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ANET Arista Networks

Participants
Chuck Elliott Director of Business and Investor Development
Jayshree Ullal President and Chief Executive Officer
Anshul Sadana Chief Customer Officer
Ita Brennan Chief Financial Officer
Manuel Rivelo Chief Sales Officer
Jason Ader William Blair & Co. LLC
Alex Kurtz KeyBanc Capital Markets, Inc.
Samik Chatterjee JPMorgan Securities LLC
Jim Suva Citigroup Global Markets, Inc.
Ittai Kidron Oppenheimer & Co.
Jeffrey Kvaal Nomura Instinet
James E. Faucette Morgan Stanley & Co. LLC
Rod Hall Goldman Sachs & Co. LLC
Paul Silverstein Cowen & Company
Sami Badri Credit Suisse Securities LLC
Alex Henderson Needham & Co. LLC
Aaron Rakers Wells Fargo Securities LLC
Simon M. Leopold Raymond James & Associates, Inc.
Michael Berg JMP Securities LLC
Steve Milunovich Wolfe Research, LLC
Srini Pajjuri Macquarie Capital, Inc.
James Fish Piper Jaffray & Co.
Hendi Susanto Gabelli & Company, Inc.
John Marchetti Stifel Financial Corp.
Call transcript
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Operator

Welcome to the Fourth Quarter 2018 Arista Networks Financial Results Earnings Conference Call.

During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section at the Arista website following this call. the to turn now will call Mr. over I and Elliott, Director Development. Business of Chuck Investor begin. may you Sir,

Chuck Elliott

Thank December afternoon, are results announcing operator. and afternoon With quarter Networks' you, Arista Good fourth and for Ita me XX, joining you President year a Financial and on its us. Brennan, for Networks Arista's fiscal today's Officer. Executive issued the call Chief Jayshree XXXX. Chief Arista everyone, Ullal, ended Officer; and This thank release press

the of at copy you a can online like would you it release, the access If website. company's

of this the course to call, During the fiscal opportunity, will please statements management make outlook benefits innovations, expressed on to note financial obligation statements, call. which to of statements. first relating certain conference those industry basis Arista adjusted of we XXXX These results and in We market exclude these year, and apply our Networks' a impact undertake of as which with filed including on as quarter anticipated statements you no representing Form to most that for charges. from and forward-looking the and we today XX-Q measures after non-GAAP our our this those future. this them financial update on these litigation, XX-K, that uncertainties certain and are acquisitions would Also, views differ our subject use not forward-looking call by rely materially and have SEC, in the are detail our actual recent discuss Form recent specifically in risks the in to the documents of the should been cause

the GAAP will these in non-GAAP We release. earnings over Jayshree. measures have financial turn to With our that, provided financial measures press of to I call reconciliations

Jayshree Ullal

quarter call. XXXX you, Thank fourth everyone, to Happy welcome earnings Valentine's Day, our and Chuck.

Services record overall percentage end In share with typically our profitability of revenue, our to the earnings a contributed revenue consistent once QX as with per non-GAAP specifics, growth it of grew million, of non-GAAP a demonstrated revenue of $XXX.X approximately year. our $X.XX. XX.X% was towards again combination the of being while terms higher QX

a margins influenced strongly our gross at were in by XX.X%. came XXXX cloud margins our from in vertical. titan non-GAAP Overall, Our performance XX.X%, basis

Microsoft trends, acquired a the record number approximately of a In our of customer in year million release vertical one-of-a-kind of By Microsoft. terms XXXX QX, made we at a total revenue cumulative customers of with certifications XXXX, unprecedented at design of legal $X the with registered to enterprise had with we wins, year unique The of XX% combination revenue. coupled of X,XXX momentum. end customers an of deferred multiple symptomatic due

They DCI diverse and Our cases there. networking. regional cases to transcend are use spine datacenter use very routing classical

spend. Microsoft So normal server teens band CapEx storage been have factors, this often have years. like it to to and they spend these directly likely onetime of of of more in been would collective network makes correlate prior difficult Without in the revenue,

licenses, FlexRoute low financials a titan growth have in represented X second by point now providers place. with are strong and annual third XXXX. and increased our somewhat customers. customers our strongest high-tech said, XXX customers we from after us, strengths, QX verticals, segment cloud and largest were fourth represented XX% been XXX service of software providers service negative in tied pleased industry cloud acceptance with our top vertical. our segment very with specialized Consistent XXXX the growing XXXX. for in That for a largest to of XXXX fastest providers tier throughout by They of The our titans is terms cloud place, XXXX In followed in growing and second our X fact and the modern enterprise

not XX%, with XX% entirety, the Looking in year prior too different years. the the from XXXX international was XXXX contribution Americas in at at coming

XXXX, flagship networking. new In with XXX particular, XXXX networking we CloudVision delivered highly software terms our introduced also tracers our and differentiated an EOS of In and for become Cloud gold titan been standard with significant highlight time, segmentation and Undoubtedly, like Arista year containerization, XX%, of APIs stack, XXXX and cloud redefining management $X.XX In our a AWS, Anshul doubled has banner from GCP recap and products, disruptive here. with The XXXX platforms. Arista and and of the with analyzers. These have CloudVision for substantial software products revenue contribution in been included Ethernet to innovations. Any we substantial I'd software strategy our customers gigabit cloud cloud vertical. Anshul? have management this year annual security over indeed At to growth transformational. our a success really Azure invite Sadana of have series billion

Anshul Sadana

you, Thank Jayshree.

traditional pioneered we spine Arista and X-tier roles, cloud. datacenter as we using in which now are a networking products of places PICs While our customers our mission the both within with cloud boundaries, leaf the or designs, term multitude outside in

We peering backbone encryption metro PIC Wire private are spine, speed MACsec has that encryption and spine, secured in leaves bare our of customers. interconnect, spine, interconnect, DCI, cluster long-haul facility roles, extended successfully now regional XXX-bit the leaf, datacenter deployed all many cases. traffic metal, use

EOS cases, the programmability EOS SDK. use recent for via our speeds, to strongly robust In Arista APIs cloud's and to is due quality, mission-critical addition superior preferred

