Company Quick10K Filing
Quick10K
Arista Networks
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$267.43 77 $20,490
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-05-28 Shareholder Vote
8-K 2019-05-02 Earnings, Other Events, Exhibits
8-K 2019-02-14 Earnings, Officers, Other Events, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-06 Enter Agreement, Earnings, Off-BS Arrangement
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-05-30 Shareholder Vote
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-03-27 Other Events
8-K 2018-02-15 Earnings, Exhibits
ESLT Elbit Systems 5,850
TRHC Tabula Rasa Healthcare 1,050
RA Railamerica 802
EGAN Egain 243
IIN Intricon 218
SAR Saratoga Investment 192
ALOT Astronova 177
PLX Protalix Biotherapeutics 59
AMS American Shared Hospital Services 16
BBRG FoodFirst 0
ANET 2019-06-30
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311ceocertificationq.htm
EX-31.2 ex312cfocertificationq.htm
EX-32.1 ex321ceoandcfo906certi.htm

Arista Networks Earnings 2019-06-30

ANET 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 June 30, 2019
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
,
California
 
95054
(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 class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value
ANET
New 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, 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 filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller 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 July 26, 2019 was 76,644,302.



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.
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except par value)
 
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 

CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
944,414

 
$
649,950

Marketable securities
 
1,313,389

 
1,306,197

Accounts receivable, net of rebates and allowances of $7,488 and $9,120, respectively
 
343,080

 
331,777

Inventories
 
314,177

 
264,557

Prepaid expenses and other current assets
 
113,458

 
162,321

Total current assets
 
3,028,518

 
2,714,802

Property and equipment, net
 
41,023

 
75,355

Acquisition-related intangible assets, net
 
51,612

 
58,610

Goodwill
 
53,684

 
53,684

Investments
 
31,486

 
30,336

Operating lease right-of-use assets
 
94,203

 

Deferred tax assets
 
113,660

 
126,492

Other assets
 
27,106

 
22,704

TOTAL ASSETS
 
$
3,441,292

 
$
3,081,983

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
86,134

 
$
93,757

Accrued liabilities
 
113,898

 
123,254

Deferred revenue
 
272,366

 
358,586

Other current liabilities
 
52,622

 
30,907

Total current liabilities
 
525,020

 
606,504

Income taxes payable
 
45,804

 
36,167

Operating lease liabilities, non-current
 
89,705

 

Finance lease liabilities, non-current
 

 
35,431

Deferred revenue, non-current
 
229,852

 
228,641

Other long-term liabilities
 
25,351

 
31,851

TOTAL LIABILITIES
 
915,732

 
938,594

Commitments and contingencies (Note 7)
 

 


STOCKHOLDERS’ EQUITY:
 
 
 
 
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued and outstanding as of June 30, 2019 and December 31, 2018
 

 

Common stock, $0.0001 par value—1,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 76,555 and 75,668 shares issued and outstanding as of June 30, 2019 and December 31, 2018
 
8

 
8

Additional paid-in capital
 
1,038,740

 
956,572

Retained earnings
 
1,484,777

 
1,190,803

Accumulated other comprehensive income (loss)
 
2,035

 
(3,994
)
TOTAL STOCKHOLDERS’ EQUITY
 
2,525,560

 
2,143,389

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
3,441,292

 
$
3,081,983

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

1

Table of Contents

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
 
Product
 
$
513,171

 
$
444,767

 
$
1,018,586

 
$
852,384

Service
 
95,150

 
75,078

 
185,159

 
139,950

Total revenue
 
608,321

 
519,845

 
1,203,745

 
992,334

Cost of revenue: 
 
 
 
 
 
 
 
 
Product
 
200,534

 
171,622

 
398,686

 
328,313

Service
 
17,596

 
14,340

 
34,298

 
27,219

Total cost of revenue
 
218,130

 
185,962

 
432,984

 
355,532

Gross profit
 
390,191

 
333,883

 
770,761

 
636,802

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
114,295

 
104,078

 
233,964

 
206,440

Sales and marketing
 
53,040

 
46,188

 
104,093

 
88,328

General and administrative
 
16,019

 
18,420

 
31,525

 
38,099

Legal settlement
 

 
405,000

 

 
405,000

Total operating expenses
 
183,354

 
573,686

 
369,582

 
737,867

Income (loss) from operations
 
206,837

 
(239,803
)
 
401,179

 
(101,065
)
Other income (expense), net
 
13,811

 
(2,169
)
 
