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Item 2. Management’s Discussion and Analysis

2026-05-06 compared with 2025-11-05 · 131 added, 129 removed, 102 unchanged (72% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q, and our Annual Report on Form 10-K filed with the SEC on February 18, 2025.

This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties.

This Quarterly Report on Form 10-Q contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties.

The words “believe,” “may,” “will,” “potentially,” "likely" “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” "should", “project,” “plan,” “predict,” “expect,” the negative of any of these words and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to statements concerning the following:

our ability to retain and increase sales to existing customers and attract new customers, including large and government customers;

our expectation that we will derive substantially all of our product revenue from sales of our switching and routing platforms for the foreseeable future;

our relationships with and expectations concerning third parties, including, but not limited to our large customers, suppliers, distributors, systems integrators, channel partners and value-added resellers;

our expectations regarding the growth of our revenue, including variability in sales and revenue concentration and timing, and the development and sale of next-generation versions of our switches;

our plans to continue to expand our sales force, marketing activities and relationships with channel, technology and system-level partners;

our expectation that our sales and marketing expenses will increase in absolute dollars as we expand our sales and marketing efforts worldwide;

our expectation that our results of operations will vary from period to period, including the potential impact on our results of operations of the timing and size of our investments to introduce new products and services and to enhance our existing platform;

our expectations related to our inventory and purchase commitments;

the potential impacts of tightening supply conditions and our ability to manage such supply chain constraints, particularly in the memory and silicon markets;

actions we might take related to our supply of components, such as our expectation that we will continue to issue non-cancellable and non-returnable purchase orders;

our expectation that our gross margin will fluctuate over time and the factors influencing such expectation;

our plans to invest in the business, including in research and development;

market trends, including our expectation that large system vendors will continue to combine cloud-focused hardware and software solutions as an alternative to our products;

our expectation of increased competition and our ability to compete effectively;

our expectation that our business will continue to be subject to new and changing legal and regulatory obligations, particularly related to AI, privacy, data protection, cybersecurity and the environment;

our belief that no potential litigation-related liabilities are likely to have a material adverse effect on our financial position, results of operations or cash flows;

our belief that we will not pay any cash dividends in the foreseeable future;

the potential amount of capital expenditures related to our new building in Santa Clara;

and our belief that our existing cash, cash equivalents and marketable securities, together with cash flow from operations, will be sufficient to meet our working capital requirements and our growth strategies for the foreseeable future.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made.

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

Arista Networks is an industry leader in data-driven, client to cloud networking for large AI, data center, campus and routing environments.

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:

uncompromising reliability built on the foundation of robust quality assurance capabilities with a suite of automated diagnostics, advanced open and standards-based technology and intelligent automation to decrease the manual workload on the operator.

At the core of Arista’s platform is Arista EOS, a

modernized publish-subscribe state-sharing networking operating system.

Arista EOS, combined with a set of network applications and our Ethernet switching and routing platforms using best of breed merchant silicon, provides customers with a highly competitive and diversified portfolio of products with improved price/performance and time to market.

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

As organizations of all sizes have moved workloads to the cloud, spending on cloud and next-generation data centers has increased rapidly, while traditional legacy IT spending has grown at a slower rate.

Our cloud networking platforms are well positioned to address the growing cloud networking market, and to address increasing performance requirements driven by the growing number of connected devices, as well as the need for constant connectivity and access to data and applications.

The markets for cloud networking solutions are highly competitive and characterized by rapidly changing technology, changing end-customer needs, evolving industry standards, frequent introductions of new products and services, and industry consolidation.

We expect competition to intensify in the future as the market for cloud networking expands and existing competitors and new market entrants introduce new products or enhance existing products.

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 software features that address the changing needs of our existing and new customers, and increase sales in the cloud, AI and enterprise data center Ethernet switching/routing markets, and campus workspace markets.

We believe one of our greatest strengths lies in our ability to rapidly develop new features and applications.

In addition, 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.

Furthermore, we expect to continue to make substantial investments to introduce new products and services and enhance the functionality of our existing cloud networking platform through investments in our research and development organization, and investments in or acquisitions of complementary companies, products and technologies to expand our product offerings and build upon our technology leadership.