Our monitoring engineering analytics, telemetry delivers these traffic of and networks. state-based world-class real-time

of you, a increasing for as compelling architectures build partnership ever generation our All with customers a to these collaborative Back next created advantages workloads. Jayshree. have cloud with

Jayshree Ullal

the Anshul. Arista networking over siloed March Anshul, places contributor pillar future to very to switch expanded networking as customer XX officer. product product demonstrating of many that functions management manufacturing our way. the XXXX, on but with depth know platform continues Anshul worldwide for router and in augments promotion. been to is Anshul me of box and has a operations. may cloud Thank Anshul in at of really cloud. you present chief his differentiation or promotion facing typical not well-deserved years, Arista key join area this a keen Arista operating Please consistent engineering, driving I'm you, of congratulating, to a role, fact Effective announce pleased unique a a the In Sadana sense drive alone, do in his in where software-driven and

As we in number one Ethernet market switching believe the for hold we we share spot XXXX, exit speed port XXX-gigabit segment. datacenter high the in

officers team ways, platform have this the executive McCool, newly two I mentioned officer. chief As our officer addition goal. team, Rivelo, John We last to of including our year, company appointed our the custom and accomplished scaling a chief was senior Manny leadership many and stated the

transactions year, and last Wi-Fi latency Cognitive successfully in Networks Mojo We - also campus this two the integrated our for for M&A ultra-low Metamako year first networking.

networking bar topnotch Our X,XXX maintaining increasingly talent. X,XXX increased is the with alternative. from like cloud seat to me XXXX, more What for next to financial Ita a it area as employee to how and with seeking clear bench at is XXXX, And that while I'd relevance specifics. Arista very for enterprises in table generation high to is compelling that strategic to a turn strength over gaining in

Ita Brennan

XX% compensation QX revenues results and our our XXXX recent $XXX.X to business. across up earnings afternoon. guidance non-GAAP and the renewals excludes of revenues quarter non-recurring level and total the in associated is International demand on higher from Thanks, charges quarter. XX% release. for in full with seasonally year-over-year Jayshree our year results million, at in good revenue, experienced This down items. in strength Total XX.X% to QX of the non-cash a million. above reconciliation our with is million, XX% reflecting our of and $XXX.X the impacts, and quarter 'XX We in quarter, ongoing our approximately based stock-based for all selected full analysis prior to came the of A other guidance represented last provided $XXX QX Service $XXX related of acquisition losses period. at our XX.X% a private good from was overall investments, non-GAAP up company revenue, revenues in GAAP and

consistent by of strong mix a of deployments This year, from basis international reflected XX% healthy trade in cloud and titan year-over-year total our margin US higher our gross as and approximately in down at the of region vertical. a above previously on was expected, our period at XX.X%, Looking mix the the Overall remained offset businesses, titan revenue. guidance a reflected related growth from some incremental XX, announced in QX tariff. to just cloud revenues the last This and quarter. XX of to mix XX.X% of midpoint international costs

$XXX.X were to operations an from $XXX.X with of costs. good continue a dollar R&D basis. or up X.X% ongoing chain spending was team the growth related or in at $XX.X see and some mostly these costs, towards Operating quarter making million the revenue the a from XXXX. remainder Sales the to the came costs for quarter quarter. flat XX.X% by spending we QX. reflected million pending $XX changes. revenue, will marketing to to supply expect In our headcount $XXX.X on offset we million absolute of prototype million impact last of higher and these quarter, expenses continued expense in sales of customers and portion to in the increased mitigating NRE third This last While last pass of up quarter interim, headcount tariff-related completion required progress are million,

at costs G&A revenue. consistent Our of remain approximately X.X%

was revenue. a net Other or income the $X.X favorable quarter million at quarter effective resulted for rate and million XX.X%. $XXX.X Our quarter income the and or XX.X% expense tax operating income for was million the This XX.X%. was consistent of our for of $XXX.X

XX.XX per year. the for Our number $X.XX earnings the diluted million from a share share XX.X% in quarter for quarter was shares number diluted up resulting last up

supply ended $XXX from cash the in working We Now generated income at period. million of increases improvements in days timing generated Cash, of raw in billion. were days strong Inventory in finished which last turning materials of we Inventory $XXX.X the reflects the billings for million year, equivalents up approximately sheet. reflecting This $XXX net you quarter. new related ramp quarter. prior and from quarter. turns the included payment amounts. reflecting came of performance in balance the DSOs third quarter cash million and the combined in the deferred Cisco primary QX, with settlement from operations as goods to in the cash supply products. $X $XXX the in investment times, at of quarter and from million quarter, chain chain million for operations X.X XX XX up Overall X.X the down capital the to revenue the increased slightly from in $XXX.X increased

with of the $XX.X million recording another addition, we quarter, the deposit consistent at quarter. last asset a inventory of In maintained end further

Our total up from QX. deferred revenue in $XXX.X million balance was $XXX.X

deferred closing XXXX product representing expenditures in amount revenue of customer $XX revenue of end prior again the for acceptance product by Microsoft deferred with days, the redesign balance deferred on product for XXXX. a were not product XX a as balance of timing the products. payable makeup contributor increased was $X.X approximately XX the deferred the XXXX effecting flat and was in compared the Our however portion revenue balance, year. inventory QX, of days to quarter the Accounts customer were year the of a receipts Microsoft requirements a the and The up Capital shift at million. negligible essentially qualifications meaningful quarter reflecting significant payments. in to new There million

and per the XX% basis. turning earnings financial we beyond, with Now, outlook XXXX to our quarter performance, growth strong for a are and year-over-year pleased on XX% with growth share in first revenue our

with customers all As on and key expanding believe we of remain our we positioned are our forward, focused across the well we presence look verticals. cloud

XX% the year-over-year $XXX quarter the for are guidance million, midpoint. growth first represents million to revenue Our at $XXX

range. On customer where margin gross of within the XX%, margin we operate mix our being key gross and we driver this reiterate with outlook the front, would XX% of

With I our relation can quarter, non-GAAP $XXX backdrop, first see business. XX%; of and approximately the we expected maintaining the ramp, this margin impacts effective this compensation which the the while turn diluted While discussed expansion XX% any the of We to expect on approximately a be in approximately non-recurring results and support believe make gross to of remain to approximately million. items to is and based margins to approximately operating other $XXX to XX.X%; for some is excludes reasonable as should million; XX%; top-line investments as spending shares now Chuck. growth revenues to you previously guidance XX% back of tax our approximately stock-based million margin call range. operating rate be cautious non-cash our accomplished us Chuck? the in is necessary XX.X follows: will given

Chuck Elliott

Thank you, Ita.

question. that We portion constraints, I'd going request queue time a to single everyone move to themselves are Arista to please to like limit the Due the now of earnings.

