2017 highlights q1
TRANSCRIPT
Copyright © Arista 2017. All rights reserved.Copyright © Arista 2017. All rights reserved.
Arista in Q1 2017
Copyright © Arista 2017. All rights reserved.
Safe Harbor
2
This presentation and the accompanying oral presentation contain forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements other than statements of historical fact contained in this presentation, including information concerning our business plans and objectives, total addressable market, potential growth opportunities, market potential by speed, trends relating to increase in storage, the router market, competitive position, benefits of Arista’s platforms, industry environment and potential market opportunities.
Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause actual results, performance or achievements to differ materially from those anticipated in or implied by the forward-looking statements including risks associated with: Arista Networks’ limited operating history; risks associated with Arista Networks’ rapid growth; Arista Networks’ customer concentration; Arista Networks’ dispute with Cisco Systems, Inc. including the issuance of any ITC remedial orders prohibiting the importation of Arista products (or components thereof) into the U.S., Arista Networks’ ability to obtain a determination that alternative product implementations are not covered by such ITC remedial orders, any penalties assess by the ITC if Arista does not obtain such a determination and Arista Networks’ ability to manage our manufacturing and supply chain including the sourcing of components on commercially reasonable terms, if at all; risks associated with our customer’s adoption of our redesigned products and services; requests for more favorable terms and conditions from our large end customers; declines in the sales prices of our products and services; changes in customer order patterns or customer mix; increased competition in our products and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; the evolution of the cloud networking market and the adoption by end customers of Arista Networks’ cloud networking solutions; Arista Networks’ dispute with OptumSoft; and general market, political, economic and business conditions. Additional risks and uncertainties that could affect Arista Networks can be found in Arista’s Annual Report on Form 10-K filed with the SEC on February 17, 2017, and other filings that the company makes to the SEC from time to time. You can locate these reports through our website at http://investors.arista.com and on the SEC’s website at www.sec.gov.
You should not rely upon forward-looking statements as predictions of future events. Although our management believes that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements.
This presentation is being provided as of May 4, 2017 and the forward looking statements and any other statements contained herein speak only as of the date of this presentation, and we undertake no obligation to publicly update any forward-looking statements or any other statements in this presentation for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations, except as required by law.
In addition to GAAP financial information, this presentation includes certain non-GAAP financial measures. The non-GAAP measures have limitations, and you should not consider them in isolation or as a substitute for our GAAP financial information. There are limitations to the use of non-GAAP measures. Non-GAAP gross margins and non-GAAP operating income exclude the impact of stock-based compensation expenses, expenses associated with the OptumSoft and Cisco litigation, and other non-recurring charges or benefits. See the Appendix for a reconciliation of all non-GAAP financial measures to their nearest GAAP equivalent.
Copyright © Arista 2017. All rights reserved.
Inevitable Shift to Seamless Cloud Networking
3
1970 2008 2010 2012 2015 2017-2020+
10s1,000s
10,000s
50,000sClient Server
High Performance Computing
Leaf-SpineCloud Networks
Software Defined Cloud Networking
Cloud Native Containers
Seamless PICS*
100,000s
Number of ServersLow Latency
Dedicated Networks
Wire-speedNon-Blocking
VirtualizationIP Storage
Zettabytes of Storage100,000s+ of Servers
1,000,000s of VMsConvergence of PICS
ContainerizationMulti-tenant
*PICS – Places In the Cloud
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Cloud vs Enterprise – They are Different Networks
4
Traditional Networking (Legacy) Cloud Networking (Arista)
Serves <100,000 employees Serves hundreds of millions of users
Expensive to build and scale 10x-40x more cost effective
Minimal API usage API for programmatic access
Manual management Automated management
1 Admin: 100 servers 1 Admin: 10K servers
Proprietary lock-in Open
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$0
$5
$10
$15
Arista’s Cloud Networking Opportunity
5
Source: Dell’Oro Market Research, Ethernet Switch Update, January 2017
Server Shipments Data Center Ethernet Switch Revenue
0%
50%
100%
Enterprises/Premises
Cloud and SP
Perc
ent o
f Ser
ver S
hipm
ents
Reve
nue
in $
Billi
ons
Rest of Market(Enterprise and SMB)
Rest of Cloud
Top 7 Cloud Providers
• Enterprise workloads are migrating to public & hybrid clouds• Traditional enterprise served 100,000 employees vs. Clouds @ hundreds of millions of users• The emergence of cloud native apps & containers necessitates a new architecture
Telco SPs
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Arista Market Share vs. Cisco
6
High Speed Data Center Switching Market Share in Ports (10GbE and Higher)
Source: Crehan Research Datacenter Switch Market Share Report Q4’2016.Note: Excludes blade switches.
3.4% 4.9%
6.7%
9.3%
12.0%
14.5%
73.3% 71.4%
70.8%
66.1%
60.7%
52.0% 52.0%
54.0%
56.0%
58.0%
60.0%
62.0%
64.0%
66.0%
68.0%
70.0%
72.0%
74.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
2011 2012 2013 2014 2015 2016
Arista
Cisco
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Market Potential by Speed
7
$0
$5
$10
$15
1 GE
10 GE
Software
40 GE> 100 GE
50 GE*
25 GE*
Data Center Ethernet Switch Revenue ($Bn)
Source: Dell’Oro Market Research, Ethernet Switch Update, January, 2017
*Shows discrete 25G or 50G ports only. Majority of 25/50GE server ports are expected to connect via QSFP-100G break out to 100 GE switchports at the large Cloud Service Providers.
Reve
nue
in $
Billi
ons
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Cloud-Class Market Leadership Platform Portfolio
8
Diverse Merchant Silicon Architectures
Single-Image Arista EOS Across All Platforms
7500E/R Series
7150, 7160 & 7280R Series7050X/7060X Series
LeafEOS
7300X Series
Spin
e/Sp
lineTM
Leaf
Volume Value
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Proven Arista EOS Architecture Flexibility
9
12 Silicon Families
4 Architectures
One Single EOS
Consistent and Open
Bali
Alta
Petra
Arad
Jericho
Trident+
Trident-II
Trident-II+
Tomahawk
Tomahawk+
Helix XP80
Fulcrum-FM BRCM-DNX BRCM-XGS CAVIUM-XPA
Arista EOS
Automation & Programmability Telemetry
Cloud Networking
Abstraction Layer
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Arista’s Cloud Scale Software Architecture
10
Processes are Self-Healing
Legacy – Spaghetti Code Arista Programmable EOS
Susceptible to Process Failure
OTV MSDP PIM IGMP
IGMPSnoop
CoPP
ISISEIGRPOSPFRIPBGP
STP
ACL
U4RIB U6RIB
IPQOS LCFIB
Custom Linux Open Linux
Custom ASICs Merchant Silicon
Publish
Notify
Scalable
Resilient
Programmable
• Arista has ONE Operating System, purpose built for the cloud
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Universal Cloud Network Architecture
11
Core is subsumed in Spine
Access
Distribution
Core Switching
Legacy Core Routing
Optical
DCIInternet DCIInternet
Spine
Leaf
EW
Universal Spine
DCI
Transit Peering
Spine
UniversalLeaf
Internet Inter-DC WAN
Universal Leaf-SpineLeaf/SpineLegacy
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Arista’s ‘5 A’ Architecture
12
Any Cloud API
Analytics
Automation
Available Architecture
Agile Work-X
Datacenter
DCI MPLS WANInternetPublic Peering
DANZ
Savings with faster migration and integration between private and public clouds
3x
Opex savings using single pane of glass for network automation and analytics into public & private cloud
10x
Cost savings using same operational model for public
and private cloud
5x
Seamless Workload Mobility
Best-of-Breed 3rd party Technology Integration
Network State Streaming & Telemetry
Universal Cloud Architecture ANY Workload, Workflow, or Workstream
Cloud Visibility & Telemetry
Open Cloud API Integration & AutomationCloud Orchestration
Private Cloud Public Cloud
BranchOffice
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Foundational High Availability and Resiliency
LEAF
SPINE
NETWORK
SPINE Smart System Upgrade – (SSU)• Maintenance mode• Dual SUP SSO with NSF• MLAG Active/Active L2 SSO
LEAF Smart System Upgrade - SSU• Hitless Software Upgrade• MLAG Active/Active L2 SSO
CLOUDVISION ADVANTAGE• Automated network wide change
controls, including upgrades and rollback
EOS
EOS SOFTWARE ARCHITECTURE• Multi-process state sharing architecture• In-service software patching • Software Fault Containment (SFC) • Stateful Fault Repair (SFR)
13
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Arista EOS Evolution
EOSArchitecture
StateProgrammability
History of Rich Innovation in Extensible – Open – Scalable
2004-2009 2010-2012 2013 2015 2016 2017+2014
EOS Automation
Workflow VisibilityCloudVision®
Workload AutomationEOS SDK
EAAS
EOSHigh Availability
SSUASU
SFC/SFR
VXLAN IntegrationNSX Integration
OpenStack IntegrationEOS+
EOS Scale
EOS Architecture
NetDB
FlexRoute™CV Telemetry MSS SecurityAlgoMatch™
Leaf-Spine CloudMLAG/ECMP/BGP
LANZ/DANZ TelemetryZTP/R
VM Tracer for vCenter
EOSCloud Designs
EOS2017
DANZ 2017Hybrid Cloud
Containerization
14
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Arista EOS Supports Many Roles• We target a large and growing market, $10B+ in 20171
• Our open software approach is applicable to new opportunities• EOS software is our foundational building block which drives TAM growth• Arista has a proven ability to insert and drive sharp share gains• New applications drive higher revenues with major accounts
15
SPINE DCIFLEXIBLE WAN LEAF
CLOUD PEERING EDGE
MONITORING SECURITY MSS
IP STORAGE BIG DATASPINE ROUTING
1 Dell’Oro Ethernet Switch Data Center Forecast, January 2017.
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Disruptive Cloud Economics for Routers
16
Interface Types
100G Density
Software Features
Power(per 100G port)
List Pricing(per 100G port)
Legacy & Ethernet Ethernet
~80 Ports 432 Ports
~200+ watts 25 watts
$100,000+ $3,000
Legacy feature sets
Cloud-optimized Routing, FlexRoute Scale,
Programmable Traffic Engineering
Traditional Router Arista 7500RSpine
7500R disrupting router market w/100GbE routing transition
Arista’s Disruptive Economics
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Next Gen Telco Cloud
Routing Use-Cases - Arista Universal Spine & Leaf
17
DC Universal Spine Content Provider
Internet Inter-DC WAN
SpineCore
DCI
Transit Public Peering
Cloud DC Content Provider
Peer D Peer E
Peer C
Peer F Peer G
Peer H
Private WAN
Software Driven Traffic Engineering Service Provider NFV
Cloud DCI Peering and Interconnect
Path computation
IGP, BGP - Segment Routing
MPLS TE signaling
ProgrammaticAPI’s
DC2
DC1
Segment Routing reduces complexity and improves scale by offering intelligent source routing with globally optimized traffic engineering
WAN
x
Inter-DC Traffic Arista 7500R Universal Spine
Arista 7280RUniversal Leaf
Deep Buffer Leaf-Spine Architecture
SDN Controller
WAN CoreConsumer and Mobile Access
x86
VNF
VNF
VNF
Services Edge
UniversalSpine
Spine
Leaf
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Migration to Cloud Storage Architectures in the Enterprise
18
Traditional EnterpriseStorage
CloudStorage
Transforming Storage Networking
$5/GB ~ 36¢/GB(2-3¢/GB/month)
-6% CAGR + 22% CAGR
Scale-up Scale-out
Siloed Fibre ChannelSANs
Common IP/EthernetInfrastructure
Sources:Cost: Global Financial CustomerCAGR: Crehan Research Inc, April 2016
Sources:Cost: AWS, MSFT Azure List pricesCAGR: Wikibon Server SAN Research Project 2014
Cost per GB
Market Growth
Scaling
Architecture
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Arista’s IP Storage Solution
19
Dedicated Storage Spine(Large)
Storage Spine
App ServersApp Servers IP Storage
Compute Spine
Hyper-converged Storage Racks
(Small)
Hyperconverged Storage/Compute
Dedicated Storage Rack(Medium)
App ServersApp Servers IP Storage
Scalable to Petabytes
Lossless Transport
High Availability Visibility Simplified
ManagementReturn on Investment
Smart System Upgrades, Self-
healing OS
Deep Buffering, VOQ,
DCB/PFC
UCN Architecture, Dense switching
Tracers, State-streaming, Telemetry
CloudVision provisioning and
Change Management
Low power consumption, compact form
factors
Storage Partner Ecosystem
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Arista’s Containerization
20
Run containerized apps on EOSCommon development
environment
Network Visibility into containerized workloads
EOS running in a Container, as a packaging option
Common development environmentFlexible platform support
Designed for DevOps and MicroservicesContainer
TracerContainerized EOS
(cEOS)Containers
on EOS New
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Cloud Networking is Everywhere: Three Key Segments
21
Enterprises
Turnkey Driven
§ Compute, Storage, Security Tech Partners
§ CloudVision Turnkey§ Solution Driven§ Virtual Branch Leaf
Arista Cloud Converged
Titans
Scale and Control Driven
§ 25/50/100GbE Scale § Internal Projects§ API controls§ Spine & HA§ EOS Leaf for Control
AristaCloud Scale
Key Verticals
Best of Breed Driven
§ Leaf-Spine Switching§ Spine Routing§ UCN Designs§ Best of Breed
Platforms§ Highest EOS
Preference
Arista CloudClass
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Major Verticals
22
Note: By Billings. Only selected verticals shown. Diagram not to scale.
79%
21%
U.S. International
Moderate
Large
Follower Early AdopterPace of Adoption
Financial Services
Tier 1, 2, 3 Service Provider
Cloud Specialty & HostingProviders
Rest ofEnterprise
Cloud Titans
Retail
Government
Oil & GasBusinessServices
Manufacturing
ResearchLabs
Healthcare
Education
Media &Entertainment
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Foundational Technology Underpins TAM Expansion• We partner with customers and follow their journey• EOS software drives repeat purchases, Arista cultivates customer advocacy• EOS software organically enables additional use cases
23
Chart illustrates the top 15 customers based on the last 12 quarters of total product and service billings.
Additional Purchases
Did Not Purchase
Top 15Customers
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Customer1
Customer2
Customer3
Customer4
Customer5
Customer6
Customer7
Customer8
Customer9
Customer10
Customer11
Customer12
Customer13
Customer14
Customer15
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1 Amounts are non-GAAP except for Revenue; refer to reconciliation between non-GAAP and GAAP in the appendix.24
Financial Highlights1
Note: non-GAAP, excludes stock-based comp.
196 218 245 242 269 290 328 335$0
$50
$100
$150
$200
$250
$300
$350
$400
Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Millions Total Revenue
65.8% 65.5% 64.0% 64.4% 64.1% 64.6% 64.4% 64.2%
0%
10%
20%
30%
40%
50%
60%
70%
Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Gross Margin
27.6% 27.3% 29.1% 28.9% 27.9%
30.0% 32.3%
30.2%
0%
5%
10%
15%
20%
25%
30%
35%
Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Operating Margin
0.54 0.59 0.80 0.68 0.74 0.83 1.04 0.93$0.00$0.10$0.20$0.30$0.40$0.50$0.60$0.70$0.80$0.90$1.00$1.10
Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Diluted EPS
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Balance Sheet & Cash Conversion Cycle
135 147 210 253 209
51 50
67 71
56
0
10
20
30
40
50
60
70
80
$0
$50
$100
$150
$200
$250
$300
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Milli
ons
AR and DSOARDSO
84 118 162 236 287
3.6 3.5
2.7
2.2
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
$0
$50
$100
$150
$200
$250
$300
$350
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Milli
ons
Inventory and Turns
InventoryTurns
12798
133
177
228
0
50
100
150
200
250
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Cash Conversion Cycle
(R)
762 824 800 868 1,043$0
$100 $200 $300 $400 $500 $600 $700 $800 $900
$1,000 $1,100
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
Milli
ons
Cash, Cash Equivalents & Marketable Securities (R)
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Arista in Q1 2017
26
Mission:Deliver the best cloud networking solutions for private, public and hybrid cloud deployments
Containerized EOS (cEOS) supports alternate models of procuring, packaging and deploying Arista’s EOS® across cloud, enterprises and service providers.
Arista Data ANalyZer DANZ 2017 R-Series Universal Leaf and Spine platforms support improved visibility to 25G and 100G networks. DANZ combined with Arista CloudVision® delivers hyperscale visibility securing today’s cloud centric applications and workflows.
Continued adoption of Cloud Networking across key verticals.
Q1’17 Revenue: $335.5M
Q1’17 EPS: $0.93*
Q1’16-Q1’17 YOY Revenue Growth: 38.5%
Q1’17 Gross Margin: 64.2%
Q1’17 Operating Margin: 30.2%
Key Highlights Financial Results (non-GAAP)1
1 Amounts are non-GAAP except for Revenue; refer to reconciliation between non-GAAP and GAAP in the appendix.* Diluted shares increased to 77.5M vs. consensus at 75M due to adoption of ASU 2016-09. This reduced non-GAAP EPS by $0.02
Copyright © Arista 2017. All rights reserved.27
Appendix: GAAP to Non-GAAP Reconciliation
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Legal Status – 2017 Timeline
28
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
944
945
944CBPHearingFeb.13
944CBPDecisionApril7
945IDDec.7
945FDMay4
944IDJune20
944FDSept20
IPRs
IPRHearingMarch7
IPRFWDJune11
Endof945PRPJuly3
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