What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-13 · 185 added, 243 removed, 763 unchanged (36% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

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We have audited the accompanying consolidated balance sheets of Arista Networks, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 12, 2024 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 18, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

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ARISTA NETWORKS, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)

Year Ended December 31,

2024 2023 2022

Product $ 5,884,021 $ 5,029,493 $ 3,716,079

Service 1,119,125 830,675 665,231

Total revenue 7,003,146 5,860,168 4,381,310

Cost of revenue:

Product 2,299,063 2,061,167 1,573,629

Service 212,780 168,720 131,985

Total cost of revenue 2,511,843 2,229,887 1,705,614

Gross profit 4,491,303 3,630,281 2,675,696

Operating expenses:

Research and development 996,717 854,918 728,394

Sales and marketing 427,264 399,034 326,955

General and administrative 122,706 119,080 93,241

Total operating expenses 1,546,687 1,373,032 1,148,590

Income from operations 2,944,616 2,257,249 1,527,106

Other income, net 320,418 164,777 54,690

Income before income taxes 3,265,034 2,422,026 1,581,796

Provision for income taxes 412,980 334,705 229,350

Net income $ 2,852,054 $ 2,087,321 $ 1,352,446

Earnings per share (1):

Basic $ 2.27 $ 1.69 $ 1.10

Diluted $ 2.23 $ 1.65 $ 1.07

Weighted-average common shares outstanding (1) :

Basic 1,256,303 1,237,417 1,225,891

Diluted 1,281,077 1,268,538 1,265,835

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in December 2024.

See Note 1, Organization and Summary of Accounting Policies, for details.

The accompanying notes are an integral part of these consolidated financial statements.

ARISTA NETWORKS, INC.

Consolidated Balance Sheets

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Property and equipment, net 98,845 101,580

Acquisition-related intangible assets, net 88,768 122,205

Goodwill 268,531 265,924

Goodwill and acquisition-related intangible assets, net 330,540 357,299

Deferred tax assets 1,440,418 945,792

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Total current liabilities 2,732,222 1,919,435

Income taxes payable 95,751 89,839

Deferred revenue, non-current 1,064,135 591,000

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Additional paid-in capital (1)

2,465,409 2,108,237

Retained earnings 7,542,460 5,114,025

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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 14,043,921 $ 9,956,635

The accompanying notes are an integral part of these consolidated financial statements.

ARISTA NETWORKS, INC.

Consolidated Statements of Operations

(In thousands, except per share amounts)

Year Ended December 31,

2023 2022 2021

Product $ 5,029,493 $ 3,716,079 $ 2,377,727

Service 830,675 665,231 570,310

Total revenue 5,860,168 4,381,310 2,948,037

Cost of revenue:

Product 2,061,167 1,573,629 958,363

Service 168,720 131,985 108,895

Total cost of revenue 2,229,887 1,705,614 1,067,258

Gross profit 3,630,281 2,675,696 1,880,779

Operating expenses:

Research and development 854,918 728,394 586,752

Sales and marketing 399,034 326,955 286,171

General and administrative 119,080 93,241 83,117

Total operating expenses 1,373,032 1,148,590 956,040

Income from operations 2,257,249 1,527,106 924,739

Other income, net 164,777 54,690 6,140

Income before income taxes 2,422,026 1,581,796 930,879

Provision for income taxes 334,705 229,350 90,025

Net income $ 2,087,321 $ 1,352,446 $ 840,854

Earnings per share:

Basic $ 6.75 $ 4.41 $ 2.74

Diluted $ 6.58 $ 4.27 $ 2.63

Weighted-average common shares outstanding:

Basic 309,354 306,473 306,512

Diluted 317,135 316,459 319,238

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in December 2024.

See Note 1, Organization and Summary of Accounting Policies, for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Stockholders’

Shares Amount In Capital Earnings Comprehensive

In Capital (1)

Earnings Comprehensive

Income (Loss) Equity

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Tax withholding paid for net share settlement of equity awards ( 1,084 ) — ( 32,725 ) — — ( 32,725 )

Common stock issued for business combinations 132 — 4,049 — — 4,049

Balance—December 31, 2022 1,227,562 123 1,780,622 3,138,983 ( 33,908 ) 4,885,820

Net income — — — 2,087,321 — 2,087,321

Other comprehensive loss, net of tax — — — — ( 25,608 ) ( 25,608 )

Other comprehensive income, net of tax — — — — 30,580 30,580

Stock-based compensation — — 296,756 — — 296,756

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Net income — — — 2,852,054 — 2,852,054

Other comprehensive income, net of tax — — — — 30,580 30,580

Other comprehensive loss, net of tax — — — — ( 9,860 ) ( 9,860 )

Stock-based compensation — — 355,364 — — 355,364

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Tax withholding paid for net share settlement of equity awards ( 769 ) — ( 58,372 ) — — ( 58,372 )

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

Balance—December 31, 2024 1,261,334 $ 126 $ 2,465,409 $ 7,542,460 $ ( 13,188 ) $ 9,994,807

_________________________________________

(1) Prior period results have been adjusted to reflect the four -for-one stock split effected in December 2024.