Operator

We of of [Operator Instructions] with portion will Blair. now question from call. comes earnings the line begin Your the the Q&A Arista Ader first William Jason

Your line open. is

Jason Ader

Jayshree, you some thought - full Yes, know I'm of if in sure at for have this. you you. not But don't about you thank I guidance providing year guys debated XXXX revenue? all terms

Jayshree Ullal

only imagine it. have think debated Yeah, have we it, Jason, you you well all I not can debated

If you at history since annual never look short back X-year guidance. have IPO, our we provided

I think made our exception know and an correct therefore, and let significantly was And we we that it we guidance. took when guidance. course you to exception was than felt once, off our way wanted consensus that that, different to

of we want your mode go quarterly and think current consensus you assume I to with comfortable can normal not that estimates. guidance that So since we're that our to back we're doing safely

Jason Ader

you. Thank

Jayshree Ullal

Thanks, Jason.

Operator

- Your next oh, sorry.

Alex KeyBanc Capital with question Markets. Your from next comes Kurtz

open. line is Your

Alex Kurtz

Thanks question happy the taking for Day. Valentine's and

this should like not year? guidance, of the just we comment a that. to have that's know how teen, out Microsoft and for for for XXXX, on modeling I and I'd Jayshree us pushing great you significant thinking titans that's frame of happen you're maybe contribution revenue. in growth like about Ita to Just and you above seems finished sort here titan a our could of giving And well frame XX% for us Microsoft us cloud was that. it might contribution because cloud that, what how of upside help think lot on maybe for obviously, were but

Jayshree Ullal

will revenue. well, repeat. we year to don't Alex. repeat, Microsoft. what but don't one-of-a-kind continue to love back believe normal truly is We I Yeah, to or And they so percentage love customer expect more is you concentration general We unprecedented we but would to Happy thanks will in as Valentine's XX% for all. our a that expect you Day And go with once-in-a-lifetime in that. say that this we be to XXXX, of an

well XXXX. X top titans I typically continue important for extremely us. to major cloud the Arista think as of part contributions to as did contribute the that XX in make category a cloud customers titans All

balance that them expect there about in you're we in of between expect and the We always be of a to in cloud XXXX. were I And category higher the will think in third right X some they in revenue XXXX. contribution But the different be the shift a assuming as likely due be XXXX our still to titan. concentration to Microsoft

Alex Kurtz

you. Thank

Jayshree Ullal

Thank you.

Operator

Morgan. Your next JP question comes Chatterjee from Samik with

line Your open. is

Samik Chatterjee

cloud the And, driven the additional spend XXXX? Do that? in see I a with the the kind their with based congrats parts that Hi. tier as Thanks for about? datacenter product the to and the taking How Anshul networking remarks as question. on the of even had titans X the on you well of uses outside that of expand that room Anshul, that question datacenter obviously Arista's had more primarily promotion. about you seeing and cloud prepared broad customers probably strength on outperform has of just had cloud - the to us providers, overall you a is think Can in all help here. you more see some

Anshul Sadana

have routing, displacement. didn't wavelengths, the are [fifty-nine] encryption, is cloud you're but able more higher many doing are DCI significantly one expanded networks us resilient. TAM. leaf/spine metro, that, are as right. these in peering a Samik, some addition the as architectures, But to the able use we participate emitting we a These architectures The this you of are cases regional we result expanding of this highly to us for regional of that There not that architectures build with are pretty much new take smaller be [ph], But to DWDM into. we that an parallel but able one spines; titans goal do in and now cases, fabrics, just not that cloud network within same the mythical resilient to join colored of a out smaller And it's kilometer to products plus. Certainly, the just XXX the now are in is new just lid. considered or are a of it's past, switch, increasing always that that on use and our approach, area the focus but a or whether have one much some and even companies, on scale, many and that wider the of to

Samik Chatterjee

it. Got Okay. you. Thank

Jayshree Ullal

Thanks, Samik.

Operator

next comes oh, - question next with Your - Jim Citi. from Suva your sorry

is open. Your line

Jim Suva

much. very Thanks

during or outlook, that that outlook to of rate? your tariff China, be the those contain say comments or tariff assembled products for all coming it across was potential you the on the made China revenue products that prepared and Florida sure And you're your building may or I'm because mean XX% parts. in for the you On actually did is and XX% could lot comments your just a in Guadalajara that

just understand So the help us can tariff you're situation? navigating how through

Jayshree Ullal

Yeah, Ita, China. much QX components we it we come pass is Jim. let still in in in What over QX is impact I'll continue there of our Clarify tariffs to from and to of many these reiterate because cost, me very the said and

have second tariff but was cost, fee, of that So to as XX% derivative increase. to you X.X% will. contract the tariff response you different assuming even have the move some you absorb effects manufacturers, also can Arista's to a if

lot still that XX% speculation impact made to want the of you there. no that? have is assumptions the to increase, Ita, on add on We of since there a

Ita Brennan

Yeah.

actually are we It for again, supply optic we're start we with takes tariff, that time I on system and and We'll to to plans, apply on takes have the just the affect It to that. those It making on share supply think to movement. right. how chain. we're chain But the And, execute don't those have plans, on time software working plans right, that applies doesn't you stuff. remediate that components it products move. the more...

Jim Suva

as did So XX% in you what would would methodology assume. be same the I XX%

Jayshree Ullal

Yeah.

haven't We're We But, formulated apply we through plan. would happens. really or yes, something never thought similar. hoping it a it

Jim Suva

so and It's details the Thank clarifications. you you. Thank much appreciated. greatly for

Jayshree Ullal

you, Jim. Thank

Ita Brennan

Jim. Thanks,

Operator

comes question Ittai with next Oppenheimer. Your from Kidron

Your open. is line

Ittai Kidron

the Thanks, understand started is and a Chuck. to with on to go ladies, Microsoft mean where make I I we want to quarter. sure being Congrats, year. guess, I which I your comments, because I want the again, just great back XX% cloud.

I made rate think was run the percentage of comment to a that more was normal was you XX%. the effect last year, the Microsoft which

when below Are do how feel big claims on you do corporate the the top to there competitive lot at are of year? vendors grows through of And all defers stripping And that protect to and since in lot implies right no so, here little that product feel and And of and product your right in now, of and that them? seem the you to XX% clearly, has delayed your a deferred making parts presence is about certifications, hill. core think, that. Microsoft comes the you you be your And year XXXX out, outside the general. be I more in me only vertical to would guess, a that along, a Is ability there for think help I'm footprint was growth in really XX% that average vertical trying think XXX deferred. of about are the titan about your

you're right on the clearly, target. So,

Jayshree Ullal

that was question. a you want Wow, to loaded Ita, clarify?

Ittai Kidron

there, to try yes. in portray I Yes,

Jayshree Ullal

Yeah, good wishes. you for Thank succeeded. the you just

Ita have the… Let some me clarify of

Ita Brennan

revenue, the obviously the deferred resulted to of revenue and the did contribute a in of at way. just the So deferred that day, the just was for backfilled let's piece, maybe Microsoft, we're activities. But other right? Microsoft if not mix that Microsoft also having about right? talk the to some thinking of higher with percentage year, change, sure make deferred product same end the revenue deferred Yeah, mean, I about revenue,

good was on to below use you the because think had it period be cases, So cetera, the the XX%, that some activity below clear. when significantly about back we to I not just activity significantly basis, et Microsoft's but an XX%, in teens,

So some when out customers, amount deferred transactional you period backfill right. with of of in the think we comes did that other activity deferred the that about kind and

Jayshree Ullal

XXXX. the And XXXX to same amazing expect had But that the to obviously question growth, we fully to sense. answer titan growth grow we - don't Microsoft well, have makes expect cloud your that XXXX in category on if we in

be So I it think providers even and in or titans cloud our X to other cloud tier greatly are takes there contributors will to our customers, going puts contribute other growth. some be and other cloud

Ittai Kidron

luck. good good, Very

Jayshree Ullal

Thank you, Ittai.

Ita Brennan

Ittai. you, Thank

Operator

comes Nomura. question next Kvaal from call Jeff Your with

open. is line Your

Jeffrey Kvaal

look, may Yes, today, of CapEx it the that thank there decelerating to much. could and spenders disparity decent past. many to web scale our hoping ask and a I'm the on your you've question revenues. And little help you very touched numbers if are amount. about be be a in And wondering is perhaps I'm you why do decent minds bit But, to us the a certainly seem up explain the and on what between

Jayshree Ullal

Sure, I'll of COO other like here, a and the question take expert my take new half. I'd to part our the Jeff.

is server WAN regional spine, a you Top-of-Rack the spine, a those especially core some them first direct with obviously spend. examples datacenter security, connects point attach, of first As to a the peering, of we spine, And correlation tiers what is not and spend we reason have of - directly and or of spines. none but gave finding we're and spend. to leafs MACsec a them explain, which many of correlate we're spend server routing switch, a many the of to spine, just first a leaf network switch is talked And a about, and tiers the all Arista none tried service case of use CapEx the is, networking to which examples able typically Anshul interconnect

the is difficult. correlation So one-to-one

obviously we'll declining, say, declining spend a is it's it's pinpoint make can you not also is a if is of server hard that, think and spend but declining one-to-one. feel network impact I the Anshul? However, to correlation overall then the spend

Anshul Sadana

And Number quarters, and significant prices CapEx in impact last memory here. add are that much so many things I'll other we with in build correlated networking, not result you as and very less a all just increased of been a Jeff, titans. obviously out need reduction few there. has CapEx, in cloud second CapEx in you architectures interconnect different the and year the how the cloud but counted out at datacenters for or when a short-term. look titans correlation also large resulted see regions, focused often gets of of last many you'll on there's volatility networking that one, facilities, no as in of we're for few That hence at different layers for resulted servers

mentioned, otherwise going as that Thank As long associated we've well within to technically the you. one but these they're Jayshree happy even the back, well. hence titans year, with run in tie forward the compete and done things can not but are data, we and very cloud

Jeffrey Kvaal

is gaining do networking you web-scale the inside the share of Anshul, overall CapEx?

Anshul Sadana

not from to networking our think it's years. some so say I would I similar standpoint, previous very very,

very is optics to However, and per a gigabit our some the to don't that well if port, correlations are think not you XXX-gig - per more per known, gets allocated a change being I and slightly changed that game way. basis networking, optics different but it gigabit, think expensive will on is compared XXX-gig I as equation of ball

Jeffrey Kvaal

appointment, your Anshul. on you, and congratulations Thank

Anshul Sadana

you. Thank

Operator

James Stanley. with Morgan question comes from next Your Faucette

line Your open. is

James E. Faucette

wondering with mix of because I'm Anshul, and maybe customers I follow this is going. looking among things also will secondly that XXX-gig mention to and you kind coming in can XXX-gig Great, to shift your do at cases and what how you implementation much the as opportunity that see of later very think for customers from match the do that, start XXX-gig maybe market as what share that, for XXX-gig wanted and use talking your footprint talk up are least you're think on about that? to at you year you for and plan you're appetite thank through And XXXX through - and you And your beyond. existing much.

Jayshree Ullal

James, I'm it Anshul to kick into detail. will and off then going get

XXX-gig of we push cloud think with the the consistently titans mainstream and of that And on and match happen to the frequently. things heavily by think XXXX, XXX-gig. our still to go you're favor favored of to that's XXXX I And one us and of Anshul? much more as we XXX XXX-gig, the fact, leadership a because available, even when are more that use position incumbency into going mix I have is we become optics combination XXX-gig. in in in and exception cases is going going going said see see the Arista to are more

Anshul Sadana

Jayshree. Thanks, Absolutely.

which existing So new to just that's died. just the base, do backwards-compatible you to is on not in installed you networking just IPvX to heard, otherwise a work, with adding what how not introduce speed you'll never get get it

Jayshree Ullal

is What IPvX?