In June 2025, we completed the acquisition of the VeloCloud business from Broadcom .

VeloCloud’s secure, AI-optimized cloud WAN portfolio provides seamless connectivity to customer sites of any type, complementing Arista’s leading data center and campus wired/wireless portfolio.

We believe the combination of Arista and VeloCloud will provide modern WAN solutions for our customers globally.

The expansion of generative AI computing and distributed applications is further pushing the boundary of predictable scale and performance in the network.

A common characteristic of these AI workloads is that they are both data and compute intensive.

A typical AI workload involves large sparse matrix computations, distributed across hundreds or thousands of processors (CPU, GPU, TPU, etc.) with intense computations for a period of time and requires a high-bandwidth, scalable, lossless network in order to service these workloads.

With the exponential growth of AI applications, the need for standardized transport like Ethernet becomes paramount, enabling a power-efficient interconnect while overcoming the complexities of traditional approaches.

Our AI strategy is based on achieving two key objectives:

(1) deliver network switching products intended to provide a robust interconnect that seamlessly links GPUs, compute and storage to deliver fast job completion time for training and generative AI workloads;

and (2) offer customers the Arista Autonomous Virtual Assist ("AVA TM" ) which uses natural processing language to provide AI-assisted outcomes for network operations, security and observability.

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

For example, sales to our end customer Microsoft represented 20%, 18% and 16% of our total revenue for the years ended 2024, 2023 and 2022, respectively.

And sales to our end customer Meta Platforms represented 15%, 21% and 26% of our total revenue, respectively for the years ended 2024, 2023 and 2022.

We have experienced unpredictability in t he timing of orders from these large customers primarily due to the overall complexity of these large orders and changes in demand specific to these customers, including reductions in or changes in the mix of capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.

In addition, the variability in customer concentration is linked to the timing of new product deployments, and spending cycles with these customers, as well as the time it takes these customers to evaluate, test, qualify and accept our products and services, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.

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

We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

You should not place undue reliance on our forward-looking statements.

In a world where data is increasingly a precious commodity and competitive differentiator, Arista was founded to enable our customers to access all their centers of data in the quickest, most reliable, and secure manner.

Over the last two decades, we have established ourselves as an industry leader in data-driven, client-to-cloud networking-as-a-service.

Our “Centers of Data” strategy is a fundamental pivot from legacy, siloed networking to a unified, data-driven approach in which the network is a service that interconnects four primary domains:

AI Centers, Data Centers, Campus Centers, and WAN Centers.

Anchored by Arista’s state-oriented Extensible Operating System (EOS) and Network Data Lake (NetDL), our network-as-a-service platform delivers a seamless, consolidated networking experience regardless of data location.

Our solutions are differentiated because they:

• offer uncompromising reliability derived from the foundation of robust quality assurance capabilities, and a suite of automated diagnostics;

• are based on advanced open and standards-based technology that avoids what is often expensive vendor lock-in, and

• provide consistent real-time telemetry and intelligent automation to decrease the manual workload on the operator.

Our strategic differentiation enables us to deliver a comprehensive suite of products and services to a global scale.

Through our network-as-a-service approach, we empower customers to seamlessly leverage their data across our entire platform.

By combining world-class engineering with continuous innovation, we provide the predictable performance and simplicity needed to turn data into a sustainable competitive advantage in today’s AI-driven world.

The market for cloud networking is characterized by rapid technological evolution, intensifying competition, and the expansion of generative and agentic AI.

To sustain our success and adapt to the market, we must increase sales in cloud, AI and enterprise data center Ethernet switching/routing markets, and campus workspace markets by leveraging our ability to rapidly develop new features and software applications.

Our growth strategy relies on maintaining our agility and increasing our investment in research and development to deliver market-leading features to enhance the functionality of our existing cloud networking platform, expand our product offerings and build upon our technology leadership.

In addition, we must continue to expand our global sales force and deepen our channel partnerships to reach new customers more effectively and increase sales to existing customers.

