Arista Networks, Inc.

Previous wording

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. 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 expectat…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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. 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 expectation that large purchases by a limited number of customers will continue to represent a substantial portion of our revenue; 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 beliefs regarding the effects our large customers' increased focus on deploying Ai-enabled solutions, including on the level, timing and mix of their purchases and capital expenditures; the amount and timing of revenue we expect to recognize from our deferred revenue and other performance obligations; 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 expec…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

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 demand, 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.

Current wording

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 scale fulfillment to meet escalating demand, we are shipping products in line with customer deployment schedules and adjusting delivery timelines as component availability allows. Simultaneously, we are balancing customer lead time expectations 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 or the underlying timing of customer commitments.

Previous wording

Three and Six Months Ended June 30, 2026 Compared to Three and Six Months Ended June 30, 2025

Current wording

Three and Nine Months Ended September 30, 2026 Compared to Three and Nine Months Ended September 30, 2025

Previous 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.

Current wording

Product revenue increased by $1,278.3 million, or 66.9%, and $2,625.3 million, or 47.9% for the three and nine months ended September 30, 2026, compared to the same periods in 2025. This increase reflects healthy customer demand of our switching and routing platforms across our customer base. In addition, service revenue increased by $71.0 million, or 17.9%, and $259.1 million, or 25.0% for the three and nine months ended September 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 18.6% and 19.1%of total revenue for thethree and nine months ended September 30, 2026, compared to 20.2% and 20.8%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 $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.

Current wording

Cost of revenue increased by $513.8 million, or 62.8%, and $1,176.5 million, or 50.9% for the three and nine months ended September 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

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.

Current wording

Research and development expenses increased by $160.9 million, or 49.4%, and $289.9 million, or 32.6% for the three and nine months ended September 30, 2026, compared to the same periods in 2025. The increase for the three andnine months periods was primarily driven by increased personnel costs of $18.5 million and $77.9 million, as well as an increase in new product introduction costs of $137.0 million and $203.6 million, respectively.

Previous 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.

Current wording

Sales and marketing expenses increased by $5.4 million, or 3.6%, and $54.2 million, or 13.7% for the three and nine months ended September 30, 2026, compared to the same periods in 2025, which was primarily driven by increased personnel costs due to headcount growth.

Previous wording

Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities. 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.

Current wording

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

Previous 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.

Current wording

The favorable movements in other income (expense), net, during the three and nine months ended September 30, 2026, compared to the same periods in 2025 were driven by gains on strategic investments and the increases in interest income.

Previous 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.

Current wording

The decrease in the effective tax rate in the three months ended September 30, 2026, as compared to the same period in 2025, was primarily due to a one-time deferred tax provision resulting from the enactment of the OBBB Act in 2025. The increase in the effective tax rate in the nine months ended September 30, 2026, as compared to the same period 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 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.

Current wording

Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of September 30, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $14.4 billion, of which approximately $1.0 billion was held outside the U.S. in our foreign subsidiaries.

Previous 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.

Current wording

During the nine months ended September 30, 2026, cash provided by operating activities was $4.0 billion, consisting of net income of $3.8 billion, and favorable non-cash adjustments to net income of $670.8 million, and partially offset by a net increase of $489.6 million in working capital requirements. The non-cash adjustments to net income were driven by stock-based compensation of $379.4 million, and a $369.3 million decrease in deferred income taxes. Within working capital, the primary source of cash was 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. These cash inflows were offset by a $962.8 million increase in inventory, a $604.2 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, an increase in accounts receivable of $440.9 million due to increased product and service billings and a $159.9 million change in income taxes, net.

Previous 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.

Current wording

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").

Previous 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.

Current wording

During the nine months ended September 30, 2026, cash used in investing activities was $3.7 billion, consisting of purchases of marketable securities of $6.4 billion. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $3.0 billion.

Previous 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.

Current wording

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. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $2.6 billion.

Previous 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.

Current wording

During the nine months ended September 30, 2026, cash provided by financing activities was $9.5 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 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.

Current wording

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 and $44.3 million taxes paid under equity incentive plans, partially offset by $56.9 million proceeds from the issuance of stock under equity incentive plans.

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 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.

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 nine months ended September 30, 2026. As of September 30, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million. Refer to Note 5. 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. 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.

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 September 30, 2026, we had $11.4 billion of such purchase obligations, of which $9.3 billion are expected to be received within one year, and $2.1 billion are expected to be received after one year. Purchase commitments with our contract manufacturers and suppliers generally reflect fixed pricing and quantities, but certain arrangements may include variable pricing mechanisms. These obligations 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

Our management’s discussion and analysis of financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. 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 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.

Current wording

Our management’s discussion and analysis of financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. 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 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 for the year ended December 31, 2025.