Anshul Sadana

so where XXX-gig the on, different hyperscalers in problems and are or have video way on. solve datacenters and or architectures it's or for caching they are and the at the next with gen going storage to hyperactive all you if the the cloud look cloud cases public their own But design use

just transition slow long QSFPXX cloud get customers, you can't years with important. and into done layer intermediate a the and say, XXX-gig hence uptake would DRX I so there's my to have one end-to-end, You is XXX-gig upgrade, say to interop back I'm is quarters going a interop touch you're - to way offer even the multiple for layers, actually the you very, installed several time it to now because back upgrade takes base, several touch to very able done. that's but that to important only be connect upgrade

Operator

Sachs. Rod with from Hall question Goldman next Your comes

open. Your is line

Rod Hall

and we anticipated. that's start like ask to have at on as secondly that a to you hi question. might guys that thanks any I I datacenter, for to looking around Yeah, see milestones abnormal well. wanted about to seasonal that Ita, terms is are you on And give guys, that just lot that services, update than I'm the there's talked campus Thanks. was forward Congrats or things And looking seasonality about able since your if of normal clarify you and I we're in higher going. trials, just Anshul here. be we've wanted if of a off, saying wondering guess how any progression just of services that more an it's - quarter comments then quite that us

Ita Brennan

right. XX%, that renewal for probably a first. that better some I take average revenue and of and it. the a the how be half maybe one mean, high, along back tends about a think in quarter think me there's that I kind let QX and is of recognition should XX strong to year, I the think so you Yeah, probably is with comes is XX The change

Jayshree Ullal

answer it the to second desire an will too extremely simplicity, for half, but Rod, it's campus in cognitive to And revenue, seen going to be a customer have early strong incumbents, in viable think to more material some. question, alternative in it your we've speak let Rivelo to the I'm our new and Manny? officer, chief quality, And Manuel in capabilities automation. I

Manuel Rivelo

Rod, you. good thanks, Yeah, talk Jayshree. to to

Rod Hall

you. Thank

Manuel Rivelo

customers. extend to been for for agility. EOS. They're they're first the quality. simplicity. there's early for one driving that see one our looking classified looking second It So correctly. looking acceptance is installed management set of scale they're infrastructure really days this And campus plane, their but the to into existing initial being EOS looking and XXXX, plane well-received by base base. They're two categories of And is telemetry, looking half for really customers, And one we think installed and the across it in is I for has and cognitive the management Jayshree material the

XX we years around great success early in instead winds of beverage it's that we're early also. customers see I you customer days. a architectures our of a of going reasons those space. mean, that customers which in got One inside type the segment customers campus of lack seeing where fatigue but into fatigue. for second when, approaching as are And at scale, because boxes account, bring I The and base, again et being more multinational and years that there. of of we excitement driving those pushed there's where know alternative we've quality, with throughout the of just and expansion cases, architecture so the million campus examples lot great really that we're of we integrate haven't is looking They're dollar to the were XX are stagnant and more traction lots solutions an and customer to like use the those And us also expect But into days the our a with various Spline we business who was into on innovation, unified cetera. had had same to campus. with said And and basically done architecture, then seeing portfolio out market drove of company to running there winds give a began the basically quarter we

Jayshree Ullal

Manny. Thanks,

Rod Hall

Great, I appreciate it.

Operator

Your next question Company. comes & Silverstein from with Paul Cowen

Your line is open.

Paul Silverstein

Right, to thank much love that could up. how you. Jayshree, you down, so pinned be I know we wind

Jayshree Ullal

as to you Thanks, depends Happy It who? Valentine's well. by Day Paul.

Paul Silverstein

action. to back I'm Right, probably

year-over-year have - by how and break quarter first question. gave, I drives the I'm guidance you customer XX% customer about there of could up for of and asking individual get So there help - then down but that by follow you not it terms a growth in customers, do that what you verticals, the

Jayshree Ullal

verticals. to of I more think - expect a normal see I concentration customer

between I five. will, to if hard it's one, be think will three, Cloud titans I to Does two I and guess then continue to be forecast digit. be happy? again think make you enterprise represented all double I say continue will would and four five to that had in

Paul Silverstein

i.e. to No, that or specialist enterprise - cloud maybe service especially the I the saying titans that that rate assumption? is your customer that not customers you're to to it exactly. What of cloud titans, et the from cetera group and it is, players two customers expecting increase doesn't growth verticals collectively fair goes cloud without from your you're a at trust get I'm five, expecting growth than the other trying moderate,

Jayshree Ullal

I'm said from expecting Microsoft vertical titan Yes the cloud moderate, I growth from expecting growth and no. I'm to moderate. to haven't but

Paul Silverstein

cloud expecting from other to from titan not verticals your you're collectively. cloud So and moderate your growth titans

Jayshree Ullal

lifetime say XXXX. moderate no. to we given in had it fair a in once with didn't think But I that, the it's here unique I Microsoft year say will

the So of - with exception

Paul Silverstein

follow Go a up question. have ahead. I

Jayshree Ullal

think verticals, probably we feel Microsoft, I this Paul of we should of in and five our comfortable exception all - the more, chat allow that's With the question. but about can growth very why next we

Paul Silverstein

Can a there I first to quarter the relative is the up, follow ask just about quickly year. you as unique anything of the rest

Ita Brennan

more the than No normal seasonality, right.

I about QX, think know tends QX. unique to it's if be there's flattish particularly I always anything don't a of quarter that else off

Paul Silverstein

thank that, appreciate you. I

Jayshree Ullal

with their QXs is there prior QX, similarities to uniqueness. most think I

Paul Silverstein

you. I That's need. all Thank

Jayshree Ullal

Thank you, Paul.

