for our switching and routing platforms from across our customer base, in particular healthy contributions from our large cloud customers.

In addition, service revenue increased $26.9 million, or 17.7% for the three months ended March 31, 2023, compared to the same period in 2022, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

International revenue represented 17.5% o f total revenue for the three months ended March 31, 2023, decreasing from 24.3% for the same period in the prior year, which was primarily driven by increased purchases from large global customers in our Americas region.

Cost of Revenue and Gross Margin

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Cost of service revenue primarily consists of personnel and other costs associated with our global customer support and services organizations.

Cost of revenue increased $196.7 million, or 72.8%, and $433.2 million, or 56.6%, for the three and nine months

ended September 30, 2022, respectively, compared to the same periods in 2021.

These increases were primarily driven by a corresponding increase in product and service revenues, combined with an increase in material and logistics costs to mitigate supply chain constraints and to meet customer demand.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large end customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply chain sourcing activities, merchant silicon costs, and excess/obsolete inventory write-downs, including charges for excess/obsolete component inventory held by our contract manufacturers.

Cost of revenue increased by $223.6 million, or 69.2% for the three months ended March 31, 2023 compared to the same period in 2022.

These increases were primarily driven by a corresponding increase in product and service revenues,

combined with an increase in provisions for excess/obsolete inventory.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large end customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply chain sourcing activities, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete component inventory held by our contract manufacturers.

We expect our gross margin to fluctuate over time, depending on the factors described above.

Gross margin decreased from 63.9% to 60.3% for the three months ended September 30, 2022, and decreased from 64.0% to 61.4% for the nine months ended September 30, 2022, compared to the same periods in 2021.

The decrease in each period was primarily driven by an increased proportion of our sales to larger end customers who generally receive larger discounts and, increased material and logistics costs to mitigate supply chain constraints, partly offset by the impact of fixed overhead costs on a higher revenue base.

Gross margin decreased from 63.1% to 59.5% for the three months ended March 31, 2023 compared to the same periods in 2022.

The decrease was primarily driven by an increased proportion of our sales to large end customers who generally receive higher discounts and an increase in provisions for excess/obsolete inventory, partly offset by the leverage of fixed overhead costs on a higher revenue base.

In addition, our gross margins continue to be negatively impacted by significant material and logistics costs.

Operating Expenses (in thousands, except percentages)

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Personnel costs also include stock-based compensation and travel expenses.

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

2022 2021 Change in 2022 2021 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2023 2022 Change in

Operating expenses:

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We expect our research and development expenses to increase in absolute dollars as we continue to invest in software development in order to expand the capabilities of our cloud networking platform, introduce new products and features, and continue to invest in our technology.

Research and development expenses increased $34.7 million, or 22.7%, and $109.1 million, or 25.4%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

The increases were primarily driven by an increase in personnel costs of $25.1 million and $50.5 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021 due to headcount growth.

In addition, new product introduction costs increased by $5.5 million and $37.5 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

Research and development expenses increased $29.4 million, or 17.1% in the three months ended March 31, 2023 compared to the same period in 2022.

The increases were primarily driven by an increase in personnel costs of $22.1 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to headcount growth.

In addition, new product introduction costs increased by $7.0 million for the three months ended March 31, 2023 compared to the same period in 2022.

Sales and marketing

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We expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our sales and marketing efforts worldwide.

Sales and marketing expenses increased $11.7 million, or 16.7%, and $30.1 million, or 14.3%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, which was primarily caused by increased personnel costs driven by headcount growth.

Sales and marketing expenses increased $12.8 million, or 15.8% for the three months ended March 31, 2023 compared to the same period in 2022, which was primarily caused by increased personnel costs largely driven by headcount growth.

General and administrative

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Our professional services costs are primarily related to external legal, accounting and tax services.

General and administrative expenses increased $0.9 million, or 4.2%, and $10.6 million, or 17.9%, in the three and nine months ended September 30, 2022 compared to the same periods in 2021.

The increase in the nine months ended September 30, 2022 included an increase in personnel costs, and increased legal and professional fees, primarily driven by acquisitions during the first half of 2022.

General and administrative expenses increased $1.9 million, or 8.3% in the three months ended March 31, 2023

compared to the same period in 2022.

Other Income (Expense), Net (in thousands, except percentages)

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We expect other income (expense), net may fluctuate in the future as a result of the re-measurement of our equity investments upon the occurrence of observable price changes and/or impairments, changes in interest rates or returns on our cash and cash equivalents and marketable securities, and foreign currency exchange rate fluctuations.

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

2022 2021 Change in 2022 2021 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2023 2022 Change in

Other income (expense), net:

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Total other income (expense), net $ 12,146 $ 31,480 $ (19,334) (61.4) %

The movements in other income (expense), net, during the three and nine months ended September 30, 2022 as compared to the same periods in 2021 were driven by an increase in interest income due to higher interest rates.

In addition, we had unrealized gains of $24.1 million in the nine months ended September 30, 2022 related to our equity investments.

