ANET Arista Networks 10-Q 2026-09-30 section summaries

Arista Networks — Q3 and nine months ended September 30, 2026

Consolidated results

Revenue grew 58.4% in Q3 and 44.3% year to date. Product revenue drove most of the increase. Gross profit and operating income rose substantially, although gross margin declined from the prior-year periods.

Research and development was the largest driver of higher operating expenses: $486.9 million in Q3 versus $326.0 million, and $1,178.8 million for 9M versus $888.9 million. Other income included Q3 interest income of $137.3 million versus $99.8 million and other income of $135.8 million, compared with a $0.9 million expense. The Q3 effective tax rate was 18.5% versus 20.8%, primarily reflecting a one-time 2025 deferred tax provision tied to the OBBB Act; the 9M rate rose to 19.1% from 17.9%, mainly due to fewer tax benefits from equity compensation.

Revenue by customer shipping location

Arista reports one operating segment; the CODM reviews consolidated revenue, gross margin, operating margin and net income. U.S. customers accounted for about 81% of revenue in both periods.

Regional growth differed notably: Americas revenue grew 61.7% in Q3 and 47.3% for 9M; EMEA grew 59.6% and 51.7%; and Asia-Pacific grew 31.3% and 12.8%, respectively. U.S. revenue was $2,956.3 million in Q3 versus $1,825.7 million, and $7,548.0 million for 9M versus $5,119.3 million.

Cash flow and share information

Operating cash flow benefited from a $1,467.1 million increase in deferred revenue, partly offset by cash uses of $962.8 million from inventory growth and $440.9 million from accounts receivable growth. No shares were repurchased in 9M 2026; 11.1 million shares were repurchased in 9M 2025.

Balance sheet, investments and commitments

No intangible assets other than goodwill were separately reported. Marketable debt securities had a September 30 fair value of $12,581.2 million against amortized cost of $12,698.3 million, including $117.2 million of unrealized losses recorded in OCI. No credit losses or non-credit impairment were recognized. OCI loss was $60.5 million in Q3 and $113.0 million for 9M, primarily from unrealized investment losses. The portfolio’s weighted-average remaining duration was approximately 1.3 years, with maximum maturities of three years.

Remaining performance obligations totaled $8.6 billion; approximately 91% was expected to be recognized within two years and 9% in years three through five. Other performance obligations included $497.1 million of unbilled multi-year support and service contracts and $943.5 million of binding agreements, primarily for future product shipments. Non-cancellable supplier and contract-manufacturer purchase commitments totaled $11.4 billion, including $9.3 billion due within 12 months. These generally fixed-quantity and fixed-price commitments expose Arista to demand changes; rescheduling usually requires supplier agreement. Deposits securing commitments were $152.8 million, up from $53.0 million at year-end.

Equity compensation and other risks

Stock-based compensation was $138.1 million in Q3 versus $127.9 million and $379.4 million for 9M versus $306.1 million. Unamortized compensation cost for unvested awards was $1.7 billion, expected to be recognized over approximately 4.1 years. Unvested RSUs declined from 28.1 million at year-end to 24.3 million; 3.5 million were granted, 6.1 million vested and 1.2 million forfeited or canceled. The weighted-average grant-date fair value was $169.74 for grants and $88.63 for ending unvested RSUs. The May 2025 $1.5 billion repurchase authorization had $817.9 million remaining.

Inventory increased to $3,209.8 million from $2,247.1 million, including evaluation inventory of $874.3 million versus $403.7 million. Arista outsources most manufacturing and supply-chain operations, relying on third-party manufacturers and suppliers. Long-lived assets, net, were $378.8 million at September 30, 2026, up from $203.1 million at year-end. The company had no recorded liabilities for product IP-indemnification and other guarantee provisions, which had not significantly affected results. Recorded legal provisions were not significant; management did not consider additional losses probable or estimable, while noting that an unfavorable litigation outcome could have a material adverse impact.