Historically, a limited number of customers have accounted for a significant portion of our revenue.

Two of our customers accounted for more than 10% of our total revenue in each of the last three years.

Sales to one end customer represented 16%, 15%, and 21% of our total revenue, and sales to the other end customer represented 26%, 20%, and 18% of our total revenue for the years ended December 31, 2025, 2024, and 2023, respectively.

We have experienced unpredictability in the timing of orders from our high-volume customers, primarily due to the inherent complexity of large-scale orders and fluctuations in their specific demand.

This includes reductions or shifts in their capital expenditure budgets, as well as the impact of their internal cost-reduction and efficiency initiatives.

Furthermore, variability in customer concentration is driven by the timing of new product deployments, customer spending cycles, and the extensive periods required for evaluation, testing, and qualification.

We expect this variability in concentration and sales timing to continue on both a quarterly and annual basis.

Additionally, the pricing discounts typically required for these large-scale orders adversely impact our gross margins.

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.

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As such, demand estimates for our new products are difficult to forecast and can create volatility in our revenue.

In some instances, such factors have had, and may continue to have, an impact on certain current or future projects and reduce our visibility to customer demand and may result in a reduction or uncertainty in the timing of orders from these large customers and increase the risk of charges for excess and obsolete

We remain in a period of new product introductions and expanded use cases, particularly in the AI Ethernet market.

This has resulted in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis.

This has resulted in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our evaluation inventory and product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis.

In addition, if we are not able to satisfy the requirements under customer trials or contracts with acceptance periods, we may be required to accept product returns from our customers, which would prevent us from recognizing revenue on such transactions and may result in the write-down of inventory.

Macroeconomic Update

Global economic and business activities continue to face widespread macroeconomic uncertainties, including the effects of, among other things, inflation, monetary policy shifts, recession risks, potential supply chain disruptions, changes in government administration policy positions, and geopolitical pressures, including escalating international trade measures and tariff uncertainty.

We are working closely with our contract manufacturers and suppliers to optimize our supply chain and production efforts in response to the uncertainty around international trade policy and tariff rates to minimize the impact of the tariffs and any impact on the supply chain of components sourced from affected countries.

While our supply chain has currently not experienced a significant disruption as a result of the recent trade measures, the extent of such policies and tariffs that will ultimately be implemented is unknown at this time, and the future impact to our supply chain and cost of our products is uncertain.

We continue to ship products against previously committed demand/deployment plans and accelerate some deployments where needed, while trying to balance our customers' requirements and lead times with the availability of key components and products and lead times of our key suppliers and contract manufacturers.

Given the timing and prioritization of customer orders and shipment patterns, as well as the timing and outcome of customer trials and contracts with acceptance periods, near term revenue trends may not be reflective of current demand levels, and could benefit from demand/deployment plans that have been previously committed.

We expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions.

The magnitude of these balances and shifting customer product priorities, has resulted in an increased risk that we may not be able to sell all of this inventory, which in turn has resulted in excess and obsolete inventory and may result in additional charges to excess and obsolete inventory and supplier liability.

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.

These cost pressures may be increased if escalating tariff and non-tariff international trade measures continue to affect our supply chain.

We also may not be able to fully mitigate the cost impacts of escalating tariff and non-tariff international trade measures or be able to pass on the full burden of the increase in trade-related costs to our customers, which could further 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.

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 and uncertainty about international trade policy and tariff rates could negatively impact our business, and as a result we may face challenges in implementing countermeasures and responding to these changing trading conditions.

Furthermore, 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.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including the effects of, among other things, inflation, monetary policy shifts, recession risks, supply constraints and potential supply chain disruptions, changes in government administration policy positions, and geopolitical pressures, including the war in Iran and international trade measures and tariff uncertainty.

Management is actively collaborating with contract manufacturers and suppliers to optimize our supply chain in response to component constraints, evolving international trade policies, and tariff uncertainties.

Ongoing supply constraints and future trade measures have and could continue to adversely affect our supply chain stability and increase our product costs.

We are maintaining a disciplined fulfillment cadence to ensure reliable inventory deployment.