See Note 1, Organization and Summary of Accounting Policies, for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and other 70,630 62,700 50,334

Noncash lease expense 18,236 18,648 17,112

Depreciation and amortization 62,038 70,630 62,700

Stock-based compensation 355,364 296,756 230,934

Deferred income taxes ( 492,874 ) ( 370,796 ) ( 244,382 )

Gain on strategic investments ( 18,699 ) ( 27,479 ) —

Amortization (accretion) of investment premiums (discount) ( 60,468 ) ( 33,518 ) 12,767

Other 6,939 ( 463 ) ( 8,831 )

Changes in operating assets and liabilities:

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

Investment in notes and privately-held companies ( 3,164 ) ( 12,691 ) ( 19,933 )

Other Investing activities ( 6,628 ) ( 3,164 ) ( 12,691 )

Net cash provided by (used in) investing activities ( 2,457,354 ) ( 687,454 ) 216,327

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Effect of exchange rate changes ( 4,767 ) 675 ( 3,611 )

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

1,263,486 50,928 ( 272,404 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 824,304 1,263,486 50,928

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 1,939,464 675,978 625,050

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Cash paid for income taxes, net of refunds $ 970,639 $ 686,155 $ 427,846

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

Right-of-use assets obtained in exchange for new operating lease liabilities $ 20,567 $ 7,300 $ 5,005

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

ARISTA NETWORKS, INC.

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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 EOS, a set of network applications and our Gigabit Ethernet switching and routing platforms.

(together with our subsidiaries, “we,” “our,” "Arista," "Company" or “us”) is an industry leader in data-driven, client-to-cloud networking for large AI, data center, campus and routing environments.

Our cloud networking solutions consist of our EOS, a set of network applications and our Ethernet switching and routing platforms.

We are incorporated in the state of Delaware.

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All significant intercompany accounts and transactions have been eliminated.

On November 7, 2024, the Company announced a four -for-one forward stock split ("Stock Split") of the Company’s common stock that was effected through the filing of an amendment to the Company's Amended and Restated Certificate of Incorporation ("Amendment") on December 3, 2024.

The Stock Split proportionately increased the authorized shares of common stock, and all share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

Certain reclassifications of prior period amounts were made in the current year to conform to the current period presentation.

Risk and Uncertainties

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.

As we exit 2023, the 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.

This 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 continue to decline as supplier lead times shorten.

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.

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 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.

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 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 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 conditions discussed herein may not be indicative of future operating results and trends.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes.

Those estimates and assumptions include, but are not limited to, valuation of inventory and contract manufacturer/supplier liabilities, accounting for income taxes, including the recognition of deferred tax assets and liabilities, valuation allowance on deferred tax assets and reserves for uncertain tax positions, revenue recognition and deferred revenue, allowance for doubtful accounts, sales rebates and return reserves, valuation of goodwill and acquisition-related intangible assets, estimate of useful lives of long-lived assets including intangible assets, and the recognition and measurement of contingent liabilities.

Those estimates and assumptions include, but are not limited to, valuation of inventory and contract manufacturer/supplier liabilities, accounting for income taxes, including the recognition of deferred tax assets and liabilities, valuation allowance on deferred tax assets and reserves for uncertain tax positions, revenue recognition and deferred revenue, valuation of goodwill and acquisition-related intangible assets, estimate of useful lives of long-lived assets including intangible assets, and the recognition and measurement of contingent liabilities.

We evaluate our estimates and assumptions based on historical experience and other factors and adjust these estimates and assumptions when facts and circumstances dictate.

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Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable.

Our cash equivalents and marketable securities are invested in high quality financial instruments with banks and financial institutions.

Our cash equivalents and marketable securities are invested in high

quality financial instruments with banks and financial institutions.

Such deposits may be in excess of insured limits provided on such deposits.

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Significant customers are those that represent more than 10% of our total net revenue during the period or net accounts receivable balance at each respective balance sheet date.

As of December 31, 2023, we had two customers who represented 28 % and 11 % of total accounts receivable.

As of December 31, 2022, we had two customers who represented 28 % and 16 % of total accounts receivable.

For the year ended December 31, 2023, there were two end customers who represented 21 % and 18 % of total revenue.

For the year ended December 31, 2022, there were two end customers who represented 26 % and 16 % of total revenue.

For the year ended December 31, 2021, there was one end customer who represented 15 % of our total revenue.

As of December 31, 2024, we had two resellers who represented 26 % and 24 % of total accounts receivable.

As of December 31, 2023, we had two resellers who represented 28 % and 11 % of total accounts receivable.

There were two end customers who represented more than 10% of our total revenue for the years ended 2024, 2023 and 2022.

Sales to one end customer represented 15 %, 21 % and 26 % of our total revenue, and sales to the other end customer represented 20 %, 18 % and 16 % of our total revenue for the years ended 2024, 2023 and 2022, respectively.

Cash and Cash Equivalents

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We classify all highly liquid investments in debt securities with maturities of greater than three months at the date of purchase as marketable securities.

We have classified and accounted for our marketable debt and equity securities as available-for-sale.

We have classified and accounted for our marketable debt securities as available-for-sale.

We determine the appropriate classification of these investments at the time of purchase and reevaluate such designation at each balance sheet date.

We may or may not hold securities with stated maturities greater than 12 months until maturity.

After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may sell these securities prior to their stated maturities.

After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may hold or sell these securities prior to their stated maturities.

As we view these securities as available to support current operations, we classify securities with maturities beyond 12 months as current assets under the caption marketable securities in the accompanying consolidated balance sheets.

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For marketable debt securities, we report the unrealized gains and losses, net of taxes, as a component of stockholders’ equity.

For marketable equity securities, we report the unrealized gains and losses in other income (expense), net on the Consolidated Statements of Operations.

We determine the cost of the debt investment sold based on an average cost basis at the individual security level, and record the interest income in other income, net in the accompanying consolidated statements of operations.

We determine any realized gains or losses on the sale of marketable securities using the specific identification method, and record such gains and losses in other income, net in the accompanying consolidated statements of operations.

For our debt securities in an unrealized loss position, we determine whether a credit loss exists by considering, among other factors, current market conditions, credit quality of debt issuers, any changes to the rating of the security by a rating agency, and the extent to which fair value is less than cost.

We recognize an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and write down the amortized cost basis of the investment if it is more likely than not we will be required to sell or we intend to sell the investment before recovery of its amortized cost basis.

We would recognize an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and write down the amortized cost basis of the investment if it is more likely than not we will be required to sell or we intend to sell the investment before recovery of its amortized cost basis.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts, sales rebates and returns reserves.

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts.

We estimate our allowance for doubtful accounts based upon the collectability of the receivables in light of historical trends, reasonable and supportable information of our customers' economic conditions that may affect our customers’ ability to pay, and prevailing economic conditions.

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Recoveries of accounts receivable previously written-off are recorded as credits to bad debt expense.

We primarily estimate our sales rebates and returns reserves based on historical rates applied against current period billings.

Specific customer returns, rebates and allowances are considered when determining our estimates.

Revisions to sales rebate and return reserves are recorded as adjustments to revenue.

Fair Value Measurements

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These assets and liabilities include cash and cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued liabilities.

Cash equivalents,

accounts receivable, accounts payable and accrued liabilities are stated at carrying values in our consolidated financial statements, which approximate their fair value due to the short-term nature of these instruments.

Cash equivalents, accounts receivable, accounts payable and accrued liabilities are stated at carrying values in our consolidated financial statements, which approximate their fair value due to the short-term nature of these instruments.

Assets and liabilities recorded at fair value on a recurring basis in the accompanying consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

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dollar or their local currency depending on the nature of the subsidiaries’ activities.

Transaction re-measurement - Assets and liabilities denominated in a currency other than a subsidiary’s functional currency are re-measured into the subsidiary's functional currency using exchange rates in effect at the end of the reporting period, with gains and losses recorded in other income, net in the consolidated statements of operations.

To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements.

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Inventory Valuation and Contract Manufacturer/Supplier Liabilities

Inventories primarily consist of finished goods and strategic components, primarily integrated circuits.

Inventories primarily consist of finished goods, including evaluation inventory held at customers or partners, and strategic components, primarily integrated circuits.

Inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value.

Evaluation inventory consists of new products and/or use cases at customer or partner sites for trial purposes.

Title to the inventory remains with Arista during the trial period and invoicing occurs only upon completion of the trial period and when/if the products have been accepted by the customer.

Manufacturing overhead costs and inbound shipping costs are included in the cost of inventory.

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For the years ended December 31, 2024, 2023 and 2022, we recorded charges of $ 267.2 million, $ 234.4 million and $ 71.4 million, respectively, within cost of product revenue for inventory write-downs.

Our contract manufacturers procure components and assemble products on our behalf based on our forecasts.

We record a liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with our contract manufacturers or suppliers for quantities in excess of our demand forecasts or that are considered obsolete due to manufacturing and engineering change orders resulting from design changes.

Our contract manufacturers procure components and assemble products on our behalf and we procure strategic components from suppliers based on our forecasts.

We record a liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with our contract manufacturers and suppliers for quantities in excess of our demand forecasts or that are considered obsolete due to manufacturing and engineering change orders resulting from design changes.

For the years ended December 31, 2023 and 2022, we recorded charges of $ 113.0 million and $ 43.7 million, respectively, within cost of product revenue for such liabilities with our contract manufacturers and suppliers.

For the year ended December 31, 2021, we did no t incur any losses on such liabilities.

For the year ended

December 31, 2024, we recorded a credit of $ 74.3 million within cost of product revenue related to such liabilities, which was driven by a reduction in the liability due to the receipt of excess components that were previously reserved.

We subsequently assessed the realizable value of such components upon inventory receipt.

