10-Q 1 anet-20220331.htm 10-Q anet-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File Number:
001-36468
Arista Networks, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 20-1751121
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
5453 Great America Parkway,Santa Clara,California95054
(Address of principal executive offices)
(Zip Code)
(408)
547-5500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueANETNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of April 27, 2022 was 308,263,538.



ARISTA NETWORKS, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except par value)
March 31, 2022December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $635,025 $620,813 
Marketable securities2,788,889 2,787,502 
Accounts receivable, net of rebates and allowances of $3,923 and $5,088, respectively
648,606 516,509 
Inventories 694,217 650,117 
Prepaid expenses and other current assets 338,437 237,735 
Total current assets 5,105,174 4,812,676 
Property and equipment, net87,391 78,634 
Acquisition-related intangible assets, net105,244 93,555 
Goodwill216,915 188,397 
Investments38,625 20,247 
Operating lease right-of-use assets66,671 65,182 
Deferred tax assets 446,347 442,295 
Other assets41,819 33,443 
TOTAL ASSETS $6,108,186 $5,734,429 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $204,675 $202,636 
Accrued liabilities 197,063 226,643 
Deferred revenue 778,436 593,578 
Other current liabilities 188,831 86,972 
Total current liabilities 1,369,005 1,109,829 
Income taxes payable 74,497 69,916 
Operating lease liabilities, non-current57,474 56,527 
Deferred revenue, non-current 345,310 335,734 
Deferred tax liabilities, non-current51,051 129,074 
Other long-term liabilities 57,672 54,749 
TOTAL LIABILITIES 1,955,009 1,755,829 
Commitments and contingencies (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, $0.0001 par value—1,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 308,165 and 307,681 shares issued and outstanding as of March 31, 2022 and December 31, 2021
3131 
Additional paid-in capital 1,590,7931,530,046 
Retained earnings 2,592,8542,456,823 
Accumulated other comprehensive income (loss) (30,501)(8,300)
TOTAL STOCKHOLDERS’ EQUITY 4,153,177 3,978,600 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $6,108,186 $5,734,429 
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
1

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)


Three Months Ended March 31,
20222021
Revenue:
Product$724,718 $539,145 
Service 152,348 128,417 
Total revenue877,066 667,562 
Cost of revenue:
Product293,809 218,433 
Service 29,412 23,857 
Total cost of revenue323,221 242,290 
Gross profit 553,845 425,272 
Operating expenses:
Research and development 172,006 132,487 
Sales and marketing 80,739 71,020 
General and administrative 23,113 15,473 
Total operating expenses 275,858 218,980 
Income from operations277,987 206,292 
Other income, net 31,480 1,575 
Income before income taxes309,467 207,867 
Provision for income taxes37,208 27,501 
Net income$272,259 $180,366 
Net income per share (1):
Basic $0.88 $0.59 
Diluted $0.85 $0.57 
Weighted-average shares used in computing net income per share (1):
Basic 308,045 305,224 
Diluted 319,652 318,492 
(1) Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).


2

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
Three Months Ended March 31,
20222021
Net income$272,259 $180,366 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (373)(541)
Net change in unrealized gains (losses) on available-for-sale securities (21,828)(561)
Other comprehensive income (loss)(22,201)(1,102)
Comprehensive income$250,058 $179,264 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

3

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Stockholders Equity
(Unaudited, in thousands)
Three Months Ended March 31, 2022
Common Stock  Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares Amount
Balance at beginning of period307,681 $31 $1,530,046 $2,456,823 $(8,300)$3,978,600 
Net income — — — 272,259 — 272,259 
Other comprehensive loss, net of tax — — — — (22,201)(22,201)
Stock-based compensation — — 50,279 — — 50,279 
Issuance of common stock in connection with employee equity incentive plans 1,727 — 19,160 — — 19,160 
Tax withholding paid for net share settlement of equity awards(105)— (12,741)— — (12,741)
Repurchase of common stock(1,171)— — (136,228)— (136,228)
Common stock issued for business acquisition33 — 4,049 — — 4,049 
Balance at end of period308,165 $31 $1,590,793 $2,592,854 $(30,501)$4,153,177 

Three Months Ended March 31, 2021
Common Stock  Additional
Paid-In Capital (1)
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Shares (1)Amount (1)
Balance at beginning of period304,696 $30 $1,292,409 $2,027,614 $238 $3,320,291 
Net Income— — — 180,366 — 180,366 
Other comprehensive loss, net of tax — — — — (1,102)(1,102)
Stock-based compensation — — 37,553 — — 37,553 
Issuance of common stock in connection with employee equity incentive plans 1,836 — 18,081 — — 18,081 
Tax withholding paid for net share settlement of equity awards(36)— (2,496)— — (2,496)
Repurchase of common stock(1,468)— — (101,355)— (101,355)
Balance at end of period305,028 $30 $1,345,547 $2,106,625 $(864)$3,451,338 
(1) Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November 2021.
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
4

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three Months Ended March 31,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$272,259 $180,366 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other13,091 12,658 
Stock-based compensation 50,279 37,553 
Noncash lease expense4,532 4,243 
Deferred income taxes (81,822)1,425 
Unrealized gain on equity investments(28,497) 
Amortization of investment premiums7,033 5,446 
Changes in operating assets and liabilities:
Accounts receivable, net(131,861)9,074 
Inventories(43,531)(3,500)
Prepaid expenses and other current assets(107,999)(15,272)
Other assets(640)(3,499)
Accounts payable2,478 2,833 
Accrued liabilities(29,666)(20,759)
Deferred revenue187,194 69,204 
Income taxes payable106,992 (10,436)
Other liabilities(2,704)(14,661)
Net cash provided by operating activities217,138 254,675 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities404,176 379,605 
Purchases of marketable securities(412,614)(590,476)
Business acquisitions, net of cash acquired (37,610)18 
Purchases of property and equipment (14,876)(5,096)
Purchases of investments in privately-held companies (11,691)(2,000)
Net cash used in investing activities (72,615)(217,949)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity plans 19,160 18,081 
Tax withholding paid on behalf of employees for net share settlement(12,741)(2,496)
Repurchase of common stock(136,228)(101,355)
Net cash used in financing activities(129,809)(85,770)
Effect of exchange rate changes (481)(838)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH14,233 (49,882)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 625,050 897,454 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $639,283 $847,572 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Right-of-use assets obtained in exchange for new operating lease liabilities$6,022 $ 
Property and equipment included in accounts payable and accrued liabilities2,759 1,529 
Common stock issued for business acquisition4,049  
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
5

ARISTA NETWORKS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.    Organization and Summary of Significant Accounting Policies
Organization
    Arista Networks, Inc. (together with our subsidiaries, “we,” “our,” "Arista," "Company" or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of large-scale internet companies, cloud service providers and next-generation enterprises. Our cloud networking solutions consist of our Extensible Operating System ("EOS"), a set of network applications and our Gigabit Ethernet switching and routing platforms. We are incorporated in the state of Delaware. Our corporate headquarters are located in Santa Clara, California, and we have wholly-owned subsidiaries throughout the world, including North America, Europe, Asia and Australia.
Basis of Presentation and Principles of Consolidation
    The accompanying unaudited condensed consolidated financial statements include the accounts of Arista Networks, Inc. and its wholly owned subsidiaries and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments of a normal recurring nature necessary for the fair presentation of our financial information. The results for the three months ended March 31, 2022, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. All significant inter-company accounts and transactions have been eliminated.
    Our condensed consolidated financial statements and related financial information in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 15, 2022.
Use of Estimates
    The preparation of the accompanying consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to, valuation of inventory and contract manufacturer/supplier liabilities, accounting for income taxes, including the recognition of deferred tax assets and liabilities, valuation allowance on deferred tax assets and reserves for uncertain tax positions, revenue recognition and deferred revenue, allowance for doubtful accounts, sales rebates and return reserves, valuation of goodwill and acquisition-related intangible assets, estimate of useful lives of long-lived assets including intangible assets, and the recognition and measurement of contingent liabilities. We evaluate our estimates and assumptions based on historical experience and other factors and adjust these estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from these estimates.
Risks and Uncertainties
    The global coronavirus ("COVID-19") pandemic as well as the Russian-Ukrainian conflict continue to evolve and have widespread and unpredictable impacts on the global economy and business activities.
    Our contract manufacturers and suppliers have experienced workforce disruptions, delays in component sourcing, production and export of their products as well as component shortages and increased component costs, which have disrupted our supply chain and has impacted and will likely continue to impact our ability to supply products to our customers on a timely basis. While we have experienced improvements in overall demand from customers in recent quarters, we believe ongoing supply disruptions combined with other supply chain related constraints, could impact our ability to fulfill this increased demand and as a result could negatively impact our business in future periods. In addition, inflation pressure in our supply chain and scarcity of some materials needed to build our products have increased our cost of revenue and may negatively impact our gross margin. Although the overall economy continues to recover, several issues including inflation risk, supply chain bottlenecks, and COVID-19 variants have and may continue to impact the pace of the recovery. The extent of the impact on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, and the impact of any initiatives and programs we may undertake to address financial and operational challenges, will depend on future developments, the impact to our customers, partners, employees, contract manufacturers and supply chain, as well as restrictions on travel and transport, all of which continue to evolve and are unpredictable. Management
6

continues to actively monitor the impact of the pandemic on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.
Recently Adopted Accounting Pronouncements
    In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires companies to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination in accordance with ASC 606. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 results in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this ASU as of January 1, 2022 on a prospective basis and the adoption impact was immaterial to the condensed consolidated financial statements. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.
2.    Fair Value Measurements
Assets measured at fair values on a recurring basis
    We measure and report our cash equivalents, restricted cash, marketable equity securities and available-for-sale debt securities at fair value on a recurring basis. The following tables summarize the fair value of these financial assets by significant investment category and their levels within the fair value hierarchy (in thousands):
 As of March 31, 2022As of December 31, 2021
Level ILevel IILevel IIITotal Level ILevel IILevel IIITotal
Financial Assets:
Cash Equivalents:
Money market funds $201,922 $ $ $201,922 $221,382 $ $ $221,382 
Marketable Securities:
Commercial paper 95,239  95,239  141,274  141,274 
Certificate of deposits(1)
 37,330  37,330  44,931  44,931 
U.S. government notes1,093,921   1,093,921 1,057,810   1,057,810 
Corporate bonds 1,265,406  1,265,406  1,252,226  1,252,226 
Agency securities 275,182  275,182  291,261  291,261 
Marketable equity securities(2)
21,811   21,811     
1,115,732 1,673,157  2,788,889 1,057,810 1,729,692  2,787,502 
Other Assets:
Money market funds - restricted4,258   4,258 4,237   4,237 
Total Financial Assets$1,321,912 $1,673,157 $ $2,995,069 $1,283,429 $1,729,692 $ $3,013,121 
______________________________________
(1) As of March 31, 2022 and December 31, 2021, all of our certificates of deposits were domestic deposits.
(2) The $21.8 million represents the fair value of marketable equity securities as of March 31, 2022. This amount includes $8.3 million that was reclassified from Investments on our condensed consolidated balance sheet following the commencement of public market trading of the issuer in the current quarter, in addition to unrealized gains of $13.5 million recorded during the current quarter. The unrealized gains are included in Other income, net on the Condensed Consolidated Statements of Operations. Refer to Note 3. Financial Statement Details.
7

    During the three months ended on March 31, 2022, the Company did not make any transfers between the levels of the fair value hierarchy.
Marketable debt securities
    The following table summarizes the amortized cost, unrealized gains and losses, and fair value of our debt securities at fair value on a recurring basis (in thousands):
As of March 31, 2022As of December 31, 2021
Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$95,239 $ $ $95,239 $141,274 $ $ $141,274 
U.S. government notes1,106,454 16 (12,549)1,093,921 1,060,716 3 (2,909)1,057,810 
Corporate bonds1,278,474 20 (13,088)1,265,406 1,255,149 105 (3,028)1,252,226 
Agency securities277,535 2 (2,355)275,182 291,558 36 (333)291,261 
Total $2,757,702 $38 $(27,992)$2,729,748 $2,748,697 $144 $(6,270)$2,742,571 

    We invest in marketable securities that have maximum maturities of two years and are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields. We expect to realize the full value of these investments upon maturity and do not expect to sell the debt securities prior to maturity; therefore, we do not consider any of our marketable securities to be impaired as of March 31, 2022. We did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable securities for the three months ended March 31, 2022.
    The following is an analysis of our marketable securities in unrealized loss positions for a period of less than twelve months. As of March 31, 2022, there are no unrealized loss positions with a duration equal to or greater than twelve months (in thousands):
As of March 31, 2022
Unrealized Losses within 12 months
Fair ValueUnrealized Losses
U.S. government notes$1,080,225 $(12,549)
Corporate bonds1,223,546 (13,088)
Agency securities262,329 (2,355)
Total $2,566,100 $(27,992)
    As of March 31, 2022, we had no marketable debt securities with contractual maturities that exceed 24 months. The fair values of marketable debt securities, by remaining contractual maturities, are as follows (in thousands):
As of March 31, 2022
Fair Values
Due in 1 year or less$1,765,710 
Due in 1 year through 2 years964,038 
Total debt securities $2,729,748 
    The weighted-average remaining duration of our marketable debt securities is approximately 0.8 years as of March 31, 2022. As we view these marketable debt securities as available to support current operations, we classify marketable debt securities with maturities beyond 12 months as current assets under the caption "Marketable securities" on the condensed consolidated balance sheets.
Assets measured at fair value on a non-recurring basis
Non-Marketable Equity Securities
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    We have non-marketable equity securities in privately-held companies that do not have readily determinable fair values. These equity securities are included in Investments on the condensed consolidated balance sheets. Their initial cost is adjusted to fair value on a non-recurring basis based on observable price changes from orderly transactions of identical or similar securities of the same issuer, or for impairment. These investments are classified within Level III of the fair value hierarchy as we estimate the value based on valuation methods using the observable transaction price at the transaction date and other significant unobservable inputs, such as volatility, rights, and obligations related to these securities. In addition, the valuation requires management judgment due to the absence of market price and lack of liquidity.
    We did not record any realized gains or losses for our non-marketable equity securities measured at fair value on a non-recurring basis during the three months ended March 31, 2022 and March 31, 2021. We recorded an unrealized gain of $15.0 million on non-marketable equity securities based on observable price changes from orderly transactions of identical or similar securities of the same issuer in the three months ended March 31, 2022, but did not record any unrealized losses or further unrealized gains in the three months ended March 31, 2022 and March 31, 2021. We evaluate our non-marketable equity securities for impairment at each reporting period via a qualitative assessment with various potential impairment indicators, including, but not limited to, an assessment of a significant adverse change in the economic environment, significant adverse changes in the general market condition of the geographies and industries in which our investees operate, and other publicly available information that affected the value of the its non-marketable equity securities.
    The following table summarizes the activity related to our non-marketable equity securities as of March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Cost of investments (1)$23,625 $14,933 
Cumulative impairment  
Cumulative upward adjustment (1)15,000 5,314 
Carrying amount of investments$38,625 $20,247 
(1) During the three months ended March 31, 2022, $3.0 million previously included in the Cost of investments and $5.3 million previously included in the Cumulative upward adjustment, or $8.3 million in aggregate, were reclassified from Investments to Marketable securities on our condensed consolidated balance sheet following the commencement of public market trading of the issuer.
3.    Financial Statements Details
Cash, Cash Equivalents and Restricted Cash
    The reconciliation of cash, cash equivalents and restricted cash reported in the accompanying unaudited condensed consolidated balance sheets to the total of the same such amounts in the accompanying unaudited condensed consolidated statements of cash flows is as follows (in thousands):
March 31, 2022December 31, 2021
Cash and cash equivalents$635,025 $620,813 
Restricted cash included in other assets4,258 4,237 
Total cash, cash equivalents and restricted cash$639,283 $625,050 
Accounts Receivable, net
    Accounts receivable, net consists of the following (in thousands):
March 31, 2022December 31, 2021
Accounts receivable $652,529 $521,597 
Allowance for doubtful accounts (392)(132)
Product sales rebate and returns reserve(3,531)(4,956)
Accounts receivable, net $648,606 $516,509 
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Inventories
    Inventories consist of the following (in thousands):
March 31, 2022December 31, 2021
Raw materials $367,811 $316,737 
Finished goods 326,406 333,380 
Total inventories $694,217 $650,117 
Prepaid Expenses and Other Current Assets
    Prepaid expenses and other current assets consist of the following (in thousands):
March 31, 2022December 31, 2021
Inventory deposits$95,608 $46,311 
Prepaid income taxes692 8,977 
Other current assets217,363 163,916 
Other prepaid expenses and deposits24,774 18,531 
Total prepaid expenses and other current assets$338,437 $237,735 
Property and Equipment, net
    Property and equipment, net consists of the following (in thousands):
March 31, 2022December 31, 2021
Land$40,336 $40,145 
Equipment and machinery 104,096 90,915 
Computer hardware and software 44,792 44,083 
Furniture and fixtures 3,638 3,634 
Leasehold improvements
30,512 30,502 
Construction-in-process 2,354 2,378 
Property and equipment, gross 225,728 211,657 
Less: accumulated depreciation (138,337)(133,023)
Property and equipment, net $87,391 $78,634 
    Depreciation expense was $5.6 million and $4.9 million for the three months ended March 31, 2022 and 2021, respectively.
Accrued Liabilities
    Accrued liabilities consist of the following (in thousands):
March 31, 2022December 31, 2021
Accrued payroll-related costs$47,799 $99,571 
Accrued manufacturing costs92,197 80,213 
Accrued product development costs28,897 22,188 
Accrued warranty costs12,325 10,414 
Other15,845 14,257 
Total accrued liabilities $197,063 $226,643 
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Warranty Accrual
    The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):
Three Months Ended March 31,
20222021
Warranty accrual, beginning of period$10,414 $9,314 
Liabilities accrued for warranties issued during the period 4,392 3,456 
Warranty costs incurred during the period(2,481)(2,727)
Warranty accrual, end of period$12,325 $10,043 
Contract Assets
    The following table summarizes the beginning and ending balances of our contract assets included in "Prepaid and other current assets" on the condensed consolidated balance sheets (in thousands):
Three Months Ended March 31,
20222021
Contract assets, beginning balance$24,388 $16,380 
Contract assets, ending balance14,051 9,762 
Contract Liabilities
    A contract liability is recognized when we have received customer payments in advance of our satisfaction of a performance obligation under a cancellable contract. The following table summarizes the activity related to our contract liabilities (in thousands):
Three Months Ended March 31,
20222021
Contract liabilities, beginning balance$93,382 $85,957 
Less: Revenue recognized from beginning balance(8,248)(7,913)
Less: Beginning balance reclassified to deferred revenue(3,837)(12,492)
Add: Contract liabilities recognized17,125 14,913 
Contract liabilities, ending balance$98,422 $80,465 
    As of March 31, 2022 and December 31, 2021, $40.8 million and $38.7 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances in "Other long-term liabilities" on the condensed consolidated balance sheets.
Deferred Revenue
    Deferred revenue is comprised mainly of unearned revenue related to multi-year post-contract support ("PCS") contracts, services and product deferrals related to acceptance clauses. The following table summarizes the activity related to our deferred revenue (in thousands):
Three Months Ended March 31,
20222021
Deferred revenue, beginning balance
$929,312 $650,827 
Less: Revenue recognized from beginning balance(128,136)(107,442)
Add: Deferral of revenue in current period, excluding amounts recognized during the period322,570 176,646 
Deferred revenue, ending balance$1,123,746 $720,031 
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Other Performance Obligations
    Other performance obligations include unbilled contract revenue for services and product that will be recognized in future periods. As of March 31, 2022, other performance obligations of $180.0 million were comprised mainly of unbilled multi-year PCS contract amounts.
Revenue from Total Remaining Performance Obligations
    Revenue from total remaining performance obligations represents contract liabilities, deferred revenue and other performance obligations. As of March 31, 2022, approximately $1,402.2 million of revenue is expected to be recognized from remaining performance obligations, of which approximately 83% is expected to be recognized over the next two years and approximately 17% is expected to be recognized during the third to the fifth year.
Other Income, net
    Other income, net consists of the following (in thousands):
Three Months Ended March 31,
20222021
Interest income$2,428 $2,045 
Unrealized gain on equity investments28,497  
Other income (expense), net555 (470)
Total$31,480 $1,575 
4.    Acquisition, Goodwill and Acquisition-Related Intangible Assets
Acquisition and Goodwill
    In January 2022, we completed an acquisition of a privately-held technology company in the United States for a total consideration of $47.0 million with both cash and common stock. The purchase price included $19.0 million of intangible assets, $28.5 million of goodwill and $0.5 million of net liabilities assumed.
    The changes in the carrying values of goodwill for the three months ended March 31, 2022 are as follows (in thousands):
Amount
Balance at December 31, 2021$188,397 
Additions related to one acquisition 28,518 
Balance at March 31, 2022$216,915 
Acquisition-Related Intangible Assets
    The following table presents details of our acquisition-related intangible assets as of March 31, 2022 and December 31, 2021 (in thousands, except for years):
March 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Useful Life
(In Years)
Developed technology$135,530 $(59,384)$76,146 4.7
Customer relationships32,920 (8,966)23,954 5.5
Trade name10,190 (5,046)5,144 3.4
Others5,720 (5,720) 0.0
Total$184,360 $(79,116)$105,244 4.8

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December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Useful Life
(In Years)
Developed technology$124,730 $(53,663)$71,067 4.5
Customer relationships25,920 (7,899)18,021 5.2
Trade name8,990 (4,693)4,297 3.8
Others5,720 (5,550)170 0.1
Total$165,360 $(71,805)$93,555 4.6
    For intangible assets acquired and purchased during the three months ended March 31, 2022, developed technology has a weighted-average useful life of 7.0 years, customer relationships has a weighted-average useful life of 7.0 years, and trade name has a weighted-average useful life of 3.0 years.
    Amortization expense related to acquisition-related intangible assets was $7.3 million, and $7.4 million for the three months ended March 31, 2022, and 2021, respectively.
    As of March 31, 2022, future estimated amortization expense related to the acquired-related intangible assets is as follows (in thousands):
Future Amortization Expense
Remainder of 2022$22,161 
202325,724 
202419,046 
202512,326 
202610,280 
Thereafter15,707 
Total $105,244 
5.    Commitments and Contingencies
Purchase Commitments
    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. In addition, we purchase strategic component inventory from certain suppliers under non-cancellable purchase commitments, including integrated circuits, which are consigned to our contract manufacturers. As of March 31, 2022, we had non-cancellable purchase commitments of $4,318.9 million, with $2,427.7 million with confirmed receipt dates within 12 months, $850.2 million with confirmed receipt dates greater than 12 months and the remaining $1,041 million with the receipt dates to be confirmed. 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.
    We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $98.4 million and $49.1 million as of March 31, 2022 and December 31, 2021, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the accompanying consolidated balance sheets.
Guarantees
    We have entered into agreements with some of our direct customers and channel partners that contain indemnification provisions relating to potential situations where claims could be alleged that our products infringe the intellectual property rights of a third party. We have, at our option and expense, the ability to repair any infringement, replace product with a non-infringing equivalent-in-function product or refund our customers all or a portion of the value of the product. Other guarantees or indemnification agreements include guarantees of product and service performance and standby letters of credit for leased facilities and corporate credit cards. We have not recorded a liability related to these indemnification and guarantee provisions and our guarantee and indemnification arrangements have not had a significant impact on our consolidated financial statements to date.
13

Legal Proceedings
    WSOU Investments, LLC
    On November 25, 2020, WSOU Investments LLC ("WSOU") filed a lawsuit against us in the Western District of Texas asserting that certain of our products infringe three WSOU patents. WSOU's allegations are directed to certain features of our wireless and switching products. WSOU seeks remedies including monetary damages, attorney's fees and costs. On February 4, 2021, we filed an answer denying WSOU's allegations. On November 5, 2021, the case was transferred to the Northern District of California; trial has been set for October 23, 2023. On March 30, 2022, WSOU dismissed one of the patents with prejudice, removing Arista wireless products from those accused of infringement.
    We intend to vigorously defend against the claims brought against us by WSOU. However, we cannot be certain that any of WSOU's claims will be resolved in our favor, regardless of the merits of those claims. Any adverse litigation ruling could result in a significant damages award against us and injunctive relief.
    With respect to the legal proceedings described above, it is our belief that while a loss is not probable, it may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be estimated. However, the outcome of litigation is inherently uncertain. Therefore, if this legal matter were resolved against us in a reporting period for a material amount, our consolidated financial statements for that reporting period could be materially adversely affected.
    Other matters
    In the ordinary course of business, we are a party to other claims and legal proceedings including matters relating to commercial, employee relations, business practices and intellectual property.
    We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of March 31, 2022, provisions recorded for contingent losses related to other claims and matters have not been significant. Based on currently available information, management does not believe that any liabilities relating to other unresolved matters are probable or that the amount of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and our view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.
6.    Stockholders’ Equity and Stock-Based Compensation
Stock Repurchase Program
    In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the "Repurchase Program"). This authorization allowed us to repurchase shares of our common stock over three years, and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021. In the fourth quarter of 2021, our board of directors authorized an additional $1.0 billion stock repurchase program (the “New Repurchase Program”), which allows us to repurchase shares of our common stock to be funded from working capital. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing. The New Repurchase Program commenced in November 2021 and expires on the three year anniversary thereof. The New Repurchase Program does not obligate us to acquire any of our common stock, and may be suspended or discontinued by us at any time without prior notice. As of March 31, 2022, the remaining authorized amount for stock repurchases under this program was approximately $790.8 million.
    A summary of the stock repurchase activity under the New Repurchase Program is as follows (in thousands, except per share amounts):
Three Months Ended
March 31, 2022
Aggregate purchase price$136,228 
Shares repurchased1,171 
Average price paid per share$116.30 
    The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained earnings. All shares repurchased have been retired.
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Equity Award Plan Activities
2014 Equity Incentive Plan
    In April 2014, our board of directors and stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”), effective on the first day that our common stock was publicly traded, and simultaneously terminated the 2004 and 2011 equity plans as to future grants. However, these plans will continue to govern the terms and conditions of the outstanding options previously granted thereunder.    
    Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) or Stock Appreciation Rights (“SARs”). The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3% of the outstanding shares