As we build capacity to meet escalating d emand, we are shipping products against previously committed demand/deployment plans and accelerating some shipments as needed.

Simultaneously, we are balancing customers’ requirements and lead times against the availability and lead times of key components and products from our suppliers and contract manufacturers.

Given the timing and prioritization of customer orders and shipment patterns, as well as the timing and outcome of customer trials and contracts with acceptance periods, near term revenue trends may not be reflective of current demand levels and may benefit from demand/deployment plans that have been previously committed.

In addition, we expect inventory and purchase commitments to remain elevated and subject to volatility as a result of new product introductions, shifts in customer demand, and fluctuations in supplier lead times.

This volatility creates a heightened risk of excess or obsolete inventory and supplier liability charges.

Simultaneously, supply chain inflation and material scarcity, such as the tightening of supply conditions in the memory and silicon markets, have continued to put pressure on our gross margin.

If tariff or non-tariff measures escalate, and/or if supply conditions worsen and we are unable to pass on

these costs to customers, our gross margins could be further impacted.

Additionally, broader macroeconomic instability could negatively affect demand.

Given these unpredictable factors, current financial conditions discussed herein may not be indicative of future operating results and trends.

Results of Operations

Three and Nine Months Ended September 30, 2025 Compared to Three and Nine Months Ended September 30, 2024

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

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

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

2025 2024 Change in 2025 2024 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2026 2025 Change in

Product $ 2,311.3 $ 1,692.5 $ 618.8 36.6 %

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Revenue by Geography (in millions, except percentages)

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

2025 % of Total 2024 % of Total 2025 % of Total 2024 % of Total

Three Months Ended March 31,

2026 % of Total 2025 % of Total

Americas $ 2,290.1 84.5 % $ 1,598.5 79.7 %

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Product revenue primarily consists of sales of our switching and routing products, and related network applications.

Service revenue is primarily derived from sales of post-contract support ("PCS"), which are typically purchased in conjunction with our products, and subsequent renewals of those contracts.

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

Product revenue increased by $387.9 million, or 25.5%, and $1,205.3 million, or 28.2% for the three and nine months ended September 30, 2025, compared to the same periods in 2024.

This increase reflects increased demand for our switching and routing platforms across our customer base.

In addition, service revenue increased by $109.5 million, or 38.1%, and $239.9 million, or 30.1% for the three and nine months ended September 30, 2025, compared to the same periods in 2024, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

International revenue represented 20.2% and 20.8% of total revenue for the three and nine months ended September 30, 2025, increasing from 18.3% and 19.0% for the same periods in the prior year, which was primarily influenced by changes in the geographic mix of sales to our large global customers.

Service revenue is primarily derived from sales of PCS, which are typically purchased in conjunction with our products, and subsequent renewals of those contracts.

Our revenue may vary from period to period based on, among other things, customer demand, industry and customer cyclicality, the timing, size, and complexity of orders, especially with respect to our large customers, and the time it takes for customers to evaluate, test, qualify and accept our products and services.

Product revenue increased by $618.8 million, or 36.6% for the three months ended March 31, 2026, compared to the same period in 2025.

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

In addition, service revenue increased by $85.4 million, or 27.3% for the three months ended March 31, 2026, compared to the same period in 2025, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

Non-Americas revenue represented 15.5% of total revenue for the three months ended March 31, 2026, decreasing from 20.3% for the same period in the prior year, which was primarily influenced by changes in the geographic mix of sales to our large global customers.

Cost of Revenue and Gross Margin

Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, including freight, and other costs associated with manufacturing our products and managing our inventory and supply chain, including costs related to tariffs on our products that are manufactured internationally.

Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, including freight and tariffs, and other costs associated with manufacturing our products and managing our inventory and supply chain.

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 $168.9 million, or 26.0%, and $500.6 million, or 27.6% for the three and nine months ended September 30, 2025, compared to the same periods in 2024.

Cost of revenue increased by $303.5 million, or 41.6% for the three months ended March 31, 2026, compared to the same period in 2025.