Arista Networks (ANET) — Q3 and 9M 2026 MD&A

Consolidated results

Q3 revenue increased 58.5% year over year; 9M revenue rose 44.3%. Gross margin contracted in both periods. Higher product costs drove the decline in product gross margin, partly offset by supply-chain productivity improvements. Pricing pressure, discounts to large customers, product mix, inflation, material scarcity and merchant-silicon costs pose further margin risks.

Revenue mix

Product revenue grew 66.9% in Q3 and 47.9% in 9M, reflecting demand for switching and routing platforms. Services—primarily support contracts and renewals—grew 17.9% and 25.0%, respectively, alongside the expanding installed base. The Americas accounted for 81.4% of Q3 and 80.9% of 9M revenue; the non-Americas share declined year over year, largely due to sales-mix shifts among large global customers.

Operating expenses

R&D growth reflected personnel costs and new-product-introduction costs, including Q3 increases of $18.5M and $137.0M, respectively, and 9M increases of $77.9M and $203.6M. Investment supports platform capabilities and new products and features, including EOS software and applications. Sales and marketing costs primarily reflected headcount growth; G&A increases were mainly personnel-related.

Liquidity and cash flows

Operating cash flow included $670.8M of favorable noncash adjustments, notably $379.4M of stock-based compensation and a $369.3M decrease in deferred income taxes, partly offset by a $489.6M working-capital cash use. In 9M 2025, noncash adjustments were $129.9M and working capital provided $424.5M.

Working capital was affected by a $1.5B increase in deferred revenue, driven by product contracts with acceptance terms and customer PCS contracts. Offsetting uses included inventory growth of $962.8M, other assets growth of $604.2M (primarily deferred costs of sales tied to product revenue deferrals), accounts receivable growth of $440.9M and a $159.9M income-tax-related change. In 9M 2025, deferred revenue increased $1.8B, while working capital overall was a cash source. Higher inventory and deferred costs alongside product revenue deferrals are important cash-flow considerations.

Investing cash use primarily reflected $6.4B of marketable-security purchases, partly offset by $3.0B of maturities and sales. In 9M 2025, purchases were $4.8B and maturities and sales $2.6B; investing cash use also included the $300.0M VeloCloud acquisition. No shares were repurchased in 9M 2026; $817.9M remained available under the $1.5B repurchase program authorized in May 2025. The prior-year period included $983.0M of open-market repurchases.

At September 30, 2026, cash, cash equivalents and marketable securities totaled approximately $14.4B, including approximately $1.0B held by foreign subsidiaries. Management expects liquidity and operating cash generation to meet working-capital and growth needs for at least 12 months and the foreseeable future. Needs could rise with growth investments, office, lab and data-center construction, and working-capital timing on large customer arrangements with extended payment terms.

Strategy, commitments and risks

Purchase obligations totaled $11.4B at September 30, 2026, including $9.3B expected within one year and $2.1B thereafter. Arista outsources most manufacturing and supply-chain management; a significant portion of finished-goods and strategic-component orders, including consigned integrated circuits, is non-cancellable. The company has increased commitments to support rapid AI-network deployments and address tightening memory and silicon supply and longer lead times, so inventory and purchase commitments—and related working-capital and excess-inventory risks—are expected to remain elevated and volatile.

A limited number of large customers contribute substantially to revenue, with variable order timing, deployment cycles and spending. Two end customers each exceeded 10% of annual revenue in each of 2023–2025; large orders typically involve discounts that can pressure margins. AI infrastructure investment is driving networking demand, but may alter customers’ other spending and makes longer-term demand difficult to forecast. New-product trials and acceptance terms can also increase volatility in deferred revenue and evaluation inventory; unsuccessful acceptance could result in returns, delayed revenue recognition or inventory write-downs.