We use significant judgment in establishing our forecasts of future demand and obsolete material exposures.

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In addition, when industry-wide supply chain shortages resulted in extended lead times for components, we were required to extend the time horizon of our demand forecasts and increase our purchase commitments for long lead time components.

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 shorter demand-planning horizons resulting in lower demand levels.

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

There is however no guarantee that all suppliers will meet their

commitments in the time frame committed or that actual customer demand will directly match our demand forecasts.

Although the global supply chain has shown improvement, we have had to invest in inventory to address forecast uncertainty and we expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions.

There is, however, no guarantee that all suppliers will meet their commitments in the time frame committed or that actual customer demand will directly match our demand forecasts.

If actual market conditions are less favorable than those projected by management, which may be caused by factors within and/or outside of our control, we may be required to increase our inventory write-downs and liabilities to our contract manufacturers and suppliers, which could have an adverse impact on our gross margins and profitability.

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We would recognize an impairment loss for the amount by which the carrying amount exceeds the fair value.

were no impairment charges in any of the periods presented in the consolidated financial statements.

There were no impairment charges in any of the periods presented in the consolidated financial statements.

Acquisition, Goodwill and Acquisition-Related Intangible Assets for additional information.

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Our equity investments in privately-held companies without readily determinable fair values are measured using the measurement alternative, defined by ASC 321 - Investments-Equity Securities as cost, less impairments, and remeasured based on observable price changes from orderly transactions of identical or similar securities of the same issuer.

Any adjustments resulting from impairments and/or observable price changes are recorded within other income, net, in our consolidated statements of operations.

Any adjustments resulting from impairments and/or observable price changes are recorded within other income, net, in our consolidated statements of income.

This election is reassessed each reporting period to determine whether investments in privately-held companies have a readily determinable fair value, in which case they would no longer be eligible for this election.

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If we do not have an observable SSP, such as when we do not sell a product or service separately, then SSP is estimated using judgment and considering all reasonably available information such as gross margin, market conditions and information about the size and/or purchase volume of the customer.

We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to product category, actual and expected volume, discounting policies, and end customer vertical and size.

We limit the amount of revenue recognition for contracts containing forms of variable consideration, such as future performance obligations, customer-specific returns, and acceptance or refund obligations.

We defer revenue recognition on customer contracts for new products or use cases, which contain customer-specified requirements that must be met prior to acceptance.

We include some or all of an estimate of the related at-risk consideration in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recorded under each contract will not occur when the uncertainties surrounding the variable consideration are resolved.

Most of our contracts with customers have standard payment terms of 30 days and the remainder generally between 30 to 90 days.

Most of our contracts with customers have standard payment terms of 30 to 90 days.

We have determined our contracts generally do not include a significant financing component because the Company and the customer have specific business reasons other than financing for entering into such contracts.

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We may occasionally accept returns to address customer satisfaction issues even though there is generally no contractual provision for such returns.

We estimate returns for sales to customers based on historical return rates applied against current-period shipments.

We estimate returns for sales to customers based on historical return rates applied against

current-period shipments.

Specific customer returns and allowances are considered when determining our sales return reserve estimate.

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We include shipping charges billed to customers in revenue and the related shipping costs are included in cost of product revenue.

We account for customer sales rebates as a reduction to revenue and accrue for such rebates based on the amount that is earned and expected to be claimed by customers.

Contract Balances

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We develop, market and sell cloud networking solutions, which primarily consist of our switching and routing platforms and related network applications, and there are no segment managers who are held accountable for operations or operating results below the Company level.

Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Our chief operating decision maker is our President, Chief Executive Officer and Chairperson of the Board, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Accordingly, we have determined that we operate as one reportable segment.

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The Company has granted RSUs that vest upon the satisfaction of both service-based and performance-based conditions ("PRSUs").

The service-based condition for these awards is generally satisfied over four years .

The service-based condition for these awards is generally satisfied over one to four years .

The performance-based conditions are satisfied upon achieving specified performance targets, such as financial or operating metrics.

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We selected the deferred method of accounting and recorded the associated basis differences anticipated to influence prospective GILTI calculations.

Recently Adopted Accounting Pronouncements

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, 2023.

Early adoption is permitted.

We have adopted ASU 2023-07 for the year ended December 31, 2024.

The adoption of this new standard did not have a material impact on our consolidated financial statements.

For more information regarding the adoption, see Note 9, Segment and Geographical Information for the inclusion of the new required disclosures.

Recent Accounting Pronouncements Not Yet Effective

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

we have not early adopted ASU 2023-09 for December 31, 2023.

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.

We have not early adopted ASU 2023-07 for the year ended December 31, 2023.

not early adopted ASU 2023-09 for December 31, 2024.

We are currently evaluating the impact of future adoption on our financial disclosures.

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40).

The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions.

This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements.

Early adoption is also permitted.

This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted.

We are currently evaluating the provisions of this ASU.

Fair Value Measurements

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Marketable Securities:

Commercial paper — 48,815 — 48,815 — — — —

Certificates of deposits (1)

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Agency securities — 977,264 — 977,264 — 657,379 — 657,379

Marketable equity securities (2)

1,921,490 3,619,626 — 5,541,116 1,044,859 2,024,503 — 3,069,362

1,044,859 2,024,503 — 3,069,362 1,013,016 1,339,006 — 2,352,022

Other Assets:

Money market funds - restricted 858 — — 858 4,271 — — 4,271

Money market funds - restricted cash 1,411 — — 1,411 858 — — 858

Total Financial Assets $ 3,661,780 $ 3,622,626 $ — $ 7,284,406 $ 2,061,422 $ 2,026,502 $ — $ 4,087,924

______________________________________

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

(2) During the year ended December 31, 2023, the Company sold all its shares of its marketable equity security for $ 23.9 million.

This publicly-traded equity investment generated an unrealized gain of $ 4.8 million and $ 10.7 million for the year ended December 31, 2023 and 2022, 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 Other income (expense), net on the unaudited Condensed Consolidated Statements of Operations.

Refer to Note 3.

Financial Statements Details.

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

During the year ended on December 31, 2024, the Company did not make any transfers between the levels of the fair value hierarchy.

Marketable debt secur ities

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):

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

Commercial paper $ 48,815 $ — $ — $ 48,815 $ 1,999 $ — $ — $ 1,999

government 1,954,733 2,739 ( 4,616 ) 1,952,856 1,043,445 2,874 ( 1,460 ) 1,044,859

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For debt securities in unrealized loss positions, it is not likely that we will be required to sell such securities before recovery of their amortized cost basis nor do we have the intent to sell such securities before maturity;

we invest in debt securities that have maximum maturities of two years and are generally deemed to be low risk based on their credit ratings from the major rating agencies.

we invest in debt securities that have maximum maturities of three years and are generally deemed to be low risk based on their credit ratings from the major rating agencies.

The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields.

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Realized losses were immaterial for the years ended December 31, 2024, December 31, 2023 and December 31, 2022.

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

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

December 31, 2024

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We did not record any realized gains for our non-marketable equity securities during the three years ended December 31, 2024, 2023 and 2022.

W e recorded immaterial amounts of realized and unrealized losses during the three years ended December 31, 2023, 2022 and 2021.

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

Year Ended December 31,

2023 2022 2021

Unrealized gains on non-marketable equity securities (1)

$ 13,901 $ 16,731 $ —

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

W e recorded immaterial amounts of unrealized gains, unrealized and realized losses during the three years ended December 31, 2024, 2023 and 2022.

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

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 may affect the value of the non-marketable equity securities.

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Cost of investments $ 38,284 $ 31,656

$ 31,656 $ 23,625

Cumulative impairment and downward adjustments — —

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Carrying amount of investments (included in other assets) $ 81,316 $ 62,288

(1) During the year ended December 31, 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 investment

Financial Statements Details

Cash, Cash Equivalents and Restricted Cash

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

Cash and cash equivalents $ 1,938,606 $ 671,707

Restricted cash included in other assets 858 4,271

Total cash, cash equivalents and restricted cash $ 1,939,464 $ 675,978

Accounts Receivable, net

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

Accounts receivable $ 1,034,480 $ 928,490

Product sales rebate, returns reserve and others ( 9,911 ) ( 5,394 )

Accounts receivable, net $ 1,024,569 $ 923,096

Inventories consist of the following (in thousands):

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Finished goods (1)

1,269,193 1,014,403

Total inventories $ 1,834,572 $ 1,945,180

Prepaid Expenses and Other Current Assets

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

Inventory deposits $ 130,509 $ 162,047

Other prepaid expenses and deposits 282,009 152,170

Total prepaid expenses and other current assets $ 412,518 $ 314,217

(1) The balance as of December 31, 2024 includes evaluation inventory held at customers or partners of $ 422.1 million.

Evaluation inventory as of December 31, 2023 was no t material.

Property and Equipment, net

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Accrued manufacturing costs 110,169 61,491

Accrued product development costs 1,041 27,380

Other 113,475 43,708

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Deferred Revenue

Deferred revenue is comprised mainly of unearned service revenue related to multi-year PCS contracts, and product deferrals related to contracts with acceptance clauses.

Deferred revenue is comprised mainly of unearned service revenue related to annual and multi-year PCS contracts, and product deferrals related to contracts with acceptance clauses.

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

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Revenue from Total Remaining Performance Obligations

Total revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods amounts to $ 2.3 billion.

Included in this amount is the $ 367.7 million of binding contractual agreements related primarily to future product shipments that are expected to be recognized as revenue over the next eighteen months .

In addition, approximately 79 % of the remaining $ 2.0 billion of this future revenue is expected to be recognized over the next two years and approximately 21 % is expected to be recognized during the third to the fifth year.

Total revenue from our contract liabilities, deferred revenue and other performance obligations that is expected to be recognized in future periods was $ 3.4 billion as of December 31, 2024.

Approximately 85 % of this future revenue is expected to be recognized over the next two years and the remaining 15 % is expected to be recognized during the third to the fifth year.

Other Income, Net

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Interest income $ 310,998 $ 152,421 $ 27,556

Gain (loss) on strategic investments 18,699 27,479 —

Other income (expense) 9,420 12,356 27,134

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Acquisition, Goodwill and Acquisition-Related Intangible Assets

We had no material business acquisitions during the year ended December 31, 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 intangible assets are amortized on a straight-line basis over their estimated useful lives, as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed.

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

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

Developed technology $ 30,200 5.7

Customer relationships 28,700 7.0

Trade name 3,400 3.0

Total intangible assets acquired $ 62,300

The purchase price allocation for the two acquisitions have been finalized.

No changes were made to the purchase price allocation for the year ended December 31, 2023.

The changes in the carrying values of goodwill for the years ended December 31, 2023 and 2022 are as follows (in thousands):

Balance at December 31, 2021 $ 188,397

Additions related to current year acquisitions 85,048

Measurement-period adjustments ( 7,521 )

Balance at December 31, 2022 265,924

Additions related to current year acquisition 2,607

Balance at December 31, 2023 $ 268,531

The Company performed an annual qualitative test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2023 and 2022 and determined that goodwill was not impaired.

Acquisitions and Goodwill

We had no material business acquisitions during the years ended December 31, 2024 and 2023.

There were no material changes to goodwill for the years ended December 31, 2024 and 2023.

The Company performed an annual qualitative test for goodwill impairment in the fourth quarter of fiscal years ended December 31, 2024 and 2023 and determined that goodwill was not impaired.

Acquisition-Related Intangible Assets

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2025 $ 19,642

Thereafter 1,634

Total $ 62,008

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Total operating lease liabilities $ 59,642 $ 65,519

The following table summarizes our lease costs (in thousands):

Year Ended December 31,

Operating lease costs:

Fixed lease costs $ 23,541 $ 24,134

Variable lease costs 9,717 8,682

Total operating lease costs $ 33,258 $ 32,816

The operating lease costs in the table above include costs for long-term and short-term leases.

Total short-term lease costs were immaterial.

Fixed lease costs include expenses recognized for base rent payments on a straight-line basis.

Variable lease costs primarily include maintenance, utilities and operating expenses that are incremental to the fixed base rent payments, and are excluded from the calculation of operating lease liabilities and ROU assets.

For the years ended December 31, 2023 and 2022, cash paid for amounts associated with our operating lease liabilities were approximately $ 22.7 million and $ 23.9 million, respectively, which were classified as operating activities in the accompanying consolidated statements of cash flows.

Maturities of operating lease liabilities as of December 31, 2024 are presented in the table below (in thousands):

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Present value of operating lease payments as of December 31, 2024 $ 59,642

December 31, 2023 December 31, 2022

Other information:

Weighted-average remaining lease term — operating leases 3.4 years 4.2 years

Weighted-average discount rate — operating leases 5.4 % 5.1 %

Purchase Commitments

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

As of December 31, 2023, we had non-cancellable purchase commitments not recorded on our balance sheet of $ 1,586.7 million, of wh ich $ 1,547.2 million have confirmed receipt dates within 12 months, and $ 39.5 million have confirmed receipt dates greater than 12 months .

As of December 31, 2024, we had non-cancellable purchase commitments not recorded on our balance sheet of $ 3.1 billion, of wh ich $ 2.8 billion have confirmed receipt dates within 12 months, and $ 0.3 billion have confirmed receipt dates greater than 12 months .

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

We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 95.8 million and $ 133.3 million as of December 31, 2024 and 2023, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the consolidated balance sheets.

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, lab and data center space.

The estimated capital expenditures related to this project is expected to be approximately $ 235.0 million to $ 260.0 million through December 31, 2026 at which time construction is expected to be completed.

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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On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review unpatentable.

The district court case remains pending appeal and/or final resolution of the PTAB ruling.

The district court case remains stayed pending appeal and/or final resolution of the PTAB ruling.

We intend to vigorously defend against the claims brought against us by WSOU;

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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 funded from working capital.

The Repurchase Program expires in the fourth quarter of 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, 10b5-1 trading plans, 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 us at any time without prior notice.

As of December 31, 2023, the remaining authorized amount for stock repurchases under this program was approximately $ 144.5 million.

A summary of the stock repurchase activities for the years ended December 31, 2023 and 2022 is as follows (in thousands, except per share amounts):

In April 2024, we completed repurchases under our previous $ 1.0 billion stock repurchase program (the “Prior Repurchase Program”).

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

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

Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or a combination of the foregoing.

The Repurchase Programs do 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 year ended December 31, 2024, we repurchased a total of $ 279.0 million of our common stock under our New Repurchase Program and $ 144.6 million of our common stock under our Prior Repurchase Program.

As of December 31, 2024, the remaining authorized amount for stock repurchases under the New Repurchase Program was approximately $ 921.0 million.

A summary of the stock repurchase activities for the years ended December 31, 2024 and 2023 is as follows, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):

Year Ended December 31,

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2014 Equity Incentive Plan

In April 2014, our board of directors and stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”), effective on the first day that our common stock was publicly traded, and simultaneously terminated the 2004 and 2011 equity plans as to future grants.

However, these plans will continue to govern the terms and conditions of the outstanding options previously granted thereunder.

Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) or Stock Appreciation Rights (“SARs”).

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 (the “2014 Plan Evergreen Increase”), unless the 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 for future issuance under the 2014 Plan.

As of December 31, 2023, there remained approximately 95.3 million shares available for issuance under the 2014 Plan.

On April 16, 2024, our board of directors adopted an amended and restated Arista Networks, Inc.

2014 Equity Plan ("Restated Plan"), effective April 17, 2024 ("Effective Date") subject to the approval of our stockholders, which wa s approved at the 2024 Annual Meeting of Stockholders on June 7, 2024.

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 the Company's 2014 Equity Incentive Plan ("Prior Plan") was extinguished, and the Restated Plan provides for a new share pool not to exceed (i) 52,800,000 shares of our Common Stock (“Shares”), plus (ii) any Shares subject to awards under the Prior Plan that, on or after the Effective Date, expired or otherwise terminated without having been exercised in full, or that were 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 40,158,628 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.

As of December 31, 2024, there remained approximately 52.4 million shares available for grant under the Restated Plan, as adjusted to give effect to the Stock Split.

2014 Employee Stock Purchase Plan

In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”).

In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan (“ESPP”).

The ESPP became effective on the first day that our common stock was publicly traded.

The number of shares

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

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

The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1 % of our shares outstanding immediately preceding December 31, but not to exceed 40 million shares, unless the board of directors, in its discretion, determines to make a smaller increase.

Effective January 1, 2024, our board of directors authorized an increase of 12.5 million shares, as adjusted to give effect to the Stock Split, for future issuance under the ESPP.

As of December 31, 2024, there remained 104.9 million shares available for issuance under the ESPP.

Furthermore, in February, 2024, our board of directors authorized an increase of 3.1 million shares for future issuance under the ESPP effective January 1, 2024.

Under our ESPP, eligible employees are permitted to acquire shares of our common stock at 85 % of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date.

Each offering period lasts approximately two years starting on the first trading date after February 15 and August 15 of each year, and includes purchase dates every six months on or after February 15 and August 15 of each year.

Participants may purchase shares of common stock through payroll deductions up to 10 % of their eligible compensation, subject to Internal Revenue Service mandated purchase limits.

During the year ended December 31, 2023, we issued 279,498 shares at an average purchase price of $ 105.69 per share under our ESPP.

Participants may purchase shares

of common stock through payroll deductions up to 15 % of their eligible compensation, subject to Internal Revenue Service mandated purchase limits.

During the year ended December 31, 2024, we issued 1.12 million shares at an average purchase price of $ 29.08 per share under our ESPP, as adjusted to give effect to the Stock Split.

Stock Option Activities

The following table summarizes the option activities and related information (in thousands, except years and per share amounts):

The following table summarizes the option activities and related information, as adjusted to give effect to the Stock Split (in thousands, except years and per share amounts):

Outstanding Options Weighted-

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Restricted Stock Unit (RSU) Activities

The following table summarizes the RSU activities and related information (in thousands, except per share amounts):

The following table summarizes the RSU activities and related information, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):

Shares Weighted-

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Date Fair Value Per Share

Unvested balance—December 31, 2022 8,360 $ 85.83

Balance—December 31, 2023 31,600 $ 28.19

RSUs and PRSUs granted 10,142 72.61

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Unvested balance—December 31, 2024 28,609 $ 45.46

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2023, 2022 and 2021 was $ 157.94 , $ 101.35 and $ 93.18 per share, respectively.

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2024, 2023 and 2022 was $ 72.61 , $ 39.49 and $ 25.34 per share, respectively, as adjusted to give effect to the Stock Split.

The total fair value of RSUs vested for the years ended December 31, 2024, 2023 and 2022 was approximately $ 251.8 million, $ 225.5 million, and $ 174.0 million, respectively.

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We recognize such costs as compensation expense generally on a straight-line basis over the requisite service period of the award.

As of December 31, 2023, there were $ 733.7 million of unrecognized compensation costs related to all unvested awards.

As of December 31, 2024, there were $ 1.0 billion of unrecognized compensation costs related to all unvested awards.

The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 4.2 years.

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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 attributable to common stockholders (in thousands, except per share amounts):

The following table sets forth the computation of our basic and diluted net income per share attributable to common stockholders, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):

Year Ended December 31,

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Diluted $ 2.23 $ 1.65 $ 1.07

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

Year Ended December 31,

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Tax credits ( 2.79 ) ( 2.74 ) ( 2.24 )

Change in valuation allowance — — 0.01

Stock-based compensation ( 4.96 ) ( 4.59 ) ( 4.07 )

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Effective tax rate 12.65 % 13.81 % 14.50 %

The change in our effective tax rate was due to a change in tax benefits attributable to stock-based compensation and the reduction of unrecognized tax benefits as a result of lapse of the applicable statute of limitation in 2023.

