Arista Networks, Inc.

Previous wording

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.

Current wording

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

Previous wording

We believe an increased focus on the deployment of AI-enabled solutions by our large customers has accelerated the need for advanced technology offerings, including some offerings from potential new market entrants. This prioritization and acceleration of AI related infrastructure investment has, at times, come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures. In addition, although the focus on deployment of AI-enabled solutions has driven increased demand for networking, the long-term trajectory is unknown. As such, demand estimates for our new products are difficult to forecast and can create volatility in our revenue. 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 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.

Current wording

We believe an increased focus on the deployment of AI-enabled solutions by our large customers has accelerated the need for advanced technology offerings, including some offerings from potential new market entrants. This prioritization of AI related infrastructure investment has, at times, come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures. In addition, although the focus on deployment of AI-enabled solutions has driven increased demand for networking, the long-term trajectory is unknown. As such, demand estimates for our new products are difficult to forecast and can create volatility in our revenue. 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 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.

Previous wording

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.

Current wording

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, tightening supply conditions 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.

Previous wording

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 thethree 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.

Current wording

Product revenue increased by $728.2 million, or 38.8%, and $1,347.0 million, or 37.7% for the three and six months ended June 30, 2026, compared to the same periods 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 $102.7 million, or 31.3%, and $188.1 million, or 29.4% for the three and six months ended June 30, 2026, compared to the same periods 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 23.0% and 19.4%of total revenue for thethree and six months ended June 30, 2026, compared to 21.8% and 21.0%for the same periods in the prior year. These fluctuations are primarily driven by changes in the geographic mix of sales to our large global customers across our Non-Americas regions.

Previous wording

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.

Current wording

Cost of revenue increased by $359.2 million, or 46.9%, and $662.7 million, or 44.3% for the three and six months ended June 30, 2026, compared to the same periods in 2025. These increases were primarily driven by a corresponding increase in product and service revenues.

Previous wording

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.

Current wording

Gross margin decreased to 62.9% and 62.4% for the three and six months ended June 30, 2026, compared to 65.2% and 64.5% for the same periods in 2025. The decrease was primarily driven by an increased proportion of our sales to large end customers who generally receive higher discounts.

Previous wording

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 driven by a $10.9 million increasein personnel costs due to headcount growth, and a $52.1 million increase in new product introduction costs.

Current wording

Research and development expenses increased by $51.7 million, or 17.4%, and $129.0 million, or 22.9% for the three and six months ended June 30, 2026, compared to the same periods in 2025. The increase for the three and six months periods was primarily driven by increased personnel costs of $33.3 million and $59.4 million, as well as an increase in new product introduction costs of $8.3 million and $58.8 million.

Previous wording

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.

Current wording

Sales and marketing expenses increased by $23.8 million, or 18.8%, and $48.8 million, or 20.1 for the three and six months ended June 30, 2026, compared to the same periods in 2025, which was primarily driven by increased personnel costs due to headcount growth.

Previous wording

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.

Current wording

The favorable movement in other income (expense), net, during the three and six months ended June 30, 2026, compared to the same periods in 2025 was primarily driven by increased interest income of $32.0 million and $50.9 million due to an increase in our cash and marketable securities balances.

Previous wording

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.

Current wording

The increase in the effective tax rate in the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to a decrease in tax benefits attributable to equity-based compensation.

Previous wording

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

Current wording

Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of June 30, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $13.3 billion, of which approximately $0.5 billion was held outside the U.S. in our foreign subsidiaries.

Previous wording

Our cash, cash equivalents and marketable securities are held for general business purposes, including the funding of working capital. Our marketable securities investment portfolio is primarily invested in highly-rated securities, with the primary objective of minimizing the potential risk of principal loss. 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 and thereafter for the foreseeable future. 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 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.

Current wording

Our cash, cash equivalents and marketable securities are held for general business purposes, including the funding of working capital. Our marketable securities investment portfolio is primarily invested in highly-rated securities, with the primary objective of minimizing the potential risk of principal loss. 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 and thereafter for the foreseeable future. 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. Additionally, our working capital and operating cash flows may experience timing differences as a result of certain large customer arrangements that include extended payment terms. Furthermore, we expect 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.

Previous wording

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.

Current wording

During the six months ended June 30, 2026, cash provided by operating activities was $2.8 billion, consisting of net income of $2.2 billion, a net decrease of $476.4 million in working capital requirements, and favorable non-cash adjustments to net income of $64.3 million. The reduction in working capital requirements primarily consisted of an increase in deferred revenue of $1.5 billion primarily resulting from an increase in product deferred revenue related to customer contracts with acceptance terms and an increase in customer PCS contracts, and a $198.4 million increase in income tax payables related to timing of payments. These cash inflows were partially offset by a $619.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, an increase in accounts receivable of $379.3 million due to increased product and service billings, and a $288.2 million increase in inventory. The non-cash adjustments to net income were driven by stock-based compensation of $241.3 million, and offset by a $213.1 million increase in deferred taxes primarily due to the increase in deferred revenue.

Previous wording

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.

Current wording

During the six months ended June 30, 2025, cash provided by operating activities was $1.8 billion, consisting of net income of $1.7 billion along with a net decrease of $293.3 million in working capital requirements, offset by non-cash adjustments to net income of $154.1 million. The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $1.1 billion primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, a $152.4 million increase in income tax payables related to timing of payments, and a $110.3 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 $483.1 million due to increased product and service billings, a $224.5 million increase in inventory and a $403.2 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 $337.9 million increase in deferred taxes primarily due to the increase in deferred revenue and the capitalization of research and development costs under Section 174 of the Internal Revenue Code ("IRC"), largely offset by stock-based compensation of $178.2 million.

Previous wording

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.

Current wording

During the six months ended June 30, 2026, cash used in investing activities was $2.4 billion, consisting of purchases of marketable securities of $4.3 billion. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $2.0 billion.

Previous wording

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.

Current wording

During the six months ended June 30, 2025, cash used in investing activities was $1.4 billion, consisting of purchases of marketable securities of $2.7 billion and $300.0 million for the acquisition of VeloCloud. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $1.7 billion.

Previous wording

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.

Current wording

During the six months ended June 30, 2026, cash used in financing activities was $1.5 million, consisting of proceeds from the issuance of stock under equity incentive plans, and offset by taxes paid under equity incentive and stock repurchase plans.

Previous wording

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.

Current wording

During the six months ended June 30, 2025, cash used in financing activities was $991.0 million, consisting of payments for repurchases of our common stock from the open market of $983.0 million.

Previous wording

From time to time, we repurchase shares of our common stock pursuant to repurchase programs that are funded from working capital. 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. Stockholders' Equity and Stock-Based Compensation of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for further discussion.

Current wording

From time to time, we repurchase shares of our common stock pursuant to repurchase programs that are funded from working capital. 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 six months ended June 30, 2026. As of June 30, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million. Refer to Note 6. Stockholders' Equity and Stock-Based Compensation of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for further discussion.

Previous wording

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.

Current wording

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. As of June 30, 2026, we had $9.7 billion of such purchase obligations, of which $9.4 billion are expected to be received within one year, and $0.3 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.

Previous wording

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.

Current wording

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 June 30, 2026, the estimated remaining capital expenditures related to this project are expected to be approximately $110.0 million to $135.0 million through the end of fiscal 2026 when we expect construction to be completed.