What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-08 compared with 2023-10-31 · 147 added, 169 removed, 403 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except par value)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

CURRENT ASSETS:

8 unchanged sentences

Goodwill 268,531 268,531

Investments 62,288 39,468

Operating lease right-of-use assets 58,888 53,390

Deferred tax assets 1,025,861 945,792

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Income taxes payable 107,179 95,751

Operating lease liabilities, non-current 48,044 43,964

Deferred revenue, non-current 665,328 591,000

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STOCKHOLDERS’ EQUITY:

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

310,972 and 306,890 shares issued and outstanding as of September 30, 2023 and December 31, 2022

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of March 31, 2024 and December 31, 2023

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of March 31, 2024 and December 31, 2023;

313,601 and 312,245 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid-in capital 2,185,149 2,108,331

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(Unaudited, in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Product $ 1,328,845 $ 1,172,094

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(Unaudited, in thousands)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net income $ 637,692 $ 436,473

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(Unaudited, in thousands)

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Common Stock Additional

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Comprehensive

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 312,245 $ 31 $ 2,108,331 $ 5,114,025 $ ( 3,328 ) $ 7,219,059

Net income — — — 637,692 — 637,692

Other comprehensive income, net of tax — — — — 2,042 2,042 — — — — 10,742 10,742

Other comprehensive loss, net of tax — — — — ( 8,601 ) ( 8,601 )

Stock-based compensation — — 77,215 — — 77,215

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Tax withholding paid for net share settlement of equity awards ( 98 ) — ( 25,541 ) — — ( 25,541 )

Common stock issued for business acquisition — — — — — — 32 — 2,331 — — 2,331

Balance at end of period 313,601 $ 31 $ 2,185,149 $ 5,689,064 $ ( 11,929 ) $ 7,862,315

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

Three Months Ended March 31, 2023

Common Stock Additional

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Comprehensive

Stockholders’

Equity Common Stock Additional

Paid-In Capital Retained

Earnings Accumulated

Comprehensive

Stockholders’

Shares Amount Shares Amount

Income (Loss) Total

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

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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

3 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Deferred income taxes ( 77,822 ) ( 71,153 )

Gain on strategic investments ( 18,699 ) ( 24,121 )

Loss on strategic investments — 5,571

Amortization (accretion) of investment premiums (discounts) ( 12,418 ) ( 4,220 )

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Purchases of property and equipment ( 9,395 ) ( 5,631 )

Cash paid for business combinations, net of cash acquired 1,799 ( 145,087 )

Investment in notes and privately-held companies ( 4,250 ) ( 12,691 )

Net cash provided by (used in) investing activities ( 350,497 ) 299,152

Investments in notes and privately-held companies ( 1,000 ) ( 250 )

Net cash used in investing activities ( 295,650 ) ( 21,747 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Property and equipment included in accounts payable and accrued liabilities 746 4,926

Common stock issued for business acquisition 2,331 4,049

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

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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 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 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, 2023, are not necessarily indicative of the results expected for the full fiscal year.

The results for the three months ended March 31, 2024, are not necessarily indicative of the results expected for the full fiscal year.

The condensed consolidated balance sheet as of December 31, 2023 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.

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Risks and Uncertainties

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 and Israel-Hamas conflicts, and the U.S.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, recession risks, and potential supply chain and other disruptions such as the Russia-Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea and the U.S.

trade war with China.

Our business is emerging from a period of unprecedented global supply chain disruptions.

Throughout this period, we made significant supply chain investments, including funding additional working capital and incremental purchase commitments in response to extended visibility to deployment plans from our customers.

We have worked 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.

Over time, the recovery of capacity should allow us to ship products against previously committed deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory.

On this basis, we expect some shipments against these deployment plans to extend into 2024.

As customer lead times reduce more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to somewhat shorter demand-planning horizons which has resulted in lower demand levels.

Given the shipment and order patterns described above, near term revenue trends may not be reflective of current demand levels, but will benefit from deployment plans that had been previously committed.

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 shorten.

Although these elevated inventory positions and purchase commitments are largely related to

relatively early life cycle products, the larger magnitude of these balances, combined with a reduction in customer demand-planning horizons, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in the need for us to incur excess and obsolete inventory-related charges.