The change in our effective tax rate was due to a favorable change in state taxes and tax benefits attributable to stock-based compensation.

Excess tax benefits resulting from stock awards were $ 212.3 million, $ 151.2 million and $ 93.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The reduction of unrecognized tax benefits due to expiration of statute of limitations were immaterial for the three years ended December 31, 2023, 2022 and 2021, respectively.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows (in thousands) :

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Net deferred tax assets $ 1,440,418 $ 945,792

The following table presents the breakdown between non-current deferred tax assets and liabilities (in thousands):

Deferred tax assets, non-current $ 945,792 $ 574,912

Deferred tax liabilities, non-current — ( 42 )

Total net deferred tax assets $ 945,792 $ 574,870

As of December 31, 2024 and 2023, $ 1.4 billion and $ 0.9 billion were recorded as deferred tax assets, non-current respectively.

We did not have any balance related to deferred tax liabilities as of December 31, 2024 and 2023.

As of December 31, 2024, we had $ 225.1 million and $ 120.6 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions.

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We do not have any material foreign net operating losses.

As of December 31, 2023, our federal, state and foreign tax credit carryforwards for income tax purposes before valuation allowances were approximately $ 2.8 million, $ 217.3 million and $ 1.2 million, respectively.

Our federal tax credit will begin to expire in 2038, and our foreign tax credit will begin to expire in 2034, while our state tax credits can be carried over indefinitely.

We have provided a valuation allowance of $ 146.3 million for deferred tax assets, primarily related to state and foreign tax credit carryforwards that we do not believe are more likely than not to be realized.

As of December 31, 2024, our state tax credit carryforwards for income tax purposes before valuation allowances were approximately $ 238.4 million, which can be carried over indefinitely.

We have provided a valuation allowance of $ 179.8 million for deferred tax assets, primarily related to state carryforwards that we do not believe are more likely than not to be realized.

Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to ownership change limitations provided in the Internal Revenue Code and similar state or foreign provisions.

The Tax Cuts and Jobs Act enacted on December 22, 2017 requires a Transition Tax on previously untaxed accumulated and current foreign earnings.

Correspondingly, all undistributed earnings are deemed to be taxed and distributions of the unremitted earnings do not have any significant U.S.

tax law generally requires U.S.

shareholders of a controlled foreign corporation (“CFC”) to include the annual earnings of foreign subsidiaries into U.S.

taxable income each year.

Correspondingly, most of the undistributed earnings are deemed to be previously taxed for U.S.

tax purposes and distributions of the unremitted earnings do not have any significant U.S.

federal income tax impact.

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Decreases related to lapse of statute of limitations ( 26,010 ) ( 18,163 ) ( 596 )

Decreases related to settlements with taxing authorities ( 150 ) — —

Gross unrecognized tax benefits—ending balance $ 181,477 $ 163,266 $ 137,357

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Some states have net operating loss and tax credit carryforwards, and therefore remain open to examination.

The majority of our foreign tax returns are open to audit under the statute of limitations of the respective foreign countries where the subsidiaries are located.

Our foreign tax returns, where the statute of limitations have not yet lapsed, are open to audit in the respective foreign countries where the subsidiaries are located.

It is possible that the amount of existing gross unrecognized tax benefits may decrease within the next 12 months as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions.

However, any such changes are not anticipated to be material.

Geographical Information

Segment and Geographical Information

We operate as one reportable segment.

The accounting policies of the reportable segment are the same as those described in the summary of significant accounting policies.

The financial information reviewed by the CODM reflects quarterly and year-to-date operating results, with a primary focus on revenue, gross margin, operating margin and net income as reported on the consolidated statements of income.

Consolidated financial information is used by the CODM to evaluate performance and make decisions regarding resource allocation and other strategic initiatives.

This consolidated financial information is also what is used to establish and approve operating budgets and forecasts.

The measure of segment assets is reported on the consolidated balance sheets in total.

There was no change for each of the periods presented in the measurement methods used to determine reported segment profit and loss.

The CODM reviews the following significant segment expenses, which are presented separately on the Company’s consolidated statements of income:

cost of product, cost of services, selling and marketing expenses, general and administrative expenses, and research and development expenses.

Other segment items that are included in the calculation of the Company’s net income include other income (expense), net, which is further described in Note 3.

Financial Statements Details and income taxes, which is further described in Note 8.

Income Taxes.

Other segment disclosures such as depreciation and amortization and stock-based compensation are disclosure in the Consolidated Statements of Cash Flows.

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

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Matching contributions are immediately vested.

For the years ended December 31, 2023, 2022 and 2021, we contributed approximately $ 13.1 million, $ 12.4 million and $ 9.8 million for the matching contributions, respectively.

For the years ended December 31, 2024, 2023 and 2022, the amounts we contributed for the matching contributions were not material .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data