The movements in other income (expense), net, were driven by an unrealized loss on equity investments of $5.6 million in the three months ended March 31, 2023 compared to an unrealized gain of $28.5 million in the same period in 2022.

This decrease in income was partly offset by an increase in interest income of $20.1 million in the three months ended March 31, 2023 due to higher interest rates.

Provision for Income Taxes (in thousands, except percentages)

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Our tax expense to date consists of federal, state and foreign current and deferred income taxes.

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

2022 2021 Change in 2022 2021 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2023 2022 Change in

Income before income taxes $ 496,724 $ 309,467 $ 187,257 60.5 %

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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.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations.

As of September 30, 2022, our total balance of cash, cash equivalents and marketable securities was approximately $3.0 billion, of which approximately $436.8 million was held outside the U.S.

As of March 31, 2023, our total balance of cash, cash equivalents and marketable securities was approximately $3.3 billion, of which approximately $426.7 million was held outside the U.S.

in our foreign subsidiaries.

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If we require or elect to seek additional capital through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to us or at all.

If we are required and unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

we are required and unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

Cash Flows (in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash provided by operating activities $ 374,483 $ 217,138

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

Cash used in investing activities (21,747) (72,615)

Cash used in financing activities (68,403) (129,809)

Effect of exchange rate changes 314 (481)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 95,463 $ (262,236)

Net increase in cash, cash equivalents and restricted cash $ 284,647 $ 14,233

Cash Flows from Operating Activities

During the nine months ended September 30, 2022, cash provided by operating activities was $452.3 million, primarily from net income of $925.4 million and non-cash adjustments to net income of $66.7 million driven by stock-based compensation and depreciation and amortization, and partly offset by a net increase of $539.7 million in working capital requirements.

The increase in working capital requirements primarily consisted of a $449.8 million increase in inventory, $69.0 million increase in prepaid expenses and other current assets, and $17.9 million in other assets, which reflected increased inventory purchases and inventory deposits to contract manufacturers to mitigate supply chain constraints and meet customer demand.

In addition, accounts receivable increased by $129.9 million due to increased product and service billings.

These operating cash outflows were partially offset by a $73.5 million increase in accounts payable, and a $41.1 million increase in income tax payables.

During the nine months ended September 30, 2021, cash provided by operating activities was $790.6 million, primarily from net income of $601.6 million and non-cash adjustments to net income of $204.8 million driven by stock-based compensation and depreciation and amortization, and a net increase of $15.8 million in working capital requirements.

The increase in working capital requirements primarily consisted of a $96.0 million increase in inventory and a $71.3 million increase in prepaid expenses primarily due to prepaid income taxes and deferred product cost of revenue.

These cash outflows were largely offset by a $149.6 million increase in product and service deferred revenue driven by customer contracts with acceptance terms and growth in PCS contracts, and a $31.3 million increase in accrued liabilities due to additional supply chain and software development costs.

During the three months ended March 31, 2023, cash provided by operating activities was $374.5 million, primarily from net income of $436.5 million and non-cash adjustments to net income of $18.6 million driven by stock-based compensation and depreciation and amortization, largely offset by an increase in deferred taxes associated with the capitalization of research and development costs under IRC Section 174.

These increases were partly offset by a net increase of $80.6 million in working capital requirements, which primarily consisted of a $393.0 million increase in inventory and an $81.9 million increase in inventory deposits to our contract manufacturers in response to a significant increase in business volume and increased product lead times.

These operating cash outflows were largely offset by cash inflows from a $153.2 million increase in accounts payable and accrued liabilities and a $108.2 million increase in income tax payables related to significant business volume and timing of payments.

In addition, we had cash inflows resulting from a decrease in accounts receivable of $60.2 million driven by strong collections, and an increase in deferred revenue of $51.0 million primarily resulting from an increase in customer PCS contracts.

During the three months ended March 31, 2022, cash provided by operating activities was $217.1 million, primarily from net income of $272.3 million, reduced by non-cash adjustments to net income of $35.4 million, and a net increase of $19.7 million in working capital requirements.

Cash outflows from the increase in working capital requirements primarily consisted of a $131.9 million increase in accounts receivables due to increased product and service billings, a $108.0 million increase in prepaid and other current assets primarily driven by increased inventory deposits to our contract manufacturers and product deferred cost of sales driven by higher product revenue deferrals, and a $43.5 million increase in inventory to help mitigate the impact of supply chain disruptions.

These operating cash outflows were largely offset by a $187.2 million increase in deferred revenue reflecting ongoing growth from PCS contracts, and increased product deferred revenue related to contracts with acceptance terms, and a $107.0 million increase in income taxes payable due to timing of payments, the impact of IRC Section 174 and an increase in pre-tax income.

Cash Flows from Investing Activities

During the nine months ended September 30, 2022, cash provided by investing activities was $299.2 million, consisting of proceeds from sales and maturities of marketable securities of $1,464.6 million.

These amounts were partially offset by purchases of available-for-sale securities of $973.5 million, and purchases of property and equipment of $34.2 million.

During the nine months ended September 30, 2021, cash used in investing activities was $861.4 million, consisting of purchases of available-for-sale marketable securities of $1,974.9 million, and purchases of property and equipment of $55.5 million, partially offset by proceeds from maturities of marketable securities of $1,158.7 million and proceeds from sale of marketable securities of $19.6 million.

During the three months ended March 31, 2023, cash used in investing activities was $21.7 million, consisting of purchases of available-for-sale securities of $861.6 million, and purchases of property and equipment of $5.6 million.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $845.7 million.

During the three months ended March 31, 2022, cash used in investing activities was $72.6 million, primarily consisting of purchases of available-for-sale securities of $412.6 million, a business acquisition of $37.6 million, purchases of non-marketable equity investments of $11.7 million, and purchases of property and equipment of $14.9 million, partially offset by proceeds from maturities of marketable securities of $404.2 million.

Cash Flows from Financing Activities

During the nine months ended September 30, 2022, cash used in financing activities was $649.9 million, consisting of payments for repurchases of our common stock from the open market of $667.5 million, and employee taxes withheld and paid of $25.5 million upon vesting of restricted stock units, offset partially by proceeds from the issuance of common stock under employee equity incentive plans of $43.1 million.

During the nine months ended September 30, 2021, cash used in financing activities was $190.0 million, consisting of payments for repurchases of our common stock from the open market of $235.5 million, and employee taxes withheld and paid of $10.6 million upon vesting of restricted stock units, offset partially by proceeds from the issuance of common stock under employee equity incentive plans of $56.1 million.

During the three months ended March 31, 2023, cash used in financing activities was $68.4 million, consisting of payments for repurchases of our common stock from the open market of $82.3 million, and employee taxes withheld and paid of $9.2 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $23.1 million.

During the three months ended March 31, 2022, cash used in financing activities was $129.8 million, primarily consisting of payments for repurchases of our common stock from the open market of $136.2 million, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $19.2 million.

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").

This authorization allows us to repurchase shares of our common stock and will be funded from working capital.

The New Repurchase Program commenced in the fourth quarter of 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 the company at any time without prior notice.

During the quarter ended September 30, 2022, we repurchased a total of $47.6 million of our common stock.

As of September 30, 2022, the remaining authorized amount for repurchases under the New Repurchase Program was $259.6 million.

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.

During the three months ended March 31, 2023, we repurchased a total of $82.3 million of our common stock.

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

Refer to Note 6.

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We have operating lease arrangements for office space, data center, equipment and other corporate assets.

As of September 30, 2022, we had lease payment obligations, net of immaterial sublease income, of $77.3 million, with $24.7 million payable within 12 months.

As of March 31, 2023, we had lease payment obligations, net of immaterial sublease income, of $81.2 million, with $21.6 million payable within one year.

Purchase Obligations

Purchase obligations represent an estimate of all non-cancellable open purchase orders and contractual obligations, made either directly by Arista or by our contract manufacturers on our behalf, in the ordinary course of business for which we have not received the goods or services.

As of September 30, 2022, we had $4.3 billion of such purchase obligations, of which $3.1 billion are expected to be received within 12 months, and $1.2 billion are e xpected to be received after one year.

As of March 31, 2023 , we had $2.9 billion of such purchase obligations, of which $2.4 billion are expected to be received within one year, and $0.5 billion are expected to be received after one year.

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.

Accrued Income Taxes

In connection with the Tax Cuts and Jobs Act of 2017("TCJA"), we recorded a federal income tax payable for transition tax on the mandatory deemed repatriation of foreign earnings that will be payable over an eight-year period.

As of September 30, 2022, $6.3 million of long-term transition tax payable represents the remaining federal income tax payable due between one and three years.

In addition to the long-term transition tax payable, as of September 30, 2022, we have recorded long-term tax liabilities of $75.8 million relate d to uncertain tax positions;

As of March 31, 2023, we have recorded long-term tax liabilities of $90.8 million related to uncertain tax positions;

however, we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.

In addition, beginning in 2022, the TCJA eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to IRC Section 174.

While there is the potential for legislation that would defer the capitalization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.

Consequently, we estimate the incremental cash tax impact resulting from the

new regulations to be approximate ly $188.0 million for the year, of which the liability for the first nine months of 2022 has been paid as of September 30, 2022;

however, we do not anticip ate any material change to our effective tax rate.

In connection with the Tax Cuts and Jobs Act of 2017 (“TCJA”), effective from January 1 st 2022, the TCJA eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to IRC Section 174.

We estimate the incremental cash tax impact resulting from these regulations to be approximately $190.0 million for 2023.

No material change to our effective tax rate has resulted from this new legislation.

Off-balance Sheet Arrangements

As of September 30, 2022, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of March 31, 2023, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Estimates

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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 2. Management’s Discussion and Analysis