Increased capacity has allowed us to ship products against previously committed demand/deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory and to some extent balancing customer lead times with those currently experienced from our key suppliers.

As a result, some shipments against these previously committed demand/deployment plans have extended into 2024.

As the global supply chain has experienced some improvements and as customer lead times have been reduced from their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons resulting in lower demand levels.

Given these shipment and order patterns, near

term revenue trends may not be solely reflective of current demand levels, but as discussed above will benefit from demand/deployment plans that had been previously committed.

While inventory and working capital levels may remain elevated in the near term, we expect that purchase commitments will begin to level off as supplier lead times shorten, but will remain volatile as we ramp new product introductions.

The larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in additional excess and obsolete inventory and supplier liability charges.

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.

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While we have seen 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 recent conflicts between Russia-Ukraine, continued escalation of this conflict as well as the Israeli-Hamas conflict may negatively impact the global economy and our future operating results and financial condition.

In addition, although our business has experienced limited disruption as a result of the Russia-Ukraine conflict, continued escalation of this conflict as well as the Israeli-Hamas conflict and Houthi movement in the Red Sea may negatively impact the global economy and our future operating results and financial condition.

Management continues to actively monitor the impact of 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 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 some of our customers, following a year of elevated purchases, must now consider changing technology roadmaps and priorities, including the need for the rapid deployment of AI and related technologies, resulting in some uncertainty as to future investment plans and a more constrained approach to some forecasts and orders in the near term.

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

We also believe that some of our customers, following a year of elevated purchases, must now consider changing technology roadmaps and priorities, including the need for the deployment of AI and related technologies, resulting in some uncertainty as to future investment plans and a more constrained approach to some forecasts and orders in the near term.

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, particularly in the enterprise market where we are continuing to expand our penetration.

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

Accordingly, current results and financial conditions 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.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures.

The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold.

Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued.

The amendments should be applied on a prospective basis although retrospective application is permitted.

As of March 31, 2024, we have not early adopted ASU 2023-09 and we are currently evaluating the impact of future adoption on our financial disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures.

The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.

The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

As of March 31, 2024, we have not early adopted ASU 2023-07 and we are currently evaluating the impact of future adoption on our financial disclosures.

Fair Value Measurements

Assets measured at fair values on a recurring basis

We measure and report our cash equivalents, restricted cash, marketable equity securities and available-for-sale debt securities at fair value on a recurring basis.

We measure and report our cash equivalents, restricted cash, and available-for-sale marketable securities at fair value on a recurring basis.

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, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

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Commercial paper — 8,980 — 8,980 — 1,999 — 1,999

Corporate bonds — 1,988 — 1,988 — — — —

government notes 310,801 — — 310,801 — — — —

Agency securities — — — — — 17,559 — 17,559

1,345,826 10,968 — 1,356,794 1,015,705 1,999 — 1,017,704

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Agency securities — 550,283 — 550,283 — 657,379 — 657,379

Marketable equity securities (2)

1,236,709 2,120,888 — 3,357,597 1,044,859 2,024,503 — 3,069,362

901,551 1,805,234 — 2,706,785 1,013,016 1,339,006 — 2,352,022

Other Assets:

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______________________________________

(1) As of September 30, 2023 and December 31, 2022, all of our certificates of deposits were domestic deposits.

(2) During the three months ended September 30, 2023, the Company sold all its shares of marketable equity securities for $ 23.9 million.

This publicly-traded equity investment generated a realized loss of $ 1.0 million and an unrealized gain of $ 5.8 million for the three and nine months ended September 30, 2023, respectively.

The initial cost of this investment was $ 3.0 million with no changes since our initial investment.

The cumulative gain from the initial purchase was $ 20.9 million, the majority of which has been reflected in prior periods as net unrealized gains.

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

Refer to Note 3.

Financial Statements Details.

During the three and nine months ended September 30, 2023, the Company did not make any transfers between the levels of the fair value hierarchy.

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

During the three months ended March 31, 2024, 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, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

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Given the short-term and conservative nature of our portfolio, our debt securities are generally not subject to credit risk;

therefore, we did not recognize any credit losses or non-credit-related impairments related to such securities for the three and nine months ended September 30, 2023.

therefore, we did not recognize any credit losses or non-credit-related impairments related to

such securities for the three months ended March 31, 2024.

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

Realized gains or losses were immaterial for the three and nine months ended September 30, 2023.

Realized gains or losses were immaterial for the three months ended March 31, 2024.

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

September 30, 2023

March 31, 2024

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

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Total $ 2,486,053 $ ( 7,756 ) $ 78,324 $ ( 251 ) $ 2,564,377 $ ( 8,007 )

As of September 30, 2023, we had no marketable debt securities with contractual maturities that exceed 24 months.

As of March 31, 2024, we had no marketable debt securities with contractual maturities that exceeded 24 months.

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

September 30, 2023

March 31, 2024

Due in 1 year or less $ 1,774,688

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Total debt securities $ 3,357,597

The weighted-average remaining duration of our marketable debt securities is approximately 0.9 years as of September 30, 2023.

The weighted-average remaining duration of our marketable debt securities is approximately 0.9 years as of March 31, 2024.

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.

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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 for our non-marketable equity securities during the three and nine months ended September 30, 2023 and September 30, 2022, and w e recorded an immaterial amount of realized and unrealized losses for the three and nine months ended September 30, 2023 and September 30, 2022 .

Unrealized gains f or our non-marketable equity securities are summarized below (in thousands):

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

2023 2022 2023 2022

Unrealized gains on non-marketable equity securities (1)

$ 500 $ 1,681 $ 13,901 $ 16,681

(1) These unrealized gains were recorded on investments that were re-measured to fair value as of the date observable transactions occurred.

We did not record any realized or unrealized gains, or realized losses for our non-marketable equity securities during the three months ended March 31, 2024 and March 31, 2023, and w e recorded nil and an immaterial amount of unrealized losses for the three months ended March 31, 2024 and March 31, 2023, respectively .

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 non-marketable equity securities .

The following table summarizes the activity related to our non-marketable equity securities as of September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023 December 31, 2022

The following table summarizes the activity related to our non-marketable equity securities as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Cost of investments $ 32,656 $ 31,656

$ 31,656 $ 23,625

Cumulative impairment and downward adjustment — —

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Carrying amount of investments $ 63,288 $ 62,288

(1) During the nine months ended September 30, 2023, we had an $ 8.0 million convertible note previously included in other assets, plus accrued interest of $ 0.6 million, that was converted to an equity investment and included in cost of investments.

Financial Statements Details

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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, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 2,092,101 $ 1,938,606

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Accounts receivable $ 1,098,983 $ 1,034,480

Allowance for doubtful accounts ( 2,485 ) ( 19 )

Product sales rebate and returns reserve ( 8,942 ) ( 9,911 )

1 unchanged sentence

Inventories consist of the following (in thousands):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Raw materials $ 979,947 $ 930,777

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Total inventories $ 2,025,204 $ 1,945,180

Prepaid Expenses and Other Current Assets

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

September 30, 2023 December 31, 2022

Inventory deposits $ 198,369 $ 162,047

Other current assets 274,114 152,170

Total prepaid expenses and other current assets $ 472,483 $ 314,217

Property and Equipment, net

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Land $ 45,160 $ 44,645

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Property and equipment, net $ 97,949 $ 101,580

Depreciation expense was $ 8.6 million and $ 6.9 million for the three months ended September 30, 2023 and 2022, respectively, and $ 23.5 million and $ 18.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Depreciation expense was $ 8.6 million and $ 7.1 million for the three months ended March 31, 2024 and 2023, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Accrued compensation-related costs $ 62,920 $ 134,225

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Contract liabilities, beginning balance $ 133,239 $ 103,448

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Contract liabilities, ending balance $ 139,618 $ 105,047

As of September 30, 2023 and December 31, 2022, $ 52.5 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.

As of March 31, 2024 and December 31, 2023, $ 59.4 million and $ 59.2 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

Deferred revenue is comprised mainly of unearned revenue related to multi-year post-contract support ("PCS") contracts, services and product deferrals related to acceptance clauses.

Deferred revenue is comprised mainly of unearned revenue related to multi-year post-contract support ("PCS") contracts, services and product deferrals related to contracts with acceptance clauses.

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Deferred revenue, beginning balance

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Other Performance Obligations

Other performance obligations totaling $ 820.3 million as of September 30, 2023 include unbilled multi-year PCS and service contract amounts of $ 313.2 million and $ 507.1 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Other performance obligations totaling $ 809.0 million as of March 31, 2024 include unbilled multi-year PCS and service contract amounts of $ 543.5 million and $ 265.5 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Revenue from Total Remaining Performance Obligations

T otal revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods amounts to $ 2.1 billion.

Included in this amount is the $ 507.1 million of binding contractual agreements related primarily to future product shipments that are expected to be recognized as revenue over the next two years .

In addition, approximately 76 % of the remaining $ 1.6 billion of this future revenue is expected to be recognized over the next two years and approximately 24 % is expected to be recognized during the third to the fifth year.

T otal revenue from our contract liabilities, deferred revenue and other performance obligations that is expected to be recognized in future periods amounts to $ 2.6 billion as of March 31, 2024.

A pproximately 79 % of this future revenue is expected to be recognized over the next two years and the remaining 21 % 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,

2023 2022 2023 2022

Three Months Ended March 31,

Interest income $ 63,823 $ 22,509

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Acquisition, Goodwill and Acquisition-Related Intangible Assets

We had no material business acquisitions during the nine months ended September 30, 2023.

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 purchase price allocation for the two acquisitions have been finalized.

No changes were made to the purchase price allocation for the three and nine months ended September 30, 2023.

No material changes were made to the carrying values of goodwill for the three and nine months ended September 30, 2023.

We had no business acquisitions during the three months ended March 31, 2024 and 2023.

No changes were made to the carrying values of goodwill for the three months ended March 31, 2024 and 2023.

Acquisition-Related Intangible Assets

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December 31, 2023

Additions September 30, 2023 December 31, 2022

Amortization September 30, 2023 December 31, 2022

September 30, 2023

Additions March 31, 2024 December 31, 2023

Amortization March 31, 2024 December 31, 2023

March 31, 2024

Developed technology $ 154,930 $ — $ 154,930 $ ( 102,493 ) $ ( 4,194 ) $ ( 106,687 ) $ 52,437 $ 48,243 3.8

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Total $ 221,940 $ — $ 221,940 $ ( 133,172 ) $ ( 6,690 ) $ ( 139,862 ) $ 88,768 $ 82,078 4.0

Amortization expense related to acquisition-related intangible assets was $ 8.1 million and $ 9.3 million for the three months ended September 30, 2023 and 2022, respectively, and $ 26.7 million and $ 24.3 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, 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 $ 6.7 million and $ 9.3 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):

Future Amortization Expense

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Commitments and Contingencies

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

As of March 31, 2024, we had lease payment obligations, net of immaterial sublease income, of $ 65.9 million, with $ 23.7 million payable within one year.

Purchase Commitments

We outsource most of our manufacturing and supply chain management operations to third-party contract manufacturers, who procure components and assemble products on our behalf.

We outsource most o f our manufacturing and supply chain management operations to third-party contract manufacturers, who procure components and assemble products on our behalf.

A significant portion of our purchase orders to our contract manufacturers for finished products consists of non-cancellable purchase commitments.

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, 2023, we had non-cancellable purchase commitments of $ 2.0 billion, of which $ 1.7 billion have expected receipt dates within 12 months, and $ 0.3 billion have expected receipt dates greater than 12 months.

As of March 31, 2024, we had non-cancellable purchase commitments not recorded on our balance sheet of $ 1,457.7 million, of which $ 1,425.1 million have expected receipt dates within 12 months, and $ 32.6 million have expected 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 $ 201.1 million and $ 192.5 million as of September 30, 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 also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 131.8 million and $ 133.3 million as of March 31, 2024 and December 31, 2023, 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, 2023, provisions recorded for contingent losses related to other claims and matters have not been significant.

As of March 31, 2024, 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;

however, litigation is subject to inherent uncertainties and our view of these matters may change in the future.

Were an unfavorable outcome to occur, there exists the possibility of a material adverse

impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

Stockholders’ Equity and Stock-Based Compensation

Stock Repurchase Program

In October 2021, our board of directors 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.

In October 2021, our board of directors authorized a $ 1.0 billion stock repurchase program (the “Existing Repurchase Program”).

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

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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), or a combination of the foregoing.

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 September 30, 2023, the remaining authorized amount for stock repurchases under the Repurchase Program was approximately $ 144.5 million.

We did not repurchase any shares during the three months ended September 30, 2023.

A summary of the stock repurchase activity under the Repurchase Program for the nine months ended September 30, 2023 is as follows (in thousands, except per share amounts):

Nine Months Ended

September 30, 2023

The Existing 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, 2024, the remaining authorized amount for stock repurchases under the Existing Repurchase Program was approximately $ 82.0 million.

In April 2024, we repurchased the remaining $ 82.0 million of our common stock authorized under the Existing Repurchase Program.

A summary of the stock repurchase activity under the Existing Repurchase Program for the three months ended March 31, 2024 is as follows (in thousands, except per share amounts):

Three Months Ended

March 31, 2024

Aggregate purchase price $ 62,653

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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 million shares, unless our board of directors, in its discretion, determines to make a smaller increase.

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 September 30, 2023, there remained approximately 96.5 million shares available for issuance under the 2014 Plan.

As of March 31, 2024, there remained approximately 84.8 million shares available for grant under the 2014 Plan.

The 2014 Plan (the “Existing Plan”) expired on April 17, 2024, and our board of directors have approved the amendment, restatement and extension of the 2014 Plan (the “Restated Plan”), reducing the number of shares available for future grants, subject to the approval of our stockholders at our 2024 Annual Meeting of Stockholders on June 7, 2024.

Refer to Note 10 Subsequent Events of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10Q for future discussion.

2014 Employee Stock Purchase Plan

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Effective January 1, 2024, our board of directors authorized an increase of 3.1 million shares to the shares available for issuance under the ESPP.

During the nine months ended September 30, 2023, we issued 279,498 shares at a weighted-average purchase price of $ 105.69 per share under the ESPP.

As of September 30, 2023, there remained approximately 23.4 million shares available for issuance under the ESPP.

During the three months ended March 31,

2024, we issued 140,162 shares at a weighted-average purchase price of $ 114.40 per share under the ESPP.

As of March 31, 2024, there remained approximately 26.4 million shares available for issuance under the ESPP.

Stock Option Activities

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Options canceled ( 24 ) 20.07

Balance—September 30, 2023 3,073 $ 18.56 1.8 $ 508,139

Vested and exercisable—September 30, 2023 2,799 $ 16.61 1.5 $ 468,286

Balance—March 31, 2024 1,754 $ 22.32 1.8 $ 469,404

Vested and exercisable—March 31, 2024 1,629 $ 20.98 1.6 $ 438,107

Restricted Stock Unit (RSU) Activities

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Average Grant

Date Fair Value Per Share Weighted-Average

Contractual Term (in years) Aggregate Intrinsic Value

Date Fair Value Per Share

Unvested balance—December 31, 2023 7,900 $ 112.76

RSUs granted 2,575 156.34

RSUs vested ( 2,166 ) 78.49

RSUs forfeited/canceled ( 235 ) 98.72

Unvested balance—September 30, 2023 8,534 $ 109.13 1.9 $ 1,569,587

RSUs and PRSUs granted 508 262.15

RSUs and PRSUs vested ( 855 ) 96.35

RSUs and PRSUs forfeited/canceled ( 195 ) 106.54

Unvested balance—March 31, 2024 7,358 $ 125.15

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,

2023 2022 2023 2022

Three Months Ended March 31,

Cost of revenue $ 3,450 $ 2,975

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Total stock-based compensation $ 77,215 $ 62,881

As of September 30, 2023, there were $ 804.3 million of unamortized compensation costs related to all unvested awards.

As of March 31, 2024, there were $ 746.0 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 3.6 years.

Net Income Per Share

Basic net income per share is computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding during the period, including potential common shares assuming the dilutive effect of outstanding stock options, restricted stock units, and the employee stock purchase plan using the treasury stock method.

Potential common shares whose

effect would have been antidilutive are excluded from the computation of diluted net income per share.

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,

2023 2022 2023 2022

Three Months Ended March 31,

Net income $ 637,692 $ 436,473

Weighted-average shares used in computing net income per share, basic 310,185 304,931 308,602 306,576

Basic weighted-average shares outstanding 313,032 306,985

Add weighted-average effect of dilutive securities:

Employee equity awards 6,833 8,593

Weighted-average shares used in computing net income per share, diluted 317,631 314,401 316,564 316,745

Diluted weighted-average shares outstanding 319,865 315,578

Net income per share:

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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,

2023 2022 2023 2022

Stock options and RSUs 4 292 191 379

Employee stock purchase plan 25 295 150 104

Total 29 587 341 483

Three Months Ended March 31,

Employee equity awards 166 374

Income Taxes (in thousands, except percentages)

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

2023 2022 2023 2022

Three Months Ended March 31,

Income before income taxes $ 722,761 $ 496,724

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Effective tax rate 11.8 % 12.1 %

The decrease in the effective tax rates in the three and nine months ended September 30, 2023, as compared to the same periods in 2022, was primarily due to an increase in tax benefits attributable to stock-based compensation.

The decrease in the effective tax rates in the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to a favorable change in the jurisdictional mix of earnings.

Geographical Information

1 unchanged sentence

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

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

2023 2022 2023 2022

Three Months Ended March 31,

$ 1,255,391 $ 1,115,011

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(1) Includes $ 1,232.8 million and $ 1,094.6 million revenue generated from the U.S.

for the three months ended September 30, 2023 and September 30, 2022, respectively, and $ 3,366.8 million and $ 2,456.8 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

for the three months ended March 31, 2024 and March 31, 2023, 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, 2023 December 31, 2022

March 31, 2024 December 31, 2023

United States $ 76,782 $ 79,728

1 unchanged sentence

Total $ 97,949 $ 101,580

Subsequent Events

Stock Repurchases

On May 3, 2024, our board of directors authorized a new $ 1.2 billion stock repurchase program (the “New Repurchase Program”, together with the “Existing Repurchase Program,” the “Repurchase Programs”), which commences in May 2024 and expires in May 2027.

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

In April 2024, we repurchased an additional $ 82.0 million shares of our common stock which completed our repurchases under the Existing Repurchase Program.

The Repurchase Programs do not obligate Arista to acquire any of its common stock, and may be suspended or discontinued by the company at any time without prior notice.

Equity Incentive Plan

On April 17, 2024, our board of directors, acting upon the recommendation of the Compensation Committee of our board of directors, adopted an amendment, restatement and extension of the Arista Networks, Inc.

2014 Equity Incentive Plan (the “Restated Plan”), effective April 17, 2024 (the “Effective Date”), subject to approval of our stockholders at our 2024 Annual Meeting of Stockholders.

The Restated Plan provides for the grant of equity-based awards, including stock options, restricted stock units, restricted stock, stock appreciation rights, and performance awards.

The share pool available under the prior version of our 2014 Equity Incentive Plan (the “Prior Plan”) was extinguished as of the Effective Date, and the Restated Plan provides for a new share pool not to exceed (i) 13,200,000 shares of our Common Stock (“Shares”), plus (ii) any Shares subject to awards under the Prior Plan that, on or after the Effective Date, expire or otherwise terminate without having been exercised in full, or that are forfeited to or repurchased by us, including net settlement of Shares subject to restricted stock units, with the maximum number of Shares to be added to the Restated Plan as a result of clause (ii) equal to 10,039,657 Shares.

The Restated Plan’s terms are substantially similar to the Prior Plan’s terms, including with respect to treatment of equity awards in the event of a “change in control” as defined under the Restated Plan, but with certain modifications, including the elimination of the automatic “evergreen” share reserve increase provided for under the Prior Plan.

The Restated Plan will be subject to approval of our stockholders at the 2024 Annual Meeting of Stockholders.

If stockholder approval of the Restated Plan is not obtained at the 2024 Annual Meeting of Stockholders, then any award granted under the Restated Plan will be forfeited.

In accordance with New York Stock Exchange Listing Rule 303A.08, no Shares underlying awards granted on or after the Effective Date shall be issued until stockholder approval is obtained.

The foregoing description of the Restated Plan is not complete and is qualified in its entirety by reference to the full text thereof, a copy of which is attached as Exhibit 3.1 to our Current Report on Form 8-K filed on April 23, 2024 .

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