10-Q 1 anet-20210930.htm 10-Q anet-20210930
000159653212/312021Q3FALSE76,820,895On 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. 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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 September 30, 2021
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 October 27, 2021 was 76,820,895.



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)
September 30, 2021December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $630,982 $893,219 
Marketable securities2,755,499 1,979,649 
Accounts receivable, net of rebates and allowances of $3,099 and $4,497, respectively
395,590 389,540 
Inventories 575,665 479,668 
Prepaid expenses and other current assets 166,222 94,922 
Total current assets 4,523,958 3,836,998 
Property and equipment, net75,373 32,231 
Acquisition-related intangible assets, net100,713 122,790 
Goodwill188,397 189,696 
Investments18,247 8,314 
Operating lease right-of-use assets69,374 77,288 
Deferred tax assets 428,764 441,531 
Other assets32,524 30,071 
TOTAL ASSETS $5,437,350 $4,738,919 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $135,252 $134,235 
Accrued liabilities 174,425 143,357 
Deferred revenue 511,354 396,259 
Other current liabilities 72,356 94,392 
Total current liabilities 893,387 768,243 
Income taxes payable 62,563 53,053 
Operating lease liabilities, non-current61,628 72,397 
Deferred revenue, non-current 289,086 254,568 
Deferred tax liabilities, non-current214,261 227,936 
Other long-term liabilities 51,165 42,431 
TOTAL LIABILITIES 1,572,090 1,418,628 
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 September 30, 2021 and December 31, 2020
  
Common stock, $0.0001 par value—1,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 76,886 and 76,174 shares issued and outstanding as of September 30, 2021 and December 31, 2020
88 
Additional paid-in capital 1,473,5951,292,431 
Retained earnings 2,393,6612,027,614 
Accumulated other comprehensive income (loss) (2,004)238 
TOTAL STOCKHOLDERS’ EQUITY 3,865,260 3,320,291 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $5,437,350 $4,738,919 
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 September 30,

Nine Months Ended September 30,
2021202020212020
Revenue:
Product$604,160 $480,242 $1,709,772 $1,312,561 
Service 144,537 125,189 413,806 356,469 
Total revenue748,697 605,431 2,123,578 1,669,030 
Cost of revenue:
Product243,342 199,465 687,554 539,526 
Service 26,740 21,004 77,959 62,202 
Total cost of revenue270,082 220,469 765,513 601,728 
Gross profit 478,615 384,962 1,358,065 1,067,302 
Operating expenses:
Research and development 153,093 128,049 428,873 352,747 
Sales and marketing 69,740 53,372 211,385 161,695 
General and administrative 22,488 15,146 58,856 47,814 
Total operating expenses 245,321 196,567 699,114 562,256 
Income from operations233,294 188,395 658,951 505,046 
Other income, net 1,346 13,224 4,640 33,637 
Income before income taxes234,640 201,619 663,591 538,683 
Provision for income taxes10,335 33,244 62,032 87,084 
Net income$224,305 $168,375 $601,559 $451,599 
Net income per share:
Basic $2.92 $2.22 $7.86 $5.94 
Diluted $2.81 $2.12 $7.54 $5.68 
Weighted-average shares used in computing net income per share:
Basic 76,864 75,999 76,544 76,024 
Diluted 79,909 79,313 79,744 79,519 

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 September 30,Nine Months Ended September 30,
2021202020212020
Net income$224,305 $168,375 $601,559 $451,599 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (747)1,065 (1,097)(481)
Available-for-sale investments:
    Changes in net unrealized gains (losses) on available-for-sale marketable securities (118)(390)(1,145)8,836 
           Less: reclassification adjustment for net (gains) included in net income  (9,432) (9,432)
       Net change(118)(9,822)(1,145)(596)
Other comprehensive income (loss)(865)(8,757)(2,242)(1,077)
Comprehensive income$223,440 $159,618 $599,317 $450,522 

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 September 30, 2021Nine Months Ended September 30, 2021
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
SharesAmountSharesAmount
Balance at beginning of period76,665 $8 $1,395,459 $2,303,513 $(1,139)$3,697,841 76,174 $8 $1,292,431 $2,027,614 $238 $3,320,291 
Net income — — — 224,305 — 224,305 — — — 601,559 — 601,559 
Other comprehensive loss, net of tax — — — — (865)(865)— — — — (2,242)(2,242)
Stock-based compensation — — 53,135 — — 53,135 — — 135,632 — — 135,632 
Issuance of common stock in connection with employee equity incentive plans 609 — 29,270 — — 29,270 1,487 — 56,154 — — 56,154 
Repurchase of common stock(376)— — (134,157)— (134,157)(743)— — (235,512)— (235,512)
Tax withholding paid for net share settlement of equity awards(12)— (4,269)— — (4,269)(32)— (10,622)— — (10,622)
Balance at end of period76,886 $8 $1,473,595 $2,393,661 $(2,004)$3,865,260 76,886 $8 $1,473,595 $2,393,661 $(2,004)$3,865,260 

Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
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
SharesAmountSharesAmount
Balance at beginning of period75,964 $8 $1,185,093 $1,843,559 $7,823 $3,036,483 76,389 $8 $1,106,305 $1,788,230 $143 $2,894,686 
Net income — — — 168,375 — 168,375 — — — 451,599 — 451,599 
Other comprehensive loss, net of tax — — — — (8,757)(8,757)— — — — (1,077)(1,077)
Stock-based compensation — — 36,469 — — 36,469 — — 96,947 — — 96,947 
Issuance of common stock in connection with employee equity incentive plans 480 — 20,476 — — 20,476 1,281 — 42,704 — — 42,704 
Repurchase of common stock(803)— — (167,278)— (167,278)(2,012)— — (395,173)— (395,173)
Tax withholding paid for net share settlement of equity awards(9)— (1,932)— — (1,932)(26)— (5,932)— — (5,932)
Vesting of early-exercised stock options— — 41 — — 41 — — 123 — — 123 
Balance at end of period75,632 $8 $1,240,147 $1,844,656 $(934)$3,083,877 75,632 $8 $1,240,147 $1,844,656 $(934)$3,083,877 

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)
Nine Months Ended September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$601,559 $451,599 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other37,864 31,975 
Stock-based compensation 135,632 96,947 
Noncash lease expense12,738 12,606 
Deferred income taxes (573)3,261 
Gain on sale of marketable securities (9,432)
Amortization of investment premiums 19,193 6,030 
Changes in operating assets and liabilities:
Accounts receivable, net(6,050)98,271 
Inventories(95,997)(193,996)
Prepaid expenses and other current assets(71,300)38,654 
Other assets(2,915)7,850 
Accounts payable(1,075)71,803 
Accrued liabilities31,316 (29,811)
Deferred revenue149,613 (34,449)
Income taxes payable(3,565)(1,667)
Other liabilities(15,820)(1,451)
Net cash provided by operating activities790,620 548,190 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities1,158,723 1,183,601 
Purchases of marketable securities(1,974,853)(2,216,436)
Purchases of property and equipment (55,455)(7,701)
Business acquisitions, net of cash acquired (66,317)
Escrow receipts from past business acquisitions 1,299  
Sale (purchase) of investments in privately-held companies and intangible assets(10,684)3,399 
Proceeds from sale of marketable securities19,607 772,978 
Net cash used in investing activities (861,363)(330,476)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity plans 56,154 42,704 
Tax withholding paid on behalf of employees for net share settlement(10,622)(5,932)
Repurchase of common stock(235,512)(395,173)
Net cash used in financing activities(189,980)(358,401)
Effect of exchange rate changes (1,513)(246)
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(262,236)(140,933)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 897,454 1,115,515 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $635,218 $974,582 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Right-of-use assets obtained in exchange for new operating lease liabilities$4,824 $5,031 
Property and equipment included in accounts payable and accrued liabilities3,849 456 
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 and nine months ended September 30, 2021, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2020 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, 2020, filed with the SEC on February 19, 2021.
Use of Estimates
    The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. These 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; and the recognition and measurement of contingent liabilities. 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.
Risks and Uncertainties
    The global coronavirus ("COVID-19") pandemic and resulting mitigation efforts by governments around the world to contain or slow its spread have negatively impacted the global economy and disrupted business activities.
    Our contract manufacturers and suppliers have experienced workforce disruptions, delays in component sourcing, production, and export of their products, which have disrupted our supply chain and has impacted and likely will 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 COVID-19 related 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. However, the extent of the impact of COVID-19 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, including the duration and spread of the pandemic and related mitigation efforts, the impact to our customers, partners, contract manufacturers and supply chain, as well as restrictions on travel and transport, all of which continue to evolve and are unpredictable. Management 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.
6

Recently Adopted Accounting Pronouncements
Income Taxes 
    In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application. This new standard is effective for our interim and annual periods beginning January 1, 2021. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted this new standard on January 1, 2021 with no material impact on our condensed consolidated financial statements.
2.    Fair Value Measurements
    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 levels within the fair value hierarchy (in thousands):
September 30, 2021
Amortized CostUnrealized GainsUnrealized LossesFair ValueLevel ILevel IILevel III
Financial Assets:
Cash Equivalents:
Money market funds $277,510 $— $— $277,510 $277,510 $ $ 
Marketable Securities:
Commercial paper127,925   127,925  127,925  
Certificate of deposits(1)
86,685   86,685  86,685  
U.S. government notes1,079,140 120 (205)1,079,055 1,079,055   
Corporate bonds1,190,273 377 (533)1,190,117  1,190,117  
Agency securities271,589 147 (19)271,717  271,717  
2,755,612 644 (757)2,755,499 1,079,055 1,676,444  
Other Assets:
Money market funds - restricted4,236 — — 4,236 4,236   
Total Financial Assets$3,037,358 $644 $(757)$3,037,245 $1,360,801 $1,676,444 $ 

7

December 31, 2020
Amortized CostUnrealized GainsUnrealized LossesFair ValueLevel ILevel IILevel III
Financial Assets:
Cash Equivalents:
Money market funds$438,854 $— $— $438,854 $438,854 $ $ 
Marketable Securities:
Commercial paper51,211   51,211  51,211  
Certificate of deposits(1)
50,136 3  50,139  50,139  
U.S. government notes523,320 187 (1)523,506 523,506   
Corporate bonds878,484 1,167 (330)879,321  879,321  
Agency securities475,132 343 (3)475,472  475,472  
1,978,283 1,700 (334)1,979,649 523,506 1,456,143  
Other Assets:
Money market funds - restricted4,235 — — 4,235 4,235   
Total Financial Assets
$2,421,372 $1,700 $(334)$2,422,738 $966,595 $1,456,143 $ 
______________________
(1) As of September 30, 2021 and December 31, 2020, all of our certificates of deposits were domestic deposits.
    As of September 30, 2021 and December 31, 2020, total unrealized losses of our marketable securities were immaterial. 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 or sale and therefore, we do not consider any of our marketable securities to be impaired as of September 30, 2021. We did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable securities during the three and nine months ended September 30, 2021.
    As of September 30, 2021, we had no investments with contractual maturities that exceed 24 months. The fair values of available-for-sale marketable securities, by remaining contractual maturities, are as follows (in thousands):
September 30, 2021
Due in 1 year or less$1,559,405 
Due in 1 year through 2 years1,196,094 
      Total marketable securities
$2,755,499 
    The weighted-average remaining duration of our marketable securities is approximately 1.0 year as of September 30, 2021. As we view these securities as available to support current operations, we classify securities with maturities beyond 12 months as current assets under the caption "Marketable securities" on the condensed consolidated balance sheets.
3.    Financial Statements Details
Cash, Cash Equivalents and Restricted Cash
    The reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets to the total of the same such amounts in the condensed consolidated statements of cash flows is as follows (in thousands):
September 30, 2021December 31, 2020
Cash and cash equivalents$630,982 $893,219 
Restricted cash included in other assets4,236 4,235 
 Total cash, cash equivalents and restricted cash$635,218 $897,454 
Accounts Receivable, net
    Accounts receivable, net consists of the following (in thousands):
8

September 30, 2021December 31, 2020
Accounts receivable $398,689 $394,037 
Allowance for doubtful accounts (108)(659)
Product sales rebate and returns reserve(2,991)(3,838)
   Accounts receivable, net $395,590 $389,540 
Inventories
    Inventories consist of the following (in thousands):
September 30, 2021December 31, 2020
Raw materials $312,418 $219,218 
Finished goods 263,247 260,450 
   Total inventories $575,665 $479,668 
Prepaid Expenses and Other Current Assets
    Prepaid expenses and other current assets consist of the following (in thousands):
September 30, 2021December 31, 2020
Inventory deposits$24,322 $18,783 
Prepaid income taxes34,080 267 
Other current assets90,181 60,556 
Other prepaid expenses and deposits17,639 15,316 
   Total prepaid expenses and other current assets$166,222 $94,922 
Property and Equipment, net
    Property and equipment, net consists of the following (in thousands):
September 30, 2021December 31, 2020
Land $40,064 $ 
Equipment and machinery 82,173 70,655 
Computer hardware and software 43,894 40,081 
Leasehold improvements
30,503 31,448 
Furniture and fixtures 3,604 3,787 
Construction-in-process 3,213 1,441 
    Property and equipment, gross 203,451 147,412 
Less: accumulated depreciation (128,078)(115,181)
    Property and equipment, net $75,373 $32,231 
    In August 2021, we executed a purchase agreement to acquire land and all improvements thereon for total cash consideration of approximately $40.1 million. Depreciation expense on our property and equipment totaled $4.9 million for the three months ended September 30, 2021 and 2020, respectively, and $14.6 million and $15.1 million for the nine months ended September 30, 2021 and 2020, respectively.
9

Accrued Liabilities
    Accrued liabilities consist of the following (in thousands):
September 30, 2021December 31, 2020
Accrued payroll related costs$62,836 $73,634 
Accrued manufacturing costs65,843 43,181 
Accrued product development costs23,647 6,733 
Accrued warranty costs9,528 9,314 
Other12,571 10,495 
   Total accrued liabilities $174,425 $143,357 
Warranty Accrual
    The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):
Nine Months Ended September 30,
20212020
Warranty accrual, beginning of period$9,314 $6,742 
Liabilities accrued for warranties issued during the period 8,643 4,507 
Warranty costs incurred during the period(8,429)(4,517)
Warranty accrual, end of period$9,528 $6,732 
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):
Nine Months Ended September 30,
2021
Contract assets, beginning balance$16,380 
Contract assets, ending balance6,038 
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 September 30,Nine Months Ended September 30,
2021202020212020
Contract liabilities, beginning balance$83,354 $67,268 $85,957 $61,050 
Less: Revenue recognized from beginning balance(8,763)(6,525)(27,251)(17,946)
Less: Beginning balance reclassified to deferred revenue(3,996)(2,828)(2,443)(1,942)
Add: Contract liabilities recognized16,976 12,362 31,308 29,115 
Contract liabilities, ending balance$87,571 $70,277 $87,571 $70,277 
    As of September 30, 2021 and December 31, 2020, $36.4 million and $34.5 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.
10

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 September 30,Nine Months Ended September 30,
2021202020212020
Deferred revenue, beginning balance
$746,090 $577,511 $650,827 $575,288 
Less: Revenue recognized from beginning balance(164,188)(103,889)(327,300)(243,422)
Add: Deferral of revenue in current period, excluding amounts recognized during the period218,538 88,682 476,913 230,438 
Deferred revenue, ending balance$800,440 $562,304 $800,440 $562,304 
Other Performance Obligations
    Other performance obligations include unbilled contract revenue for services and product that will be recognized in future periods. As of September 30, 2021, other performance obligations of $243.1 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 September 30, 2021, approximately $1,131.1 million of revenue is expected to be recognized from remaining performance obligations, of which approximately 80% is expected to be recognized over the next two years and approximately 20% 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 September 30,Nine Months Ended September 30,
2021202020212020
Interest income$1,636 $4,319 $5,553 $24,649 
Gain on sale of marketable securities