Arista Networks
Annual Report 2020

Plain-text annual report

2021 NOTICE & PROXY STATEMENT 2020 ANNUAL REPORT 2020 Milestones: • Revenue for our fiscal year 2020 was $2.32 billion. We now serve over 7,000 customers and continue to add new customers and expand our market presence. Our customers span a range of several sectors including public cloud providers (cloud titans), service and cloud specialty providers and enterprise customers including financial companies. • In October 2020, Arista acquired Awake Security, a Network Detection and Response (NDR) platform provider that combines artificial intelligence with human expertise to autonomously hunt and respond to insider and external threats. • In February 2020, Arista acquired Big Switch Networks, a network monitoring and software defined networking pioneer for multi-cloud visibility. • Arista expanded its Cognitive Campus portfolio with the flagship modular POE chassis 750 Series for high port density, efficient power and embedded security and automation. • Arista introduced its optical line system for 400G, Arista OSFP-LS, which is a highly compact, low power and cost-effective solution for increasing bandwidth between data centers without the need for external optical line systems. • Arista also launched a network observability software, DANZ Monitoring Fabric, on Arista switching platforms for enterprise-wide traffic visibility and contextual insights. In light of the recent cyber attacks, Arista introduced Attack Surface Assessment service, through our acquisition of Awake Security. • Arista Networks recognized as a leader in The Forrester Wave™: Open, Programmable Switches for A Businesswide SDN, Q3 2020 with the top score in the strategy category. • This is the sixth consecutive year Arista Networks has been recognized in the Leaders Quadrant of the 2020 Gartner Magic Quadrant for Data Center Networking published on 30 June 2020. Customers believe that COVID-19 has actually increased the value and relevance of the network in the post-pandemic era. We are building upon our cloud networking heritage to unify data sets consistently and harnessing and archiving data across one software stack (EOS and one CloudVision). Looking ahead, Arista is helping customers with their transformation to a data-centric cloud-first world. We are optimistic in helping the networking industry transition and change to modern data-driven networking. I thank Arista stockholders, customers, partners and our employees for your continued support. 2020 was a challenging year, in the face of the COVID-19 pandemic and resulting economic uncertainty, combined with unprecedented adjustments to our operations. I am extremely proud and grateful to the Arista family for the dedication, resilience and empathy they have shown over the past year, working diligently with suppliers and partners to help our customers navigate the challenges. Despite this, we executed well against our mission of helping customers with their transformation to a data-centric cloud-first strategy. We made significant progress in extending cloud networking principles to the enterprise and campus markets with our Cognitive Cloud Networking approach. In addition, we completed the acquisitions of Big Switch Networks and Awake Security, broadening our network software offerings. This diversification of the business from both a customer and product perspective, contributed to a return to revenue growth in the fourth quarter of 2020 to position Arista well for growth momentum into 2021. JAYSHREE ULLAL Chief Executive Officer, President and Director Arista Networks, Inc. April 21, 2021 JAYSHREE ULLAL Chief Executive Officer, President and Director Arista Networks, Inc. [THIS PAGE INTENTIONALLY LEFT BLANK] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held at 11:00 a.m. Pacific Time on Tuesday, June 1, 2021 Dear Stockholders of Arista Networks, Inc.: The 2021 annual meeting of stockholders of Arista Networks, Inc. (the “Company”), a Delaware corporation, and any postponements, adjournments or continuations thereof (the “Annual Meeting”), will be held on Tuesday, June 1, 2021 at 11:00 a.m. Pacific Time. Due to the coronavirus outbreak, the Annual Meeting will be conducted virtually via a live webcast. You will be able to attend the Annual Meeting online and submit your questions during the meeting at www.virtualshareholdermeeting.com/ANET2021. To access the virtual meeting, you will need to enter the control number included in your Notice of Internet Availability of Proxy Materials (the “Notice”), on your proxy card or on the instructions that accompanied your proxy materials. Our board of directors has fixed the close of business on April 8, 2021 as the record date for the Annual Meeting. Only stockholders of record on April 8, 2021 are entitled to notice of and to vote at the Annual Meeting. Further information regarding voting rights and the matters to be voted upon is presented in the accompanying proxy statement. If you plan on attending this year’s annual meeting as a stockholder, you must follow the instructions set forth on page 8 of the accompanying proxy statement. On or about April 21, 2021, we expect to mail to our stockholders the Notice, which provides instructions on how to access our proxy statement for the Annual Meeting and our annual report to stockholders, how to vote online or by telephone, and how to receive a paper copy of the proxy materials by mail. The accompanying proxy statement and our annual report can be accessed directly at the following Internet address: www.proxyvote.com. All you have to do is enter the control number located on your proxy card. YOUR VOTE IS IMPORTANT. We urge you to submit your vote via the Internet, telephone or mail. We appreciate your continued support of Arista Networks, Inc. and look forward to either greeting you virtually at the Annual Meeting or receiving your proxy. By order of the Board of Directors, JAYSHREE ULLAL Chief Executive Officer, President and Director Santa Clara, California April 21, 2021 [THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS 2021 PROXY STATEMENT SUMMARY OUR COMMITMENT TO CORPORATE, ENVIRONMENTAL AND SOCIAL RESPONSIBILITY QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND OUR ANNUAL MEETING BOARD OF DIRECTORS AND CORPORATE GOVERNANCE Nominees for Director Continuing Directors Key Elements of Board Independence at Arista Director Commitments Board Leadership Structure Lead Independent Director Board Meetings and Committees Compensation Committee Interlocks and Insider Participation Considerations in Evaluating Director Nominees Stockholder Recommendations for Nominations to the Board of Directors Communications with the Board of Directors Corporate Governance Guidelines and Code of Business Conduct and Ethics Risk Management Executive Talent Management and Succession Planning Director Compensation PROPOSAL NO. 1 ELECTION OF DIRECTORS Nominees Vote Required PROPOSAL NO. 2 ADVISORY VOTE ON EXECUTIVE COMPENSATION Vote Required 1 4 8 11 14 15 18 18 18 19 19 22 22 22 23 23 25 25 27 27 27 28 28 PROPOSAL NO. 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Fees Paid to the Independent Registered Public Accounting Firm Auditor Independence Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Vote Required REPORT OF THE AUDIT COMMITTEE EXECUTIVE OFFICERS EXECUTIVE COMPENSATION Compensation Discussion and Analysis Overview Effect of Most Recent Stockholder Advisory Vote on Executive Compensation Executive Compensation Philosophy and Objectives Executive Compensation Program Components Executive Officer Employment Arrangements Fiscal 2020 Summary Compensation Table Outstanding Equity Awards at 2020 Year-End Fiscal 2020 Grants of Plan-Based Awards Fiscal 2020 Option Exercises and Stock Vested Pension Benefits Nonqualified Deferred Compensation Potential Payments Upon Termination or Change in Control Risk Assessment and Compensation Practices Other Compensation Policies Tax and Accounting Considerations CEO Pay Ratio Compensation Committee Report Equity Compensation Plan Information 29 29 29 30 30 31 32 34 34 35 37 37 40 44 46 47 49 50 50 50 50 51 51 52 53 54 54 i SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT DELINQUENT SECTION 16(A) REPORTS RELATED PERSON TRANSACTIONS Investors’ Rights Agreement Other Transactions Policies and Procedures for Related Party Transactions 55 57 57 57 57 58 OTHER MATTERS Householding Stockholder Proposals Availability of Bylaws Fiscal Year 2020 Annual Report and SEC Filings 58 58 59 59 59 ii 2021 PROXY STATEMENT 2021 PROXY STATEMENT SUMMARY This proxy statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our board of directors for use at the 2021 annual meeting of stockholders of Arista Networks, Inc. (the “Company” or “Arista”), a Delaware corporation, and any postponements, adjournments or continuations thereof (the “Annual Meeting”). This summary highlights information contained in this proxy statement. We encourage you to read the entire proxy statement for more information prior to voting. Annual Meeting Date and Time Tuesday, June 1, 2021 at 11:00 a.m. Pacific Time Virtual Meeting www.virtualshareholdermeeting.com/ANET2021 Record Date April 8, 2021 YOUR VOTE IS IMPORTANT. We urge you to submit your vote via the Internet, telephone or mail. Proposals and Board Recommendations 1 Proposal for your Vote: Election of three Class I directors to serve until the 2024 annual meeting of stockholders Board Voting Recommendation: FOR the election of Kelly Battles, Andreas Bechtolsheim and Jayshree Ullal Page 27 2 Page 28 3 Page 29 Proposal for your Vote: Advisory vote to approve named executive officer compensation Board Voting Recommendation: FOR Proposal for your Vote: Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm Board Voting Recommendation: FOR Director Nominees Name and Occupation Kelly Battles Chief Financial Officer of Alpha Medical Andreas Bechtolsheim Chairman of the Board of Directors and Chief Development Officer of Arista Jayshree Ullal Chief Executive Officer of Arista Age Director Since Independent Committees 54 65 60 2020 2004 2008 Audit 1 2021 Proxy Statement Summary 2020 Business Highlights REVENUE $2.32B GAAP GROSS MARGIN 63.9% CUSTOMERS: • Over 7,000 customers ACQUISITIONS: INDUSTRY LEADERSHIP: • Awake Security, a network detection and • Arista Networks recognized as a leader in The response platform • Big Switch Networks, a network monitoring and SDN pioneer Forrester Wave™: Open, Programmable Switches for A Businesswide SDN, Q3 2020 with the top score in the strategy category. • This is the sixth consecutive year Arista Networks has been recognized in the Leaders Quadrant of the 2020 Gartner Magic Quadrant for Data Center Networking published on 30 June 2020. Board of Directors Snapshot 25% 75% • All of our non-employee directors are independent • Added a new independent director in 2020 • Diversity of board enhances board independence 37% 63% • 3/8 of our directors are women 25% 75% • 2/8 of our directors have served for less than 6 years 100% Attendance • Directors attended 100% of the board and committee meetings in 2020 2 2021 PROXY STATEMENT Corporate Governance Highlights We are committed to having sound corporate governance principles that we believe serve the best interest of all our stockholders. Some highlights of our corporate governance practices are listed below. In addition, we regularly evaluate our practices against prevailing best practices and emerging and evolving topics identified through outreach, current literature and corporate governance organizations. 2021 Proxy Statement Summary Board Oversight Independent Board Annual Evaluations Shareholder Engagement Corporate Governance Policies • • • • • • • • • Oversees the Company’s strategy, annual business plans, Enterprise Risk Management (ERM) framework and culture, values and conduct Regular reviews of succession plans for CEO and other key executives Executive sessions of independent directors at each board of directors meeting Strong Lead Independent Director facilitates independent board oversight of management and has expansive duties including setting agendas for the board meetings Annual Board and committee self-assessments enhance performance Encompasses the structure and composition of the board of directors and committees, culture, process and relationship with management Active, year-round shareholder engagement process where we meet with our shareholders and other key stakeholders Host Investor Day Present at investor conferences Stock Ownership Guidelines for directors and CEO Clawback Policy for executive officers • • • Insider Trading Policy prohibits, among other things, hedging; see Hedging or Pledging Policies on page 52 of this Proxy Statement Executive Compensation Highlights Annual review of our executive compensation program Performance-based equity for CEO and other senior officers Stock Ownership Guidelines for CEO Clawback Policy for executive officers No executive-only retirement programs Independent compensation consultant No excise tax gross-ups 3 Our Commitment to Corporate, Environmental and Social Responsibility Arista is committed to designing, manufacturing and delivering leading software driven cloud networking solutions in an environmentally and socially sustainable manner. We believe that sustainability and business growth are closely linked, and delivering products that are sustainable truly enables our customers’ success. Arista’s commitment to corporate, environmental and social responsibility is focused on the following key areas: Ethical Business Conduct • Our Code of Ethics and Business Conduct (the “Code”) emphasizes the importance of honest business conduct and solid business ethics. The Code applies to all personnel employed by or engaged to provide services to the Company including, but not limited to, our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The Code addresses, among other things, conflicts of interest, business practices, compliance with laws and regulations, and interacting fairly and respectfully with each other, our customers, partners, suppliers and host communities. The full text of the Code and our Corporate Governance Guidelines are posted on the Governance section of our website at http://investors.arista.com. • We are committed to complying with applicable international and domestic anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and applicable local laws. Our Anti-Corruption Compliance Policy & Guidelines outline the parameters of what is acceptable and what is not acceptable from an anti-corruption view. We have established procedures for conducting due diligence on our partners, manufacturers, suppliers, logistics providers and other third parties that may interact with foreign officials on our behalf. • Our whistleblower policy encourages transparency, facilitates confidentiality, and provides multiple avenues for employees and non-employees to submit concerns about accounting, auditing or other matters. • We are committed to maintaining the highest level of professional and ethical standards in the conduct of our business around the world. We believe our reputation for integrity and fair dealing is an important component of our success and the personal satisfaction of our employees. People • We believe that diversity and inclusion play an important role in attracting and retaining the best talent, enhancing our organizational performance and ultimately improving shareholder value. We desire to maintain an open and inclusive environment where people feel valued, included and accountable. We recognize that gender and racial disparities remain a challenge in our industry and are deeply committed to addressing this issue. • Our efforts start at the top with a diverse management team that includes our Chief Executive Officer, Chief Financial Officer and Group Vice President and Worldwide Human Resources and Operations who are all women, and our Chief Executive Officer, Chief Operating Officer and Senior Vice President of WW Customer Engineering who are people of color. • To extend this diversity throughout the organization, we are increasing recruitment and engagement efforts for women and members of underrepresented communities including building programs to promote a broader and more diverse pool of candidates for job openings, providing top employees with career opportunities, maintaining pay equity among our employees and nurturing an inclusive community. • For example, we are actively promoting the hiring of female engineers through the hosting of periodic technology sessions for female engineers. We also support under-represented employee affinity organizations and actively recruit from underrepresented universities and professional societies, including professional societies that support Black engineers, Latin Americans and veterans. • We work hard to reinforce the principles of diversity and inclusion within our workplace community. These principles are codified in our Code of Ethics and Business Conduct which affirms our commitment to equal employment opportunity, without regard to any protected characteristic, including but not limited 4 2021 PROXY STATEMENT to race, religion, national origin, color, gender, age, disability, pregnancy, marital status, military status or sexual orientation. We believe all employees should be treated with dignity and respect. We seek to educate on these expectations by requiring periodic training on our Code of Ethics and Business Conduct, Anti-Corruption Compliance Policy & Guidelines, anti-harassment and other matters. Health and Safety • We are committed to protecting the health and safety of our employees, visitors, and the public. Our policy is to maintain our facilities and run our business operations in a manner that does not jeopardize the occupational health and safety of employees. • We promote health through wellness events. Arista holds quarterly Employee Health & Wellness Days to raise awareness on health issues and increase education on preventive medicine and available services. Our wellness events focus on physical well-being, nutrition, emotional well-being and holistic health. • During the COVID-19 pandemic, Arista formed an internal task force that developed policies, procedures, safety training and protocols for the safety of our employees. Arista maintains a focus on supporting employee wellness through the pandemic and launched a COVID toolkit for employees and an on-going webinar series focused on providing information and resources about remote working, parenting and family, kids learning, physical health and nutrition and support through our Employee Assistance Program. Arista also implemented facilities improvements for the safety of our employees during the pandemic. Social Responsibility • As an integral part of our corporate culture, we maintain an active community engagement program to provide opportunities for our employees to participate in community service. While the COVID pandemic created challenges with in-person volunteering, Arista was able to quickly shift to organizing virtual volunteer opportunities, including adding local detail to maps with the Missing Maps Project and the American Red Cross in preparation for disasters. • Through our Foundation, Arista gives annually to select non-profit organizations. Our Foundation’s giving priorities are generally to non-profits focused on education, hunger or environmental sustainability. In 2020, Arista donated to Friends of the Children New York and Code2040, among others. • Immediately after the outbreak of the COVID pandemic, Arista committed to working with key hospitals across the country to donate critical networking gear to accelerate the adoption of new technologies. The Arista Foundation directly funded critical COVID-19 medical research through generous grants to Stanford Medical and Gladstone / UCSF, and ultimately enabled Nobel Prize winning research. The Arista Foundation also provided global COVID community aid through grants to the American Red Cross, the World Health Organization, PM Cares India and the Temple Street Hospital, Dublin, Ireland. • In 2020, through the personal efforts of Arista executive Pravin Bhagwat and India non-profit partner, 14 Trees Foundation, we planted another 20,000 trees in 2020 for a cumulative 75,000 trees to-date worldwide. • In late 2020, inspired by unprecedented global need caused by the pandemic, Arista launched our first global employee fundraising event with the goal of providing food to people in need. Over 1.1 million meals were provided through a combination of employee donations and matching Arista Foundation funds through our partners, Second Harvest of Silicon Valley, Feeding America, New Hampshire Food Bank, Central Texas Food Bank, Food Bank of Central and Eastern North Carolina, Greater Vancouver Food Bank, Foodcloud, Ireland and Foodbank, Australia, in the largest Arista philanthropy event ever. • Additionally, in immediate response to some of the worst wildfires in recent Bay Area history, Arista employees and the Arista Foundation donated funds to assist those displaced and in need of aid in Santa Cruz County through our partner the Community Foundation of Santa Cruz County. 5 • We are committed to responsible sourcing of materials for our products. We are a member of the Responsible Minerals Initiative (“RMI”) and have management systems in place to ensure that components are sourced responsibly. Arista’s suppliers are asked to take reasonable due diligence to determine if the minerals that they use are sourced from certified conflict-free smelters, which are validated by the RMI. Environmental • Sustainability & Environmental Management In 2021, Arista amended its Audit Committee charter to provide that the Audit Committee has responsibility for reviewing and discussing with management the Company’s policies and practices relating to environmental and social responsibility matters. In addition, Arista created a Sustainability Committee that sets the direction and strategy on sustainability matters and oversees execution of sustainability initiatives. We also implemented an environmental management system that outlines our objectives for achieving pollution prevention, environmental protection and monitoring, and continual improvements in the environmental performance of our operations. • LEED Gold Certification & Efficient Offices o When we select our office space, we ensure that we have an office that not only meets our needs, but also aids us in reducing our impact to the environment. Our Santa Clara headquarters and our San Francisco office are both LEED Gold certified. The certification, awarded by the U.S. Green Building Council, is based on the properties’ use of sustainable materials, water and energy efficiency, indoor environmental quality, location and transportation, and overall innovation. We also consider energy efficient real estate for our international operations and we moved our Bangalore operations to a facility that was built according to LEED Gold Level rating benchmarks. o Our headquarters includes environmentally friendly features such as floor-to-ceiling windows that filter heat and maximize natural light and energy efficient lighting, heating, cooling and ventilation. In addition, high efficiency plumbing fixtures and landscape irrigation systems are installed to conserve water at a critical time for California. We also promote alternative commuting with onsite electric vehicle charging stations, priority parking for hybrid vehicles and bike lockers throughout our campus. • Electronic Industry Citizenship Coalition Membership Arista is a member of the Responsible Business Alliance (“RBA”) and supports the RBA’s vision and mission, which strives to develop a global electronics industry supply chain that consistently operates with social, environmental and economic responsibility through a common code of conduct, collaborative efforts and shared tools and practices. Arista is committed to progressively aligning its own operations with the RBA code of conduct and encourages its own first-tier suppliers to do the same. • Design for Environment We are committed to integrating sustainability in every aspect of our products’ life cycles, from the materials that make up our products, all the way to the end of life of the product, while meeting our customers’ requirements. For example, we have implemented Design for Environment principles in our development process with the goal of minimizing the overall adverse environmental impact of our products, with a focus on the reduction of material diversity and weight, selection of more environmentally friendly materials, ease of disassembly and recycling, energy efficiency, design for longevity and upgradeability, and design for efficient packaging. • Product Design Efficiency & Recycling As a producer of hardware products, Arista offers a takeback and recycle program in our U.S. and European markets, which allows our customers to return end of life products and dispose of them in an environmentally safe manner. o Our product design philosophy follows the principles of Design for Environment, which considers the environmental impact of the product during the design process. We consider product material weight reduction, environmentally friendly material usage, energy efficiency, ease of recycling, options for reuse and refurbishing, and efficient packaging. 6 2021 PROXY STATEMENT o Since the operation of our datacenter products can require a large amount of energy, we work to improve energy efficiency of new products to save on energy and reduce greenhouse gas emissions during the products’ use phase. We have found that minimizing and upgrading components in product hardware design while simplifying the architecture can provide improved performance and throughput relative to power consumption. In addition, our new products use Platinum and Titanium efficiency power supplies, which reduce the total product power consumption and heat generated from the power supply. • Supply Chain We believe that it is essential to extend our environmental sustainability and social responsibility efforts to our supply chain. We request that our suppliers report energy, greenhouse gas, water and waste data through the RBA, and we perform periodic risk assessments of our suppliers. • Waste Management We follow the simple rule of using less, reusing where possible and ensuring that the materials we use in our operations and in our products are recyclable. We are working to continually expand our recycling and reuse efforts. In recent years, we increased the amount of metal and packaging recycled and reduced our waste to landfill. For additional information on our corporate, environmental and social responsibility initiatives, please visit our website at: https://www.arista.com. 7 QUESTIONS AND ANSWERS The information provided in the “question and answer” format below is for your convenience only and is merely a summary of the information contained in this proxy statement. You should read this entire proxy statement carefully. Information contained on, or that can be accessed through, our website is not intended to be incorporated by reference into this proxy statement and references to our website address in this proxy statement are inactive textual references only. Q How do I vote? A If you are a stockholder of record, you can vote in one of the following ways: • by Internet at http://www.proxyvote.com, 24 hours a day, seven days a week, until 11:59 p.m. EST on May 31, 2021 (have your proxy card in hand when you visit the website); • by toll-free telephone at 1-800-690-6903 until 11:59 p.m. EST on May 31, 2021 (have your proxy card in hand when you call); • by signing, dating, and returning your proxy card (if you received printed proxy materials); or • by voting at the Annual Meeting by following the instructions at www.virtualshareholdermeeting.com/ ANET2021. To attend and participate in the Annual Meeting, you will need the control number included in your Notice of Internet Availability of Proxy Materials (the “Notice”), on your proxy card or on instructions that accompanied your proxy materials. If you are a street name stockholder, you should contact your broker, bank or other nominee to obtain your control number or otherwise vote through the broker, bank or other nominee. If you are a street name stockholder, you will receive voting instructions from your broker, bank or other nominee. You must follow the voting instructions provided by your broker, bank or other nominee in order to instruct your broker, bank or other nominee on how to vote your shares. Street name stockholders should generally be able to vote by returning an instruction card, or by telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee. If you are a street name stockholder, you may not vote your shares at the Annual Meeting unless you obtain a legal proxy from your broker, bank or other nominee. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. Q Can I change my vote? A Yes. Subject to the voting deadlines noted above, if you are a stockholder of record, you can change your vote or revoke your proxy any time before the Annual Meeting by: • entering a new vote by Internet or by telephone; • returning a later-dated proxy card; • notifying the Secretary of Arista Networks, Inc., in writing, at Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, California 95054; or • attending and voting at the Annual Meeting at www.virtualshareholdermeeting.com/ANET2021. If you are a street name stockholder, your broker, bank or other nominee can provide you with instructions on how to change your vote. Q Who is entitled to vote? A Holders of our common stock as of the close of business on April 8, 2021, the record date, may vote at the Annual Meeting. As of the record date, there were 76,271,362 shares of our common stock outstanding. In deciding all matters at the Annual Meeting, each stockholder will be entitled to one vote for each share of our common stock held by them on the record date. We do not have cumulative voting rights for the election of directors. A list of stockholders entitled to vote at the meeting will be made available for the examination of any stockholder for any purpose germane to the meeting for ten days prior to the Annual Meeting by email request to ir@arista.com. The list of stockholders entitled to vote at the meeting will also be available for review online during the Annual Meeting at www.virtualshareholdermeeting.com/ANET2021. Stockholders of Record. If shares of our common stock are registered directly in your name with our transfer agent, you are considered the stockholder of record with respect to those shares, and the Notice was provided to you directly by us. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote on your own behalf at the Annual Meeting. 8 2021 PROXY STATEMENT Street Name Stockholders. If shares of our common stock are held on your behalf in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of those shares held in “street name,” and the Notice was forwarded to you by your broker or nominee, who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares. Beneficial owners are also invited to attend the Annual Meeting. However, since a beneficial owner is not the stockholder of record, you may not vote your shares of our common stock at the Annual Meeting unless you follow your broker’s procedures for obtaining a legal proxy. Throughout this proxy, we refer to stockholders who hold their shares through a broker, bank or other nominee as “street name stockholders.” Q What is a quorum? A A quorum is the minimum number of shares required to be present at the Annual Meeting for the Annual Meeting to be properly held under our amended and restated bylaws and Delaware law. The presence (including by proxy) of a majority of all issued and outstanding shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting. Abstentions, withhold votes and broker non-votes are counted as shares present and entitled to vote for purposes of determining a quorum. to attend the Annual Meeting? Q Do I have to do anything in advance if I plan A The Annual Meeting will be a completely virtual meeting, which will be conducted via a live webcast. You are entitled to participate in the Annual Meeting only if you were a holder of our common stock as of the close of business on April 8, 2021 or if you hold a valid proxy for the Annual Meeting. You will be able to attend the Annual Meeting online and submit your questions during the meeting at www.virtualshareholdermeeting.com/ANET2021. To access the virtual meeting, you will need to enter the control number included in the Notice, on your proxy card or on the instructions that accompanied your proxy materials. We encourage you to access the meeting prior to the start time. Online check-in will begin at 10:45 a.m. Pacific Time, and you should allow ample time for the check-in procedures. Meeting? Q How do I ask questions during the Annual A You will be able to attend the Annual Meeting online and submit your questions during the meeting at www.virtualshareholdermeeting.com/ANET2021. To access the virtual meeting, you will need to enter the control number included in the Notice, on your proxy card or on the instructions that accompanied your proxy materials. Once past the login screen, click on “Question for Management,” type in your question, and click “Submit.” Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints. Questions regarding personal matters are not pertinent to meeting matters and, therefore, will not be answered. Questions and Answers in or listening to the meeting online? Q How can I get help if I have trouble checking A If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting log-in page. Q What is the effect of giving a proxy? A Proxies are solicited by and on behalf of our board of directors. Jayshree Ullal, Ita Brennan and Marc Taxay have been designated as proxies by our board of directors. When a proxy is properly dated, signed and returned, the shares represented by such proxy will be voted at the Annual Meeting in accordance with the instructions of the stockholder contained on such proxy. If no specific instructions are given, however, the shares will be voted in accordance with the recommendations of our board of directors as described above. If any matters not described in this proxy statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote the shares. Q Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials? A In accordance with the rules of the Securities and Exchange Commission (“SEC”), we have elected to furnish our proxy materials, including this proxy statement and our annual report, primarily via the Internet. The Notice containing instructions on how to access our proxy materials is first being mailed on or about April 21, 2021 to all stockholders entitled to vote at the Annual Meeting. Stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials on the Internet to help reduce the environmental impact of our annual meetings of stockholders. Meeting? Q How are proxies solicited for the Annual A Our board of directors is soliciting proxies for use at the Annual Meeting. All expenses associated with this solicitation will be borne by us. Copies of solicitation materials will also be made available upon request to brokers, banks and other nominees to forward to the beneficial owners of the shares held of record by such brokers, banks or other nominees. The original solicitation of proxies may be supplemented by solicitation by telephone, electronic communication, or other means by our directors, officers and employees. 9 Q Where can I find the voting results of the Annual Meeting? A We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form 8-K within four business days after the Annual Meeting, we will file a Current Report on Form 8-K to publish preliminary results and will provide the final results in an amendment to this Current Report on Form 8-K as soon as they become available. Questions and Answers No additional compensation will be paid to these individuals for any such services, although we may reimburse such individuals for their reasonable out-of-pocket expenses in connection with such solicitation. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners. We will reimburse brokers or other nominees for reasonable expenses that they incur in sending our proxy materials to you if a broker or other nominee holds shares of our common stock on your behalf. Q How may my brokerage firm or other intermediary vote my shares if I fail to provide timely directions? A Brokerage firms and other intermediaries holding shares of our common stock in street name for customers are generally required to vote such shares in the manner directed by their customers. In the absence of timely directions, your broker will have discretion to vote your shares on our sole “routine” matter: the proposal to ratify the appointment of Ernst & Young LLP. Your broker will not have discretion to vote on the election of directors or on the approval, on an advisory basis, of executive compensation of our named executive officers, which are “non-routine” matters, absent direction from you. 10 2021 PROXY STATEMENT BOARD OF DIRECTORS & CORPORATE GOVERNANCE Our business affairs are managed under the direction of our board of directors. Our board of directors is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three- year term to succeed the same class whose term is then expiring. Our board of directors is committed to good corporate governance practices. These practices provide an important framework within which our board of directors and management can pursue our strategic objectives for the benefit of our stockholders. Our board of directors has adopted Corporate Governance Guidelines that address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. We believe that good governance leads to high board effectiveness, promotes the long-term interests of our stockholders, strengthens the accountability of the board of directors and management, and improves our standing as a trusted member of the communities we serve. BOARD EFFECTIVENESS Working Dynamics Board Structure • Candid discussions • Strong lead director role • Open access to management & information • 3 standing committees • Established processes for director feedback • Separation of Chairman and CEO • Regular non-executive directors’ meetings Governance Practices Board Composition • Oversight of CEO/management performance • Broad range of skills & experiences • Board/management succession planning • 6/8 directors are independent • Code of Ethics and Business Conduct for our Board • Our Chairman and CEO are the only non-independent • Stock ownership requirements and clawback policy directors for our directors and executives • 3/8 directors are women 11 Board of Directors and Corporate Governance Board Composition Overview Consistent with the Company’s Corporate Governance Guidelines, the nominating and corporate governance committee considers, among other factors, issues of character, integrity, judgment, diversity, independence, area of expertise such as appropriate financial and other expertise relevant to our business, corporate experience, length of service, potential conflicts of interest and other commitments when reviewing and making recommendations to the board of directors regarding the composition and size of the board. We believe that diversity with respect to tenure is important in order to provide for both fresh perspectives and deep experience and knowledge of the Company. Although our board of directors does not maintain a specific policy with respect to board diversity, our board of directors believe that our board of directors should be a diverse body and our nominating and corporate governance committee considers a broad range of backgrounds and experiences in making determinations regarding nominations of directors and in overseeing the annual board of director and committee evaluations. 75% 37% 1-3 Yrs 12.5% 4-6 Yrs 7+ Yrs 12.5% 75% OF DIRECTORS ARE INDEPENDENT OF DIRECTORS ARE WOMEN DIRECTOR TENURE The following table sets forth information, as of April 8, 2021, for each of the director nominees with terms expiring at the Annual Meeting: Directors with Terms Expiring at the Annual Meeting/Nominees Board Committees Class Age Director Since Current Term Expires Expiration of Term for Which Nominated Audit Comp. Nom. & Gov. I I I 54 65 60 2020 2021 2004 2021 2008 2021 2024 2024 2024 Š Name Kelly Battles** Andreas Bechtolsheim Jayshree Ullal ** Independent director under the listing standards of the New York Stock Exchange and SEC rules and regulations 12 2021 PROXY STATEMENT The following table sets forth information, as of April 8, 2021, for each of the continuing members of our board of directors: Board of Directors and Corporate Governance Continuing Directors Name Charles Giancarlo** Ann Mather** Daniel Scheinman** Mark Templeton** Nikos Theodosopoulos** Class Age Director Since Current Term Expires II II II III III 63 60 58 68 58 2013 2013 2011 2017 2014 2022 2022 2022 2023 2023 ** Independent director under the listing standards of the New York Stock Exchange and SEC rules and regulations Board Committees Audit Comp. Nom. & Gov. CHAIR Š CHAIR Š Š Š Š CHAIR Š 13 Board of Directors and Corporate Governance Set forth below is biographical information for the nominees and for each of the continuing members of our board of directors. This includes information regarding each director’s experience, qualifications, attributes or skills that led our board of directors to recommend them for board service. NOMINEES FOR DIRECTOR Kelly Battles Age: 54 Director Since: 2020 Committees: Audit Experience Ms. Battles has served as a member of our board of directors since July 2020. Since April 2020, Ms. Battles has been an advisor and acting chief financial officer of Alpha Medical, a telemedicine provider. From November 2016 to March 2020, Ms. Battles served as chief financial officer of Quora, a knowledge platform. From May 2013 to May 2016, Ms. Battles served as chief financial officer of Bracket Computing, an infrastructure as a service company. Ms. Battles also has served as a board member and audit committee chair of DataStax, Inc., a data management company since June 2018. Since January 2021, she has served as an independent member of the operating committee and audit committee chair of Genesys Telecommunications Laboratories, Inc., a cloud customer experience and contact center solutions provider. Ms. Battles holds a B.S.E. degree in Operations Research / Systems Management from Princeton University and an M.B.A. from Harvard University. Qualifications We believe Ms. Battles possesses specific attributes that qualify her to serve as a member of our board of directors, including her extensive experience as a chief financial officer and as a board member of companies in the technology industry. Andreas Bechtolsheim Age: 65 Director Since: 2004 Committees: N/A Experience Mr. Bechtolsheim is one of our founders and has served as our Chairman since 2004 and as our Chief Development Officer since 2008. In 1982, Mr. Bechtolsheim co-founded Sun Microsystems, Inc., a manufacturer and seller of computers and computer software, which was acquired by Oracle Corporation in January 2010. In 1995, Mr. Bechtolsheim co-founded and was president and chief executive officer of Granite Systems, Inc., a manufacturer of Gigabit Ethernet switches, which was acquired by Cisco Systems, Inc. in 1996, and then at Cisco, Mr. Bechtolsheim served in various positions including vice president and general manager of the Gigabit Systems Business Unit. In 2003, Mr. Bechtolsheim became the president of Kealia, Inc., a developer of servers, which was acquired by Sun Microsystems, Inc. in April 2004. From April 2004 to October 2008, Mr. Bechtolsheim served as senior vice president and chief systems architect at Sun Microsystems, Inc. Mr. Bechtolsheim holds an M.S. degree in Computer Engineering from Carnegie Mellon University and was a Ph.D. Student in Electrical Engineering and Computer Science at Stanford University from 1977 to 1982. Qualifications We believe Mr. Bechtolsheim possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience in the networking industry and the operational insight and expertise he has accumulated as one of our founders and as our Chief Development Officer. 14 2021 PROXY STATEMENT Jayshree Ullal Age: 60 Director Since: 2008 Board of Directors and Corporate Governance Committees: N/A Experience Ms. Ullal has served as our President, Chief Executive Officer and a member of our board of directors since October 2008. From September 1993 to May 2008, Ms. Ullal served in various positions at Cisco Systems, Inc., with her last position as senior vice president of data center, switching and services group. Prior to that, Ms. Ullal was a vice president of marketing at Crescendo Communications, Inc., Cisco’s first acquisition in 1993. She has also held various product and engineering positions at Ungermann-Bass, Advanced Micro Devices, Inc. and Fairchild Semiconductor. Ms. Ullal has served as a member of the board of directors of Snowflake, Inc., a cloud-based data-warehousing company since June 2020. Ms. Ullal holds a B.S. degree in Engineering (Electrical) from San Francisco State University and an M.S. degree in Engineering Management from Santa Clara University. She is a 2013 recipient of the Santa Clara University School of Engineering Distinguished Engineering Alumni Award. Qualifications We believe that Ms. Ullal possesses specific attributes that qualify her to serve as a member of our board of directors, including her extensive experience in the networking industry and the operational insight and expertise she has accumulated as our President and Chief Executive Officer. CONTINUING DIRECTORS Charles Giancarlo Age: 63 Director Since: 2013 Committees: Compensation (Chair) Nominating and Corporate Governance Experience Mr. Giancarlo has served as a member of our board of directors since April 2013. Since August 2017, Mr. Giancarlo has been chief executive officer and a member of the board of directors of Pure Storage, Inc., a data storage solutions company. From 2008 through 2013, Mr. Giancarlo served as a managing director of Silver Lake Partners, a private investment firm and served as a senior advisor to the firm until 2015. From 1993 to 2007, Mr. Giancarlo served in various positions with Cisco Systems, Inc., a multinational corporation that designs, manufactures, and sells networking equipment, most recently as executive vice president and chief development officer. Mr. Giancarlo has also served on the board of directors of Zscaler, Inc., a cloud-based information security company, since November 2016. He previously served as a director of Accenture plc, from December 2008 to February 2019, Avaya, Inc., from June 2008 to November 2017, ServiceNow, Inc., from November 2013 to September 2017, Tintri, Inc., from October 2016 to August 2017 and Imperva, Inc., from May 2013 to October 2017. Mr. Giancarlo holds a B.S. degree in Electrical Engineering from Brown University, an M.S. degree in Electrical Engineering from the University of California at Berkeley and an M.B.A. from Harvard University. Qualifications We believe Mr. Giancarlo possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience as a venture capital investor and as an executive and board member of companies in the technology industry. 15 Board of Directors and Corporate Governance Ann Mather Age: 60 Director Since: 2013 Committees: Audit (Chair) Experience Ms. Mather has served as a member of our board of directors since June 2013. From September 1999 to April 2004, Ms. Mather served as executive vice president and chief financial officer of Pixar, Inc., a computer animation film studio, which was acquired by the Disney Corporation in May 2006. Prior to her service at Pixar, Ms. Mather served as executive vice president and chief financial officer of Village Roadshow Pictures, the film production division of Village Roadshow Limited. Ms. Mather has served on the board of directors of Alphabet Inc. (the successor issuer to, and parent holding company of, Google, Inc.), a global technology company, where she is chair of their audit committee since November 2005; Netflix, Inc., an internet subscription service for movies and television shows since July 2010, and serves as chair of its audit committee; and Airbnb, Inc., a vacation rental online marketplace company, since August 2018, and serves as chair of its audit committee. Since March 2020, she has served as chair of the board of directors of Bumble Inc., a social networking platform. Ms. Mather is also an independent trustee to the Dodge & Cox Funds board of trustees. Ms. Mather served as a director of Shutterfly, Inc., an Internet-based image publishing service, from May 2013 to September 2019; as a director of Glu Mobile Inc., a publisher of mobile games from September 2005 to February 2021; and as the lead independent director of MGM Holdings Inc. from December 2010 to July 2019. Ms. Mather holds an M.A. degree from Cambridge University. Qualifications We believe Ms. Mather possesses specific attributes that qualify her to serve as a member of our board of directors, including her extensive experience as a chief financial officer and as a board member of companies in the technology industry. Daniel Scheinman Age: 58 Director Since: 2011 Experience Mr. Scheinman has served as a member of our board of directors since October 2011. From January 1997 to April 2011, Mr. Scheinman served in various capacities with Cisco Systems, Inc., most recently as senior vice president, Cisco Media Solutions Group. Mr. Scheinman is currently an angel investor and has served as a member of the board of directors of Zoom Video Communications, Inc. since October 2011. Mr. Scheinman also serves as a director of SentinelOne. Mr. Scheinman holds a B.A. degree in Politics from Brandeis University and a J.D. from the Duke University School of Law. Qualifications We believe Mr. Scheinman possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience in the legal industry and as an executive of companies in the technology industry. 2021 PROXY STATEMENT Committees: Compensation Nominating and Corporate Governance (Chair) Lead independent director 16 Mark B. Templeton Age: 68 Director Since: 2017 Board of Directors and Corporate Governance Committees: Audit Compensation Experience Mr. Templeton has served as a member of our board of directors since June 2017. Mr. Templeton served as the chief executive officer and a member of the board of directors of DigitalOcean, Inc., a cloud computing company from June 2018 to August 2019. Previously, he served as the president and/or chief executive officer of Citrix Systems, Inc., a global provider of virtualization, mobility management, networking and software as service solutions, from January 1998 until his retirement in October 2015. Since July 2020, Mr. Templeton has served on the board of directors of Health Catalyst, Inc., a provider of data and analytics technology and services to health care organizations. Mr. Templeton served on the board of directors of Equifax, Inc. from 2008 to July 2018; Keysight Technologies, Inc. from December 2015 to November 2018; and Citrix Systems, Inc. from January 1998 to October 2015. Mr. Templeton holds a B.A. degree in product design from North Carolina State University and an M.B.A. from the Darden School of Business at the University of Virginia. Qualifications We believe Mr. Templeton possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience in the networking industry and as chief executive officer and board member of companies in the technology industry. Nikos Theodosopoulos Age: 58 Director Since: 2014 Committees: Audit Nominating and Corporate Governance Experience Mr. Theodosopoulos has served as a member of our board of directors since March 2014. Since August 2012, Mr. Theodosopoulos has served as founder of NT Advisors LLC, a consulting company. From August 1995 through July 2012, Mr. Theodosopoulos served in various capacities with UBS, a provider of financial services, most recently as managing director of technology equity research. From April 1994 to August 1995, he served as senior equity research analyst for Bear, Stearns & Co. Inc., an investment banking firm that was acquired in 2008 by JPMorgan Chase. From January 1990 to April 1994, Mr. Theodosopoulos served as an account executive for AT&T Network Systems, a provider of business and corporate communications equipment. Mr. Theodosopoulos also serves on the supervisory board of ADVA Optical Networking SE, a provider of optical transport and Ethernet access solutions, since December 2014, where he currently serves as chairman. Mr. Theodosopoulos joined the board of directors of Harmonic, Inc., a provider of video delivery infrastructure for emerging television and video services, in March 2015. Mr. Theodosopoulos holds a B.S. degree in Electrical Engineering from Columbia University, an M.S. degree in Electrical Engineering from Stanford University and an M.B.A. from NYU Stern School of Business. Qualifications We believe Mr. Theodosopoulos possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience as a consultant and advisor in the technology industry. 17 Board of Directors and Corporate Governance Key Elements of Board Independence at Arista Our board of director’s independence enables it to be objective and critical in carrying out its oversight responsibilities. The Corporate Governance Guidelines provide that a substantial majority of our directors will be independent. Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has made the following determinations: • 6/8 of the directors are independent: We are • Lead independent director: Lead independent committed to maintaining a substantial majority of directors who are independent of the Company and management. Except for our employee directors, all director nominees are independent. • Committee independence: Only independent directors are members of board committees. • Executive sessions: Our independent directors meet in executive session at each board and audit committee meeting. director provides leadership to the board of directors and particularly to the independent directors. • Independent compensation consultant: The compensation consultant retained by the Compensation Committee is independent of the Company and management In making the determination that Mr. Giancarlo is independent, the board of directors considered the fact that Mr. Giancarlo is chief executive officer and a member of the board of directors of Pure Storage, Inc., and we sell products to and purchase products from Pure Storage, Inc. in the ordinary course of business. The board of directors determined that Mr. Giancarlo did not have a direct or indirect material interest in these transactions. Furthermore, payments made to us by Pure Storage, Inc. pursuant to such transactions did not exceed the greater of $1 million or 2% of Pure Storage, Inc.’s consolidated gross revenues in any of the last three fiscal years. As a result, the board of directors concluded that these transactions would not affect Mr. Giancarlo’s independence. Director Commitments Our board of directors recognizes that all members of our board of directors should dedicate sufficient time and attention to fulfill the responsibilities required of directors. In assessing whether directors and nominees for director have sufficient time and attention to devote to board duties, our board of directors considers, among other things, whether directors may be “overboarded,” which refers to the situation where a director serves on an excessive number of boards. In addition, prior to recommending a candidate as a nominee for director, the nominating and corporate governance committee reviews the number of boards that the candidate serves on and considers whether those outside commitments may limit the ability of the candidate to devote sufficient time and attention to board duties. Our board of directors believes that each of our directors, including each of our director nominees, has demonstrated the ability to devote sufficient time and attention to board duties and to otherwise fulfill the responsibilities required of directors. In addition, our board of directors discussed with Ms. Mather whether her service on the audit committees of more than three public companies would impair her ability to serve on our audit committee. The Board noted that Ms. Mather’s service on other audit committees enables her to bring additional experience to her service on our audit committee. Based on their review, our board of directors determined that Ms. Mather’s service on more than three public company audit committees will not impair her ability to effectively serve on our audit committee. Board Leadership Structure We believe that the structure of our board of directors and its committees provides strong overall management of our Company. While the Chairman of our board of directors and our Chief Executive Officer roles are separate, our current Chairman, Andreas Bechtolsheim, is not independent under the listing standards of the New York Stock Exchange as a 18 2021 PROXY STATEMENT Board of Directors and Corporate Governance result of his employment with us. Our board of directors believes that, given the perspective and experience Mr. Bechtolsheim brings as one of our founders, Mr. Bechtolsheim’s service as our Chairman is appropriate and is in the best interests of our board of directors, our Company and our stockholders. Our Chief Executive Officer is responsible for setting the strategic direction of our Company, the general management and operation of the business and the guidance and oversight of senior management. The Chairman of our board of directors monitors the content, quality and timeliness of information sent to our board of directors and is available for consultation with our board of directors regarding the oversight of our business affairs. Lead Independent Director Recognizing the importance of strong independent oversight, our board of directors has appointed Mr. Scheinman to serve as our lead independent director. While the Chairman directs the operations of the board of directors and is responsible for the overall management and effective functioning of the board of directors, the lead independent director provides leadership to the board of directors and particularly to the independent directors. The lead independent director communicates with the Chief Executive Officer, disseminates information to the rest of the board of directors in a timely manner, and raises issues with management on behalf of the outside directors when appropriate. In addition, the lead independent director’s responsibilities include the following: • calling meetings of outside directors when necessary • ensuring that the board of directors fulfills its and appropriate; • being available, when appropriate, for consultation and direct communication with the Company’s stockholders; • building a productive relationship between the board of directors and the CEO; Board Meetings and Committees oversight responsibilities in Company strategy, risk oversight and succession planning; and • performing such other duties as the board of directors may from time to time designate. During our fiscal year ended December 31, 2020, each director attended at least 75% of the aggregate of (i) the total number of meetings of our board of directors held during the period for which he or she has been a director and (ii) the total number of meetings held by all committees of our board of directors on which he or she served during the periods that he or she served. Our Corporate Governance Guidelines set out that the Company encourages, but does not require, our directors to attend the annual meeting of stockholders. All of our board members attended our 2020 annual meeting. Number of Board and committee meetings held in 2020 Audit Committee 5 Nominating and Corporate Governance Committee 6 7 Board of Directors 22 meetings 4 Compensation Committee 19 Board of Directors and Corporate Governance Our board of directors has three committees. Charters describing the responsibilities of each of the audit committee, compensation committee and nominating and corporate governance committee are available on the Governance section of our website at http://investors.arista.com. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors. AUDIT COMMITTEE Chair Ann Mather Members Kelly Battles Mark Templeton Nikos Theodosopoulos Independence/Qualifications: • All Committee members are independent under the NYSE listing standards and the heightened independence requirements applicable to audit committee members under SEC rules • All Committee members are financially literate in accordance with NYSE listing standards and qualify as audit committee financial experts under SEC rules Key Responsibilities • Providing oversight of our accounting and financial reporting processes and the audit of our financial statements • Assisting the board of directors in oversight of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications, independence and performance, (iv) our internal accounting and financial controls, and (v) the organization and performance of our internal audit function • Serving as the Qualified Legal Compliance Committee to receive, evaluate, investigate and recommend appropriate responses, as applicable, with respect to any reports of evidence of material violations with regards to us • Providing to our board of directors such information and materials as it may deem necessary to make our board of directors aware of significant financial matters that require the attention of our board of directors • Preparing the report required by the SEC rules to be included in our proxy statement for the annual meeting of stockholders • Providing oversight and review of our risk management policies, including our investment policies • Reviewing and discussing with our management the adequacy and monitoring of our compliance programs with respect to legal, ethical and regulatory requirements, including our Code of Ethics and Business Conduct, compliance with anti- bribery and anti-corruption laws, and compliance with export laws • Reviewing reports from management on our internal compliance policies and procedures • Reviewing and discussing with management the Company’s policies and practices relating to environmental and social responsibility matters • Reviewing and discussing with management our information security policies and internal controls regarding information security 20 2021 PROXY STATEMENT COMPENSATION COMMITTEE Chair Charles Giancarlo Members Daniel Scheinman Mark Templeton Independence/Qualifications: • All Committee members are independent under the NYSE listing standards and the independence requirements applicable to compensation committee members under NYSE rules and the heightened independence requirements under SEC rules Board of Directors and Corporate Governance Key Responsibilities • Providing oversight of our compensation policies, plans, benefits programs and overall compensation philosophy • Assisting our board of directors in discharging its responsibilities relating to (i) oversight of the compensation of our Chief Executive Officer, the Chief Development Officer and other executive officers, and (ii) approving and evaluating our executive officer compensation plans, policies and programs • Administering our equity compensation plans for our employees • Reviewing corporate goals and objectives relevant to the compensation of our executive officers, evaluating performance in light thereof, and considering factors related to our performance, including accomplishment of our long-term business and financial goals • Evaluating our compensation policies and practices with management to review the relationship between risk management policies and compensation and evaluate compensation policies and practices that could mitigate any such risk • Monitoring compliance with our stock ownership guidelines and clawback policy NOMINATING AND CORPORATE GOVERNANCE COMMITTEE Chair Daniel Scheinman Members Charles Giancarlo Nikos Theodosopoulos Independence/Qualifications: • All Committee members are independent under the NYSE listing standards and SEC rules Key Responsibilities • Reviewing and making recommendations regarding corporate governance • Reviewing and making recommendations regarding the composition and size of our board of directors and its committees and determining relevant criteria for Board membership including integrity, diversity, independence, skills, education and business experience • Identifying, evaluating and nominating director candidates • Reviewing conflicts of interest • Reviewing and making recommendations regarding the education of our board of directors • Leading the annual performance review of the board of directors, its committees and management • Reviewing succession planning for our executive officers 21 Board of Directors and Corporate Governance Compensation Committee Interlocks and Insider Participation None of the members of our compensation committee is or has been an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board) of any entity that has one or more of its executive officers serving on our board of directors or compensation committee. Considerations in Evaluating Director Nominees In accordance with the Company’s Corporate Governance Guidelines, in its evaluation of director candidates, including the members of the board of directors eligible for re-election, the nominating and corporate governance committee will consider: (a) the current size and composition of the board of directors, (b) the needs of the board of directors and the respective committees of the board of directors, (c) such factors as character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and the like, and (d) other factors that the nominating and corporate governance committee may consider appropriate. The nominating and corporate governance committee will also consider gender composition requirements imposed by applicable law. The nominating and corporate governance committee evaluates these factors, among others, and does not assign any particular weighting or priority to any of these factors. The nominating and corporate governance committee requires the following minimum qualifications to be satisfied by any nominee for a position on the board of directors: (a) the highest personal and professional ethics and integrity, (b) proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment, (c) skills that are complementary to those of the existing board of directors, (d) the ability to assist and support management and make significant contributions to the Company’s success, and (e) an understanding of the fiduciary responsibilities that is required of a member of the board of directors and the commitment of time and energy necessary to diligently carry out those responsibilities. Below is a graphic summarizing the process for our board of directors to identify and review director candidates to join our board: Input from: Directors Management Shareholders (cid:2) Candidate Pool (cid:2) In-depth Review including by Board and Nominating and Corporate Governance Committee including: Skills, expertise, experience, diversity and independence (cid:2) Recommend Selected Candidates for Appointment to our board of directors (cid:2) 2 new director nominees in the last five years Stockholder Recommendations for Nominations to the Board of Directors The nominating and corporate governance committee will evaluate any recommendation for nominations to our board of directors in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. Under our Corporate Governance Guidelines, the nominating and corporate governance committee will consider candidates for our board of directors recommended by stockholders holding at least one percent (1%) of the fully diluted capitalization of the Company continuously for at least twelve (12) months prior to the date of the submission of the recommendation so long as such recommendations and nominations comply with the certificate of incorporation and bylaws of the Company and applicable laws. Such recommendations must include information about the candidate, including but not limited to, a statement of support by the recommending stockholder, evidence of the recommending stockholder’s ownership of our common stock and a signed letter from the candidate acknowledging that as a member of our board of directors, the candidate will owe fiduciary duties to us and the stockholders. Our nominating and corporate governance committee has discretion to decide which individuals to recommend for nomination as directors. 22 2021 PROXY STATEMENT Board of Directors and Corporate Governance Any nomination should be sent in writing to our General Counsel or our Legal Department at Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, California 95054. To be timely for our 2022 annual meeting of stockholders, our General Counsel or Legal Department must receive the nomination no earlier than February 5, 2022 and no later than March 7, 2022. Communications with the Board of Directors Interested parties wishing to communicate with our board of directors or with an individual member or members of our board of directors may do so by writing to our board of directors or to the particular member or members of our board of directors, and mailing the correspondence to our General Counsel and Corporate Secretary at Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, California 95054. Each communication should set forth (i) the name and address of the stockholder, as it appears on our books, and if the shares of our common stock are held by a nominee, the name and address of the beneficial owner of such shares, and (ii) the number of shares of our common stock that are owned of record by the record holder and beneficially by the beneficial owner. Our General Counsel, in consultation with appropriate members of our board of directors as necessary, will review all incoming communications and, if appropriate, all such communications will be forwarded to the appropriate member or members of our board of directors, or if none is specified, to the Chairman of our board of directors. Risk Management Risk is inherent with every business and we face a number of risks, including strategic, financial, business and operational, legal and compliance, and reputational. We have designed and implemented processes to manage risk in our operations. Management is responsible for the day-to-day management of risks the Company faces while our board of directors has responsibility for the oversight of risk management. Our board committees assist our board of directors in fulfilling its oversight responsibilities in certain areas of risk. Our audit committee reviews the Company’s risk management processes and procedures, including our internal controls and procedures on financial reporting, our investment policies, and our compliance programs with respect to legal, ethical and regulatory requirements. The management and internal audit teams provide periodic updates on cybersecurity risks and other risks to the audit committee. Further, the audit committee receives reports and presentations from management on the Company’s risk assessment and mitigation programs, compliance matters, and cybersecurity activities, and the results of various internal audit projects. Key information is shared with the Board by the audit committee. 23 Board of Directors and Corporate Governance The chart below illustrates the responsibilities of our board and board committees in overseeing risk in our operations. BOARD OF DIRECTORS AUDIT COMMITTEE • Meets with CEO and other members of the senior management team at quarterly meetings of our board of directors where they discuss strategy and risks facing the Company • Satisfies itself that the risk management processes designed and implemented by management are appropriate and functioning as designed • Reviews strategic and operational risk in the context of reports from the management team, receives reports on all significant committee activities at each regular meeting, evaluates the risks inherent in significant transactions, and provides guidance to management • Assists in the areas of internal control over financial reporting and disclosure controls and procedures, legal and regulatory compliance • Discusses with management and the independent auditor guidelines and policies with respect to risk assessment and risk management • Reviews our major financial risk exposures and the steps management has taken to monitor and control these exposures (cid:2) • Monitors certain key risks on a regular basis throughout the fiscal year, such as cybersecurity risk and risk associated with internal control over financial reporting and liquidity risk • Reviews the adequacy and monitoring of our compliance programs for legal, ethical and regulatory requirements • Reviews our risk management policies, including our investment policies • Reviews management reports on internal compliance policies and procedures • Reviews and discusses with management our policies and practices relating to environmental and social responsibility matters • Reviews and discusses with management our information security policies and internal controls regarding information security (cid:2) NOMINATING AND CORPORATE GOVERNANCE COMMITTEE • Manages risks associated with board organization, membership and structure, corporate governance and succession planning • Reviews any conflicts of interest (cid:2) COMPENSATION COMMITTEE • Assesses risks created by the incentives inherent in our compensation policies • Evaluates compensation policies and practices that could mitigate risks 24 2021 PROXY STATEMENT Board of Directors and Corporate Governance Executive Talent Management and Succession Planning Our board of directors places a high priority on senior management development and succession planning and recognizes that thoughtful succession planning is critical to creating long-term shareholder value. Pursuant to our Corporate Governance Guidelines, the nominating and corporate governance committee, in consultation with the full board of directors, is primarily responsible for succession planning for the role of chief executive officer. In addition, the nominating and corporate governance committee monitors management’s succession plans for other key executives. The nominating and corporate governance committee evaluates our key executives, discusses their development and develops succession plans with the view of ensuring that a strong pipeline of talent is being developed for planned or unplanned events. In addition, our lead independent director facilitates discussions among independent directors about succession planning at executive sessions. Director Compensation The following table provides information regarding the total compensation that was granted to each of our directors who was not serving as an executive officer in 2020. Directors who are also our employees do not receive additional compensation for their service as directors. In particular, Jayshree Ullal, a named executive officer, and Andreas Bechtolsheim, an executive officer, did not receive additional compensation for their service as directors. Director Kelly Battles(2) Charles Giancarlo Ann Mather Daniel Scheinman Mark Templeton Nikos Theodosopoulos Fees Earned or Paid in Cash ($)(1) 42,500 97,000 100,000 142,000 95,000 95,000 Stock Awards ($) 220,216 — — — 237,766 237,766 Option Awards ($) — — — — — — Total ($) 262,716 97,000 100,000 142,000 332,766 332,766 (1) The amounts reported represent the fees earned for service on our board of directors and committees of our board of directors for 2020. (2) Ms. Battles was appointed to our board of directors and audit committee on July 10, 2020. The amounts reported represent the pro-rated cash retainer and equity grants earned for a partial year of service on our board of directors and our audit committee. The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2020: Director Kelly Battles Charles Giancarlo Ann Mather Daniel Scheinman Mark Templeton Nikos Theodosopoulos (1) Represents the number of restricted stock units unvested as of December 31, 2020. Stock Awards (#)(1) Option Awards (#) 509 1,316 1,316 1,316 523 523 — — 12,844 — — — 25 Board of Directors and Corporate Governance With respect to 2020 board service, our board of directors approved compensation to each of our non-employee directors as follows: • a $75,000 cash retainer for general board service, except that our lead independent director received a $120,000 cash retainer; • a $12,000 cash retainer for chairing the nominating and corporate governance committee; • a $10,000 cash retainer for service on each • a $25,000 cash retainer for chairing the audit committee. committee • a $12,000 cash retainer for chairing the compensation committee; Prior to April 2020, under our outside director compensation policy, each director elected at an annual meeting was granted restricted stock units on the date of the annual meeting with a total value of $750,000 (based on the average closing stock price for the 30 trading day period ending on the applicable annual meeting) that vested quarterly over three years. In April 2020, our compensation committee recommended, and our board of directors approved, a revised policy for annual equity grants to outside board members of restricted stock units with a total value of $225,000 (based on the average closing stock price for the 30 trading day period ending on the grant date) that vest quarterly (on each Company standard quarterly vesting date following the grant date) over one year and are subject to continued service on the board (the “Revised Director Equity Policy”). Grants under the Revised Director Equity Policy shall be automatic immediately following an applicable annual meeting. For our Class III non-employee directors re-elected at the 2020 annual meeting, the annual equity grants began upon their re-election and (i) for our Class I non-employee directors, the annual equity grants will begin upon their re-election at the 2021 annual meeting and (ii) for our Class II non-employee directors, the annual equity grants will begin upon their re-election at the 2022 annual meeting. STOCK OWNERSHIP GUIDELINES In April 2019, our board of directors adopted stock ownership guidelines. Our stock ownership guidelines are designed to encourage our directors and our Chief Executive Officer to achieve and maintain a meaningful equity stake in our Company and more closely align their interests with those of our stockholders. The guidelines provide that our non-employee directors should accumulate and hold investment levels of three times the annual cash base retainer for service on the board of directors within five years from the later of the date of the adoption of the stock ownership guidelines or the date such director is appointed or elected. All of our directors and our Chief Executive Officer are on track to meet these guidelines based on their current rate of stock accumulations in the time frames set out in the guidelines. 26 2021 PROXY STATEMENT PROPOSAL NO. 1 ELECTION OF DIRECTORS Our board of directors is currently composed of eight members. In accordance with our amended and restated certificate of incorporation, our board of directors is divided into three staggered classes of directors. At the Annual Meeting, three Class I directors will be elected for a three-year term to succeed the same class whose term is then expiring. Each director’s term continues until the election and qualification of his or her successor, or such director’s earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our Company. Nominees Our nominating and corporate governance committee has recommended, and our board of directors has approved, Kelly Battles, Andreas Bechtolsheim and Jayshree Ullal, as nominees for election as Class I directors at the Annual Meeting. If elected, each of Kelly Battles, Andreas Bechtolsheim and Jayshree Ullal will serve as Class I directors until the 2024 annual meeting of stockholders and until their successors are duly elected and qualified. Each of the nominees is currently a director of our Company. Ms. Battles, who was appointed to the board by our other directors in July 2020, was initially suggested to the nominating and corporate governance committee of the board for consideration as a potential director by our Chief Executive Officer. For information concerning the nominees, please see the section titled “Board of Directors and Corporate Governance.” If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the re-election of: • Kelly Battles • Andreas Bechtolsheim • Jayshree Ullal Kelly Battles, Andreas Bechtolsheim and Jayshree Ullal have each consented to being a nominee and to serving as a director, if elected; however, in the event that a director nominee is unable to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by our board of directors to fill such vacancy. If you are a street name stockholder and you do not give voting instructions to your broker or nominee, your broker will leave your shares unvoted on this matter. Vote Required The election of directors is by plurality vote. “Plurality” means that the nominees who receive the largest number of votes cast “for” are elected as directors. As a result, any shares not voted “for” a particular nominee (whether as a result of a withheld vote or a broker non-vote) will not be counted in such nominee’s favor and will have no effect on the outcome of the election. You may vote “for” or “withhold” on each of the nominees for election as a director. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES NAMED ABOVE. 27 PROPOSAL NO. 2 ADVISORY VOTE ON EXECUTIVE COMPENSATION The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables stockholders to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed pursuant to Section 14A of the Securities Exchange Act of 1934. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement. The say-on-pay vote is advisory, and therefore not binding on us, the compensation committee or our board of directors. The say-on-pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which the compensation committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. Our board of directors and our compensation committee value the opinions of our stockholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this proxy statement, we will communicate directly with stockholders to better understand the concerns that influenced the vote, consider our stockholders’ concerns and the compensation committee will evaluate whether any actions are necessary to address those concerns. We believe that the information provided in the “Executive Compensation” section of this proxy statement, and in particular the information discussed in “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Philosophy and Objectives” beginning on page 37 below, demonstrates that our executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting: “RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to the named executive officers, as disclosed in the proxy statement for the Annual Meeting pursuant to the compensation disclosure rules of the SEC, including the compensation tables and narrative discussion, and other related disclosure.” Vote Required The advisory vote on executive compensation requires the affirmative vote of a majority of the shares of our common stock present at the Annual Meeting (including by proxy) and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal and broker non-votes will have no effect. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION. 28 2021 PROXY STATEMENT PROPOSAL NO. 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Our audit committee has appointed Ernst & Young LLP (“EY”), an independent registered public accounting firm, to audit our consolidated financial statements for our fiscal year ending December 31, 2021. During our fiscal year ended December 31, 2020, EY served as our independent registered public accounting firm. Notwithstanding the appointment of EY and even if our stockholders ratify the appointment, our audit committee, in its discretion, may appoint another independent registered public accounting firm at any time during our fiscal year if our audit committee believes that such a change would be in the best interests of our Company and stockholders. At the Annual Meeting, our stockholders are being asked to ratify the appointment of EY as our independent registered public accounting firm for our fiscal year ending December 31, 2021. Our audit committee is submitting the appointment of EY to our stockholders because we value our stockholders’ views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of EY are expected to attend the Annual Meeting virtually and they will have an opportunity to make a statement and will be available to respond to appropriate questions from our stockholders. If our stockholders do not ratify the appointment of EY, our audit committee may reconsider the appointment of EY. Fees Paid to the Independent Registered Public Accounting Firm The following table presents fees for professional audit services and other services rendered to our Company by EY for our fiscal years ended December 31, 2019 and 2020. Audit Fees(1) Audit-Related Fees(2) Tax Compliance Fees(3) Tax Advice and Planning Fees(4) All Other Fees(5) Total Fees 2019 2020 (in thousands) $2,495 $2,559 304 — 1,236 1,042 1,161 — 577 — $5,196 $4,178 (1) Audit Fees consist of professional services rendered in connection with the audit of our annual consolidated financial statements, including audited financial statements presented in our Annual Report on Form 10-K and services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years. (2) Audit-Related Fees consist of fees for professional services for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations concerning financial accounting and reporting standards. (3) Tax Compliance Fees consist of fees for tax compliance and the preparation of original and amended tax returns and refund claims. (4) Tax Advice and Planning Fees consist of fees for tax advice and tax planning assistance, including non-recurring tax assistance in connection with acquisitions and intellectual property alignment. (5) All Other Fees consist of fees billed for products and services provided by the independent registered public accountants other than those that meet the criteria above. Auditor Independence In our fiscal year ended December 31, 2020, there were no other professional services provided by EY, other than those listed above, that would have required our audit committee to consider their compatibility with maintaining the independence of EY. 29 Proposal No. 3—Ratification of Appointment of Independent Registered Public Accounting Firm Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under the policy, our audit committee is required to pre-approve all audit and non-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All services and fees paid to EY for our fiscal years ended December 31, 2019 and 2020 were pre-approved by our audit committee. Vote Required The ratification of the appointment of EY requires the affirmative vote of a majority of the shares of our common stock present at the Annual Meeting (including by proxy) and entitled to vote thereon. Abstentions will have the effect of a vote AGAINST the proposal and broker non-votes will have no effect. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP. 30 2021 PROXY STATEMENT REPORT OF THE AUDIT COMMITTEE The audit committee is a committee of the board of directors comprised solely of independent directors as required by the listing standards of the New York Stock Exchange and rules and regulations of the SEC. The audit committee operates under a written charter approved by the board of directors, which is available on the Governance section of our website at http://investors.arista.com. The composition of the audit committee, the attributes of its members and the responsibilities of the audit committee, as reflected in its charter, are intended to be in accordance with applicable requirements for corporate audit committees. The audit committee reviews and assesses the adequacy of its charter and the audit committee’s performance on an annual basis. With respect to the Company’s financial reporting process, the management of the Company is responsible for (1) establishing and maintaining internal controls and (2) preparing the Company’s consolidated financial statements. Our independent registered public accounting firm, Ernst & Young LLP (“EY”), is responsible for auditing these financial statements. It is the responsibility of the audit committee to oversee these activities. It is not the responsibility of the audit committee to prepare our financial statements. These are the fundamental responsibilities of management. In the performance of its oversight function, the audit committee has: • reviewed and discussed the audited financial • received the written disclosures and the letter from statements with management and EY; • discussed with EY the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as issued by the Public Company Accounting Oversight Board, and the Securities and Exchange Commission; and EY required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with EY its independence. Based on the audit committee’s review and discussions with management and EY, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC. Respectfully submitted by the members of the audit committee of the board of directors: Ann Mather (Chair) Kelly Battles Mark Templeton Nikos Theodosopoulos This report of the audit committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act. 31 EXECUTIVE OFFICERS The following table identifies certain information about our executive officers as of April 8, 2021. Officers are elected by our board of directors to hold office until their successors are elected and qualified. There are no family relationships among any of our directors or executive officers. Name Jayshree Ullal Andreas Bechtolsheim Ita Brennan Kenneth Duda John McCool Anshul Sadana Marc Taxay Age 60 65 54 49 61 44 52 Chief Executive Officer, President and Director Position Founder, Chief Development Officer, Director and Chairman of the Board of Directors Senior Vice President, Chief Financial Officer Founder, Chief Technology Officer and Senior Vice President, Software Engineering Chief Platform Officer, Senior Vice President of Engineering Operations Chief Operating Officer Senior Vice President, General Counsel For biographical information about Ms. Ullal and Mr. Bechtolsheim, please see “Board of Directors and Corporate Governance-Nominees for Director.” Ita Brennan Ms. Brennan joined Arista Networks, Inc. in May 2015 as Senior Vice President and Chief Financial Officer. From February 2014 to May 2015, Ms. Brennan served as chief financial officer of a stealth start up firm in the energy sector. Prior to that, Ms. Brennan held various roles at Infinera Corporation, an intelligent transport networking company, most recently as chief financial officer from July 2010 to February 2014 and vice president of finance and corporate controller from July 2006 to July 2010. From 1997 to 2006, Ms. Brennan held various roles at Maxtor Corporation, a multi-billion dollar information storage solutions company, including vice president of finance for the company’s worldwide operations. Ms. Brennan has been a member of the board of directors of Cadence Design Systems, Inc., a multinational computational software company, since March 2020. She previously served as a member of the board of directors of LogMeIn, Inc., a provider of web-based remote access software and services from November 2018 to August 2020. Ms. Brennan is a fellow of the Institute of Chartered Accountants and a public accounting alumna of Deloitte and Touche, having worked at the firm in both Ireland and the U.S. Kenneth Duda Mr. Duda is one of our founders and has served in various roles with us from 2004 to present. Since September 2011, Mr. Duda has served as our Chief Technology Officer and Senior Vice President of Software Engineering. From April 1999 to October 2004, Mr. Duda served as chief technology officer of There, Inc., a virtual worlds company. From September 1996 to April 1999, Mr. Duda was leading the software development of the switch kernel for the Gigabit System Business Unit with Cisco Systems, Inc. Mr. Duda holds B.S. and M.S. degrees in Computer Science and Electrical Engineering from the Massachusetts Institute of Technology and a Ph.D. degree in Computer Science from Stanford University. 32 2021 PROXY STATEMENT John McCool Executive Officers Mr. McCool joined Arista Networks, Inc. in March 2017 as Chief Platform Officer and Senior Vice President of Engineering and Operations. From 2014 to 2017, Mr. McCool served as senior vice president and general manager of DSDD, a DellEMC business, a products, services and solutions provider for information management and storage. From 2013 to 2014, Mr. McCool served as president and chief executive officer of Firetide, Inc., a provider of wireless mesh networks. From 1996 to 2013, Mr. McCool served in various positions at Cisco Systems, Inc., including senior vice president and general manager for the data center switching and services group with his last position as senior vice president—global sales, enterprise segment. Mr. McCool holds a B.S. degree in Electrical Engineering from Drexel University and an M.S. degree in Computer Engineering from Santa Clara University. Anshul Sadana Mr. Sadana has served as our Chief Operating Officer since March 2019. He served as our Chief Customer Officer from October 2016 through February 2019. From January 2012 to September 2016, Mr. Sadana served as our Senior Vice President of Customer Engineering. From July 2007 to December 2011, Mr. Sadana served in various other positions with us including Vice President of Customer Engineering. From November 1999 to July 2007, Mr. Sadana was the senior engineering manager of Gigabit Switching Business Unit at Cisco Systems, Inc. Mr. Sadana holds a B.E. degree in Electronics from the University of Mumbai, an M.S. degree in Computer Science from the University of Illinois at Chicago and an executive M.B.A. degree from the Wharton School of Business. Marc Taxay Mr. Taxay has served as our Senior Vice President, General Counsel since March 2016 and as our General Counsel since February 2013. From 2007 to 2013, Mr. Taxay served as the senior vice president and general counsel of MedeAnalytics, Inc., a healthcare analytics company. From 2006 to 2007, Mr. Taxay served as the assistant general counsel of Coremetrics, Inc. a digital marketing company. From 2002 to 2006, Mr. Taxay worked as a partner at Cohen & Grigsby. Mr. Taxay holds a B.A. degree in Political Science and a J.D. from The University of Michigan. 33 EXECUTIVE COMPENSATION Compensation Discussion and Analysis The compensation provided to those individuals who are our named executive officers for our fiscal year ended December 31, 2020 (our “Named Executive Officers”) is set forth in detail in the Fiscal 2020 Summary Compensation Table and the other tables that follow this Compensation Discussion and Analysis. The following discussion provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each component of compensation that we provide to our Named Executive Officers. In addition, we explain how and why the compensation committee of our board of directors arrived at the specific compensation policies and decisions for our Named Executive Officers. The following are the individuals who served as our Named Executive Officers for fiscal 2020: • Jayshree Ullal, our President and Chief Executive • Anshul Sadana, our Chief Operating Officer; and Officer; • Marc Taxay, our Senior Vice President, General • Ita Brennan, our Chief Financial Officer; Counsel • Kenneth Duda, our Chief Technology Officer and Senior Vice President of Software Engineering; Our board of directors has delegated to the compensation committee authority and responsibility for establishing and overseeing salaries, administering the incentive compensation programs, and establishing and overseeing other forms of compensation for our executive officers, general remuneration policies for the balance of our employee population and for overseeing and administering our equity incentive and benefits plans. The following compensation governance standards in our executive compensation policies and practices are currently in effect: What We Do What We Do Not Do Annual Review. Annual review of our executive compensation program. Performance-Based Equity. In 2020, we introduced performance-based equity as a significant part of our compensation program to our Chief Executive Officer, and in 2021, we did so for our other Named Executive Officers. Independence. Our compensation committee is made up solely of independent directors and makes all executive compensation decisions. Compensation Consultant. Our compensation committee engages its own independent compensation consultant to assist with its compensation reviews. Stock Ownership Guidelines. To align our chief executive officer’s long-term interests with those of our stockholders, our chief executive officer is required to own specified minimum levels of Company’s stock. Clawback Policy. We may seek the recovery of cash incentive compensation and performance- based equity compensation paid to our executive officers. No Executive-Only Retirement Programs. We do not offer pension arrangements, retirement plans, or nonqualified deferred compensation plans or arrangements to our executive officers, other than the plans generally available to all employees. No Excise Tax Gross-Ups. We do not offer golden parachute tax gross-ups to any of our Named Executive Officers or other executive officers. No “Single-Trigger” Benefits and Limited “Double-Trigger” Benefits. Potential change in control payments and benefits are limited in nature and are received only in connection with the termination of employment without cause or for good reason in connection with or following a change in control. 34 2021 PROXY STATEMENT Executive Compensation Overview FISCAL 2020 BUSINESS HIGHLIGHTS Our executive compensation program is designed to align the compensation of our executives with our operating and financial performance and create value for our stockholders. Accordingly, you should consider our executive compensation decisions in the context of our financial and operational performance during fiscal 2020, including: Revenue REVENUE $2.32B FY2020 7K+ CUSTOMERS Operating Income $874.8M FY2020 OPERATING INCOME 37.7% OF REVENUE Industry Leadership 6th YEAR LEADERSHIP POSITION Revenue for our fiscal 2020 was $2.32 billion, representing a decrease of 3.9% compared to fiscal 2019, and slightly below our internal targets set at the beginning of the year. We experienced strong sales to our enterprise and other cloud and service provider customers, but this was more than offset by reduced sales from our larger customers, combined with the impact of some COVID-19 related supply constraints. We exited the year with over 7,000 customers and continue to add new customers and expand and diversify our market position. Our non-GAAP operating income for fiscal 2020 was $874.8 million or 37.7% of revenue, compared to $922.7 million or 38.3% of revenue in fiscal 2019. The decrease in non-GAAP operating margins was largely a result of reduced revenue for the year, offset in part by an improvement in non-GAAP gross margins. The ratio of non-GAAP operating income to revenue is a key metric for our stockholders as it provides a consistent measure of the profitability of our business and as a result we used non-GAAP operating income as a metric in our 2020 Bonus Plan (as defined below). This is the sixth consecutive year Arista Networks has been recognized in the Leaders Quadrant of the 2020 Gartner Magic Quadrant for Data Center Networking published on 30 June 2020. 35 Executive Compensation Acquisitions Product Innovations In 2020, Arista acquired Awake Security, a Network Detection and Response (NDR) platform provider that combines artificial intelligence with human expertise to autonomously hunt and respond to insider and external threats. Arista also acquired Big Switch Networks, a network monitoring and Software Defined Networking (SDN) pioneer. In 2020, Arista expanded its Cognitive Campus portfolio with the new 750 Series modular chassis for enhanced security solutions and simplified automation workflows. Arista introduced its optical line system for 400G, Arista OSFP-LS, which is a highly compact, low power and cost effective solution for increasing bandwidth between data centers without the need for external optical line systems. Arista continued to expand the 7800R3 and 7280R3 Series with new models optimized for 400G and 100G with integrated security capabilities along with new power and density optimized 7280R3 Series 10G and 25G systems to deliver enhancements for large Enterprise and Service Providers. Arista also announced a network observability software, DANZ Monitoring Fabric, on Arista switching platforms for enterprise-wide traffic visibility and contextual insights and an advanced security service, Attack Surface Assessment, through our acquisition of Awake Security. FISCAL 2020 EXECUTIVE COMPENSATION HIGHLIGHTS As reflected in our general compensation philosophy and objectives, our executive compensation program is intended to reward performance, attract and retain key personnel and increase stockholder value. In light of our financial performance as described in the “Fiscal 2020 Business Highlights” section above, our fiscal 2020 executive compensation program was intended to reward performance against our financial and key business objectives and incentivize successful performance in these areas. Accordingly, our key executive compensation actions in fiscal 2020 advanced these objectives: • No Base Salary Increases—We did not increase base salaries for our Named Executive Officers. • Annual Bonuses Reflecting Pay for Performance—As noted above, our financial performance in fiscal 2020 achieved revenue of approximately $2.32 billion a decrease of 3.9% compared to fiscal 2019, and slightly below our internal targets set at the beginning of the year. We experienced strong sales to our enterprise and other cloud and service provider customers, but this was more than offset by reduced sales from our larger cloud customers, combined with the impact of some COVID-19 related supply constraints. These financial results combined with significant progress on business diversification and continued excellence in product quality, innovation and support, resulted in payments to our Named Executive Officers under the 2020 Bonus Plan. Our Chief Executive Officer declined a bonus for fiscal 2020. • Equity Awards Promoting Our Stockholders’ Interests—Long-term equity incentives constitute a significant majority of compensation paid to Named Executive Officers in 2020. Long-term equity incentives align the interests of executives with those of our stockholders. • Equity Awards Subject to Achievement— Performance-based equity was implemented as an important portion of our executive compensation program for our Chief Executive Officer. Subsequent to year end, we included performance-based equity as part of our executive compensation program for all of our Named Executive Officers. 36 2021 PROXY STATEMENT Executive Compensation Effect of Most Recent Stockholder Advisory Vote on Executive Compensation Our compensation committee considers the results of the annual stockholder advisory vote on the compensation of our Named Executive Officers and stockholder feedback on our executive compensation program as part of its annual executive compensation review. At our 2020 annual meeting of stockholders, approximately 96.2% of the votes cast approved the compensation program for our Named Executive Officers as described in our 2020 proxy statement. Based on this strong stockholder support, our compensation committee determined not to make significant changes to our existing executive compensation program and policies, except that our compensation committee added a performance- based equity component to our executive compensation program in the form of performance-based restricted stock units (“PRSUs”) for our Chief Executive Officer in 2020 and extended this performance-based equity component to all of our other Named Executive Officers in 2021. Our compensation committee continues to evaluate the executive compensation program and policies to determine the most appropriate ways of effecting our executive compensation philosophy and objectives. Our compensation committee currently intends to continue to consider the results of the annual advisory vote on executive compensation and stockholder feedback as data points in making executive compensation decisions. Executive Compensation Philosophy and Objectives We operate in a highly competitive business environment, which is characterized by frequent technological advances. To successfully grow our business in this dynamic environment, we must continually develop and refine our products and services to stay ahead of our competitors. To achieve these objectives, we need a highly talented and seasoned team of technical, sales, marketing, operations, and other business professionals. We compete with other companies in our industry and other technology companies in the Silicon Valley to attract and retain a skilled management team. To attract and retain qualified executive candidates, our compensation committee recognizes that it needs to develop competitive compensation packages. At the same time, our compensation committee is sensitive to the need to integrate new Named Executive Officers into our executive compensation structure that we were seeking to develop, balancing both competitive and internal equity considerations. To meet this challenge, we have embraced a compensation philosophy of offering our Named Executive Officers a competitive total compensation program, which we view as the sum of base salary, cash performance-based incentives, equity compensation and employee benefits, each of which recognizes and rewards individual performance and contributions to our success, allowing us to attract, retain, and motivate talented executives with the skills and abilities needed to drive our desired business results. The specific objectives of our executive compensation program are to: • reward the successful achievement of our financial • recognize strong performers by offering cash growth objectives; • drive the development of a successful and profitable business; • attract, motivate, reward, and retain highly qualified executives who are important to our success; performance-based incentive compensation and equity awards that have the potential to reward individual achievement as well as contributions to our overall success; and • create value for our stockholders. COMPENSATION PROGRAM DESIGN Our executive compensation program for fiscal 2020 reflected our stage of development as a growing publicly-traded company. Accordingly, the compensation of our Named Executive Officers consisted of base salary, a short-term cash incentive compensation opportunity, long-term equity compensation in the form of PRSUs for our Chief Executive Officer and time-based restricted stock units (“RSUs”) for our other Named Executive Officers, and certain employee health and welfare benefits. We offer cash compensation in the form of base salaries and cash incentive compensation opportunities with an annual payment component. Typically, we have structured our annual cash incentive compensation opportunities to focus on the achievement of specific short-term financial and operational objectives that will further our longer-term growth objectives. 37 Executive Compensation Additionally, equity awards for shares of our common stock serve as a key component of our executive compensation program. For 2020, we granted (i) PRSUs (which become eligible to vest only if the threshold performance is achieved) to our Chief Executive Officer and (ii) RSUs (which provide certain value to recipients and limit dilution to our stockholders) to our other Named Executive Officers. In the future, we may introduce other forms of equity awards, as we deem appropriate, into our executive compensation program to offer our Named Executive Officers additional types of long- term incentive compensation that further the objective of aligning the recipient’s interests with those of our stockholders. Finally, we offer executives standard health and welfare benefits that are generally available to our other employees, including medical, dental, vision, flexible spending accounts, life insurance and 401(k) plans. We have not adopted any formal policies or guidelines for allocating compensation between current and long-term compensation or between cash and non-cash compensation, although we use competitive market data to understand the competitive market framework for pay mix. Within this overall framework, our compensation committee reviews each component of executive compensation separately and also takes into consideration the value of each Named Executive Officer’s compensation package as a whole and its relative value in comparison to our other Named Executive Officers. Our compensation committee evaluates our compensation philosophy and executive compensation program as circumstances require, and reviews executive compensation annually. As part of this review, we expect that our compensation committee will apply our philosophy and the objectives outlined above, together with consideration for the levels of compensation that we would be willing to pay to ensure that our executive compensation remains competitive and that we meet our retention objectives, as well as the cost to us if we were required to find a replacement for a key executive officer. COMPENSATION-SETTING PROCESS Role of our Compensation Committee Compensation decisions for our executives are made by our compensation committee. Currently, our compensation committee is responsible for reviewing, evaluating and approving the compensation arrangements, plans, policies, and practices for our Named Executive Officers and overseeing and administering our cash-based and equity-based compensation plans. Each fiscal year, our compensation committee, after consulting with our management team and its compensation consultant, establishes our corporate performance objectives and makes decisions with respect to any base salary adjustment, and approves the corporate performance objectives and target annual cash incentive compensation opportunities and equity awards for our executive officers, including our Named Executive Officers, for the upcoming fiscal year. With respect to (i) our cash incentive compensation plan, (ii) the performance-based equity grant to our Chief Executive Officer in 2020, and (iii) the performance-based equity to all of our Named Executive Officers in 2021, our compensation committee determines the applicable goals for each corporate performance objective used for the applicable year. Our compensation committee reviews our executive compensation program from time to time, including any incentive compensation plans, to determine whether they are appropriate, properly coordinated, and achieve their intended purposes, and to make any modifications to existing plans and arrangements or to adopt new plans or arrangements. Role of Management In carrying out its responsibilities, our compensation committee works with members of our management team, including our Chief Executive Officer and our Vice President, Global Human Resources. Typically, our management team (together with our compensation consultant) assists our compensation committee in the execution of its responsibilities by providing information on corporate and individual performance, market data, and management’s perspective and recommendations on compensation matters. Typically, except with respect to her own compensation, our Chief Executive Officer will make recommendations to our compensation committee regarding compensation matters, including the compensation of our executive officers. Our Chief Executive Officer also participates in meetings of our compensation committee, except with respect to discussions involving her own compensation in which case she leaves the meeting. 38 2021 PROXY STATEMENT Executive Compensation While our compensation committee solicits the recommendations and proposals of our Chief Executive Officer with respect to compensation-related matters, these recommendations and proposals are only one factor in our compensation committee’s decision-making process. Role of Compensation Consultant Our compensation committee is authorized to retain the services of one or more executive compensation advisors from time to time, as it sees fit, in connection with carrying out its duties. In fiscal 2020, our compensation committee continued to engage Radford, a national compensation consulting firm, to assist us in executing our executive compensation strategy and guiding principles, assessing current executive total compensation levels against competitive market practices, developing a compensation peer group and advising on potential executive compensation decisions for fiscal 2020. Our compensation committee provided Radford with instructions regarding the goals of our executive compensation program and the parameters of the competitive review of executive officer compensation packages that it was to conduct. In particular, the compensation committee instructed Radford to analyze whether the compensation packages of our executive officers were consistent with our compensation philosophy and competitive relative to market comparables. The compensation committee further instructed Radford to evaluate the following components to assist the compensation committee in establishing fiscal 2020 compensation: base salary; target and actual annual incentive compensation; target and actual total cash compensation (base salary and annual incentive compensation); long-term incentive compensation (equity awards); target and actual total direct compensation (base salary, annual incentive compensation and long-term incentive compensation); and beneficial ownership of our common stock. Radford does not provide any services to us other than the services provided to our compensation committee. Our compensation committee has assessed the independence of Radford taking into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the listing standards of the New York Stock Exchange, and has concluded that no conflict of interest exists with respect to the work that Radford performs for our compensation committee. Use of Competitive Data To assess the competitiveness of our executive compensation program and to assist in setting compensation levels, Radford provided market data for the compensation peer group approved by our compensation committee. Competitive Positioning In fiscal 2020, our compensation committee continued to compare and analyze our executive compensation program with that of a formal compensation peer group of companies. In fiscal 2020, our compensation committee reviewed our executive compensation peer group, highlighting potential outliers in the existing group and considering a broader screen of the technology market. In considering an updated peer group, our compensation committee considered the following criteria: (i) companies in the computer networking, communication products/services and software sectors with a focus on growing technology companies; (ii) companies with revenues between $1 billion to $5.5 billion (approximately 0.5x to 2.5x of our then-current trailing 12-month revenue); and (iii) companies with market capitalization generally between $6 and $40 billion (approximately 0.3x to 2x of our then- current market capitalization). As a result, the following group was our executive compensation peer group for fiscal 2020 compensatory decisions made prior to July 20, 2020: 39 Executive Compensation Executive Compensation Peer Group from July 22, 2019 to July 19, 2020 Akamai Technologies F5 Networks Autodesk Fortinet NetApp Nutanix ServiceNow Splunk VMWare Workday Citrix Systems Juniper Networks Palo Alto Networks Tableau Software Dropbox Mellanox Technologies Red Hat Twitter With respect to fiscal 2020 executive compensation decisions made on and following July 20, 2020, our compensation committee reconsidered the peer group, highlighting potential outliers in the existing group and adjusting for changes in our market capitalization. In considering an updated peer group, our compensation committee considered the following criteria: (i) companies in the computer networking, communication products/services and software sectors with a focus on growing technology companies; (ii) companies with revenues between $1 billion to $5.5 billion (approximately 0.5x to 2.5x of our then-current trailing 12-month revenue); and (iii) companies with market capitalization generally between $5 and $35 billion (approximately 0.3x to 2x of our then-current market capitalization). As a result, the following group was our executive compensation peer group for fiscal 2020 compensatory decisions made on and following July 20, 2020: Executive Compensation Peer Group on and following July 20, 2020 Akamai Technologies F5 Networks Nutanix Autodesk Fortinet Palo Alto Networks Citrix Systems Juniper Networks ServiceNow Dropbox NetApp Splunk Twitter VMWare Workday As a result of changes in our compensation peer group, we positioned at the 36th percentile in terms of revenue and the 68th percentile in terms of market capitalization. Radford provides our compensation committee with market data from our compensation peer group regarding each element of our executive compensation program. However, our compensation committee does not benchmark in our compensation peer group with respect to any particular element of compensation. Executive Compensation Program Components For 2020, the portion of our Named Executive Officers’ actual total direct compensation (which consists of the base salaries and annual cash incentive plan compensation paid to our Named Executive Officers with respect to 2020 and the grant-date fair values of the equity awards granted to our Named Executive Officers in 2020, with each such value calculated in the same manner as set forth in our Fiscal 2020 Summary Compensation Table below) represented by each material component of our executive compensation program was as follows: Base Salary (7%) Annual Cash Incentive Compensation (3%) Equity Compensation (90%) Base Salary Annual Cash Incentive Compensation Equity Compensation 40 2021 PROXY STATEMENT Executive Compensation The following describes each component of our executive compensation program, the rationale for each, and how the compensation amounts and awards were determined for fiscal 2020. Base Salary. Base salary is the primary fixed component of our executive compensation program. We use base salary to compensate our Named Executive Officers for services rendered during the fiscal year and to ensure that we remain competitive in attracting and retaining executive talent. Our compensation committee reviews the base salaries of each Named Executive Officer annually and makes adjustments as it determines to be reasonable and necessary to reflect the scope of a Named Executive Officer’s performance, contributions, responsibilities, experience, prior salary level, position (in the case of a promotion), and market conditions. We typically establish the initial base salary of a Named Executive Officer through arm’s-length negotiation at the time, after taking into consideration his or her position, qualifications, experience, salary expectations, and the base salaries of our other executives. For fiscal 2020, our compensation committee determined not to make any changes to the base salaries of our Named Executive Officers (which were generally below the market 25th percentile in our compensation peer group) as it thought the base salary levels continued to be appropriate. Our Named Executive Officers’ base salaries for fiscal 2020 were as follows: Named Executive Officer Jayshree Ullal Ita Brennan Kenneth Duda Anshul Sadana Marc Taxay Base Salary through 2020 $300,000 $300,000 $300,000 $300,000 $300,000 Annual Cash Incentive Compensation; 2020 Bonus Plan We use cash incentive compensation under our omnibus Employee Incentive Plan to motivate our executive officers, including our Named Executive Officers, to achieve our annual financial and key operational objectives, while making progress towards our longer-term strategic goals. Each fiscal year, our compensation committee sets the terms and conditions of the Employee Incentive Plan for that fiscal year, which identifies the plan participants and establishes the target cash incentive opportunity for each participant, the performance measures to be used to determine whether to make payouts related to the fiscal year and the associated target levels for each measure, and the potential payouts based on actual performance for the fiscal year. Typically, cash incentive payouts have been determined after the end of the applicable performance period based on our performance against one or more financial and operational performance objectives for the performance period as set forth in our annual operating plan. In February 2020, our compensation committee set the terms and conditions of the Employee Incentive Plan for fiscal 2020 (the “2020 Bonus Plan”). The 2020 Bonus Plan included financial performance metrics for revenue and non-GAAP operating income for the year. These two financial metrics determine the funding of the overall bonus pool available for distribution. No payout would be made under the plan if achievement of the revenue metric was below 85% of target. Once the overall funding level of the 2020 Bonus Plan was determined as outlined above, our compensation committee would evaluate performance for each of our Named Executive Officers. In determining the payout for each Named Executive Officer, our compensation committee would consider factors including: (A) contribution of the individual to the achievement of the quantitative financial measures set forth above regarding the funding of the overall bonus pool; (B) achievement against additional objectives related to the future growth of our business, including ability to diversify and deliver in new markets; (C) consistent execution on product quality, innovation and support; and (D) overall individual performance. The 2020 Bonus Plan provided for a single annual payout to each participant following the end of fiscal 2020 after our compensation committee evaluated corporate and individual performance as outlined above. For purposes of our 2020 Bonus Plan, we define revenue in accordance with GAAP, and non-GAAP operating income as GAAP operating income, less stock-based compensation expenses, other non-recurring items, one time acquisition related costs and the amortization of intangible assets. A reconciliation of the non-GAAP financial metrics to the related 41 Executive Compensation GAAP financial measure is set forth in our quarterly and annual press release announcing our financial results for the fourth quarter and fiscal 2020. Our compensation committee approved the following preliminary targets for the 2020 annual cash incentive compensation of our Named Executive Officers (which provided each of our Named Executive Officers with target total cash compensation at or around the market 25th percentile in our compensation peer group). For our Chief Executive Officer, this target was 100% of base salary, while the targets for our other Named Executive Officers was 60% of base salary. These targets are not strict targets and merely inform the aggregate of bonuses that will be accrued for financial accounting purposes. Once a total incentive pool is accrued for all participants in the 2020 Bonus Plan, our compensation committee looks at the performance for the year across the key metrics discussed above and factors in individual performance and market comparable compensation in our peer group in determining a total incentive paid to each Named Executive Officer. For fiscal 2020, we achieved revenue of approximately $2.32 billion (a decrease of 3.9% from 2019, but below our plan target by approximately 8.2%). In addition, we achieved non-GAAP operating income of approximately $874.8 million (a decrease of 5.2% from 2019 levels, and below our plan target by approximately 11.5%). Our Compensation Committee considered our overall achievement against these key metrics and determined it was appropriate to fund the 2020 Bonus Plan at an 80% level. Following the funding of the 2020 Bonus Plan based on the financial metrics outlined above, our compensation committee looked at performance with respect to the other key metrics including diversification and delivery into new markets, product quality, innovation and support, and individual performance. Our compensation committee considered that we made good progress with respect to diversification of our revenue base during the year, including the expansion of our enterprise datacenter and campus businesses. Also, our compensation committee considered continued strong execution on product quality, innovation and customer satisfaction and observed consistent product performance metrics for the year. Given our overall financial performance for the year and the significant progress made against our non-financial objectives for the year combined with our compensation committee’s determination of individual performance for each of our Named Executive Officers and including consideration of our total cash compensation being at or around the 25th percentile of compensation of our peer group, the total payouts to our Named Executive Officers under the 2020 Bonus Plan were made as set forth below. Our Chief Executive Officer declined her proposed bonus payout for 2020, given that we had not achieved our financial targets for the year. Named Executive Officer Ita Brennan Kenneth Duda Anshul Sadana Marc Taxay Equity Compensation Actual Incentive Compensation $140,000 $125,000 $160,000 $140,000 We use equity awards to incentivize and reward our executives (including our Named Executive Officers) for long-term corporate performance based on the value of our common stock and, thereby, to align the interests of our executives with those of our stockholders. We grant stock options covering shares of our common stock and full value awards for shares of our common stock, or awards without a purchase price, such as RSU awards. New hire, or initial, equity awards for our executives are established through arm’s-length negotiations at the time the individual executive is hired. In making these awards, we consider, among other things, the prospective role and responsibility of the individual executive, competitive factors, the expectations concerning the size of the equity award, the cash compensation to be received by the executive, and the need to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. In addition, we grant equity awards to our executives when our compensation committee determines that such awards are necessary or appropriate to recognize corporate and individual performance, in recognition of a promotion, or to 42 2021 PROXY STATEMENT Executive Compensation achieve our retention objectives. To date, we have not applied a rigid formula in determining the size of these equity awards. Instead, our compensation committee has determined the size of such equity awards for an individual executive after taking into consideration market data compiled from our compensation peer group, a compensation analysis performed by Radford, the equity award recommendations of our Chief Executive Officer, the scope of an executive’s performance, contributions, responsibilities, and experience, and the amount of equity compensation held by the executive, including the current economic value of his outstanding unvested equity awards and the ability of this equity to satisfy our retention objectives, market conditions, and internal equity considerations. In making its award decisions, our compensation committee has exercised its judgment and discretion to set the size of each award at a level it considered appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value. Equity awards to our named executive officers typically have multi-year vesting periods of four or more years. 2020 Performance-Based Awards The equity award granted to our Chief Executive Officer was a performance-based award of PRSUs granted in February 2020. We granted the PRSUs to our Chief Executive Officer to incentivize her and drive stockholder value creation. The table below describes the PRSUs granted to our Chief Executive Officer. The intended value was converted into a target number of PRSUs using a 30-day average trading price in accordance with our standard practices. Named Executive Officer Jayshree Ullal Target Number of PRSUs Intended Value 27,000 $5,500,000 The metrics, targets, and actual performance and resulting payout for our Chief Executive Officer’s fiscal 2020 PRSUs are shown in the following table: Performance Period: January 1, 2020 – December 31, 2020 Metrics Revenue Non-GAAP Operating Income Weight Performance Range Payout Results Minimum: 75% Target: Maximum: Minimum: 25% Target: Maximum: $ 2.4 billion $ 2.524 billion 2.6 billion $ $ 840 million $ 987.1 million $1,036.1 million 50% 100% $ 2.32 billion 150% 50% 100% $874.8 million 150% The number of PRSUs determined based on actual achievement as described above became eligible to vest upon determination of achievement. 25% of PRSUs that became eligible to vest on the first quarterly vesting date after the date the level of achievement of the performance goals was determined, and the remainder of the PRSUs that become eligible to vest will vest in equal quarterly installments over an additional 3 years. For fiscal 2020, the minimum revenue goal was not achieved. Our non-GAAP operating income was $874.8 million, above the threshold goal but below the target goal, resulting in 4,178 PRSUs becoming eligible to vest. 2020 Time-Based Awards The equity awards granted in fiscal 2020 to our Named Executive Officers other than our Chief Executive Officer consisted of RSUs. We granted these awards to ensure that these Named Executive Officers receive a base value regardless of fluctuations in our stock price, while incentivizing stockholder growth to deliver greater value for the Company and the Named Executive Officer. In determining the size of these awards, our compensation committee considered market compensation data from our peer group, the unvested equity held by each of these Named Executive Officers and the Named Executive Officer’s expected future contributions to the Company and towards growing stockholder value. To promote retention, the awards vest in equal quarterly installments over a period of approximately 4 years from May 2021. In prior fiscal years, we provided equity compensation to our named executive officers in a mix of options and RSUs. For fiscal 2020, our compensation committee adopted new equity grant guidelines providing for grants of 100% RSUs as the most appropriate method to deliver certain value to recipients in this period. 43 Executive Compensation The numbers of shares of our common stock covered by each equity award granted to our Named Executive Officers other than our Chief Executive Officer in 2020 were as set forth in the chart below. The intended value was converted into RSUs using a 30-day average trading price in accordance with our standard practices. Named Executive Officer Ita Brennan Anshul Sadana Kenneth Duda Marc Taxay RSUs Intended Value 14,540 $3,000,000 24,230 $5,000,000 10,660 $2,200,000 10,180 $2,100,000 WELFARE AND OTHER EMPLOYEE BENEFITS We have established a tax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. In 2020, we made matching contributions for the contributions made to the 401(k) plan by our employees, including our Named Executive Officers. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code (the “Code”), so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan. In addition, we provide other benefits to our Named Executive Officers on the same basis as all of our full-time employees. These benefits include standard health, vacation and other benefits offered to our employees. PERQUISITES AND OTHER PERSONAL BENEFITS We generally do not provide perquisites to our Named Executive Officers or other personal benefits beyond what is provided to employees on a broad basis. Executive Officer Employment Arrangements JAYSHREE ULLAL OFFER LETTER We have entered into an offer letter with Jayshree Ullal, our President and Chief Executive Officer, pursuant to which Ms. Ullal is an at-will employee. Ms. Ullal’s current annual base salary is $300,000 per year, and her target annual bonus is targeted at $300,000. Ms. Ullal is also eligible to participate in all of our standard health, vacation and other benefits offered to our employees. ITA BRENNAN OFFER LETTER & SEVERANCE AGREEMENT Ms. Brennan joined us as our new Chief Financial Officer in May 2015. We have entered into an offer letter with Ms. Brennan that provides that she is an at-will employee. Ms. Brennan currently receives a base salary of $300,000 per year, and her annual bonus is targeted at $180,000. Ms. Brennan is also eligible to participate in all of our standard health, vacation and other benefits offered to our employees. In addition, we entered into a severance agreement with Ms. Brennan, effective May 2015. The severance agreement provides that if Ms. Brennan’s employment is involuntarily terminated other than for “cause” (as generally defined below) or if Ms. Brennan resigns for “good reason” (as generally defined below) then, subject to her execution of a release of claims, Ms. Brennan will receive continuing payments of her base salary for 12 months and accelerated vesting of time- based equity awards that would have vested had Ms. Brennan remained employed with us for 12 months following her termination of employment date. If the qualified termination of employment occurred during the period beginning on, and for 12 months following a change in control, then the equity acceleration benefit would be 50% of the then-unvested equity awards (and for any equity awards that vest based on the achievement of performance criteria, assuming the performance criteria had been achieved at target levels for the relevant performance periods), if greater than the acceleration benefit described in the previous sentence. 44 2021 PROXY STATEMENT Executive Compensation For purposes of the severance agreement with Ms. Brennan, “cause” means generally: • an act of dishonesty made by her in connection with her responsibilities as an employee; whom she owes a duty of non-disclosure as a result of her relationship with us; • her conviction of, or plea of nolo contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude; • her gross misconduct; • her unauthorized use of disclosure of any proprietary information or trade secrets of ours or any other party to • her willful breach of any obligations under any written agreement or covenant with us; or • her continued failure to perform his or her duties after a demand from us setting the basis of our belief and failure to cure within 10 business days after receiving such notice. For purposes of the severance agreement with Ms. Brennan, “good reason” means generally a resignation within 30 days following the expiration of any cure period following the occurrence of one or more of the following, without her consent: • a material diminution of her authority, duties or responsibilities (which includes a reduction in authority, duties or responsibilities in connection with our being acquired and made part of a larger entity); • a material reduction of her base salary (which excludes a reduction in her base salary of 15% or less in any one year) other than a reduction applied to management generally; or • a material change in the geographic location of her primary work facility or location (which excludes a relocation of less than 50 miles from her then- present location). Ms. Brennan must provide written notice within 90 days of the initial existence of good reason and provide a cure period of 30 days following the date of such notice. ANSHUL SADANA OFFER LETTER We have entered into an offer letter with Anshul Sadana, our Chief Operating Officer, pursuant to which Mr. Sadana is an at-will employee. Mr. Sadana’s current annual base salary is $300,000 per year, and his annual bonus is targeted at $180,000, which does not consider the over-performance pool. Mr. Sadana is also eligible to participate in all of our standard health, vacation and other benefits offered to our employees. KENNETH DUDA OFFER LETTER We have entered into an offer letter with Kenneth Duda, our Chief Technology Officer and Senior Vice President, Software Engineering, pursuant to which Mr. Duda is an at-will employee. Mr. Duda’s current annual base salary is $300,000 per year, and his annual bonus is targeted at $180,000. Mr. Duda is also eligible to participate in all of our standard health, vacation and other benefits offered to our employees. MARC TAXAY OFFER LETTER & SEVERANCE AGREEMENT We have entered into an offer letter with Marc Taxay, our Senior Vice President, General Counsel, pursuant to which Mr. Taxay is an at-will employee. Mr. Taxay’s current annual base salary is $300,000 per year and he is eligible for an annual bonus targeted at $180,000. Mr. Taxay is also eligible to participate in all of our standard health, vacation and other benefits offered to our employees. In addition, we entered into a severance agreement with Mr. Taxay, effective March 2015. The severance agreement provides that if Mr. Taxay’s employment is involuntarily terminated other than for “cause” (as generally defined below) or if Mr. Taxay resigns for “good reason” (as generally defined below) then, subject to his execution of a release of claims, Mr. Taxay will receive continuing payments of his base salary for 12 months and accelerated vesting of time-based equity awards that would have vested had Mr. Taxay remained employed with us for 12 months following his termination of employment date. If the qualified termination of employment occurred during the period beginning on, and for 12 months following a change in control, then the equity acceleration benefit would be 50% of the then-unvested equity awards, if greater than the acceleration benefit described in the previous sentence. 45 Executive Compensation For purposes of the severance agreement with Mr. Taxay, “cause” and “good reason” have the same general meanings as set forth in Ms. Brennan’s severance agreement. Fiscal 2020 Summary Compensation Table The following table provides information regarding the total compensation for services rendered in all capacities that was earned by our Named Executive Officers. Year Salary ($) Bonus ($) Stock Awards ($)(3) Option Awards ($)(3) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Total ($) 2020 300,000 — 6,033,690(1) — 2019 300,000 — — 1,075,639 2018 300,000 — 5,903,000 988,542 2020 300,000 — 3,169,865 2019 300,000 — 1,651,375 2018 300,000 — 2,331,255 2020 300,000 5,800(2) 2,323,987 — 537,820 915,205 — 2019 300,000 5,800 1,849,540 1,075,639 2018 280,769 — 2,993,050 1,345,381 2020 300,000 — 5,282,382 — 2019 300,000 — 5,284,400 1,738,477 2018 290,385 — 3,532,630 1,464,327 2020 300,000 2019 300,000 2,219,342 — 1,651,375 537,820 — — 350,000 140,000 150,000 300,000 125,000 160,000 320,000 160,000 220,000 440,000 140,000 150,000 9,282(4) 6,342,972 8,532 8,532 1,384,171 7,550,074 9,282(4) 3,619,147 8,532 8,532 2,647,727 3,854,992 9,282(4) 2,764,069 8,532 8,502 3,399,511 4,947,702 9,282(4) 5,751,664 8,532 8,517 7,551,409 5,735,859 2,809(4) 2,662,151 8,532 2,647,727 Name and Principal Position Jayshree Ullal Chief Executive Officer Ita Brennan Chief Financial Officer Kenneth Duda Chief Technology Officer Anshul Sadana Chief Operating Officer Marc Taxay Senior Vice President, General Counsel (1) Amount reported represents the grant-date fair value based upon target level of achievement. If maximum performance were deemed achieved for Ms. Ullal’s performance-based restricted stock unit, the grant-date fair value of such award would be $9,050,535. Based on actual achievement for fiscal 2020, 4,178 PRSUs became eligible to vest, and the balance of the PRSUs have already been forfeited. The fair value as of the grant date of those PRSUs that were not forfeited was approximately $933,658. (2) The amount reported for fiscal 2020 represents a patent bonus award and a spot bonus award paid by the Company to Mr. Duda. (3) The amounts reported represent the aggregate grant-date fair value of the restricted stock units or stock options awarded to the Named Executive Officer, calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718 (“ASC Topic 718”). The assumptions used in calculating the grant-date fair value of the stock options reported in this column are set forth in our audited consolidated financial statements included in our Annual Report on Form 10-K, as filed with the SEC on February 19, 2021. (4) The amounts reported for fiscal 2020 include matching contributions from the Company for the contributions made to the 401(k) plan by the Named Executive Officer and a life insurance premium paid on the Named Executive Officer’s behalf. 46 2021 PROXY STATEMENT Outstanding Equity Awards at 2020 Fiscal Year-End The following table sets forth information regarding outstanding stock options and stock awards held by our Named Executive Officers as of December 31, 2020. Option Awards Stock Awards Executive Compensation Name Jayshree Ullal Ita Brennan Kenneth Duda Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Grant Date 1/13/2014(3)(24) 2/12/2016(4) 2/6/2017(5) 2/6/2017(6) 3/9/2018(7) 4/13/2018(8) 2/8/2019(9) 2/14/2020(10) 6/16/2015(11) 9/11/2015(3) 2/12/2016(12) 3/10/2017(13) 3/9/2018(7) 4/13/2018(8) 11/9/2018(9) 11/9/2018(14) 2/8/2019(9) 5/10/2019(14) 5/8/2020(15) 4,000 — — — — 1,107 — — 9,000 8,000 11,000 — — 729 52 — 104 — — 20,000 10/4/2011(16) 20,000 12/27/2012(17) 3/11/2013(18) 100,000 1/13/2014(3)(25) 20,000 2/11/2014(19)(26) 100,000 40,000 16,000 18,750 — — 1,167 63 — 208 — — 12/16/2014(3) 9/11/2015(3) 2/12/2016(12) 3/10/2017(13) 3/9/2018(7) 4/13/2018(8) 11/9/2018(9) 11/9/2018(14) 2/8/2019(9) 5/10/2019(14) 5/8/2020(15) — 20,000 19,250 — — 6,833 9,792 — — 2,000 5,000 — — 4,271 2,448 — 4,896 — — — — — — — 10,000 4,000 6,250 — — 6,833 2,937 — 9,792 — — 22.49 56.24 95.51 — — 244.20 226.34 — 84.97 64.46 56.24 — — 244.20 244.43 — 226.34 — — 3.33 4.18 7.76 22.49 30.67 68.34 64.46 56.24 — — 244.20 244.43 — 226.34 — — Option Expiration Date 1/12/2024 2/11/2026 2/5/2027 — — 4/12/2028 2/7/2029 — 6/15/2025 9/10/2025 2/11/2026 — — 4/12/2028 11/8/2028 — 2/7/2029 — — 10/2/2021 12/26/2022 3/10/2023 1/12/2024 2/10/2024 12/15/2024 9/10/2025 2/11/2026 — — 4/12/2028 11/8/2028 — 2/7/2029 — — Number of Shares or Units of Stock That Have Not Vested (#)(1) Market Value of Shares or Units of Stock That Have Not Vested ($)(2) — — — 8,250 11,250 — — 27,000 — — — 4,800 2,812 — — 3,281 — 5,859 14,540 — — — — — — — — 8,000 3,375 — — 4,687 — 6,562 10,660 — — — 2,397,203 3,268,913 — — 7,845,390 — — — 1,394,736 817,083 — — 953,360 — 1,702,450 4,224,888 — — — — — — — — 2,324,560 980,674 — — 1,361,902 — 1,906,720 3,097,476 47 Executive Compensation Name Anshul Sadana Marc Taxay Option Awards Stock Awards Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Grant Date 1/13/2014(3)(27) 4,800 2/11/2014(19)(28) 41,668 — — — — — — 1,167 83 — 292 792 — — — 12/16/2014(3) 9/11/2015(3) 2/12/2016(12) 10/14/2016(6) 3/10/2017(13) 3/9/2018(7) 4/13/2018(8) 11/9/2018(9) 11/9/2018(14) 2/8/2019(9) 5/10/2019(20) 5/10/2019(21) 5/10/2019(14) 5/8/2020(15) 12/16/2014(3) 9/11/2015(3) 2/12/2016(12) 4/8/2016(22) 4/8/2016(23) 3/10/2017(13) 3/9/2018(7) 4/13/2018(8) 11/9/2018(9) 11/9/2018(14) 2/8/2019(9) 5/10/2019(14) 5/8/2020(15) — — — 250 — — — 729 52 — 104 — — — — 10,000 4,000 6,250 — — — 6,833 3,917 — 13,708 1,208 — — — 2,000 2,000 2,500 750 — — — 4,271 2,448 — 4,896 — — 22.49 30.67 68.34 64.46 56.24 — — — 244.20 244.43 — 226.34 264.22 — — — 68.34 64.46 56.24 65.01 — — — 244.20 244.43 — 226.34 — — Number of Shares or Units of Stock That Have Not Vested (#)(1) Market Value of Shares or Units of Stock That Have Not Vested ($)(2) — — — — — 3,000 8,000 3,937 — — 5,625 — — 7,800 7,500 24,230 — — — — 600 4,800 2,812 — — 3,281 — 5,859 10,180 — — — — — 871,710 2,324,560 1,143,974 — — 1,634,457 — — 2,266,446 2,179,275 7,040,511 — — — 174,342 1,394,736 817,083 — — 953,360 — 1,702,450 2,958,003 Option Expiration Date 1/12/2024 2/10/2024 12/15/2024 9/10/2025 2/11/2026 — — — 4/12/2028 11/8/2028 — 2/7/2029 5/9/2029 — — — 12/15/2024 9/10/2025 2/11/2026 4/07/2026 — — — 04/12/2028 11/08/2028 — 02/07/2029 — — (1) Represents (i) restricted stock awards and (ii) shares of restricted stock issued upon the early exercise of stock options, in each case that remained unvested as of December 31, 2020. All vesting is subject to the named executive officer’s continued role as a service provider to us through the applicable vesting date. (2) This column represents the market value of the shares of our common stock underlying the restricted stock awards or restricted stock as of December 31, 2020, based on the closing price of our common stock, as reported on the New York Stock Exchange, of $290.57 per share on December 31, 2020, the last trading day of our fiscal 2020. (3) This option vests with respect to 1/5th of the shares granted on December 1, 2017 with the remaining shares vesting in equal amounts over the next 48 months. (4) This option vests with respect to 1/60th of the shares each month from January 1, 2017. (5) This option vests with respect to 1/5th of the shares granted on February 6, 2018 with the remaining shares vesting in equal amounts over the next 48 months. (6) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from February 20, 2017. (7) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from May 20, 2019. (8) This option vests with respect to 1/48th of the shares each month from June 1, 2020. (9) This option vests with respect to 1/48th of the shares each month from December 1, 2020. 48 2021 PROXY STATEMENT Executive Compensation (10) This performance stock award was granted in February 2020 and is earned based on attainment of certain performance conditions. The number of shares reflects the shares available at target (100%). Maximum payout is 150%. Shares earned vest 25% on February 22, 2021, and will continue to vest at a rate of 6.25% quarterly thereafter. A quarterly vest date is the first market trading day on or after February 20, May 20, August 20, and November 20 of each year. (11) This option vests with respect to 1/5th of the shares on May 18, 2016 with the remaining shares vesting in equal amounts over the next 48 months. (12) This option vests with respect to 1/60th of the shares each month from April 1, 2017. (13) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from February 20, 2018. (14) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from November 20, 2020. (15) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from May 20, 2021. (16) This option vests 1/4th of shares granted on September 30, 2013 with the remaining shares vesting in equal amounts over the next 36 months. (17) This option vests 1/4th of shares granted on December 1, 2014 with the remaining shares vesting in equal amounts over the next 36 months. (18) This option vests 1/4th of shares granted on December 1, 2016 with the remaining shares vesting in equal amounts over the next 36 months. (19) This option vests 1/5th of shares granted on December 1, 2018 with the remaining shares vesting in equal amounts over the next 48 months. (20) This option vests with respect to 1/48th of the shares each month from June 10, 2019. (21) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from May 20, 2019. (22) This option vests with respect to 1/60th of the shares each month from April 28, 2016. (23) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from May 20, 2016. (24) The option is subject to an early exercise provision and is immediately exercisable. At the end of 2020, 4,000 shares of the amount exercisable were unvested. (25) The option is subject to an early exercise provision and was immediately exercisable at the time of grant. At the end of 2020, 4,000 shares of the exercisable shares were unvested. (26) The option is subject to an early exercise provision and was immediately exercisable at the time of grant. At the end of 2020, 40,000 shares of the exercisable shares were unvested. (27) The option is subject to an early exercise provision and was immediately exercisable at the time of grant. At the end of 2020, 4,800 shares of the exercisable shares were unvested. (28) The option is subject to an early exercise provision and is immediately exercisable. At the end of 2020, 40,000 shares of the amount exercisable were unvested. Fiscal 2020 Grants of Plan-Based Awards The following table presents information regarding the amount of plan-based awards granted to our Named Executive Officers during our fiscal year ended December 31, 2020. Estimated Future Payouts Under Non-Equity Incentive Plan Awards (Target) ($)(1) All Other Stock Awards: Number of Shares of Stock or Units (#)(2) All Other Option Awards: Number of Shares Underlying Options (#)(2) Exercise Price of Option Awards ($) Grant Date — 300,000 — 2/14/2020 — 27,000 — 180,000 — 5/8/2020 — 14,540 — 180,000 — 5/8/2020 — 10,660 — 180,000 — 5/8/2020 — 24,230 — 180,000 — 5/8/2020 — 10,180 — — — — — — — — — — — — — — — — — — — — Grant Date Fair Value of Stock and Option Awards ($)(3) — 6,033,690 — 3,169,865 — 2,323,987 — 5,282,382 — 2,219,342 Named Executive Officer Jayshree Ullal Ita Brennan Kenneth Duda Anshul Sadana Marc Taxay (1) Each Named Executive Officer has the following target annual bonus under the 2020 Bonus Plan: (i) Ms. Ullal: $300,000; (ii) Ms. Brennan: $180,000; (iii) Mr. Duda: $180,000; (iv) Mr. Sadana: $180,000; (v) Mr. Taxay: $180,000. (2) The restricted stock unit awards were made under the 2014 Equity Incentive Plan. (3) The amounts reported in the Grant Date Fair Value of Stock and Option Awards column represent the grant date fair value of restricted stock awards granted in fiscal 2020, calculated in accordance with ASC Topic 718. 49 Executive Compensation Fiscal 2020 Option Exercises and Stock Vested The following table presents information regarding the exercise of stock options and the vesting of stock awards by our Named Executive Officers during our fiscal year ended December 31, 2020. Named Executive Officer Jayshree Ullal Ita Brennan Kenneth Duda Anshul Sadana Marc Taxay Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 72,518 10,000 80,000 64,445 10,666 Value Realized on Exercise ($)(1) Number of Shares Acquired on Vesting (#) Value Realized on Vesting ($)(2) 11,707,367 13,250 3,123,246 1,760,120 13,260 3,076,414 18,374,400 13,575,621 1,713,638 8,751 2,087,364 14,525 3,452,469 7,660 1,825,598 (1) Based on the market price of our common stock on the date of exercise less the option exercise price paid for those shares, multiplied by the number of shares for which the option was exercised. (2) Based on the market price of our common stock on the vesting date or last trading date, multiplied by the number of shares vested. Pension Benefits We did not sponsor any defined benefit pension or other actuarial plan for our Named Executive Officers during fiscal 2020. Nonqualified Deferred Compensation We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for our Named Executive Officers during fiscal 2020. Potential Payments Upon Termination or Change in Control The tables below provide an estimate of the value of the compensation and benefits due to each of our Named Executive Officers for our fiscal year ended December 31, 2020, in the events described below, assuming that the termination of employment and change in control was effective on December 31, 2020, under the applicable employment agreements described above. The actual amounts to be paid can only be determined at the time of the termination of employment. 50 2021 PROXY STATEMENT TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL Executive Compensation Named Executive Officer Ita Brennan Marc Taxay Value of Accelerated Equity Awards ($)(1) Salary Continuation ($) 300,000 300,000 Restricted Stock Units Options Total ($) 2,560,793 1,556,628 4,417,421 2,497,739 1,701,598 4,499,337 (1) The amounts reported in the table reflect the aggregate market value of the unvested shares of our common stock underlying outstanding restricted stock unit awards and stock options that would become vested on a qualifying termination. For the unvested stock options, the aggregate market value is computed by multiplying (i) the number of shares of our common stock underlying unvested and outstanding stock options at December 31, 2020, that would become vested by (ii) the difference between $290.57 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2020) and the exercise price of such option. For the restricted stock unit awards, the aggregate market value is computed by multiplying (i) the number of unvested shares of our common stock subject to outstanding restricted stock awards or outstanding restricted stock unit awards at December 31, 2020, that would become vested by (ii) $290.57 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2020). TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL Named Executive Officer Ita Brennan Marc Taxay Value of Accelerated Equity Awards ($)(1) Salary Continuation ($) 300,000 300,000 Restricted Stock Units Options Total ($) 4,546,258 1,702,274 6,548,532 4,087,158 1,847,243 6,234,401 (1) The amounts reported in the table reflect the aggregate market value of the unvested shares of our common stock underlying outstanding restricted stock unit awards and stock options that would become vested on a qualifying termination. For the unvested stock options, the aggregate market value is computed by multiplying (i) the number of shares of our common stock underlying unvested and outstanding stock options at December 31, 2020, that would become vested by (ii) the difference between $290.57 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2020) and the exercise price of such option. For the restricted stock unit awards, the aggregate market value is computed by multiplying (i) the number of unvested shares of our common stock subject to outstanding restricted stock unit awards at December 31, 2020, that would become vested by (ii) $290.57 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2020). Risk Assessment and Compensation Practices Our management assesses and discusses with our compensation committee our compensation policies and practices for our employees as they relate to our risk management, and based upon this assessment, we believe that, for the following reasons, any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on us in the future: • Our annual bonus plan considers a multiple of • Our equity awards include multi-year vesting schedules performance factors and allows our compensation committee to review performance on a holistic basis minimizing risk related to our short-term variable compensation; and requiring a long-term employee commitment. Other Compensation Policies Stock Ownership Guidelines. In April 2019, our board of directors adopted stock ownership guidelines. Our stock ownership guidelines are designed to encourage our directors and our chief executive officer to achieve and maintain a meaningful equity stake in our Company and more closely align their interests with those of our stockholders. The guidelines provide that our chief executive officer should accumulate and hold, within five years from the later of the date of the adoption of the stock ownership guidelines or the date such chief executive officer became chief executive officer, an investment level in our common stock of three times the chief executive officer’s annual base salary. 51 Executive Compensation Clawback Policy. In April 2019, our compensation committee adopted a Clawback Policy that permits the Company to seek the recovery of both cash and equity compensation from an executive officer if: (i) the Company restates its financial statements as a result of a material error; (ii) the amount of cash incentive compensation or performance-based equity compensation that was paid that was determined based on achievement of specific financial results paid to the executive officer would have been less if the financial statements had been correct; (iii) no more than three years have elapsed since the original filing date of the financial statements upon which the incentive compensation was determined; and (iv) the compensation committee determines that gross negligence, fraud or intentional misconduct by such executive officer caused the material error. Hedging or Pledging Policies. Our insider trading policy prohibits our directors, officers, employees and agents from engaging in transactions in publicly-traded options, such as puts and calls, and other derivative securities with respect to the Company’s securities. This prohibition extends to any hedging or similar transaction designed to decrease the risks associated with holding Company securities. Stock options, stock appreciation rights and other securities issued pursuant to Company benefit plans or other compensatory arrangements with the Company are not subject to this prohibition. These policies were established in part because transactions in derivative securities may reflect a short term and speculative interest in the Company’s securities and may create the appearance of impropriety, even where a transaction does not involve trading on inside information. Trading in derivatives may also focus attention on short-term performance at the expense of the Company’s long-term objectives. In addition, the application of securities laws to derivatives transactions can be complex, and persons engaging in derivatives transactions run an increased risk of violating securities laws. In addition, our insider trading policy prohibits certain executive officers from pledging the Company’s securities as collateral for loans. Short sales with respect to the Company’s securities are prohibited under our policy. Tax and Accounting Considerations Deductibility of Executive Compensation. Section 162(m) of the Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to the Chief Executive Officer and certain other highly compensated executive officers. Our compensation committee may consider the deductibility of compensation when making decisions, but may authorize the payment of compensation that is not deductible when it believes it appropriate. Taxation of “Parachute” Payments. Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control that exceeds certain prescribed limits and that we (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any of our Named Executive Officers with a “gross-up” or other reimbursement payment for any tax liability that the Named Executive Officer might owe as a result of the application of Sections 280G or 4999, and we have not agreed and are not otherwise obligated to provide any Named Executive Officer with such a “gross-up” or other reimbursement. Accounting for Share-Based Compensation. We follow ASC Topic 718 for our share-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based compensation awards made to employees and directors, including stock options, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our Named Executive Officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award. 