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

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 managing our inventory and supply chain, merchant silicon costs, and excess/obsolete inventory and supplier liability charges.

We expect our gross margin to fluctuate over time depending on the factors described above and may be adversely impacted by unpredictable international trade policy and tariff rates.

Gross margin increased from 64.2% to 64.6% for the three months ended September 30, 2025 , and increased from 64.3% to 64.5% for the nine months ended September 30, 2025 , compared to the same periods in 2024.

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 customers who

generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with our manufacturing operations personnel, inflationary pressure and scarcity of materials in our supply chain, merchant silicon costs, and excess/obsolete inventory and supplier liability charges.

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

Gross margin decreased from 63.7% to 61.9% for the three months ended March 31, 2026, compared to the same period in 2025.

The decrease was primarily driven by an increased proportion of our sales to large end customers who generally receive higher discounts.

Operating Expenses (in millions, except percentages)

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

The largest component of our operating expenses is personnel costs.

Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales commissions.

The largest component of our operating expenses is personnel costs and new product introduction costs.

Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales incentive compensation.

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

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

2025 2024 Change in 2025 2024 Change in

$ $ $ % $ $ $ %

New product introduction costs are primarily comprised of third-party engineering and prototype expenses.

Three Months Ended March 31,

2026 2025 Change in

Operating expenses:

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Research and development

Research and development expenses consist primarily of personnel costs, prototype expenses, third-party engineering costs, and an allocated portion of facility and IT costs.

Research and development expenses consist primarily of personnel costs, new product introduction costs and an allocated portion of facility and IT costs.

Our research and development efforts are focused on new product development and maintaining and developing additional functionality for our existing products, including new releases and upgrades to our EOS software and applications.

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 $90.2 million, or 38.3%, and $177.2 million, or 24.9% for the three and nine months ended September 30, 2025, compared to the same periods in 2024.

The increase for the three and nine months periods was primarily driven by $32.9 million and $70.9 million increases in personnel costs due to headcount growth, and $47.5 million and $78.6 million increases in new product introduction costs, including non-recurring engineering costs as we expand our product portfolio.

We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and 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 $77.3 million, or 29.0% for the three months ended March 31, 2026, compared to the same period in 2025.

The increase for the three months periods was primarily d riven by a $10.9 million increase in personnel costs due to headcount growth, a nd a $52.1 million in crease 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 $44.4 million, or 41.6%, and $78.0 million, or 24.7% for the three and nine months ended September 30, 2025, compared to the same periods in 2024, which was primarily driven by increased personnel costs due to headcount growth.

Sales and marketing expenses increased by $25.0 million, or 21.4% for the three months ended March 31, 2026, compared to the same period in 2025, 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 $1.0 million, or 3.0%, and $11.2 million, or 12.8% for the three and nine months ended September 30, 2025, compared to the same periods in 2024, which was primarily driven by increased professional services and personnel costs.

General and administrative expenses decreased slightly by $0.6 million, or 1.7% for the three months ended March 31, 2026, compared to the same period in 2025.

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

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We expect other income (expense), net may fluctuate in the future as a result of changes in interest rates and changes in our cash, cash equivalents and marketable securities balances.

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

2025 2024 Change in 2025 2024 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2026 2025 Change in

Other income (expense), net:

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Total other income (expense), net $ 113.6 $ 96.2 $ 17.4 18.1 %

The favorable movement in other income (expense), net, during the nine months ended September 30, 2025, compared to the same periods in 2024 was primarily driven by increased interest income of $59.8 million due to an increase in our cash and marketable securities balances.

The favorable movement in other income (expense), net, during the three months ended March 31, 2026, compared to the same period in 2025 was primarily driven by increased interest income of $19.0 million due to an increase in our cash and marketable securities balances.

Provision for Income Taxes (in millions, except percentages)

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

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

2025 2024 Change in 2025 2024 Change in

$ $ $ % $ $ $ %

Three Months Ended March 31,

2026 2025 Change in

Income before income taxes $ 1,271.4 $ 955.0 $ 316.4 33.1 %

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Effective tax rate 19.5 % 14.8 %

On July 4, 2025, the OBBB Act was signed into law in the U.S.

This legislation provides for significant tax law changes and modifications including changes to the U.S.

effective tax rates on certain foreign earnings and permanently repeals the domestic research and development capitalization requirement.

The increase in the effective tax rates in the three and nine months ended September 30, 2025, as compared to the same periods in 2024, was primarily associated with a one-time deferred tax provision arising from the remeasurement of our basis difference associated with the U.S.

tax effect of foreign deferred tax assets resulting from the enactment of the OBBB Act, and a decrease in tax benefits attributable to equity-based compensation.

While some specific provisions of the OBBB Act are not effective until our fiscal 2026 period, our deferred method of accounting policy with respect to U.S.

tax on foreign earnings, known as global intangible low tax income, requires us to account for these changes in the period of enactment.

In addition, we do not anticipate a material impact to our effective tax rate in future periods as a result of the OBBB Act.

The increase in the effective tax rate in the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to a decrease in tax benefits attributable to equity-based compensation.

Liquidity and Capital Resources

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

As of September 30, 2025, our total balance of cash, cash equivalents and marketable securities was approximately $10.1 billion, of which approximately $496.9 million was held outside the U.S.

As of March 31, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $12.4 billion, of which approximately $377.0 million was held outside the U.S.

in our foreign subsidiaries.

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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 ongoing construction of a building for office, lab and data center space.

In addition, we expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions.

In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks and reduce overall lead times, which may increase our working capital requirements.

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

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

In addition, we expect that our inventory and purchase commitments to remain elevated and subject to volatility as we ramp new product introductions.

In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks, and to navigate the tightening supply within the memory and silicon markets and reduce overall lead times, which will increase our working capital requirements in the future.

We regularly review our liquidity and funding sources to support our long-term growth and capital needs.

Cash Flows (in millions)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash provided by operating activities $ 1,693.5 $ 641.7

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Cash Flows from Operating Activities

During the nine months ended September 30, 2025, cash provided by operating activities was $3.1 billion, consisting of net income of $2.6 billion, a net decrease of $424.5 million in working capital requirements, and non-cash adjustments to net income of $129.9 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $1.8 billion primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms and a $117.7 million increase in accounts payable and other liabilities primarily due to timing of inventory-related receipts and payments.

These cash inflows were partially offset by an increase in accounts receivable of $348.9 million due to increased product and service billings, a $321.1 million increase in inventory, a $683.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, and a $105.2 million decrease in income tax payables related to timing of payments.

The non-cash adjustments to net income were driven by stock-based compensation of $306.1 million, and offset by a $202.5 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").

During the nine months ended September 30, 2024, cash provided by operating activities was $2.7 billion, consisting of net income of $2.1 billion along with a net decrease in working capital requirements of $744.3 million, offset partially by non-cash adjustments to net income of $118.1 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $1.0 billion resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, a $175.2 million decrease in inventory resulting from strong product shipments, and a $59.8 million increase in income tax payables, net related to timing of payments.

These cash inflows were partially offset by a $226.6 million decrease in accounts payable and accrued liabilities primarily due to timing of inventory-related receipts and payments, as well as a reduction in supplier liabilities, an increase in accounts receivable of $96.5 million due to increased product and service billings, and a $173.1 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals.

The non-cash adjustments to net income were driven by a $376.7 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 IRC, largely offset by stock-based compensation of $254.6 million and depreciation and amortization.

During the three months ended March 31, 2026, cash provided by operating activities was $1.7 billion, consisting of net income of $1.0 billion, a net decrease of $634.7 million in working capital requirements, and non-cash adjustments to net income of $35.9 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $826.2 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, and a $352.9 million increase in income tax payables related to timing of payments.

These cash inflows were partially offset by a $298.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, and a $133.0 million increase in inventory.

The non-cash adjustments to net income were driven by stock-based compensation of $120.9 million, and offset by a $104.9 million increase in deferred taxes primarily due to the increase in deferred revenue.

During the three months ended March 31, 2025, cash provided by operating activities was $641.7 million, consisting of net income of $813.8 million, offset by a net increase of $159.7 million in working capital requirements.