26,144

 
1,987

Income (loss) before income taxes
 
220,648

 
(241,972
)
 
427,323

 
(99,078
)
Provision for (benefit from) income taxes
 
31,397

 
(86,703
)
 
37,043

 
(88,347
)
Net income (loss)
 
$
189,251

 
$
(155,269
)
 
$
390,280

 
$
(10,731
)
Net income (loss) attributable to common stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
189,152

 
$
(155,187
)
 
$
390,063

 
$
(10,725
)
Diluted
 
$
189,158

 
$
(155,187
)
 
$
390,076

 
$
(10,725
)
Net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
2.47

 
$
(2.08
)
 
$
5.12

 
$
(0.14
)
Diluted
 
$
2.33

 
$
(2.08
)
 
$
4.80

 
$
(0.14
)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
Basic
 
76,552

 
74,503

 
76,238

 
74,250

Diluted
 
81,335

 
74,503

 
81,271

 
74,250


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



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Table of Contents

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
189,251

 
$
(155,269
)
 
$
390,280

 
$
(10,731
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(272
)
 
(1,167
)
 
(37
)
 
(814
)
Net change in unrealized gains (losses) on available-for-sale securities
 
2,887

 
242

 
6,066

 
(1,799
)
Other comprehensive income (loss)
 
2,615

 
(925
)
 
6,029

 
(2,613
)
Comprehensive income (loss)
 
$
191,866

 
$
(156,194
)
 
$
396,309

 
$
(13,344
)

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


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Table of Contents

ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Stockholders Equity
(Unaudited, in thousands)
 
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
 
Common Stock  
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
Common Stock  
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at beginning of period
 
76,453

 
$
8

 
$
1,005,405

 
$
1,395,534

 
$
(580
)
 
$
2,400,367

 
75,668

 
$
8

 
$
956,572

 
$
1,190,803

 
$
(3,994
)
 
$
2,143,389

Cumulative-effect adjustment to beginning balance (1)
 

 

 

 

 

 

 

 

 

 
3,702

 

 
3,702

Net income
 

 

 

 
189,251

 

 
189,251

 

 

 

 
390,280

 

 
390,280

Other comprehensive income, net of tax
 

 

 

 

 
2,615

 
2,615

 

 

 

 

 
6,029

 
6,029

Stock-based compensation
 

 

 
24,297

 

 

 
24,297

 

 

 
48,588

 

 

 
48,588

Issuance of common stock in connection with employee equity incentive plans
 
521

 

 
11,781

 

 

 
11,781

 
1,312

 

 
38,104

 
 
 
 
 
38,104

Tax withholding paid for net share settlement of equity awards
 
(12
)
 

 
(2,812
)
 

 

 
(2,812
)
 
(18
)
 

 
(4,662
)
 

 

 
(4,662
)
Vesting of early-exercised stock options
 

 

 
69

 

 

 
69

 

 

 
138

 

 

 
138

Repurchase of common stock
 
(407
)
 

 

 
(100,008
)
 

 
(100,008
)
 
(407
)
 

 

 
(100,008
)
 

 
(100,008
)
Balance at end of period
 
76,555

 
$
8

 
$
1,038,740

 
$
1,484,777

 
$
2,035

 
$
2,525,560

 
76,555

 
$
8

 
$
1,038,740

 
$
1,484,777

 
$
2,035

 
$
2,525,560

_________________________________________
(1) On January 1, 2019, we adopted Accounting Standard Codification Topic 842 - Leases (“ASC 842”), which resulted in a cumulative-effect adjustment to the beginning balance of Retained Earnings for 2019. See Note 1 of the accompanying notes for further details. 
 
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
 
Common Stock  
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
Common Stock  
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at beginning of period
 
74,338

 
$
8

 
$
841,431

 
$
1,007,226

 
$
(3,626
)
 
$
1,845,039

 
73,706

 
$
7

 
$
804,731

 
$
859,114

 
$
(1,938
)
 
$
1,661,914

Cumulative-effect adjustment to beginning balance
 

 

 

 

 

 

 

 

 

 
3,574

 

 
3,574

Net loss
 

 

 

 
(155,269
)
 

 
(155,269
)
 

 

 

 
(10,731
)
 

 
(10,731
)
Other comprehensive loss, net of tax
 

 

 

 

 
(925
)
 
(925
)
 

 

 

 

 
(2,613
)
 
(2,613
)
Stock-based compensation
 

 

 
22,478

 

 

 
22,478

 

 

 
43,329

 

 

 
43,329

Issuance of common stock in connection with employee equity incentive plans
 
465

 

 
11,510

 

 

 
11,510

 
1,103

 
1

 
28,809

 

 

 
28,810

Tax withholding paid for net share settlement of equity awards
 
(12
)
 

 
(2,927
)
 

 

 
(2,927
)
 
(18
)
 

 
(4,463
)
 

 

 
(4,463
)
Vesting of early-exercised stock options
 

 

 
67

 

 

 
67

 

 

 
153

 

 

 
153

Balance at end of period
 
74,791

 
$
8

 
$
872,559

 
$
851,957

 
$
(4,551
)
 
$
1,719,973

 
74,791

 
$
8

 
$
872,559

 
$
851,957

 
$
(4,551
)
 
$
1,719,973


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ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
390,280

 
$
(10,731
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization and other
 
16,757

 
11,328

Stock-based compensation
 
48,588

 
43,329

Noncash lease expense
 
7,955

 

Deferred income taxes
 
7,914

 
(18,281
)
(Gain) loss on investments in privately-held companies
 
(1,150
)
 
9,100

Accretion of investment discounts
 
(4,260
)
 
(783
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(11,303
)
 
(13,571
)
Inventories
 
(49,620
)
 
60,759

Prepaid expenses and other current assets
 
48,864

 
(72,418
)
Other assets
 
(4,635
)
 
629

Accounts payable
 
(6,783
)
 
3,597

Accrued liabilities
 
(9,476
)
 
(47,153
)
Accrued legal settlement
 

 
405,000

Deferred revenue
 
(85,009
)
 
(50,096
)
Income taxes payable
 
14,399

 
6,653

Other liabilities
 
3,955

 
(1,237
)
Net cash provided by operating activities
 
366,476

 
326,125

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Proceeds from maturities of marketable securities
 
552,512

 
222,764

Purchases of marketable securities
 
(549,383
)
 
(696,665
)
Purchases of property and equipment
 
(8,639
)
 
(13,071
)
Investments in privately-held companies
 

 
(8,000
)
Other investing activities
 

 
(2,000
)
Net cash used in investing activities
 
(5,510
)
 
(496,972
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Principal payments of lease financing obligations
 

 
(921
)
Proceeds from issuance of common stock under equity plans
 
38,104

 
28,810

Tax withholding paid on behalf of employees for net share settlement
 
(4,662
)
 
(4,463
)
Repurchase of common stock
 
(100,008
)
 

Net cash provided by (used in) financing activities
 
(66,566
)
 
23,426

Effect of exchange rate changes
 
72

 
(607
)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
294,472

 
(148,028
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period
 
654,164

 
864,697

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period (1)
 
$
948,636

 
$
716,669

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Right-of-use assets recognized upon the adoption of ASC 842 (2)
 
$
93,207

 
$

Right-of-use assets obtained in exchange for new operating lease liabilities
 
9,130

 

Property and equipment included in accounts payable and accrued liabilities
 
1,376

 
1,077

___________________________________________________
 
 
 
 
(1) See Note 4 of the accompanying notes for a reconciliation of the ending balance of cash, cash equivalents and restricted cash as shown in this condensed consolidated statements of cash flows.
(2) See Note 1 of the accompanying notes.
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

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” 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 enterprise. Our cloud networking solutions consist of our Extensible Operating System (“EOS”), a set of network applications and our 10/25/40/50/100 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, which include only normal recurring adjustments, necessary for the fair presentation of our financial information. The results for the three and six months ended June 30, 2019, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2018 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 intercompany 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, 2018, filed with the SEC on February 15, 2019.
Use of Estimates
The preparation of the accompanying condensed 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, revenue recognition and deferred revenue; allowance for doubtful accounts, sales rebates and return reserves; valuation of goodwill and acquisition-related intangible assets, accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; estimate of useful lives of long-lived assets including intangible assets; valuation of inventory and contract manufacturer/supplier liabilities; recognition and measurement of contingent liabilities; valuation of equity investments in privately-held companies; determination of fair value for stock-based awards; estimate of incremental borrowing rate for determining the present value of future lease payments; and valuation of warranty accruals. We evaluate our estimates and assumptions based on historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates.
Significant Accounting Policies
During the six months ended June 30, 2019, we adopted ASC 842 - Leases, as discussed in the section titled Recently Adopted Accounting Pronouncements of this Note 1. As a result, we added a new significant accounting policy “Leases” as described below. There have been no other significant changes to our accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 15, 2019.
Leases
Our initial application date of ASC 842 is January 1, 2019. For the periods prior to 2019, our leases were accounted for under the legacy guidance in ASC 840.
We determine if a contract contains a lease at inception. The lease term represents the non-cancellable period for which we have the right to use an underlying asset, which may include periods covered by certain options to extend and/or terminate the lease. Lease liabilities and corresponding right-of-use (“ROU”) assets are recognized at the commencement date of a lease. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet.

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Table of Contents

A lease liability is the present value of our future fixed lease payments. As none of our leases provides an implicit interest rate, we use our estimated incremental borrowing rate as of the lease commencement date to determine the present value of future lease payments. Our discount rates are determined and applied at a company level. An ROU asset is calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses.
For fixed lease payments under operating leases, lease expense is recognized on a straight-lined basis over the lease term. For variable lease payments, lease expense is recognized when incurred. For operating leases that include both lease and non-lease components, we account for lease and non-lease components as a single lease component for all classes of underlying assets and, therefore, recognize non-lease payments as lease expense.  
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”), and in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”) (collectively referred to as “ASC 842”). Under the guidance, lessees are required to recognize assets and lease liabilities on the balance sheet for most leases including operating leases and provide enhanced disclosures. Companies are required to adopt this guidance using a modified retrospective approach and apply the transition provisions under the guidance at either 1) the later of the beginning of the earliest comparative period presented in the financial statements and the commencement date of the lease, or 2) the beginning of the period of adoption (i.e. on the effective date). Under the transition method using the second application date, a company initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
We adopted the guidance on January 1, 2019 using the modified retrospective transition method and initially applied the transition provisions at January 1, 2019, which allows us to continue to apply the legacy guidance in ASC 840 for periods prior to 2019. We elected the package of transition practical expedients, which, among other things, allows us to keep the historical lease classifications and not have to reassess the lease classification for any existing leases as of the date of adoption. We also made the following accounting policy elections as allowed by ASC 842:
to apply the short-term lease exception, which allows us to keep leases with an initial term of twelve months or less off the balance sheet.
to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all our leases.
As a result of the adoption, we recognized operating leases that were previously not recognized on the consolidated balance sheets. In addition, we derecognized the assets and the lease financing liabilities previously recorded for our headquarters building under a build-to-suit lease. Under ASC 842, this lease is recognized as an operating lease in our condensed consolidated financial statements beginning in the first quarter of 2019. The table below summarizes the impact of the adoption of ASC 842 on the condensed consolidated balance sheet as of January 1, 2019 (in thousands).
 
 
 
 
Adjustments for the Adoption of ASC 842
 
 
Balance Sheet Line Item
 
December 31,
2018
 
Derecognition of Build-to-Suit Lease
 
Recognition of Operating Leases (1)
 
January 1,
2019
Property and equipment, net
 
$
75,355

 
$
(32,806
)
 
$

 
$
42,549

Operating lease right-of-use assets
 

 

 
93,207

 
93,207

Deferred tax assets
 
126,492

 
(1,165
)
 

 
125,327

Other current liabilities
 
30,907

 
(2,242
)
 
12,391

 
41,056

Operating lease liabilities, non-current
 

 

 
88,230

 
88,230

Finance lease liabilities, non-current
 
35,431

 
(35,431
)
 

 

Other long-term liabilities
 
31,851

 

 
(7,414
)
 
24,437

Retained earnings
 
1,190,803

 
3,702

 

 
1,194,505

__________________
(1) Includes an operating lease for our corporate headquarters building under the build-to-suit arrangement, which was accounted for as a financing lease prior to 2019 and derecognized on January 1, 2019 upon the adoption of ASC 842.


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Table of Contents

Recent Accounting Pronouncements Not Yet Effective
Credit Losses of Financial Instruments 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The proposed standard requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. For trade receivables, we will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, we will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses, Topic 326, which allows companies to make an irrevocable one-time election upon adoption of ASU 2016-13 to elect the fair value option for certain financial assets currently measured at amortized cost (except held-to-maturity securities). The election is to be applied on an instrument-by-instrument basis. ASU 2016-13 is effective for us for our first quarter of 2020. We are currently assessing the impact this guidance may have on our consolidated financial statements.

2.    Business Combinations
In the three months ended September 30, 2018, we acquired Mojo Networks, Inc. (“Mojo”) and Metamako Holding PTY LTD. (“Metamako”) in order to extend our cognitive cloud networking architecture and to improve our next generation platforms for low-latency applications. 
The total fair value of consideration transferred for these acquisitions was approximately $117.5 million, which consisted of $101.9 million in cash and $15.6 million for the fair value of 58,072 shares of our common stock issued. The following table summarizes our preliminary purchase price allocation of the two acquisitions, in aggregate, based on the estimated fair value of the assets acquired and liabilities assumed at their respective acquisition dates (in thousands):
 
 
Purchase Price Allocation
Cash and cash equivalents
 
$
4,953

Other tangible assets
 
23,824

Liabilities
 
(28,706
)
Intangible assets
 
63,720

Goodwill
 
53,684

Net assets acquired
 
$
117,475


We continue the process of identifying and evaluating pending escrow claims related to inventory, tax and other liabilities. Accordingly, the preliminary values reflected in the table above are subject to further measurement period adjustments.
The acquired intangible assets are amortized on a straight-line basis over their estimated useful lives as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed. The following table shows the valuation of the intangible assets acquired (in thousands) along with their estimated useful lives.
 
 
Acquisition Date Fair Value
 
Estimated Useful Life
Developed technology
 
$
52,510

 
5 years
Customer relationships
 
7,080

 
7 years
Trade name
 
2,470

 
3 years
Others
 
1,660

 
1 year
Total intangible assets acquired
 
$
63,720

 
 

Goodwill of $53.7 million is primarily attributable to the expected synergies created by incorporating the solutions of the acquired businesses into our technology platform, and the value of the assembled workforce. We operate under a single reportable segment. The goodwill is not deductible for income taxes purposes.


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Table of Contents

3.    Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the accompanying condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. We use a fair value hierarchy to measure fair value, maximizing the use of observable inputs and minimizing the use of unobservable inputs. The three-tiers of the fair value hierarchy are as follows:
Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level II - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level III - Unobservable inputs that are supported by little or no market data for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
We measure and report our cash equivalents, restricted cash, and available-for-sale marketable securities at fair value on a recurring basis. The following tables summarize the amortized costs, unrealized gains and losses and fair value of these financial assets by significant investment category and their level within the fair value hierarchy (in thousands):
 
 
June 30, 2019
 
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Level I
 
Level II
 
Level III
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
518,039

 
$

 
$

 
$
518,039

 
$
518,039

 
$

 
$

Agency securities
 
3,992

 

 

 
3,992

 

 
3,992

 

U.S. government notes
 
3,996

 

 

 
3,996

 
3,996

 

 

 
 
526,027

 

 

 
526,027

 
522,035

 
3,992

 

Marketable Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
658,913

 
2,863

 
(33
)
 
661,743

 

 
661,743

 

U.S. government notes
 
342,004

 
834

 
(11
)
 
342,827

 
342,827

 

 

Agency securities
 
269,193

 
864

 
(28
)
 
270,029

 

 
270,029

 

Commercial paper
 
35,790

 

 

 
35,790

 

 
35,790

 

Certificates of deposits (1)
 
3,000

 

 

 
3,000

 

 
3,000

 

 
 
1,308,900

 
4,561

 
(72
)
 
1,313,389

 
342,827

 
970,562

 

Other Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds - restricted
 
4,222

 

 

 
4,222

 
4,222

 

 

Total Financial Assets
 
$
1,839,149

 
$
4,561

 
$
(72
)
 
$
1,843,638

 
$
869,084

 
$
974,554

 
$



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Table of Contents

 
 
December 31, 2018
 
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Level I
 
Level II
 
Level III
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
322,080

 
$

 
$

 
$
322,080

 
$
322,080

 
$

 
$

Marketable Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
660,353

 
264

 
(1,399
)
 
659,218

 

 
659,218

 

U.S. government notes
 
308,946

 
118

 
(286
)
 
308,778

 
308,778

 

 

Agency securities
 
273,993

 
240

 
(511
)
 
273,722

 

 
273,722

 

Commercial paper
 
59,479

 

 

 
59,479

 

 
59,479

 

Certificates of deposits (1)
 
5,000

 

 

 
5,000

 

 
5,000

 

 
 
1,307,771

 
622

 
(2,196
)
 
1,306,197

 
308,778

 
997,419

 

Other Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds - restricted
 
4,214

 

 

 
4,214

 
4,214