Operator

comes Credit with Suisse. Sami Your next question from Badri

is open. Your line

Sami Badri

spending XG. sector just Hi, very with thank seeing there disconnect based a about you're big get will entire side, event seeing moments, is the it into hyped but ramp to when through be walk a a thing the discuss or juncture? back just we think up side one of of spectrum. up the you. kind what towards when to is your we equipment and is you because to few the event ramp a XXXX Can the provider this And just on seems you equipment start you're on to Can service SP maybe 'XX take this purview seems be us at back this half

Jayshree Ullal

help me Arista we well. affected said least, of Sami, one and is I and in don't is and the - gear view XXXX, and I we're think influence it and routing Anshul XG a think XG away really of not routes scale our the at believe is as are given service presence that IP I'll small I a we think because at a we provider, Manny ACLs IP think routing does. I we take Look in providing backhaul crack macro XG-dependent, That think ring trends and really XXX-gig very and by don't think - switching for is move and XXXX. no a together the tables may

perspective, XXXX. We're We're gives tremendous XXXX and a activity seeing maybe in in emphasis have with our grow because want theaters. speak faster a provider us international very US in to upside disappointed had you put to to service more from XXXX. that. and chance that strong we've So we Manny, we got the both in

Manuel Rivelo

those In across Telco we're cloud we cover and it'd the to so and also other cases run various the operators Jayshree Yeah, no, beyond. continues investments manager that enter the whether side those pointed be both SE proof-of-concept, just that provider for FEI quite and II tier use features we bode play portfolio as XXXX use out, to add and that. coverage it will on to represent to I in are side fast the I I account cases, think tier globe as doing we In and but operators. [ph] to or on getting It's pertains to piece better - who itself we've additional well made the well and as that Tier executing peering at in service our more out. use XXXX cases,

Sami Badri

Got it, thank you.

Jayshree Ullal

Sami. Thanks,

Operator

next with Henderson comes Your question Needham Alex & from Company.

open. is line Your

Alex Henderson

against to Hello, for you relative it. see We guys, if dynamics each and them two other. thanks sweetheart off appreciate print. the could ask I wanted question a to play

that so year and slowdown slowdown well the reacceleration of the going that which on some conversations a a hearing product year, a question of the it, force, That year-over-year is of XXX-gig on. a in based there's at to sales. as the in is, other as as are suggest other spending back well. side server part of expected Intel off we're you half cycles port a are in in first of seeing the that the terms of half kind So then double cloud we're about of lot definitely of hearing dynamic of the in And investments cycles countervailing

share result that a extent I that think market which half offset as two x your seeing cycles? is the due you the gaining the in Web in - those are that the does XXX-gig in overall share in overall to a X.X of doubling space, market to XXX-gig, So a of we're and demand the share in first divot enough your dominance products of

Anshul Sadana

accurately great titans, into We we Sure, certainly the of would terms as very don't love have And visibility you questions. second for half. absolutely. yet well forecast them CapEx know. Alex, in to cloud large

bit are decoupled half, because first we the but many buying time little on. but the long cases, they're server short-term if so benefit. exact the might be in a in they getting But racks doing spend DCI They and so fewer more could also other in from run we On the obviously, same things now, still diverse we're the use spend.

the four lowers dynamics as than that but are including and that would get in really count. by some the because to allows customers but not is the the many our ports more - spend or past, starting what port cost-effective products, market and is are XXX-gig up point doesn't be the ASP revenue emphasize Now now they on technology being I increased actually XXX-gig some to not used to just your XXX-gig used more spending are ports XXX-gig ports that XXX-gig, to show generation of next doubling significantly. the change doubling It in of the which and

Alex Henderson

the But change is does question. share it

Jayshree Ullal

our in hopefully Alex. will years this position two out on execution, a held there. be depend That will We've row, the one year for on to number

Alex Henderson

thank much. very Okay, you

Jayshree Ullal

you, Thank Alex.

Operator

with Aaron Fargo. Your next question Wells from Rakers comes

Your line is open.

Aaron Rakers

taking like market, release for provider I sounds of prepared router remarks your print. major thanks which the the want back mid XXX in shipping you to one to go questions. mentioned good customers. looking part X on in Jericho gone congratulations very on major FlexRoute to two year, to the It from providers starting towards Yeah, volume of market. And you've the is silicon does service a the the focused also

incremental your So there forward? the set in in the opportunity expansion XX is plus growth driver I'm over a natural that that months, next out router going functionality curious, story look if expands we

Jayshree Ullal

Aaron. Thanks,

growth I FlexRoute from lot features our to a I think of do even customers expansion our a XX% with has a it's believe we before of good have X, the really Jericho question. national had to XXX and which XXX.

into success for that So generation of not to but and in necessarily of success, providers. XXXX, I will who waiting more at really the XXX immediate many enabling XXX are service greatest customers these see next silicon, going least be

confirming, is - Jericho Ashul in a Jericho half X. the we I of in really XXXX year in multi-year the second routing beyond can think Now which with and the that success cycle, after have hits X

Aaron Rakers

going much curious, you to expand? do much market and you of that And I'm that total addressable kind opportunity router see just is how do today think how

Jayshree Ullal

total as to interconnect look to - boxes into tough universal like Arista end as - national and player more is describing peering two NFV our one the three switching TAM traffic routing. a to the But they guess. play and MPLS and to traditional Arista, It's but answer. in good Manny some and them a come that spine combine market engineering doesn't cloud, a The was very in specific, spine it's I Telco but of legacy billion, being is $X think up is

Aaron Rakers

Right, thank you.

Jayshree Ullal

you, Thank Aaron.

Operator

Simon from Leopold with Raymond comes question next Your James.

Your line is open.

Simon M. Leopold

characterize for in taking Great, getting I I base at see in a put to particular, maybe to question. some look the we on as business thoughts your if take thanks wanted if could, of XXXX do you contributors rank side you. Thank see thinking switching XXX-gig and three incremental and three about - as those growth switching, part, how in engines routing terms XXXX? campus order the

Jayshree Ullal

you with tough Wow, Paul. the up so question prize get right there far, the for

Simon M. Leopold

honored. I'm

Jayshree Ullal

this best We'll purely give forecast. but a our is it

at these look alternative routing largest most - is campus. also And TAM competitor, the TAM, the three I underserved XXX-gig it's because any by campus, and of embedded by think so it's if you deeply incumbency.

routing put way. say is opportunity in doesn't I I than split the XXX-gig would come pressure campus, strength to our in And also we largest campus I then way play a and that think because execute I think come had if XXXX. I huge our really So really to and two, until second is - XXX-gig third, doesn't if in routing into believe largest that

Simon M. Leopold

very That's for, was you. thank I much looking what

Jayshree Ullal

Simon. you, Thank

Operator

with Securities. from Suppiger Your Erik next comes question JMP

open. is line Your

Michael Berg

quick on a international Berg mean cloud a the I was print. pull think it around the your Congrats Erik question great weakness Hey, Suppiger. Michael enterprise may there, have you wanted international, any in just going color or international for you what on what I could around spending do quarter. spending, this caused own

Ita Brennan

mean is in be quarter right. going U.S. volatile, I between and mix given you the international know pretty to any Yeah,

more focused, a the in and than deployment of right. the look is been out you've you U.S. all it cloud going growth that's right probably businesses the pretty kind heavy the this faster at in good than cloud activity and that it's think year, businesses saw international U.S. for If year, We got of had think region heavier we I so some strip last If the are and you those what at in-region more the just seen interesting I year, driver. in biggest which then year look corporate back, it peel I last growth the average.

I chime think Manny, want well. as in you if to

Manuel Rivelo

percentage the on of you're seeing of new where than top great nicely to out logos net having bouncing a lot our XX% investment approximately new that's new out is in a a headcount, Ita of making little there fairly a so we're what international is going technology. we think from traction net great are I and I We're But of perspective. are that I'll headcount our and we Yeah, and seeing that as what's are well, there, business. said seeing think the is add actually logos Jayshree international more higher half it approximately great what international from significant a acceptance said of market winds of markets interesting coming a

they're but also nicely the of spine a coming could some adoption we they're engine architectures, for argue that's of the quite a international markets future. in You think little the growth in behind and leaf along

Michael Berg

up being closer the the closer then to Microsoft XX-XX% percent Microsoft revenue wouldn't contributed to And follow I'm leave about contributor that deferred you I big how think if can the year? in normalize XX%, it's know how mentioned to it it, that thinking or on a you quick a I but deferred piece if about piece, to be great. Okay, the

Ita Brennan

don't would case. ahead an a in was I and deferred. know put strong perspective the Microsoft on mean it, been just I any organic think Yeah, chunk of was XX again of the from a but a came numbers it But good I from year well to it it have business they're specific XX% going what the

Jayshree Ullal

is, of think of did of quarters I six certifications. get that of the we right, ways deferred in in and quarters, think this the other because legal four business And because to the way many

So in and roles every it the you was new deferred, the unusual before. which the much just recognize it, time legal certifications, began but could at though not manner, activity right, the even the

Michael Berg

or total high percentage fair then of Microsoft that And I vertical think year, Okay. XX but to titans closer contribution? assume someone even before, revenue is cloud for asked this to was given the the higher it the

Jayshree Ullal

I fair guess. think around there is a

Michael Berg

on time. congrats hey, Well, quarter great and the again you thank awesome. for Okay,

Jayshree Ullal

you, Thank Erik.

Operator

Your Steve Wolfe next from with comes Research. question Milunovich

is line open. Your

Steve Milunovich

a you marketing, of my percentages You expenses look very in Thank you about R&D, going talked deceleration little bit in much. year-over-year we operating forward? bit. Could comment about which had Great. you a a What sorts for your target acceleration longer Is timeframe XX% or what's margin, that? can within of to? lifetime? growth And of revenue forward the term it be going rates to a

Jayshree Ullal

you Yeah, live. it the… you it's Yeah, since depends how updated a while surely been long

Steve Milunovich

I'm getting up there.

Jayshree Ullal

seeing if do the And the has us make kind of that model long-term point side. do still we're line It's timeframe, the make. plus of at letting bit good to right. And maybe is minus you he a in think the see and that quarter but percentage minus. what I top to needs a growing we're way And we And situation not about to what R&D, need be that or every that's movement marketing I will I at to investments of operating line gross significant, leverage be it. it's the that mean, a right. some Manny the not in margin a see of than the we we on that at. about it It's the to think do to to the going and revenue get rate same I little XX% more of been. the and sales top a or XX% investments quarter-over-quarter growing is take maybe we're think that we're make opportunity It's plus us here. and mean, we're to in - think and allows some want near-term the margin the where that make, we'll yeah, I

Operator

Thanks.

next comes Your with Securities. from Srini question Macquarie Pajjuri

Your line is open.

Srini Pajjuri

you as congrats, on taking great Thank congrats the for my Anshul, quarter well. question, and

in second maybe clarification was Ita. of first or it give QX half even versus to percent for one be half what Would possible as Just Microsoft a sales? us

Ita Brennan

I try going a helpful really around. Yeah, do start think It and Yeah, to do to not that we're moved it's don't on that, basis. to quarterly right.

at about annual is way some the really I the certification off think beginning for to of the top it the think number and the then take legal the related of deferred, year. stuff last for release the

about years. norm, couple for so And last XX% was the think our

it strong from that a good top think a I year Microsoft perspective. transactional for just business was of on

Srini Pajjuri

why Okay. to yesterday sometime gig, Jayshree, a XXX XXXX. XXXX. up, But I'm think wondering it's to difference want than follow expecting of think year. Then, you seem their know middle I I little will also they're think it's it's this be I later just volume understand why timing Cisco you likely I Juniper said in deployment maybe, and there guess, timing. Cisco. said your between And a more on

Jayshree Ullal

adopters are we team the Well, sell work multitude and that cloud and I a pole leading longest of of where, gig. traction in the XXX as And world's vertical. see to in with Srini, a the actually, vendors the we optics the tent. Anshul early titan think is We seeing some

second you while tell to early see to trials would in we market responsible in expect So we're be a see the half we half. absolutely going large to the second

So responsibility. it chalk I you could guess down to our

Anshul Sadana

here. something can not should volume These I things. confuse product deployment. two add if Maybe versus are high We different availability

Jayshree Ullal

been available beginning year. Very good point products the and since of the have

Srini Pajjuri

Got you. it. Thank

Jayshree Ullal

Thanks, Srini.

Operator

James Jaffray. with comes Your next question Piper from Fish

is open. line Your

James Fish

on ladies, great Hey, congrats a quarter.

Jayshree Ullal

Thanks, James.

James Fish

different QSFP? potential been questions the the asking XXXG, already, fear do more on and secondly of box Junipers or and you white terms of between in like have the world? what do the from the Ciscos of XXXG and you Thanks. And competitively but are offering OSFP hyperscalers way, lot fear on asked maybe a hearing guess, it a I you optics mix

Jayshree Ullal

questions. That is unique Wow. two

Anshul Sadana

in world to and James, titans, the on that gig versus DD, interest OSFP many the move forward, so can first optics generation. lot planning moving XXX of of cloud terms it So, in years the there's you actually a next in in advance, out

cycle, build are of fact But short products, there's it's [fifty-thirty] may some DD DD time, OSFP. lot customers the it has the recognize, so based hyperscalers can't after where of a that cognizant you in same cycle, the those interest So work. the really we a because in as [ph] we'll At well. need life as

the forward. move then has to So world

mix our do of white and real we'll very of something here. rate problems. good market. with partnering and us want both. are healthy believe be We So there cool can many, or good attach on on all They co-developing respect boxes, position these as We're all not - of are OSFP the do to before, cheap noise, as with that. business our And many about box With just buy EOS top looking to and will with we've in to we're taking times. But a see, a And the we with very customers parts you solve this white then building feel not competitive they there. us this mentioned is we despite And to world it. touched solve them. very healthy and problems, really

Jayshree Ullal

the lot. in think noise I general has a reduced And

customers box anymore. from We haven't, much white very our we hear don't

your box. white a description of or answer against than it's rather usually discussion a more the to a So specific question position Cisco, like competitive directly, vendor

James Fish

That's Yeah. fellows. Thanks. great

Jayshree Ullal

Jim. Thanks,

Operator

Your next with question Gabelli. Susanto comes Hendi from

line Your is open.

Hendi Susanto

how opportunity how like Are are and analyst should you that dynamics Jayshree I'm there my like second investor about in should stated versus was about? uncertainties market and opportunities taking Cisco quarter. you for there XXXX? how in your then wondering XXXX XXXX, Hi, in about and and similarities and last more no macroeconomic in uncertainties? from Manny. demand similar characterize or no congrats, Anshul, Anshul change macro And specifically and more new XXXX we experience was think their in versus impact opportunity first think there do question market thank QX.

Jayshree Ullal

has in either Okay. Thanks, Arista uncertainty Hendi. Well, I not QX. would macroeconomic seen say any

strength we're XXXX. customers us, obviously as enterprise QX we continuing But been let to momentum a to and in Anshul think signaling far see the I'm strength And forward to there been going here. as stronger. our look to not that we bellwether our XXXX answer in have trend. hasn't continue I

Anshul Sadana

Sure, absolutely. Thanks, Hendi.

seen We a of haven't in terms much perception. change big of

there a be there's correction. worried people slowdown that will a are think I certainly if

so it, about nothing talk material do far. but has customers Our happened

been carefully. trends I've think I very watching these

Beyond opportunity X is large a hasn't a very, The us the that, It's and specialty expansion we're possible true the more when for look you actual the same future in us. very enterprises us. providers, even opportunity at changed ahead in and as well for as TAM still to. is there in healthy ASPs. very of tier financials, catering And

good very the to very hence the market about believe a we We feel players. still opportunity opportunity. and grow. has But we So space the multiple very, in are strong competitor this

Hendi Susanto

you and performance. great Thank

Jayshree Ullal

Thanks, Hendi.

Operator

Stifel. Marchetti John from comes question next with Your

open. is line Your

John Marchetti

you to two, just was you here spend think of of little if adoption could sooner you're of with bit four. kind a and XXX minute could just kind a market I We and to much. titans maybe the discussing enterprise XXX that I its gig. their cloud where shift of Jayshree, wondering of very adoption on or maybe on of spend sort you time that overall of enterprise spend market. was gig how is a market wondering expecting follow their Thanks in lot time terms where the

Jayshree Ullal

principles on in vertical. in asked very in fastest cloud question, and But focus I'm things three it one cloud really second one And glad we flavors, our same John. cloud tend growing to same is the in we're the into there's how you it yeah, comes to a datacenter albeit the of lot. bringing way, scale Thanks, largest first, with the strong actually build those out of the scale. and seeing, leaf/spine a enterprise. interest titans a And this architectures private because, smaller

those enterprise, the hybrid view. - control, the third et both The management and cloud the point positioned cloud. to we automation, second better of No as is network-wide have of workload than and the the And analytics, company the bring change some bringing cetera. mimic to two in is public bringing with a CloudVision, principles Arista, is deployed together from

the So with over cloud has APIs I multiple the public of very will vendors really combination play of half the well of finally, is but the our transformational vEOS and talk, come which don't to in campus. been year right Router second this to And want received. fourth, course, to the

least So when exciting. our the are PINs PICs at to that at different whole in you transformation, look use there's enterprise cases four

John Marchetti

Thanks.

there. up So maybe quick a follow just as

of a use at standpoint different they're a itself them help cases first looking solutions. that or that you time. type almost Given consulting additional sales Does some these as applications from or of these maybe to service migrate look types to the lend to of lot for

Jayshree Ullal

think looked you definitely us we know partner or training. has someone at professional look the in. often varies, to if the a pattern a Arista services add I with We I that. more Manny, to to consultative a they don't right for in more yet. And provide we of have see don't approach, it - come be to

Manuel Rivelo

base, need their transform the to an than it's cloud datacenters, more these they're general providers. a into framework, no for education they modern as going much in digital mean, different infrastructures the I customer Yeah,

And can education, comes solution either deliver that those effort, offer the those customer are provide through and/or can we the services. to that partner and through our we Then delivery services that proven training could tested. So solutions development network of those. our and/or professional

flexibility a we're accepted seeing we across lot those well that So three there. And of have of all spectrums. being pretty

John Marchetti

Thanks very much.

Chuck Elliott

financial you. XXXX for the achievements the questions highlight want and and QX call. our results, provides corporate access presentation, the website. a with information fiscal section which posted you during our on continuing conversation look Thank you our good earnings to to I quarter. we the We additional also Arista have of on the for concludes can which Investor results mention to the you all forward This opportunity for that

Operator

you for Thank and today's call. ladies concludes This joining, gentlemen.

disconnect. You now may