The increase in working capital requirements primarily consisted of an increase in accounts receivable of $295.4 million due to increased product and service billings, a $173.3 million decrease in other liabilities primarily due to timing of inventory-related receipts and payments, a $122.7 million increase in inventory and $113.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals.

These cash outflows were partly offset by a $241.3 million increase in income tax payables related to timing of payments, and an increase in deferred revenue of $297.4 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms.

Cash Flows from Investing Activities

During the nine months ended September 30, 2025, cash used in investing activities was $2.6 billion, consisting of purchases of marketable securities of $4.8 billion and $300.0 million for the acquisition of VeloCloud.

During the three months ended March 31, 2026, cash used in investing activities was $0.9 billion, consisting of purchases of marketable securities of $1.9 billion.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $1.1 billion.

During the nine months ended September 30, 2024, cash used in investing activities was $1.1 billion, consisting of purchases of available-for-sale securities of $2.6 billion, partially offset by proceeds from maturities and sales of marketable securities of $1.5 billion.

During the three months ended March 31, 2025, cash used in investing activities was $765.9 million, consisting of purchases of marketable securities of $1,545.5 million.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $808.0 million.

Cash Flows from Financing Activities

During the nine months ended September 30, 2025, cash used in financing activities was $970.4 million, consisting of payments for repurchases of our common stock from the open market of $983.0 million.

During the nine months ended September 30, 2024, cash used in financing activities was $291.8 million, consisting of payments for repurchases of our common stock from the open market of $299.8 million, and employee taxes withheld and paid of $47.5 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $55.5 million.

During the three months ended March 31, 2026, net cash used in financing activities was negligible as proceeds from the issuance of stock under equity incentive plans was wholly offset by taxes paid under equity incentive and stock repurchase plans.

During the three months ended March 31, 2025, cash used in financing activities was $793.8 million, consisting of payments for repurchases of our common stock from the open market of $787.1 million.

Stock Repurchase Programs

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, which allowed for stock repurchases of up to $1.2 billion, was completed in May 2025, and the New Repurchase Program allows for repurchases of an additional $1.5 billion.

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.

We did not repurchase any shares during the three months ended September 30, 2025.

During the nine months ended September 30, 2025, we repurchased a total of $921.0 million of our common stock under our Prior Repurchase Program and $62.0 million of our common stock under our New Repurchase Program.

As of September 30, 2025, the remaining authorized amount for repurchases under the New Repurchase Program was $1.4 billion.

In May 2025, our board of directors authorized a $1.5 billion stock repurchase program (the "Repurchase Program").

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

We did not repurchase any shares during the three months ended March 31, 2026.

As of March 31, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million.

Refer to Note 6.

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Purchase Obligations

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 September 30, 2025, we had $4.8 billion of such purchase obligations, of which $4.3 billion are expected to be received within one year, and $0.5 billion are expected to be received after one year.

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

A significant portion of our purchase orders for finished goods and strategic components, including integrated circuits consigned to contract manufacturers, consists of non-cancellable commitments.

Our purchase obligations also encompass software and technology licenses, property and equipment, and other corporate goods and services.

As of March 31, 2026, we had $8.9 billion of such purchase obligations, of which $7.6 billion are expected to be received within one year, and $1.3 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.

Property Project

In July 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space.

As of September 30, 2025, the estimated remaining capital expenditures related to this project are expected to be approximately $170.0 million to $200.0 million through the end of fiscal 2026 when construction is expected to be completed.

In 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space.

As of March 31, 2026, the estimated remaining capital expenditures related to this project are expected to be approximately $130.0 million to $150.0 million through the end of fiscal 2026 when we expect construction to be completed.

Off-balance Sheet Arrangements

As of September 30, 2025, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of March 31, 2026, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Estimates

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To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

We believe the critical accounting estimates in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K filed with the SEC on February 18, 2025 reflect our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements.

We believe the critical accounting estimates in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K reflect our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements.

There have been no significant changes to our critical accounting estimates as disclosed in our Annual Report on Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis