Arista Networks, Inc. EBITDA dropped on 38.7% while Revenue surged on 30.7%
02/14/2019 • About Arista Networks, Inc. (
$ANET) • By InTwits
Arista Networks, Inc. reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Arista Networks, Inc. is a fast growth stock: 2018 revenue growth was 30.7%, 5 year revenue CAGR was 42.9% at 2018 ROIC 14.5%
- Arista Networks, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.7%. At the same time it's in pair with industry average of 7.4%
- CAPEX is quite volatile: $112m in FY2018, $163m in FY2017, $73m in FY2016, $34m in FY2015, $36m in FY2014
- The company has highly profitable business model: ROIC is 14.5%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Arista Networks, Inc.'s Revenue surged on 30.7%. Revenue growth showed slowdown in 18Q4 - it was 27.3% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 8.3 pp from 23.1% to 31.4% in 2018.
Gross Margin decreased slightly on 0.66 pp from 64.5% to 63.8% in 2018. SG&A as a % of Revenue decreased on 3.0 pp from 14.7% to 11.7% in 2018. SG&A as a % of Revenue stuck to a declining trend at -2.4 pp per annum in 2014-2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018.
Net Income margin dropped on 10.5 pp from 25.7% to 15.3% in 2018.
Investments (CAPEX, working capital and M&A)
In 2018 the company had CAPEX/Revenue of 1.1%. CAPEX/Revenue decreased slightly on 1.3 pp from 2.4% in 2015 to 1.1% in 2018. Average CAPEX/Revenue for the last three years was 1.3%. CAPEX as a % of Revenue declined at -0.37 pp per annum in 2014-2018.
Accounts receivable as a % of Revenue showed almost no change in 2018. Inventories as a % of Revenue decreased on 6.3 pp from 18.6% to 12.3% in 2018. Accounts payable as a % of Revenue increased on 3.1 pp from 8.9% to 12.1% in 2018.
Arista Networks, Inc. has spent
$97m on M&A in 2018 which accounts for 4.5% of revenue.
Return on investment
The company operates at good ROIC (14.5%) and ROE (17.2%). ROIC dropped on 19.5 pp from 33.9% to 14.5% in 2018. ROE dropped on 13.3 pp from 30.6% to 17.2% in 2018.
Leverage (Debt)
Debt level is -2.0x Net Debt / EBITDA and 0.1x Debt / EBITDA. Debt decreased on 4.7% while cash dropped on 24.4%.
Arista Networks, Inc. has good short term financial stability: Interest coverage ratio (ICR) is 101.2x. Arista Networks, Inc. has no short term refinancing risk: cash is higher than short term debt (28,112.0%).
Average interest expence charged on company's debt was 7.2% in 2018.
Valuation and dividends
The company's trades at EV/EBITDA 65.4x and P/E 61.8x.
Management team
Jayshree V Ullal is a the company's CEO. Jayshree V Ullal is a founder and has spent 10 years with the company. CEO total compensation was
$7,550,074 in 2018 which included
$300,000 salary. The company's CFO Ita M Brennan has spent 4 years with the company.
At the end of financial year the company had 22.6% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 2,300 employees. The number of employees surged on 27.8%. Average revenue per employee in 2018 was
$935,378 and it increased on 2.3%.
Financial and operational results
FY ended 12/31/2018
Arista Networks, Inc. ($ANET) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 584 | 838 | 1,129 | 1,646 | 2,151 | 30.7% |
| Gross Profit | 392 | 544 | 723 | 1,062 | 1,373 | 29.3% |
| SG&A | 118 | 185 | 206 | 242 | 253 | 4.4% |
| EBITDA | 136 | 163 | 263 | 491 | 301 | -38.7% |
| EBIT | 126 | 149 | 243 | 470 | 273 | -41.9% |
| Interest expence | 6 | 3 | 3 | 3 | 3 | -2.8% |
| Tax | 35 | 25 | 58 | 52 | -39 | -176.3% |
| Net Income | 87 | 121 | 184 | 423 | 328 | -22.5% |
| Stock Based Compensation | 10 | 8 | 59 | 75 | 91 | 20.9% |
Balance Sheet
|
|---|
| Cash | 240 | 687 | 568 | 859 | 650 | -24.4% |
| Accounts Receivable | 97 | 144 | 253 | 247 | 332 | 34.1% |
| Inventory | 81 | 92 | 236 | 306 | 265 | -13.6% |
| Accounts Payable | 32 | 44 | 79 | 52 | 94 | 79.6% |
| Short Term Debt | 1 | 3 | 2 | 2 | 2 | 20.5% |
| Long Term Debt | 43 | 41 | 40 | 38 | 35 | -6.0% |
Cash flow
|
|---|
| Capex | 13 | 20 | 21 | 15 | 24 | 56.0% |
| Acquisitions | | | | | 97 | |
Ratios
|
|---|
| Revenue growth | 61.7% | 43.4% | 34.8% | 45.8% | 30.7% | |
| EBITDA growth | 90.4% | 20.2% | 61.5% | 86.5% | -38.7% | |
|
|---|
| Gross Margin | 67.1% | 64.9% | 64.0% | 64.5% | 63.8% | -0.7% |
| EBITDA Margin | 23.2% | 19.5% | 23.3% | 29.8% | 14.0% | -15.8% |
| EBIT Margin | 21.5% | 17.8% | 21.6% | 28.6% | 12.7% | -15.9% |
| SG&A, % of revenue | 20.1% | 22.1% | 18.3% | 14.7% | 11.7% | -3.0% |
| SBC, % of revenue | 1.7% | 1.0% | 5.2% | 4.6% | 4.2% | -0.3% |
| Net Income Margin | 14.9% | 14.5% | 16.3% | 25.7% | 15.3% | -10.5% |
| CAPEX, % of revenue | 2.2% | 2.4% | 1.9% | 0.9% | 1.1% | 0.2% |
|
|---|
| ROIC | 30.9% | 21.5% | 25.7% | 33.9% | 14.5% | -19.5% |
| ROE | 22.0% | 17.7% | 19.4% | 30.6% | 17.2% | -13.3% |
| Net Debt/EBITDA | -1.4x | -3.9x | -2.0x | -1.7x | -2.0x | -0.4x |
| Interest expence / Average debt | 14.4% | 7.2% | 7.4% | 6.9% | 7.2% | 0.3% |
People
|
|---|
| Insider ownership | 22.6% | 22.6% | 22.6% | 22.6% | 22.6% | 0.0% |
| Employees | 1,000 | 1,200 | 1,500 | 1,800 | 2,300 | 27.8% |
| Revenue/Employee, th. $ | 584 | 698 | 753 | 915 | 935 | 2.3% |
Arista Networks, Inc. ($ANET) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 472 | 520 | 563 | 596 | | 40.8% | 28.3% | 28.7% | 27.3% |
| EBITDA | 144 | -234 | 188 | 203 | | 84.3% | -292.4% | 28.6% | 40.2% |
| Net Income | 145 | -155 | 169 | 170 | | 74.2% | -251.2% | 26.0% | 64.0% |
Balance Sheet
|
|---|
| Cash | 886 | 711 | 525 | 650 | | 18.7% | -13.6% | -38.6% | -24.4% |
| Short Term Debt | 0 | 0 | 0 | 2 | | | | | 20.5% |
| Long Term Debt | 37 | 37 | 36 | 35 | | -5.1% | -5.4% | -5.7% | -6.0% |
Ratios
|
|---|
| Gross Margin | 64.1% | 64.2% | 64.2% | 62.9% | | 0.3% | 0.1% | 0.1% | -2.7% |
| EBITDA Margin | 30.6% | -45.0% | 33.4% | 34.1% | | 7.2% | -75.1% | -0.0% | 3.1% |
| Net Income Margin | 30.6% | -29.9% | 29.9% | 28.6% | | 5.9% | -55.2% | -0.6% | 6.4% |
Peers in Communications Equipment
Below you can find Arista Networks, Inc. benchmarking vs. other companies in Communications Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | -0.4% | 7.3% | 5.1% | 2.8% |
|---|
| Arista Networks, Inc. ($ANET) | | 43.4% | 34.8% | 45.8% | 30.7% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Arista Networks, Inc. ($ANET) | 67.1% | 64.9% | 64.0% | 64.5% | 63.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.3% | 4.7% | 5.5% | 6.0% | 4.6% |
|---|
| Arista Networks, Inc. ($ANET) | 23.2% | 19.5% | 23.3% | 29.8% | 14.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.3% | 2.2% | 2.0% | 1.9% | 1.7% |
|---|
| Arista Networks, Inc. ($ANET) | 2.2% | 2.4% | 1.9% | 0.9% | 1.1% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 1.2% | 2.0% | 2.2% | 2.1% | 0.3% |
|---|
| Arista Networks, Inc. ($ANET) | 30.9% | 21.5% | 25.7% | 33.9% | 14.5% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.7x | -0.6x | -0.8x | -0.6x | 0.2x |
|---|
| Arista Networks, Inc. ($ANET) | -1.4x | -3.9x | -2.0x | -1.7x | -2.0x |