Arista’s strategy centers on a unified “Centers of Data” networking-as-a-service platform spanning AI, data center, campus and WAN, anchored by EOS and NetDL. Priorities include R&D, product innovation, global sales-force expansion and deeper channel partnerships. The company reported no off-balance-sheet arrangements with unconsolidated or special-purpose entities and no significant changes to critical accounting estimates from its 2025 Form 10-K.

ANET reported no material change in its exposure to market risks since December 31, 2025. Its identified exposures include foreign-currency exchange rates, interest rates, and strategic equity investments. For detailed disclosures, the company refers readers to its 2025 Form 10-K, Part II, Item 7A.

Item 4 — Controls and Procedures

As of September 30, 2026, the CEO and CFO concluded that the company’s disclosure controls and procedures were effective at a reasonable-assurance level. No changes during the quarter materially affected, or were reasonably likely to materially affect, internal control over financial reporting.

Management cautioned that controls provide reasonable, not absolute, assurance. Errors or fraud may not be prevented or detected, including because of mistakes, collusion, circumvention, management override, changing conditions, or reduced compliance. No financial metrics, business developments, or other material changes were reported in this section.

Risk factors

Customer concentration, demand and growth

Arista’s revenue is highly concentrated among a small number of customers, making results vulnerable to changes in their spending priorities, order timing and capital plans. Purchase orders can be delayed, reduced, changed or cancelled with little notice; lengthy trials, qualification and acceptance terms can also defer revenue or lead to product returns. Large customers may receive more favorable pricing, pressuring margins. Concentration and uncertain forecasts increase the risk of lost sales, shortages and excess or obsolete inventory.

Arista cautions that past growth is not predictive. AI-networking demand is an opportunity, but its scale and duration are uncertain: customers could overestimate deployments, redirect budgets from non-AI spending, defer or cancel commitments, or use different network architectures. Growth also depends on winning new large customers and expanding sales to existing ones; saturation or slower spending by major customers could weigh disproportionately on results.

Products, competition and execution

Switching and routing platforms have historically generated substantially all product revenue, leaving the company exposed if mature products decline before newer offerings gain traction. Growth depends on continued product leadership, timely launches and customer acceptance. Recently introduced 800 GbE and AI-focused Ethernet products, alongside offerings in campus and branch networking, Wi-Fi, security, routing and SD-WAN, require development, manufacturing ramp-up and lengthy customer evaluation. Arista has less experience in some adjacent markets, and investments may take years to pay back—or may not do so.

Competition across cloud, data-center, campus, security and AI networking is intense. Established vendors, cloud providers, white-box and open-source alternatives, and new entrants may have greater scale, distribution, R&D resources or ability to bundle and discount. Price competition, large-customer discounts, product mix and promotional programs may reduce selling prices and gross margins. AI Ethernet must prove competitive with InfiniBand and competing Ethernet solutions. Software disaggregation could create software opportunities but also pressure hardware revenue and margins; customers may instead choose separately licensed software on white-box hardware.

Long sales cycles, customer acceptance provisions and evaluation inventory can make quarterly revenue volatile. Failed trials may prevent revenue recognition and require returns or inventory write-downs. Product defects, vulnerabilities, interoperability failures or inadequate support could disrupt customer networks, prompt claims or returns, and damage reputation and retention. Maintenance contracts are not assured of renewal and may renew at lower prices or for fewer products.

Supply chain, inventory and trade exposure

Arista relies on third-party suppliers and contract manufacturers without generally guaranteed supply, capacity or pricing; it depends primarily on Broadcom for merchant switching chips. Tight memory and silicon markets, including demand from AI infrastructure and advanced automotive, may increase lead times, prices and allocation risk. The company has made and expects to continue making significant non-cancellable, non-returnable purchase commitments to secure supply. These commitments increase working-capital needs and, if demand falls or suppliers fail to deliver, may contribute to excess or obsolete inventory, write-downs, higher costs and lower margins. Component shortages, expedite costs or production disruptions could delay shipments and cause lost or cancelled sales.

Manufacturing is primarily in Malaysia, Vietnam and Mexico, with some products and components sourced elsewhere in Asia, including China. Tariffs, export controls, sanctions, China’s restrictions on critical-mineral exports, and U.S.–China and China–Taiwan tensions could raise costs, disrupt sourcing or restrict sales. Arista may not be able to pass on cost increases, and supplier changes or relocation could be costly and slow. Trade rules remain fluid; despite partial relaxations of some restrictions since May 2025, further changes are possible. Demand, costs and supply are also exposed to inflation, higher interest rates, economic weakness, geopolitical conflict and reduced IT spending.

Cybersecurity, intellectual property and regulation

Attacks on Arista, its products or third parties in its supply chain could compromise data, disrupt operations or customer networks, delay revenue recognition, and cause remediation costs, litigation or reputational damage. Threats include ransomware, phishing, misconfiguration, insider activity and increasingly sophisticated AI-enabled attacks. Arista has experienced incidents it characterized as immaterial. AI tools may also act outside instructions or expose confidential information; safeguards may prove inadequate. Defects or false positives in security products could undermine customer trust.

Patent disputes are common in networking, security and Wi-Fi. Claims involving Arista, suppliers, customers or partners could result in legal costs, damages, royalties, injunctions, redesigns or sales restrictions; supplier indemnification may be unavailable. Prior Cisco proceedings resulted in import and post-import sales restrictions that required redesigns. Third-party software and open-source licenses create additional risks, including higher fees, disruption, source-code disclosure or product restrictions.

Changing privacy, cybersecurity, AI, export-control, product-certification and other rules may increase costs, limit sales or require product changes. GDPR fines can reach the greater of 4% of prior-year annual revenue or €20 million; UK fines can reach the greater of £17.5 million or 4% of prior-year annual revenue. Environmental rules could also require redesigns or manufacturing changes. Arista reports prior instances of inadvertent trade-law noncompliance by the company or an acquired business, disclosed to authorities and followed by corrective actions.

Capital, operations and governance

Arista expects existing cash and cash equivalents to meet anticipated needs for the foreseeable future, but additional financing may be unavailable or unfavorable; equity could dilute shareholders and debt could increase obligations or restrict operations. Bank failures could delay access to cash held above insured limits. Customer and distributor financial stress, including tighter financing for AI infrastructure developers, could delay purchases or collections. The June 2025 VeloCloud acquisition requires integration and may not deliver expected benefits; acquisitions can also disrupt operations or create liabilities. The Awake Security acquisition and NDR platform add to cybersecurity exposure.

Results may be affected by hiring and retention—particularly of software, AI and sales talent—natural disasters, extreme weather, disease, power or transportation failures, and disruptions at suppliers or logistics providers. Quarter-end sales concentration can amplify the effect of disruptions. Reporting also depends on estimates for revenue recognition, inventory, taxes and contingencies; ineffective controls or changes in assumptions could affect reporting.

As of September 30, 2026, directors, executives and stockholders owning more than 10%, together with affiliates, beneficially held approximately 16.6% of outstanding shares. This ownership and anti-takeover provisions may limit shareholder influence or deter a control transaction. Removing directors and certain charter or bylaw changes require 66⅔% approval; Delaware Section 203 may restrict business combinations with holders of 15% or more for a specified period. Stock-price volatility could prompt litigation, and repurchases are discretionary. Arista has never paid common-stock dividends and does not expect to pay them in the foreseeable future.

Rule 10b5-1 trading arrangements

During the last fiscal quarter, four insiders adopted Rule 10b5-1 trading arrangements authorizing potential sales of up to 85,634 shares in aggregate:

Each plan may end earlier if all transactions are completed and is intended to qualify for the affirmative defense under Rule 10b5-1(c). The plans authorize sales from time to time; they do not report completed sales. No other officers or directors adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter.