What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-08 · 82 added, 81 removed, 154 unchanged (51% of the section changed)

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Arista's platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack.

Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and

programmability with a focus on differentiating in three ways:

Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and programmability with a focus on differentiating in three ways:

uncompromising quality, advanced open and standards-based technology and a robust quality assurance capability built on a suite of automated diagnostics.

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Our customers span a range of industries and geographies including large cloud customers or hyperscalers, other internet providers, service providers, financial services organizations, government agencies and a cross section of enterprise customers.

Over the past five years, we have diversified the types of enterprise customers we sell to and have continued to expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil and gas, education, manufacturing, industrial, and more.

Over time, we have diversified the types of enterprise customers we sell to and have continued to expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil and gas, education, manufacturing, industrial, and more.

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

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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.

I n addition, an increased focus on the deployment of AI enabled solutions by these customers has accelerated the need for advanced technology offerings including some offerings from potential new market entrants.

This prioritization of AI related infrastructure investment has come in conjunction with the announcement of various cost reduction measures, including optimization and increased efficiency in non-AI related capital expenditures.

In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand, increased our risk of excess and obsolescence charges on existing products, and may result in reductions in future demand and negatively impact our revenue, financial condition, business or prospects.

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

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

We believe an increased focus on the deployment of AI enabled solutions by our large customers has accelerated the need for advanced technology offerings including some offerings from potential new market entrants.

This prioritization of AI related infrastructure investment has at times come in conjunction with the announcement of various cost reduction measures, including optimization and increased efficiency in non-AI related capital expenditures.

In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand and increased our risk of excess and obsolescence charges on existing products.

In addition, we expect 2024 to be a year of new product introductions and expanded use cases, particularly in the AI Ethernet market, resulting in increased customer trials and contracts with acceptance periods, and an increase in the variability and magnitude of our product deferred revenue balances.

Such measures may also result in a reduction or uncertainty in the timing of orders from these large customers and create variability in our revenue results on a quarterly and annual basis.

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

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Our future success is dependent upon our ability to continue to evolve and adapt to our rapidly changing environment.

We must also continue to develop market-leading products and features that address the needs of our existing and new customers, and increase sales in the enterprise data center switching, and campus workspace markets.

We must also continue to develop market-leading products and software features that address the changing needs of our existing and new customers, and increase sales in the cloud, AI and enterprise data center switching, and campus workspace markets.

We intend to continue expanding our sales force and marketing activities in key geographies, as well as our relationships with channel, technology and system-level partners in order to reach new customers more effectively, increase sales to existing customers, and provide services and support.

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We work closely with third-party contract manufacturers to manufacture our products.

Our contract manufacturers deliver our products to

our third-party direct fulfillment facilities.

Our contract manufacturers deliver our products to our third-party direct fulfillment facilities.

We and our fulfillment partners then perform labeling, final configuration, quality assurance testing and shipment to our customers.

Macroeconomic Update

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.

trade war with China and the outcome of the upcoming U.S.

presidential election.

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

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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.

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.

We expect that inventory and purchase commitments will begin to stabilize in the near term, but will remain volatile as we ramp new product introductions.

The 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 in additional excess and obsolete inventory and supplier liability charges.

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.

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.

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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.

We also believe that some of our customers 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.

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023

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

Three Months Ended March 31,

2024 2023 Change in

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 Change in 2024 2023 Change in

$ $ $ % $ $ $ %

Product $ 1,423,271 $ 1,261,537 $ 161,734 12.8 % $ 2,752,116 $ 2,433,631 $ 318,485 13.1 %

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Revenue by Geography (in thousands, except percentages)

Three Months Ended March 31,

2024 % of Total 2023 % of Total

Three Months Ended June 30, Six Months Ended June 30,

2024 % of Total 2023 % of Total 2024 % of Total 2023 % of Total

Americas $ 1,374,257 81.3 % $ 1,154,509 79.1 % $ 2,629,648 80.6 % $ 2,269,520 80.8 %

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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 customers.

Product revenue increased by $156.8 million, or 13.4% for the three months ended March 31, 2024, compared to the same period in 2023.

This increase reflects higher demand and shipments of our switching and routing platforms across our customer base, in particular a strong contribution from our enterprise customers.

In addition, service revenue increased by $63.3 million, or 35.3% for the three months ended March 31, 2024, compared to the same period in 2023, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

International revenue represented 20.1% of total revenue for the three months ended March 31, 2024, increasing from 17.5% for the same period in the prior year, which was primarily driven by a reduction in the mix of sales to our large global customers in the Americas region.

Product revenue increased by $161.7 million, or 12.8%, and $318.5 million, or 13.1% for the three and six months ended June 30, 2024, compared to the same periods in 2023.

This increase reflects healthy demand and higher shipments of our switching and routing platforms across our customer base.

In addition, service revenue increased by $69.7 million, or 35.3%, and $133.0 million, or 35.3% for the three and six months ended June 30, 2024, compared to the same periods in 2023, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

International revenue represented 18.7% and 19.4% of total revenue for the three and six months ended June 30, 2024,

changing from 20.9% and 19.2% for the same periods in the prior year, which was primarily driven by changes in the geographic mix of sales to our large global customers.

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 by $23.2 million, or 4.2% for the three months ended March 31, 2024, compared to the same period in 2023.

These increases were primarily driven by a corresponding increase in product and service revenues, partially offset by a decrease in logistics costs and excess/obsolete inventory and supplier liability charges.

chain sourcing activities, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete component inventory held by our contract manufacturers and suppliers.

Cost of revenue increased by $18.4 million, or 3.2%, and $41.5 million, or 3.7% for the three and six months ended June 30, 2024, compared to the same periods in 2023.

These increases were primarily dri ven by a corresponding increase in product and service revenues, offset by a reduction in net excess/obsolete inventory and supplier liability charges.

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 and suppliers.

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

Gross margin increased from 59.5% to 63.7% for the three months ended March 31, 2024, compared to the same period in 2023.

These changes reflect an improvement in product margins driven by a decrease in logistics costs and excess/obsolete inventory and supplier liability charges, combined with the leverage of fixed overhead costs on a higher revenue base, and a lower mix of revenue from our larger customers.

Gross margin increased from 60.6% to 64.9% for the three months ended June 30, 2024, and increased from 60.1% to 64.3% for the six months ended June 30, 2024, compared to the same periods in 2023.

These changes primarily reflect an improvement in product margins driven by lower net excess/obsolete inventory and supplier liability charges.

Operating Expenses (in thousands, except percentages)

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

Three Months Ended March 31,

2024 2023 Change in

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 Change in 2024 2023 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 by $7.0 million, or 3.5% for the three months ended March 31, 2024, compared to the same period in 2023.

The increase was primarily driven by an increase in personnel costs due to headcount growth, and partially offset by a decrease in new product introduction costs primarily due to timing of third-party engineering projects and deliverables.

Research and development expenses increased by $37.8 million, or 16.5%, and $44.8 million, or 10.4% for the three and six months ended June 30, 2024, compared to the same periods in 2023.

The increase was primarily driven by an increase in personnel costs due to headcount growth, and an increase in new product introduction costs.

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 by $11.6 million, or 12.4% for the three months ended March 31, 2024, compared to the same period in 2023, which was primarily driven by increased personnel costs due to headcount growth.

Sales and marketing expenses increased by $6.4 million, or 6.6%, and $18.0 million, or 9.4% for the three and six months ended June 30, 2024, compared to the same periods in 2023, which was primarily driven by increased personnel costs due to 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 by $2.7 million, or 10.9% for the three months ended March 31, 2024, compared to the same period in 2023, which was primarily attributable to an increase in personnel costs, in particular stock-based compensation.

General and administrative expenses decreased by $0.7 million, or 2.5% for the three months ended June 30, 2024 and increased by $2.1 million, or 4.0% for the six months ended June 30, 2024, compared to the same periods in 2023.

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

Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities, gains and losses on our marketable equity securities and strategic investments, and foreign currency transaction gains and losses.

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 either observable price changes 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 March 31,

2024 2023 Change in

Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities, gains and losses on our strategic investments, and foreign currency transaction gains and losses.

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 Change in 2024 2023 Change in

$ $ $ % $ $ $ %

Other income (expense), net:

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Total other income (expense), net $ 70,863 $ 56,339 $ 14,524 25.8 % $ 133,483 $ 68,485 $ 64,998 94.9 %

The favorable movement in other income (expense), net, during the three months ended March 31, 2024 compared to the same period in 2023 was primarily driven by increased interest income of $41.3 million due to an increase in our cash and investment balances, coupled with higher interest rates.

The improvement in other income during the three and six months ended June 30, 2024 compared to the same periods in 2023 was primarily driven by increased interest income of $39.2 million and $80.6 million due to an increase in our cash and investment balances coupled with higher investment yields, partly offset by a reduction in gains on strategic investments.

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 March 31,

2024 2023 Change in

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 Change in 2024 2023 Change in

$ $ $ % $ $ $ %

Income before income taxes $ 770,436 $ 586,401 $ 184,035 31.4 % $ 1,493,197 $ 1,083,125 $ 410,072 37.9 %

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Effective tax rate 13.6 % 16.1 % 12.7 % 14.3 %

The decrease in the effective tax rates for 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.

The decrease in the effective tax rates for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to an increase in tax benefits attributable to stock-based compensation.

Liquidity and Capital Resources

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

As of March 31, 2024, our total balance of cash, cash equivalents and marketable securities was approximately $5.45 billion, of which approximately $801.1 million was held outside the U.S.

As of June 30, 2024, our total balance of cash, cash equivalents and marketable securities was approximately $6.3 billion, of which approximately $1.1 billion was held outside the U.S.

in our foreign subsidiaries.

Our cash, cash equivalents and marketable securities are held for general business purposes, including the funding of working capital.

Our marketable securities investment portfolio is primarily invested in highly-rated securities, with the primary objective of minimizing the potential risk of principal loss.

Our marketable securities investment portfolio is primarily invested in highly-rated securities, with the primary

objective of minimizing the potential risk of principal loss.

We plan to continue to invest for long-term growth.

We believe that our existing balances of cash, cash equivalents and marketable securities, together with cash generated from operations, will be sufficient to meet our working capital requirements and our growth strategies for at least the next 12 months.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced product and service offerings, our costs associated with supply chain activities, including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or strategic businesses and technologies, the continued market acceptance of our products, stock repurchases, and capital expenditures, including the planned construction of an office for office and lab space.

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.

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Cash Flows (in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by operating activities $ 1,502,816 $ 808,573

Cash provided by (used in) investing activities (295,650) (21,747)

Cash used in investing activities (773,541) (124,653)

Cash used in financing activities (236,148) (97,635)

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Cash Flows from Operating Activities

During the three months ended March 31, 2024, cash provided by operating activities was $513.8 million, consisting of net income of $637.7 million, non-cash adjustments to net income of $7.2 million and offset by a net increase of $131.1 million in working capital requirements.

The non-cash adjustments to net income were driven by stock-based compensation and depreciation and amortization, largely offset by an increase in deferred taxes primarily due to the capitalization of research and development costs under Section 174 of the Internal Revenue Code ("IRC").

The increase in working capital requirements primarily consisted of a $343.8 million decrease in accounts payable and accrued liabilities primarily due to timing of inventory-related receipts and payments, an $80.0 million increase in inventory and an increase in accounts receivable of $65.5 million.

These cash outflows were partly offset by a $157.5 million increase in income tax payables related to timing of payments, and an increase in deferred revenue of $157.0 million primarily resulting from an increase in customer PCS contracts, partly offset by a reduction in product deferred revenue related to customer contracts with acceptance terms, and a $38.1 million decrease in prepaid and other assets.

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.

During the six months ended June 30, 2024, cash provided by operating activities was $1.5 billion, consisting of net income of $1.3 billion along with a net decrease in working capital requirements of $259.1 million, offset partially by non-cash adjustments to net income of $59.4 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $612.6 million resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, a $91.4 million decrease in inventory resulting from strong product shipments, and a $74.1 million increase in income tax payables, net related to timing of payments.

These cash inflows were partially offset by a $223.3 million decrease in accounts payable and accrued liabilities primarily due to timing of inventory-related receipts and payments, as well as a reduction in other accrued liabilities, an increase in accounts receivable of $202.2 million due to increased product and service billings, and a $92.6 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals and an increase in contract assets and other miscellaneous receivables.

The non-cash adjustments to net income were driven by a $228.5 million increase in deferred taxes primarily due to the increase in deferred revenue and the capitalization of research and development costs under Section 174 of the Internal Revenue Code ("IRC"), largely offset by stock-based compensation and depreciation and amortization.

During the six months ended June 30, 2023, cash provided by operating activities was $808.6 million, primarily from net income of $928.4 million and non-cash adjustments to net income of $16.9 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 Section 174 of the IRC.

These increases were partly offset by a net increase of $136.7 million in working capital requirements, which primarily consisted of a $574.6 million increase in inventory and a $137.0 million increase in inventory deposits to our contract manufacturers in response to a significant increase in business volume.

These operating cash outflows were largely offset by cash inflows from a $185.3 million increase in accounts payable and accrued liabilities due to an increase in business volume and timing of payments, and a $198.1 million increase in income tax payables related to an increase in taxable income, combined with an extension by the Internal Revenue Service ("IRS") of the due dates for estimated tax payments until October 2023.

In addition, we had cash inflows resulting from a decrease in accounts receivable of $143.4 million driven by strong collections, and an increase in deferred revenue of $43.7 million primarily resulting from an increase in customer PCS contracts.

Cash Flows from Investing Activities

During the three months ended March 31, 2024, cash used in investing activities was $295.7 million, consisting of purchases of available-for-sale securities of $912.4 million, and purchases of property and equipment of $9.4 million.

During the six months ended June 30, 2024, cash used in investing activities was $773.5 million, consisting of purchases of available-for-sale securities of $1.7 billion, and purchases of property and equipment of $12.6 million.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $989.3 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.

During the six months ended June 30, 2023, cash used in investing activities was $124.7 million, consisting of purchases of available-for-sale securities of $1,392.0 million, and purchases of property and equipment of $17.2 million.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $1,287.0 million.

Cash Flows from Financing Activities

During the three months ended March 31, 2024, cash used in financing activities was $63.1 million, consisting of payments for repurchases of our common stock from the open market of $62.7 million, and employee taxes withheld and paid of $25.5 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $25.1 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 six months ended June 30, 2024, cash used in financing activities was $236.1 million, consisting of payments for repurchases of our common stock from the open market of $234.7 million, and employee taxes withheld and paid of $36.0 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $34.5 million.

During the six months ended June 30, 2023, cash used in financing activities was $97.6 million, consisting of payments for repurchases of our common stock from the open market of $112.3 million, and employee taxes withheld and paid of $15.8 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $30.4 million.

Stock Repurchase Programs

From time to time, we repurchase shares of our common stock pursuant to our Repurchase Programs that are funded from working capital.

The Existing Repurchase Program allowed for stock repurchases of up to $1.0 billion through October 2024 and was completed in April 2024, and the New Repurchase Program will allow for repurchases of an additional $1.2

billion through May 2027.

From time to time, we repurchase shares of our common stock pursuant to repurchase programs that are funded from working capital.

The Prior Repurchase Program allowed for stock repurchases of up to $1.0 billion through October 2024 and was completed in April 2024, and the New Repurchase Program allows for repurchases of an additional $1.2 billion through May 2027.

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 three months ended March 31, 2024, we repurchase d a total of $62.7 million of our common stock under our Existing Repurchase Program and no repurchases have been made under our New Repurchase Program.

As of March 31, 2024, the remaining authorized amount for repurchases under the Existing Repurchase Program was $82.0 million.

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

During the three months ended June 30, 2024, we repurchase d a total of $82.0 million of our common stock under our Prior Repurchase Program and $90.0 million of repurchases have been made under our New Repurchase Program.

As of June 30, 2024, the remaining authorized amount for repurchases under the New Repurchase Program was $1.1 billion.

Refer to Note 6.

Stockholders' Equity and Stock-Based Compensation and Note 10.

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

Stockholders' Equity and Stock-based Compensation of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for further discussion.

Material Cash Requirements

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Purchase obligations not recorded on our balance sheet 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 March 31, 2024, we had $1,457.7 million of such purchase obligations, of which $1,425.1 million are expected to be received within one year, and $32.6 million are expected to be received after one year.

As of June 30, 2024, we had $2.1 billion of such purchase obligations, of which $1.7 billion are expected to be received within one year, and $0.4 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.

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.

As of June 30, 2024, we had lease payment obligations, net of immaterial sublease income, of $61.6 million, with $23.5 million payable within one year.

Property project

During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office and lab space.

The estimated capital expenditures related to this project is estimated to be approximately $80.0 to $100.0 million for the year ending 2024, with construction expected to commence in the second half of 2024.

The estimated capital expenditures related to this project is estimated to be approximately $50.0 million for the year ending 2024, with construction expected to commence in the second half of 2024.

Accrued Income Taxes

As of March 31, 2024, we have recorded long-term tax liabilities of $107.2 million related to uncertain tax positions;

As of June 30, 2024, we have recorded long-term tax liabilities of $107.8 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 connection with the Tax Cuts and Jobs Act of 2017 (“TCJA”), effective January 1, 2022, the TCJA eliminated 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 $200.0 million for 2024.

It is anticipated that IRC Section 174 will result in cash tax outlays exceeding our income tax expense over the next two years unless the current legislation is changed.

We estimate the full year incremental cash tax impact resulting from these regulations to be approximately $210.0 million for 2024.

It is anticipated that IRC Section 174 will result in cash tax outlays

exceeding our income tax expense over the next two years unless the current legislation is changed.

There has been no material change to our effective tax rate as a result of this legislation.

Off-balance Sheet Arrangements

As of March 31, 2024, 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 June 30, 2024, 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

1 unchanged sentence

The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.

We base our estimates on historical experience and on

various other assumptions that we believe are reasonable under the circumstances.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

We evaluate our estimates and assumptions on an ongoing basis.

7 unchanged sentences

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