52 2021 PROXY STATEMENT Executive Compensation CEO Pay Ratio As required by Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer: For 2020, our last completed fiscal year: • the median of the annual total compensation of all employees of our Company (other than our Chief Executive Officer), was $193,223; and • the annual total compensation of our Chief Executive Officer, as reported in the Fiscal 2020 Summary Compensation Table presented elsewhere in this proxy statement, was $6,342,972. Based on this information, for 2020, the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of all employees was approximately 33 to 1. This pay ratio is a reasonable estimate based on our reasonable judgement and assumptions and calculated in a manner consistent with Item 402(u) of Regulation S-K. SEC rules do not specify a single methodology for identification of the median employee or calculation of the pay ratio, and other companies may use assumptions and methodologies that are different from those used by us in calculating their pay ratio. Accordingly, the pay ratio disclosed by other companies may not be comparable to the Company’s pay ratio as disclosed above. Consistent with Item 402(u) of Regulation S-K, our Chief Executive Officer’s annual total compensation for the purposes of the pay ratio is as presented in our Fiscal 2020 Summary Compensation Table. Importantly, that includes the grant- date fair value based upon target level of achievement of the 27,000 PRSUs granted to our Chief Executive Officer in February 2020. The grant-date fair value of those PRSUs was $6,033,690. However, as noted in our Fiscal 2020 Summary Compensation Table, only 4,178 of those PRSUs became eligible to vest as a result of performance in 2020 against the established performance metrics. The balance of the PRSUs have already been forfeited. The fair value as of the grant date of those PRSUs that were not forfeited was approximately $933,658. To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustments, and estimates that we used were as follows: • We selected October 31, 2020 as the date upon which o We did not apply any de minimis exclusions to we would identify the median employee. • To identify the “median employee” from our employee population we used payroll and equity plan records. o The compensation measure included the following: annual base salary for salaried employees (or hourly rate multiplied by estimated work schedule for hourly employees), actual incentive compensation paid in 2020 as of the determination date, and grant date fair value of equity awards granted in 2020. remove certain employees in non-U.S. jurisdictions allowed by Item 402(u). o Amounts paid in foreign currency were converted into United States dollars using 2020 average exchange rates. o The calculation was performed for all employees, excluding Ms. Ullal, whether employed on a full- time, part-time, or seasonal basis. Because there was an even number of employees, two individuals were identified as the median. We selected the employee with the longest tenure as that employee was a better representative of the median compensation. With respect to the annual total compensation of the “median employee,” we identified and calculated the elements of such employee’s compensation for 2020 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $193,223. With respect to the annual total compensation for our Chief Executive Officer, we used the amount reported in the “Total” column of our Summary Compensation Table for Fiscal Year 2020. 53 Executive Compensation Compensation Committee Report The compensation committee has reviewed and discussed the section titled “Executive Compensation” with management. Based on such review and discussion, the compensation committee has recommended to the board of directors that the section titled “Executive Compensation” be included in this proxy statement. Respectfully submitted by the members of the compensation committee of the board of directors: Charles Giancarlo (Chair) Daniel Scheinman Mark Templeton Equity Compensation Plan Information The following table summarizes our equity compensation plan information as of December 31, 2020. Information is included for equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders. We will not grant equity awards in the future under any of the equity compensation plans not approved by our stockholders included in the table below. (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflecting in Column (a)) 5,245,390(1) 45.17(2) 20,099,684(3) — 5,245,390 — 45.17 — 20,099,684 Plan Category Equity compensation plans approved by stockholders Equity compensation plans not approved by stockholders Total (1) Includes 3,429,739 shares underlying stock options and 1,815,651 shares of restricted stock units. (2) The weighted average exercise price is calculated based solely on outstanding stock options. (3) Includes the following plans: Arista Networks, Inc. 2014 Equity Incentive Plan (“2014 Plan”), Awake Security 2014 Equity Incentive Plan, and Arista Networks, Inc. 2014 Employee Stock Purchase Plan (“ESPP”). Our 2014 Plan provides that on the first day of each fiscal year beginning in 2016 and ending in (and including) 2024, the number of shares available for issuance thereunder is automatically increased by a number equal to the least of (i) 12,500,000 shares, (ii) 3% of the outstanding shares of our common stock as of the last day of our immediately preceding year, or (iii) such other amount as our board of directors may determine. On January 1, 2021, the number of shares available for issuance under our 2014 Plan increased by 2,285,228 shares pursuant to these provisions. Our ESPP provides that on the first day of each fiscal year beginning in 2015 and ending in (and including) 2034, the number of shares available for issuance thereunder is automatically increased by a number equal to the least of (i) 2,500,000 shares, (ii) 1% of the outstanding shares of our common stock on the first day of such year, or (iii) such other amount as our board of directors may determine. On January 1, 2021, the number of shares available for issuance under our ESPP increased by 761,742 shares pursuant to these provisions. These increases are not reflected in the table above. 54 2021 PROXY STATEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 8, 2021 for: • each of our directors and nominees for director; • all of our current directors and executive officers as a • each of our Named Executive Officers; group; and • each person or group, who beneficially owned more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have based our calculation of the percentage of beneficial ownership on 76,271,362 shares of our common stock outstanding as of April 8, 2021. We have deemed shares of our common stock subject to stock options that are currently exercisable or exercisable within 60 days of April 8, 2021 and RSUs that vest within 60 days of April 8, 2021, which are subject to vesting conditions expected to occur to be outstanding and to be beneficially owned by the person holding the stock option for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, California 95054. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted. Name of Beneficial Owner 5% Stockholders: The Bechtolsheim Family Trust(1) The Vanguard Group(2) The 2010 David R. Cheriton Irrevocable Trust dtd July 28,2010(3) BlackRock, Inc.(4) Named Executive Officers and Directors: Jayshree Ullal(5) Ita Brennan(6) Kenneth Duda(7) Anshul Sadana(8) Marc Taxay(9) Kelly Battles(10) Charles Giancarlo(11) Ann Mather(12) Daniel Scheinman(13) Mark Templeton(14) Nikos Theodosopoulos(15) All executive officers and directors as a group (13 persons)(16) * Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock. Number of Shares Beneficially Owned Percentage of Shares Beneficially Owned 12,451,753 5,806,247 4,217,061 4,459,732 3,219,599 39,990 777,941 60,795 5,605 619 70,084 4,138 8,922 6,286 5,296 16,947,560 16.33% 7.61% 5.53% 5.85% 4.22% * 1.02% * * * * * * * * 22.01% 55 Security Ownership of Certain Beneficial Owners and Management (1) Includes 12,451,753 shares held by the Bechtolsheim Family Trust for which trust Mr. Bechtolsheim serves as trustee. Mr. Bechtolsheim may be deemed to exercise sole voting and investment power over such shares held by the trust. (2) Based solely upon a Schedule 13G/A filed with the SEC on February 10, 2021 by The Vanguard Group (“Vanguard”) reporting beneficial ownership as of December 31, 2020. Vanguard reported sole voting power with respect to 0 shares and shared voting power with respect to 95,696 shares. Vanguard reported sole dispositive power with respect to 5,558,528 shares and shared dispositive power with respect to 247,719 shares. The address for Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. (3) Based upon a Schedule 13G/A filed with the SEC on February 12, 2021. Includes 4,217,061 shares held in an irrevocable, directed trust for the benefit of the minor children of Mr. Cheriton. The trustee of the trust is the South Dakota Trust Company, LLC and Mr. Cheriton ultimately has the ability to replace the trustee. The investment management functions of the trust are handled by the investment committee of the trust. The address for the trustee of the trust is c/o South Dakota Trust Company LLC, 201 South Phillips Ave., Suite 200, Sioux Falls, South Dakota 57104. (4) Based solely upon a Schedule 13G filed with the SEC on January 29, 2021 by BlackRock, Inc. (“BlackRock”) reporting beneficial ownership as of December 31, 2020. BlackRock reported sole voting power with respect to 3,909,414 shares and sole dispositive power with respect to 4,459,732 shares. The address for BlackRock is 55 East 52nd Street, New York, New York 10055. (5) (6) (7) Includes 2,067,998 shares held by Jayshree Ullal and Vijay Ullal as Trustees of the 2000 Ullal Trust dated February 15, 2000. Mr. and Ms. Ullal may be deemed to be the beneficial owner of the shares and to have shared voting and investment control over such shares. Includes 1,138,000 shares held in trusts for Ms. Ullal’s family members for which trusts Ms. Ullal serves as trustee. Ms. Ullal may be deemed to exercise sole voting and investment control over shares held in each of the trusts. Includes 526 shares held directly by Ms. Ullal. Includes 13,075 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Ms. Ullal, of which 2,000 shares may be repurchased by us, if exercised, at the original exercise price. Includes 35,879 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Ms. Brennan. Includes 117,310 shares held by Kenneth Duda and Jennifer Duda as Trustees of the Kenneth Duda and Jennifer Duda Family Trust dated September 24, 2004. Mr. and Ms. Duda may be deemed to be the beneficial owners of the shares and to have shared voting and investment control over such shares. Includes 125,630 shares held in grantor retained annuity trusts of which Mr. Duda is Trustee; 127,525 shares held in grantor retained annuity trusts of which Mr. Duda’s spouse is Trustee; 45,806 shares held in trusts for Mr. Duda’s children for which trusts Mr. Duda serves as Trustee; 30,800 shares held in a 501(c) foundation for which Mr. Duda and his spouse serve as co-trustees and 9,765 shares held directly by Mr. Duda. Includes 321,105 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Mr. Duda, of which 32,000 shares may be repurchased by us, if exercised, at the original exercise price. (8) Includes 59,137 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Mr. Sadana, of which 32,400 shares may be repurchased by us, if exercised, at the original exercise price. (9) Includes 5,605 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Mr. Taxay. (10) Includes 255 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units held by Ms. Battles. (11) Includes 58,329 shares held of record by Mr. Giancarlo as trustee of the Giancarlo Family Trust UAD 11/02/98. Mr. Giancarlo may be deemed to be the beneficial owner of the shares and to have voting and investment power over such shares. Includes 11,536 shares held directly by Mr. Giancarlo. Also includes 219 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units held by Mr. Giancarlo. (12) Includes 3,552 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Ms. Mather, of which 2,500 shares may be repurchased by us, if exercised, at the original exercise price. (13) Includes 219 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock held by Mr. Scheinman. (14) Includes 261 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units held by Mr. Templeton. (15) Includes 261 shares issuable within 60 days of April 8, 2021 upon vesting of restricted stock units held by Mr. Theodosopoulos. (16) Includes 719,090 shares issuable within 60 days of April 8, 2021 upon vesting of options and restricted stock units or the early exercise of outstanding options, 68,900 of which shares are unvested and may be repurchased by us, if exercised, at the original exercise price in the event of the termination of employment or other services to us. 56 2021 PROXY STATEMENT DELINQUENT SECTION 16(A) REPORTS Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of Arista Networks common stock to file with the SEC reports regarding their ownership and changes in ownership of our securities, and to furnish copies of such reports to the Company. As a matter of practice, we assist our officers and directors in preparing initial ownership reports and reporting ownership changes, and typically file those reports on their behalf. Based solely on our review of such forms in our possession and the representations of our officers and directors, we believe that during 2020, all Section 16(a) filing requirements were satisfied, except that a Form 4 filed on December 15, 2020 reporting the exercise and sale of 1,375 shares of common stock by Ms. Ullal was inadvertently filed late due to an administrative error. RELATED PERSON TRANSACTIONS In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements discussed above in the sections titled “Board of Directors and Corporate Governance—Director Compensation” and “Executive Compensation,” we describe below transactions and series of similar transactions, since the beginning of our last fiscal year, to which we were a party or will be a party, in which: • the amounts involved exceeded or will exceed $120,000; and • any of our directors, nominees for director, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. Other than as described below, there has not been, nor is there any currently proposed, transactions or series of similar transactions to which we have been or will be a party. Investors’ Rights Agreement We are party to an investors’ rights agreement which provides, among other things, that certain holders of our common stock have the right to demand that we file a registration statement or request that their shares of our common stock be covered by a registration statement that we are otherwise filing. Other Transactions Charles Giancarlo, a member of our board of directors, also serves as chief executive officer and a member of the board of directors of Pure Storage, Inc., a data storage solutions company, since August 2017. Pure Storage, Inc. has purchased, and may purchase from time to time, our products in the ordinary course of business and we have also purchased, and may purchase from time to time, products from Pure Storage in the ordinary course of business (collectively, the “Pure Storage Transactions”). Mr. Giancarlo did not participate in negotiations involving, and does not have a direct or indirect material interest in, these transactions. Our audit committee has established certain guidelines to pre-approve the Pure Storage Transactions, subject to the review by our audit committee at each regularly scheduled audit committee meeting that such Pure Storage Transactions complied with such guidelines. We have granted stock options and restricted stock units to our Named Executive Officers and certain of our directors. See the section titled “Executive Compensation—Outstanding Equity Awards at 2020 Year-End” for a description of these stock options and restricted stock units. In the ordinary course of business, we enter into offer letters and employment agreements with our executive officers. We have also entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. 57 Other than as described above under this section titled “Related Person Transactions,” since January 1, 2020, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties. Policies and Procedures for Related Party Transactions Our audit committee has the primary responsibility for reviewing and approving or ratifying related party transactions. We have a formal written policy providing that a related party transaction is any transaction between us and an executive officer, director, nominee for director, beneficial owner of more than 5% of any class of our capital stock, or any member of the immediate family of any of the foregoing persons, in which such party has a direct or indirect material interest and the aggregate amount involved exceeds $120,000. In reviewing any related party transaction, our audit committee is to consider the relevant facts and circumstances available to our audit committee, including, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, and the extent of the related party’s interest in the transaction. Our audit committee has determined that certain transactions will be deemed to be pre-approved by our audit committee, including certain executive officer and director compensation, transactions with another company at which a related party’s only relationship is as a non-executive employee, director or beneficial owner of less than 10% of that company’s shares, transactions where a related party’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis, and transactions available to all employees generally. If advance approval of a transaction is not feasible, the Chair of our audit committee may approve the transaction and the transaction may be ratified by our audit committee in accordance with our formal written policy. OTHER MATTERS Householding We have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, stockholders of record who have the same address and last name and have not previously requested electronic delivery of proxy materials will receive a single envelope containing the Notices for all stockholders having that address. The Notice for each stockholder will include that stockholder’s unique control number needed to vote his or her shares. This procedure reduces our printing costs, mailing costs, and fees. Upon written or oral request, we will deliver promptly a separate copy of the Notice and, if applicable, our proxy materials to any stockholder at a shared address to which we delivered a single copy of any of these materials. To receive a separate copy, or, if a stockholder is receiving multiple copies, to request that we only send a single copy of the Notice and, if applicable, our proxy materials, such stockholder may contact us at the following phone number (408) 547-5500 or address: Arista Networks, Inc. Attention: Investor Relations 5453 Great America Parkway Santa Clara, California 95054 Stockholders who beneficially own shares of our common stock held in street name may contact their brokerage firm, bank, broker-dealer or other similar organization to request information about householding. 58 2021 PROXY STATEMENT Stockholder Proposals Stockholders may present proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2022 annual meeting of stockholders, our Secretary must receive the written proposal at our principal executive offices no later than December 22, 2021. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 under the Exchange Act regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. Stockholder proposals should be addressed to: Arista Networks, Inc. Attention: Secretary 5453 Great America Parkway Santa Clara, California 95054 Our amended and restated bylaws also establish an advance notice procedure for stockholders who wish to present a proposal before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy statement. Our amended and restated bylaws provide that the only business that may be conducted at an annual meeting is business that is (i) specified in our proxy materials with respect to such meeting, (ii) otherwise properly brought before the annual meeting by or at the direction of our board of directors, or (iii) properly brought before the annual meeting by a stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our Secretary, which notice must contain the information specified in our amended and restated bylaws. To be timely for our 2022 annual meeting of stockholders, our Secretary must receive the written notice at our principal executive offices: • not earlier than the close of business on February 5, • not later than the close of business on March 7, 2022. 2022; and NOMINATION OF DIRECTOR CANDIDATES Stockholders may recommend director candidates for consideration by our nominating and corporate governance committee. Any such recommendations should include the nominee’s name and qualifications for membership on our board of directors and should be directed to our Secretary at the address set forth above. For additional information regarding stockholder recommendations for director candidates, see “Board of Directors and Corporate Governance— Stockholder Recommendations for Nominations to the Board of Directors.” In addition, our amended and restated bylaws permit stockholders to nominate directors for election at an annual meeting of stockholders. To nominate a director, the stockholder must provide the information required by our amended and restated bylaws. In addition, the stockholder must give timely notice to our Secretary in accordance with our amended and restated bylaws, which, in general, require that the notice be received by our Secretary within the time period described above under “Stockholder Proposals” for stockholder proposals that are not intended to be included in a proxy statement. Availability of Bylaws You may contact our Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. Fiscal Year 2020 Annual Report and SEC Filings Our financial statements for our fiscal year ended December 31, 2020 are included in our Annual Report on Form 10-K, which we will make available to stockholders at the same time as this proxy statement. This proxy statement and our annual report are posted on the Financial Information section of our website at http://investors.arista.com and are available from the SEC at its website at www.sec.gov. You may also obtain a copy of our annual report without charge by sending a written request to Arista Networks, Inc., Attention: Investor Relations, 5453 Great America Parkway, Santa Clara, California 95054. * * * 59 Other Matters The board of directors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented at the Annual Meeting, the persons named in the enclosed proxy card will have discretion to vote the shares of our common stock they represent in accordance with their own judgment on such matters. It is important that your shares of our common stock be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the enclosed proxy card or execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided. THE BOARD OF DIRECTORS Santa Clara, California April 21, 2021 60 2021 PROXY STATEMENT (cid:37)(cid:31)(cid:27)(cid:36)(cid:23)(cid:22) (cid:35)(cid:36)(cid:19)(cid:36)(cid:23)(cid:35) (cid:35)(cid:23)(cid:21)(cid:37)(cid:34)(cid:27)(cid:36)(cid:27)(cid:23)(cid:35) (cid:19)(cid:31)(cid:22) (cid:23)(cid:39)(cid:21)(cid:26)(cid:19)(cid:31)(cid:25)(cid:23) (cid:21)(cid:32)(cid:30)(cid:30)(cid:27)(cid:35)(cid:35)(cid:27)(cid:32)(cid:31) (cid:38)(cid:41)(cid:58)(cid:48)(cid:49)(cid:54)(cid:47)(cid:59)(cid:55)(cid:54)(cid:5) (cid:22)(cid:7)(cid:21)(cid:7) (cid:10)(cid:8)(cid:13)(cid:12)(cid:17) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:24)(cid:32)(cid:34)(cid:30) (cid:9)(cid:8)(cid:6)(cid:28) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:3)(cid:30)(cid:41)(cid:57)(cid:51) (cid:32)(cid:54)(cid:45)(cid:4) (cid:19)(cid:31)(cid:31)(cid:37)(cid:19)(cid:29) (cid:34)(cid:23)(cid:33)(cid:32)(cid:34)(cid:36) (cid:33)(cid:37)(cid:34)(cid:35)(cid:37)(cid:19)(cid:31)(cid:36) (cid:36)(cid:32) (cid:35)(cid:23)(cid:21)(cid:36)(cid:27)(cid:32)(cid:31) (cid:9)(cid:11) (cid:32)(cid:34) (cid:9)(cid:13)(cid:3)(cid:44)(cid:4) (cid:32)(cid:24) (cid:36)(cid:26)(cid:23) (cid:35)(cid:23)(cid:21)(cid:37)(cid:34)(cid:27)(cid:36)(cid:27)(cid:23)(cid:35) (cid:23)(cid:39)(cid:21)(cid:26)(cid:19)(cid:31)(cid:25)(cid:23) (cid:19)(cid:21)(cid:36) (cid:32)(cid:24) (cid:9)(cid:17)(cid:11)(cid:12) (cid:3) (cid:24)(cid:55)(cid:57) (cid:59)(cid:48)(cid:45) (cid:46)(cid:49)(cid:58)(cid:43)(cid:41)(cid:52) (cid:64)(cid:45)(cid:41)(cid:57) (cid:45)(cid:54)(cid:44)(cid:45)(cid:44) (cid:22)(cid:45)(cid:43)(cid:45)(cid:53)(cid:42)(cid:45)(cid:57) (cid:11)(cid:9)(cid:5) (cid:10)(cid:8)(cid:10)(cid:8) (cid:32)(cid:57) (cid:36)(cid:34)(cid:19)(cid:31)(cid:35)(cid:27)(cid:36)(cid:27)(cid:32)(cid:31) (cid:34)(cid:23)(cid:33)(cid:32)(cid:34)(cid:36) (cid:33)(cid:37)(cid:34)(cid:35)(cid:37)(cid:19)(cid:31)(cid:36) (cid:36)(cid:32) (cid:35)(cid:23)(cid:21)(cid:36)(cid:27)(cid:32)(cid:31) (cid:9)(cid:11) (cid:32)(cid:34) (cid:9)(cid:13)(cid:3)(cid:44)(cid:4) (cid:32)(cid:24) (cid:36)(cid:26)(cid:23) (cid:35)(cid:23)(cid:21)(cid:37)(cid:34)(cid:27)(cid:36)(cid:27)(cid:23)(cid:35) (cid:23)(cid:39)(cid:21)(cid:26)(cid:19)(cid:31)(cid:25)(cid:23) (cid:19)(cid:21)(cid:36) (cid:32)(cid:24) (cid:9)(cid:17)(cid:11)(cid:12) (cid:2) (cid:24)(cid:55)(cid:57) (cid:59)(cid:48)(cid:45) (cid:59)(cid:57)(cid:41)(cid:54)(cid:58)(cid:49)(cid:59)(cid:49)(cid:55)(cid:54) (cid:56)(cid:45)(cid:57)(cid:49)(cid:55)(cid:44) (cid:46)(cid:57)(cid:55)(cid:53) (cid:59)(cid:55) (cid:21)(cid:55)(cid:53)(cid:53)(cid:49)(cid:58)(cid:58)(cid:49)(cid:55)(cid:54) (cid:46)(cid:49)(cid:52)(cid:45) (cid:54)(cid:60)(cid:53)(cid:42)(cid:45)(cid:57)(cid:18) (cid:8)(cid:8)(cid:9)(cid:6)(cid:11)(cid:14)(cid:12)(cid:14)(cid:16) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:19)(cid:34)(cid:27)(cid:35)(cid:36)(cid:19) (cid:31)(cid:23)(cid:36)(cid:38)(cid:32)(cid:34)(cid:28)(cid:35)(cid:5) (cid:27)(cid:31)(cid:21)(cid:7) (cid:3)(cid:23)(cid:63)(cid:41)(cid:43)(cid:59) (cid:54)(cid:41)(cid:53)(cid:45) (cid:55)(cid:46) (cid:57)(cid:45)(cid:47)(cid:49)(cid:58)(cid:59)(cid:57)(cid:41)(cid:54)(cid:59) (cid:41)(cid:58) (cid:58)(cid:56)(cid:45)(cid:43)(cid:49)(cid:46)(cid:49)(cid:45)(cid:44) (cid:49)(cid:54) (cid:49)(cid:59)(cid:58) (cid:43)(cid:48)(cid:41)(cid:57)(cid:59)(cid:45)(cid:57)(cid:4) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36) (cid:22)(cid:45)(cid:52)(cid:41)(cid:62)(cid:41)(cid:57)(cid:45) (cid:3)(cid:35)(cid:59)(cid:41)(cid:59)(cid:45) (cid:55)(cid:57) (cid:55)(cid:59)(cid:48)(cid:45)(cid:57) (cid:50)(cid:60)(cid:57)(cid:49)(cid:58)(cid:44)(cid:49)(cid:43)(cid:59)(cid:49)(cid:55)(cid:54) (cid:55)(cid:46) (cid:49)(cid:54)(cid:43)(cid:55)(cid:57)(cid:56)(cid:55)(cid:57)(cid:41)(cid:59)(cid:49)(cid:55)(cid:54) (cid:55)(cid:57) (cid:55)(cid:57)(cid:47)(cid:41)(cid:54)(cid:49)(cid:65)(cid:41)(cid:59)(cid:49)(cid:55)(cid:54)(cid:4) (cid:10)(cid:8)(cid:6)(cid:9)(cid:15)(cid:13)(cid:9)(cid:9)(cid:10)(cid:9) (cid:3)(cid:27)(cid:7)(cid:34)(cid:7)(cid:35)(cid:7) (cid:23)(cid:53)(cid:56)(cid:52)(cid:55)(cid:64)(cid:45)(cid:57) (cid:27)(cid:44)(cid:45)(cid:54)(cid:59)(cid:49)(cid:46)(cid:49)(cid:43)(cid:41)(cid:59)(cid:49)(cid:55)(cid:54) (cid:31)(cid:60)(cid:53)(cid:42)(cid:45)(cid:57)(cid:4) (cid:13)(cid:12)(cid:13)(cid:11) (cid:25)(cid:57)(cid:45)(cid:41)(cid:59) (cid:19)(cid:53)(cid:45)(cid:57)(cid:49)(cid:43)(cid:41) (cid:33)(cid:41)(cid:57)(cid:51)(cid:62)(cid:41)(cid:64) (cid:35)(cid:41)(cid:54)(cid:59)(cid:41) (cid:21)(cid:52)(cid:41)(cid:57)(cid:41)(cid:5) (cid:21)(cid:41)(cid:52)(cid:49)(cid:46)(cid:55)(cid:57)(cid:54)(cid:49)(cid:41) (cid:17)(cid:13)(cid:8)(cid:13)(cid:12) (cid:3)(cid:19)(cid:44)(cid:44)(cid:57)(cid:45)(cid:58)(cid:58) (cid:55)(cid:46) (cid:56)(cid:57)(cid:49)(cid:54)(cid:43)(cid:49)(cid:56)(cid:41)(cid:52) (cid:45)(cid:63)(cid:45)(cid:43)(cid:60)(cid:59)(cid:49)(cid:61)(cid:45) (cid:55)(cid:46)(cid:46)(cid:49)(cid:43)(cid:45)(cid:58)(cid:4) (cid:3)(cid:12)(cid:8)(cid:16)(cid:4) (cid:13)(cid:12)(cid:15)(cid:6)(cid:13)(cid:13)(cid:8)(cid:8) (cid:3)(cid:34)(cid:45)(cid:47)(cid:49)(cid:58)(cid:59)(cid:57)(cid:41)(cid:54)(cid:59)(cid:66)(cid:58) (cid:59)(cid:45)(cid:52)(cid:45)(cid:56)(cid:48)(cid:55)(cid:54)(cid:45) (cid:54)(cid:60)(cid:53)(cid:42)(cid:45)(cid:57)(cid:5) (cid:49)(cid:54)(cid:43)(cid:52)(cid:60)(cid:44)(cid:49)(cid:54)(cid:47) (cid:41)(cid:57)(cid:45)(cid:41) (cid:43)(cid:55)(cid:44)(cid:45)(cid:4) (cid:35)(cid:45)(cid:43)(cid:60)(cid:57)(cid:49)(cid:59)(cid:49)(cid:45)(cid:58) (cid:57)(cid:45)(cid:47)(cid:49)(cid:58)(cid:59)(cid:45)(cid:57)(cid:45)(cid:44) (cid:56)(cid:60)(cid:57)(cid:58)(cid:60)(cid:41)(cid:54)(cid:59) (cid:59)(cid:55) (cid:35)(cid:45)(cid:43)(cid:59)(cid:49)(cid:55)(cid:54) (cid:9)(cid:10)(cid:3)(cid:42)(cid:4) (cid:55)(cid:46) (cid:59)(cid:48)(cid:45) (cid:19)(cid:43)(cid:59)(cid:18) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36)(cid:36) (cid:33)(cid:45)(cid:56)(cid:48)(cid:41) (cid:51)(cid:42) (cid:41)(cid:37)(cid:39)(cid:44) (cid:39)(cid:48)(cid:37)(cid:55)(cid:55) (cid:33)(cid:54)(cid:37)(cid:40)(cid:45)(cid:50)(cid:43) (cid:32)(cid:61)(cid:49)(cid:38)(cid:51)(cid:48)(cid:4)(cid:55)(cid:5) (cid:21)(cid:55)(cid:53)(cid:53)(cid:55)(cid:54) (cid:35)(cid:59)(cid:55)(cid:43)(cid:51)(cid:5) (cid:2)(cid:8)(cid:7)(cid:8)(cid:8)(cid:8)(cid:9) (cid:56)(cid:41)(cid:57) (cid:61)(cid:41)(cid:52)(cid:60)(cid:45) (cid:19)(cid:31)(cid:23)(cid:36) (cid:28)(cid:37)(cid:49)(cid:41) (cid:51)(cid:42) (cid:41)(cid:37)(cid:39)(cid:44) (cid:41)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:51)(cid:50) (cid:59)(cid:44)(cid:45)(cid:39)(cid:44) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:41)(cid:54)(cid:41)(cid:40) (cid:31)(cid:45)(cid:62) (cid:40)(cid:55)(cid:57)(cid:51) (cid:35)(cid:59)(cid:55)(cid:43)(cid:51) (cid:23)(cid:63)(cid:43)(cid:48)(cid:41)(cid:54)(cid:47)(cid:45) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:45)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:45)(cid:55) (cid:37) (cid:59)(cid:41)(cid:48)(cid:48)(cid:7)(cid:47)(cid:50)(cid:51)(cid:59)(cid:50) (cid:55)(cid:41)(cid:37)(cid:55)(cid:51)(cid:50)(cid:41)(cid:40) (cid:45)(cid:55)(cid:55)(cid:57)(cid:41)(cid:54)(cid:6) (cid:37)(cid:55) (cid:40)(cid:41)(cid:42)(cid:45)(cid:50)(cid:41)(cid:40) (cid:45)(cid:50) (cid:31)(cid:57)(cid:48)(cid:41) (cid:13)(cid:9)(cid:14) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:32)(cid:41)(cid:39)(cid:57)(cid:54)(cid:45)(cid:56)(cid:45)(cid:41)(cid:55) (cid:18)(cid:39)(cid:56)(cid:8) (cid:35)(cid:41)(cid:55) (cid:3) (cid:28)(cid:51) (cid:2) (cid:35)(cid:45)(cid:43)(cid:60)(cid:57)(cid:49)(cid:59)(cid:49)(cid:45)(cid:58) (cid:57)(cid:45)(cid:47)(cid:49)(cid:58)(cid:59)(cid:45)(cid:57)(cid:45)(cid:44) (cid:56)(cid:60)(cid:57)(cid:58)(cid:60)(cid:41)(cid:54)(cid:59) (cid:59)(cid:55) (cid:35)(cid:45)(cid:43)(cid:59)(cid:49)(cid:55)(cid:54) (cid:9)(cid:10)(cid:3)(cid:47)(cid:4) (cid:55)(cid:46) (cid:59)(cid:48)(cid:45) (cid:19)(cid:43)(cid:59)(cid:18) (cid:31)(cid:55)(cid:54)(cid:45) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:45)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:45)(cid:55) (cid:50)(cid:51)(cid:56) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:40) (cid:56)(cid:51) (cid:42)(cid:45)(cid:48)(cid:41) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:55) (cid:52)(cid:57)(cid:54)(cid:55)(cid:57)(cid:37)(cid:50)(cid:56) (cid:56)(cid:51) (cid:32)(cid:41)(cid:39)(cid:56)(cid:45)(cid:51)(cid:50) (cid:10)(cid:12) (cid:51)(cid:54) (cid:32)(cid:41)(cid:39)(cid:56)(cid:45)(cid:51)(cid:50) (cid:10)(cid:14)(cid:4)(cid:40)(cid:5) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:18)(cid:39)(cid:56)(cid:8) (cid:35)(cid:41)(cid:55) (cid:2) (cid:28)(cid:51) (cid:3) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:59)(cid:44)(cid:41)(cid:56)(cid:44)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:4)(cid:10)(cid:5) (cid:44)(cid:37)(cid:55) (cid:42)(cid:45)(cid:48)(cid:41)(cid:40) (cid:37)(cid:48)(cid:48) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:55) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:40) (cid:56)(cid:51) (cid:38)(cid:41) (cid:42)(cid:45)(cid:48)(cid:41)(cid:40) (cid:38)(cid:61) (cid:32)(cid:41)(cid:39)(cid:56)(cid:45)(cid:51)(cid:50) (cid:10)(cid:12) (cid:51)(cid:54) (cid:10)(cid:14)(cid:4)(cid:40)(cid:5) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:32)(cid:41)(cid:39)(cid:57)(cid:54)(cid:45)(cid:56)(cid:45)(cid:41)(cid:55) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:18)(cid:39)(cid:56) (cid:51)(cid:42) (cid:10)(cid:17)(cid:12)(cid:13) (cid:40)(cid:57)(cid:54)(cid:45)(cid:50)(cid:43) (cid:56)(cid:44)(cid:41) (cid:52)(cid:54)(cid:41)(cid:39)(cid:41)(cid:40)(cid:45)(cid:50)(cid:43) (cid:10)(cid:11) (cid:49)(cid:51)(cid:50)(cid:56)(cid:44)(cid:55) (cid:4)(cid:51)(cid:54) (cid:42)(cid:51)(cid:54) (cid:55)(cid:57)(cid:39)(cid:44) (cid:55)(cid:44)(cid:51)(cid:54)(cid:56)(cid:41)(cid:54) (cid:52)(cid:41)(cid:54)(cid:45)(cid:51)(cid:40) (cid:56)(cid:44)(cid:37)(cid:56) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:59)(cid:37)(cid:55) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:40) (cid:56)(cid:51) (cid:42)(cid:45)(cid:48)(cid:41) (cid:55)(cid:57)(cid:39)(cid:44) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:55)(cid:5)(cid:6) (cid:37)(cid:50)(cid:40) (cid:4)(cid:11)(cid:5) (cid:44)(cid:37)(cid:55) (cid:38)(cid:41)(cid:41)(cid:50) (cid:55)(cid:57)(cid:38)(cid:46)(cid:41)(cid:39)(cid:56) (cid:56)(cid:51) (cid:55)(cid:57)(cid:39)(cid:44) (cid:42)(cid:45)(cid:48)(cid:45)(cid:50)(cid:43) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:49)(cid:41)(cid:50)(cid:56)(cid:55) (cid:42)(cid:51)(cid:54) (cid:56)(cid:44)(cid:41) (cid:52)(cid:37)(cid:55)(cid:56) (cid:17)(cid:9) (cid:40)(cid:37)(cid:61)(cid:55)(cid:8) (cid:35)(cid:41)(cid:55) (cid:3) (cid:28)(cid:51) (cid:2) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:59)(cid:44)(cid:41)(cid:56)(cid:44)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:44)(cid:37)(cid:55) (cid:55)(cid:57)(cid:38)(cid:49)(cid:45)(cid:56)(cid:56)(cid:41)(cid:40) (cid:41)(cid:48)(cid:41)(cid:39)(cid:56)(cid:54)(cid:51)(cid:50)(cid:45)(cid:39)(cid:37)(cid:48)(cid:48)(cid:61) (cid:41)(cid:58)(cid:41)(cid:54)(cid:61) (cid:23)(cid:50)(cid:56)(cid:41)(cid:54)(cid:37)(cid:39)(cid:56)(cid:45)(cid:58)(cid:41) (cid:20)(cid:37)(cid:56)(cid:37) (cid:22)(cid:45)(cid:48)(cid:41) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:40) (cid:56)(cid:51) (cid:38)(cid:41) (cid:55)(cid:57)(cid:38)(cid:49)(cid:45)(cid:56)(cid:56)(cid:41)(cid:40) (cid:52)(cid:57)(cid:54)(cid:55)(cid:57)(cid:37)(cid:50)(cid:56) (cid:56)(cid:51) (cid:31)(cid:57)(cid:48)(cid:41) (cid:13)(cid:9)(cid:14) (cid:51)(cid:42) (cid:31)(cid:41)(cid:43)(cid:57)(cid:48)(cid:37)(cid:56)(cid:45)(cid:51)(cid:50) (cid:32)(cid:7)(cid:33) (cid:4)(cid:62)(cid:11)(cid:12)(cid:11)(cid:8)(cid:13)(cid:9)(cid:14) (cid:51)(cid:42) (cid:56)(cid:44)(cid:45)(cid:55) (cid:39)(cid:44)(cid:37)(cid:52)(cid:56)(cid:41)(cid:54)(cid:5) (cid:40)(cid:57)(cid:54)(cid:45)(cid:50)(cid:43) (cid:56)(cid:44)(cid:41) (cid:52)(cid:54)(cid:41)(cid:39)(cid:41)(cid:40)(cid:45)(cid:50)(cid:43) (cid:10)(cid:11) (cid:49)(cid:51)(cid:50)(cid:56)(cid:44)(cid:55) (cid:4)(cid:51)(cid:54) (cid:42)(cid:51)(cid:54) (cid:55)(cid:57)(cid:39)(cid:44) (cid:55)(cid:44)(cid:51)(cid:54)(cid:56)(cid:41)(cid:54) (cid:52)(cid:41)(cid:54)(cid:45)(cid:51)(cid:40) (cid:56)(cid:44)(cid:37)(cid:56) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:59)(cid:37)(cid:55) (cid:54)(cid:41)(cid:53)(cid:57)(cid:45)(cid:54)(cid:41)(cid:40) (cid:56)(cid:51) (cid:55)(cid:57)(cid:38)(cid:49)(cid:45)(cid:56) (cid:55)(cid:57)(cid:39)(cid:44) (cid:42)(cid:45)(cid:48)(cid:41)(cid:55)(cid:5)(cid:8) (cid:35)(cid:41)(cid:55) (cid:3) (cid:28)(cid:51) (cid:2) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:59)(cid:44)(cid:41)(cid:56)(cid:44)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:45)(cid:55) (cid:37) (cid:48)(cid:37)(cid:54)(cid:43)(cid:41) (cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54)(cid:6) (cid:37)(cid:50) (cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54)(cid:6) (cid:37) (cid:50)(cid:51)(cid:50)(cid:7)(cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54)(cid:6) (cid:37) (cid:55)(cid:49)(cid:37)(cid:48)(cid:48)(cid:41)(cid:54) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:45)(cid:50)(cid:43) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61)(cid:6) (cid:51)(cid:54) (cid:37)(cid:50) (cid:41)(cid:49)(cid:41)(cid:54)(cid:43)(cid:45)(cid:50)(cid:43) (cid:43)(cid:54)(cid:51)(cid:59)(cid:56)(cid:44) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61)(cid:8) (cid:32)(cid:41)(cid:41) (cid:56)(cid:44)(cid:41) (cid:40)(cid:41)(cid:42)(cid:45)(cid:50)(cid:45)(cid:56)(cid:45)(cid:51)(cid:50)(cid:55) (cid:51)(cid:42) (cid:63)(cid:48)(cid:37)(cid:54)(cid:43)(cid:41) (cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54)(cid:6)(cid:64) (cid:63)(cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54)(cid:6)(cid:64) (cid:63)(cid:55)(cid:49)(cid:37)(cid:48)(cid:48)(cid:41)(cid:54) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:45)(cid:50)(cid:43) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61)(cid:64) (cid:37)(cid:50)(cid:40) (cid:63)(cid:41)(cid:49)(cid:41)(cid:54)(cid:43)(cid:45)(cid:50)(cid:43) (cid:43)(cid:54)(cid:51)(cid:59)(cid:56)(cid:44) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61)(cid:64) (cid:45)(cid:50) (cid:31)(cid:57)(cid:48)(cid:41) (cid:10)(cid:11)(cid:38)(cid:7)(cid:11) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:18)(cid:39)(cid:56)(cid:8) (cid:26)(cid:37)(cid:54)(cid:43)(cid:41) (cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54) (cid:28)(cid:51)(cid:50)(cid:7)(cid:37)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54) (cid:3) (cid:2) (cid:18)(cid:39)(cid:39)(cid:41)(cid:48)(cid:41)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:42)(cid:45)(cid:48)(cid:41)(cid:54) (cid:32)(cid:49)(cid:37)(cid:48)(cid:48)(cid:41)(cid:54) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:45)(cid:50)(cid:43) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61) (cid:21)(cid:49)(cid:41)(cid:54)(cid:43)(cid:45)(cid:50)(cid:43) (cid:43)(cid:54)(cid:51)(cid:59)(cid:56)(cid:44) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61) (cid:2) (cid:2) (cid:2) (cid:23)(cid:42) (cid:37)(cid:50) (cid:41)(cid:49)(cid:41)(cid:54)(cid:43)(cid:45)(cid:50)(cid:43) (cid:43)(cid:54)(cid:51)(cid:59)(cid:56)(cid:44) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61)(cid:6) (cid:45)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:45)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:44)(cid:37)(cid:55) (cid:41)(cid:48)(cid:41)(cid:39)(cid:56)(cid:41)(cid:40) (cid:50)(cid:51)(cid:56) (cid:56)(cid:51) (cid:57)(cid:55)(cid:41) (cid:56)(cid:44)(cid:41) (cid:41)(cid:60)(cid:56)(cid:41)(cid:50)(cid:40)(cid:41)(cid:40) (cid:56)(cid:54)(cid:37)(cid:50)(cid:55)(cid:45)(cid:56)(cid:45)(cid:51)(cid:50) (cid:52)(cid:41)(cid:54)(cid:45)(cid:51)(cid:40) (cid:42)(cid:51)(cid:54) (cid:39)(cid:51)(cid:49)(cid:52)(cid:48)(cid:61)(cid:45)(cid:50)(cid:43) (cid:59)(cid:45)(cid:56)(cid:44) (cid:37)(cid:50)(cid:61) (cid:50)(cid:41)(cid:59) (cid:51)(cid:54) (cid:54)(cid:41)(cid:58)(cid:45)(cid:55)(cid:41)(cid:40) (cid:42)(cid:45)(cid:50)(cid:37)(cid:50)(cid:39)(cid:45)(cid:37)(cid:48) (cid:37)(cid:39)(cid:39)(cid:51)(cid:57)(cid:50)(cid:56)(cid:45)(cid:50)(cid:43) (cid:55)(cid:56)(cid:37)(cid:50)(cid:40)(cid:37)(cid:54)(cid:40)(cid:55) (cid:52)(cid:54)(cid:51)(cid:58)(cid:45)(cid:40)(cid:41)(cid:40) (cid:52)(cid:57)(cid:54)(cid:55)(cid:57)(cid:37)(cid:50)(cid:56) (cid:56)(cid:51) (cid:32)(cid:41)(cid:39)(cid:56)(cid:45)(cid:51)(cid:50) (cid:10)(cid:12)(cid:4)(cid:37)(cid:5) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:18)(cid:39)(cid:56)(cid:8) (cid:2) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:59)(cid:44)(cid:41)(cid:56)(cid:44)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:44)(cid:37)(cid:55) (cid:42)(cid:45)(cid:48)(cid:41)(cid:40) (cid:37) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:54)(cid:54) (cid:51)(cid:50) (cid:37)(cid:50)(cid:40) (cid:37)(cid:56)(cid:56)(cid:41)(cid:55)(cid:56)(cid:37)(cid:56)(cid:45)(cid:51)(cid:50) (cid:56)(cid:51) (cid:45)(cid:56)(cid:55) (cid:49)(cid:37)(cid:50)(cid:37)(cid:43)(cid:41)(cid:49)(cid:41)(cid:50)(cid:56)(cid:3)(cid:55) (cid:37)(cid:55)(cid:55)(cid:41)(cid:55)(cid:55)(cid:49)(cid:41)(cid:50)(cid:56) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:41)(cid:42)(cid:42)(cid:41)(cid:39)(cid:42)(cid:42) (cid:56)(cid:45)(cid:58)(cid:41)(cid:50)(cid:41)(cid:55)(cid:55) (cid:51)(cid:42) (cid:45)(cid:56)(cid:55) (cid:45)(cid:50)(cid:56)(cid:41)(cid:54)(cid:50)(cid:37)(cid:48) (cid:39)(cid:51)(cid:50)(cid:56)(cid:54)(cid:51)(cid:48) (cid:51)(cid:58)(cid:41)(cid:54) (cid:42)(cid:45)(cid:50)(cid:37)(cid:50)(cid:39)(cid:45)(cid:37)(cid:48) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:45)(cid:50)(cid:43) (cid:57)(cid:50)(cid:40)(cid:41)(cid:54) (cid:32)(cid:41)(cid:39)(cid:56)(cid:45)(cid:51)(cid:50) (cid:13)(cid:9)(cid:13)(cid:4)(cid:38)(cid:5) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:32)(cid:37)(cid:54)(cid:38)(cid:37)(cid:50)(cid:41)(cid:55)(cid:7)(cid:29)(cid:60)(cid:48)(cid:41)(cid:61) (cid:18)(cid:39)(cid:56) (cid:4)(cid:10)(cid:14) (cid:34)(cid:8)(cid:32)(cid:8)(cid:19)(cid:8) (cid:16)(cid:11)(cid:15)(cid:11)(cid:4)(cid:38)(cid:5)(cid:5) (cid:38)(cid:61) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:41)(cid:54)(cid:41)(cid:40) (cid:52)(cid:57)(cid:38)(cid:48)(cid:45)(cid:39) (cid:37)(cid:39)(cid:39)(cid:51)(cid:57)(cid:50)(cid:56)(cid:45)(cid:50)(cid:43) (cid:42)(cid:45)(cid:54)(cid:49) (cid:56)(cid:44)(cid:37)(cid:56) (cid:52)(cid:54)(cid:41)(cid:52)(cid:37)(cid:54)(cid:41)(cid:40) (cid:51)(cid:54) (cid:45)(cid:55)(cid:55)(cid:57)(cid:41)(cid:40) (cid:45)(cid:56)(cid:55) (cid:37)(cid:57)(cid:40)(cid:45)(cid:56) (cid:54)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56)(cid:8) (cid:1) (cid:23)(cid:50)(cid:40)(cid:45)(cid:39)(cid:37)(cid:56)(cid:41) (cid:38)(cid:61) (cid:39)(cid:44)(cid:41)(cid:39)(cid:47) (cid:49)(cid:37)(cid:54)(cid:47) (cid:59)(cid:44)(cid:41)(cid:56)(cid:44)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:45)(cid:55) (cid:37) (cid:55)(cid:44)(cid:41)(cid:48)(cid:48) (cid:39)(cid:51)(cid:49)(cid:52)(cid:37)(cid:50)(cid:61) (cid:4)(cid:37)(cid:55) (cid:40)(cid:41)(cid:42)(cid:45)(cid:50)(cid:41)(cid:40) (cid:45)(cid:50) (cid:31)(cid:57)(cid:48)(cid:41) (cid:10)(cid:11)(cid:38)(cid:7)(cid:11) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:18)(cid:39)(cid:56)(cid:5)(cid:8) (cid:35)(cid:41)(cid:55) (cid:2) (cid:28)(cid:51) (cid:3) (cid:33)(cid:44)(cid:41) (cid:37)(cid:43)(cid:43)(cid:54)(cid:41)(cid:43)(cid:37)(cid:56)(cid:41) (cid:49)(cid:37)(cid:54)(cid:47)(cid:41)(cid:56) (cid:58)(cid:37)(cid:48)(cid:57)(cid:41) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:58)(cid:51)(cid:56)(cid:45)(cid:50)(cid:43) (cid:37)(cid:50)(cid:40) (cid:50)(cid:51)(cid:50)(cid:7)(cid:58)(cid:51)(cid:56)(cid:45)(cid:50)(cid:43) (cid:39)(cid:51)(cid:49)(cid:49)(cid:51)(cid:50) (cid:41)(cid:53)(cid:57)(cid:45)(cid:56)(cid:61) (cid:44)(cid:41)(cid:48)(cid:40) (cid:38)(cid:61) (cid:50)(cid:51)(cid:50)(cid:7)(cid:37)(cid:42)(cid:42)(cid:45)(cid:48)(cid:45)(cid:37)(cid:56) (cid:42)(cid:42) (cid:41)(cid:55) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56) (cid:59)(cid:37)(cid:55) (cid:37)(cid:52)(cid:52)(cid:54)(cid:51)(cid:60)(cid:45)(cid:49)(cid:37)(cid:56)(cid:41)(cid:48)(cid:61) (cid:2)(cid:10)(cid:11)(cid:6)(cid:12)(cid:15)(cid:14)(cid:6)(cid:9)(cid:12)(cid:15)(cid:6)(cid:10)(cid:11)(cid:10) (cid:37)(cid:55) (cid:51)(cid:42) (cid:24)(cid:57)(cid:50)(cid:41) (cid:12)(cid:9)(cid:6) (cid:11)(cid:9)(cid:11)(cid:9) (cid:4) (cid:44)(cid:4)(cid:56)(cid:44)(cid:41) (cid:48)(cid:48)(cid:37)(cid:55)(cid:56) (cid:38) (cid:45)(cid:38)(cid:57)(cid:55)(cid:45)(cid:50)(cid:41)(cid:55)(cid:55) (cid:40)(cid:37)(cid:61)(cid:40)(cid:37)(cid:61) (cid:42)(cid:51)(cid:42) (cid:44)(cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45) (cid:21)(cid:60)(cid:39)(cid:44)(cid:37)(cid:50)(cid:43)(cid:41) (cid:51)(cid:50) (cid:55)(cid:57)(cid:39)(cid:44) (cid:40)(cid:37)(cid:56)(cid:41)(cid:8) (cid:32)(cid:44)(cid:37)(cid:54)(cid:41)(cid:55) (cid:44)(cid:41)(cid:48)(cid:40) (cid:38)(cid:61) (cid:52)(cid:41)(cid:54)(cid:55)(cid:51)(cid:50)(cid:55) (cid:59)(cid:44)(cid:51) (cid:49)(cid:37)(cid:61) (cid:38)(cid:41) (cid:40)(cid:41)(cid:41)(cid:49)(cid:41)(cid:40) (cid:37)(cid:42)(cid:42)(cid:45)(cid:48)(cid:45)(cid:37)(cid:56)(cid:41)(cid:55) (cid:44)(cid:37)(cid:58)(cid:41) (cid:38)(cid:41)(cid:41)(cid:50) (cid:41)(cid:60)(cid:39)(cid:48)(cid:57)(cid:40)(cid:41)(cid:40)(cid:8) (cid:33)(cid:44)(cid:45)(cid:55) (cid:40)(cid:41)(cid:56)(cid:41)(cid:54)(cid:49)(cid:45)(cid:50)(cid:37)(cid:56)(cid:45)(cid:51)(cid:50) (cid:51)(cid:42) (cid:37)(cid:42)(cid:42)(cid:45)(cid:48)(cid:45)(cid:37)(cid:56)(cid:41) (cid:55)(cid:56)(cid:37)(cid:56)(cid:57)(cid:55) (cid:45)(cid:55) (cid:50)(cid:51)(cid:56) (cid:50)(cid:41)(cid:39)(cid:41)(cid:55)(cid:55)(cid:37)(cid:54)(cid:45)(cid:48)(cid:61) (cid:37) (cid:39)(cid:51)(cid:50)(cid:39)(cid:48)(cid:57)(cid:55)(cid:45)(cid:58)(cid:41) (cid:40)(cid:41)(cid:56)(cid:41)(cid:54)(cid:49)(cid:45)(cid:50)(cid:37)(cid:56)(cid:45)(cid:51)(cid:50) (cid:42)(cid:51)(cid:54) (cid:51)(cid:56)(cid:44)(cid:41)(cid:54) (cid:52)(cid:57)(cid:54)(cid:52)(cid:51)(cid:55)(cid:41)(cid:55)(cid:8) (cid:56)(cid:41)(cid:54)(cid:5) (cid:38)(cid:37)(cid:38) (cid:55)(cid:41)(cid:40) (cid:51)(cid:50) (cid:56)(cid:44)(cid:41) (cid:39)(cid:48)(cid:51)(cid:55)(cid:45)(cid:50)(cid:43) (cid:52)(cid:54)(cid:45)(cid:39)(cid:41) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56)(cid:65)(cid:55) (cid:39)(cid:51)(cid:49)(cid:49)(cid:51)(cid:50) (cid:55)(cid:56)(cid:51)(cid:39)(cid:47) (cid:51)(cid:50) (cid:56)(cid:44)(cid:41) (cid:28)(cid:41)(cid:59) (cid:35)(cid:51)(cid:54)(cid:47) (cid:32)(cid:56)(cid:51)(cid:39)(cid:47) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56)(cid:3)(cid:55) (cid:49)(cid:51)(cid:55)(cid:56) (cid:54)(cid:41)(cid:39)(cid:41)(cid:50)(cid:56)(cid:48)(cid:48)(cid:61)(cid:61) (cid:39)(cid:51) (cid:40)(cid:51)(cid:50)(cid:40) (cid:42)(cid:45)(cid:42)(cid:45)(cid:55)(cid:39)(cid:37)(cid:48)(cid:48) (cid:53)(cid:57)(cid:37)(cid:54) (cid:48)(cid:49)(cid:52)(cid:48)(cid:41)(cid:56) (cid:40)(cid:41)(cid:40) (cid:55)(cid:41)(cid:39) (cid:5) (cid:29)(cid:50) (cid:22)(cid:41)(cid:38)(cid:54)(cid:57)(cid:37)(cid:54)(cid:61) (cid:10)(cid:11)(cid:6) (cid:11)(cid:9)(cid:11)(cid:10)(cid:6) (cid:16)(cid:15)(cid:6)(cid:12)(cid:12)(cid:10)(cid:6)(cid:14)(cid:16)(cid:12) (cid:55)(cid:44)(cid:37)(cid:54)(cid:41)(cid:55) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56)(cid:65)(cid:55) (cid:39)(cid:51)(cid:49)(cid:49)(cid:51)(cid:50) (cid:55)(cid:56)(cid:51)(cid:39)(cid:47) (cid:59)(cid:41)(cid:54)(cid:41) (cid:51)(cid:57)(cid:56)(cid:55)(cid:56)(cid:37)(cid:50)(cid:40)(cid:45)(cid:50)(cid:43)(cid:8) (cid:22)(cid:32)(cid:21)(cid:37)(cid:30)(cid:23)(cid:31)(cid:36)(cid:35) (cid:27)(cid:31)(cid:21)(cid:32)(cid:34)(cid:33)(cid:32)(cid:34)(cid:19)(cid:36)(cid:23)(cid:22) (cid:20)(cid:40) (cid:34)(cid:23)(cid:24)(cid:23)(cid:34)(cid:23)(cid:31)(cid:21)(cid:23) (cid:30)(cid:51)(cid:54)(cid:56)(cid:45)(cid:51)(cid:50)(cid:55) (cid:51)(cid:42) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56)(cid:65)(cid:55) (cid:40)(cid:41)(cid:42)(cid:45)(cid:50)(cid:45)(cid:56)(cid:45)(cid:58)(cid:41) (cid:30)(cid:54)(cid:51)(cid:60)(cid:61) (cid:32)(cid:56)(cid:37)(cid:56)(cid:41)(cid:49)(cid:41)(cid:50)(cid:56) (cid:54)(cid:41)(cid:48)(cid:37)(cid:56)(cid:45)(cid:50)(cid:43) (cid:56)(cid:51) (cid:45)(cid:56)(cid:55) (cid:11)(cid:9)(cid:11)(cid:10) (cid:18)(cid:50)(cid:50)(cid:57)(cid:37)(cid:48) (cid:27)(cid:41)(cid:41)(cid:56)(cid:45)(cid:50)(cid:43) (cid:51)(cid:42) (cid:32)(cid:56)(cid:51)(cid:39)(cid:47)(cid:44)(cid:51)(cid:48)(cid:40)(cid:41)(cid:54)(cid:55) (cid:56)(cid:51) (cid:38)(cid:41) (cid:42)(cid:45)(cid:48)(cid:41)(cid:40) (cid:52)(cid:57)(cid:54)(cid:55)(cid:57)(cid:37)(cid:50)(cid:56) (cid:56)(cid:51) (cid:31)(cid:41)(cid:43)(cid:57)(cid:48)(cid:37)(cid:56)(cid:45)(cid:51)(cid:50) (cid:10)(cid:13)(cid:18) (cid:59)(cid:45)(cid:56)(cid:44)(cid:45)(cid:50) (cid:10)(cid:11)(cid:9) (cid:40)(cid:37)(cid:61)(cid:55) (cid:37)(cid:42)(cid:56)(cid:41)(cid:54) (cid:56)(cid:44)(cid:41) (cid:54)(cid:41)(cid:43)(cid:45)(cid:55)(cid:56)(cid:54)(cid:37)(cid:50)(cid:56)(cid:65)(cid:55) (cid:42)(cid:45)(cid:55)(cid:39)(cid:37)(cid:48) (cid:61)(cid:41)(cid:37)(cid:54) (cid:41)(cid:50)(cid:40) (cid:51)(cid:42) (cid:20)(cid:41)(cid:39)(cid:41)(cid:49)(cid:38)(cid:41)(cid:54) (cid:12)(cid:10)(cid:6) (cid:11)(cid:9)(cid:11)(cid:9) (cid:37)(cid:54)(cid:41) (cid:45)(cid:50)(cid:39)(cid:51)(cid:54)(cid:52)(cid:51)(cid:54)(cid:37)(cid:56)(cid:41)(cid:40) (cid:38)(cid:61) (cid:54)(cid:41)(cid:42)(cid:41)(cid:54)(cid:41)(cid:50)(cid:39)(cid:41) (cid:45)(cid:50)(cid:56)(cid:51) (cid:30)(cid:37)(cid:54)(cid:56) (cid:23)(cid:23)(cid:23) (cid:51)(cid:42) (cid:56)(cid:44)(cid:45)(cid:55) (cid:18)(cid:50)(cid:50)(cid:57)(cid:37)(cid:48) (cid:31)(cid:41)(cid:52)(cid:51)(cid:54)(cid:56) (cid:51)(cid:50) (cid:22)(cid:51)(cid:54)(cid:49) (cid:10)(cid:9)(cid:7)(cid:25)(cid:8) ARISTA NETWORKS, INC. TABLE OF CONTENTS PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staffff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedurdd es Item 9B. Othet r Information PART III Item 10. Directors, Executive Offiff cers, and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Item 16. Form 10-K Summary Signaturtt es Page 1 14 46 46 46 46 47 48 50 64 66 108 108 109 110 110 110 110 110 111 114 115 SPECIAL NOTE REGARDING FORWARD- WW LOOKING STATTT EMENTS This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors,” “Use of Proceeds,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, as Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “projeco t,” “plan,” “predict,” “expect” and similar expressions that convey uncertaintytt of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following: our ability to maintain an adequate rate of revenue growth and our future financial perforff mance, including our expectations regarding ouruu revenue, cost of revenue, gross profitff or gross margin and operating expenses; our belief that the networking market is rapidly evolving and has a significff ant potential opportuni growth; tt ty for our ability to expax nd our leadership position in the network switch industry, including the areas of mobility,tt virtualization, netwott rk monitoring, cloud computing and cloud networks, and to develop new producdd ts and expand our business into new markets such as the campus workspace, enterprise data center and securiu ty markets; our ability to satisfy the requirements for networking solutions and to successfully anticipate technological shifts and market needs, innovate new products, rapidly develop new features and applications, and bring them to market in a timely manner including any increased adoption of new technology solutions or consumption models such as commoditized hardware technology or open source networking solutions; the demand for our solutions, producdd ts and services we offeff r; our business plan and our ability to effff ect ff ively manaaa ge our growth; our ability to integrate and realize the benefits of our recent and future acquisitions; costs associated with defending intellectual property infringement and other claims and the potential outcomes of such disputes, such as any claims discussed in “Legal Proceedings”; our ability to retain and increase sales to existing customers and attract new end customers, including large end customers; the budgeting cycles and purchasing practices of end customers, including large end customers who may receive lower pricing terms due to volume discounts or who may elect to re-assign allocations to multiple vendors based upon specificff network roles or projects; the growth and buyiuu ng patternsrr not occuruu in certain quarters; of our large end customers in which large bulk purchases may or may our inability to fulfillff our end customers’ orders due to supply chain delays, access to key commodities or technologies or events that impact our manufacturers or their suppliers such as the recent U.S. trade wars or the impact of the COVID-19 pande aa mic; our expectations regarding the impact of the COVID-19 pandemic on our business; the deferral or cancellation of orders by end customers, warranty returns or delays in acceptance of ouru products; our ability to further penetrate our existing customer base and sell more complex and higher- perforff marr nce configff urations of our producdd ts; our ability to displace existing producdd ts in established markets; our belief that increasing channel leverage will extend and improve our engagement with a broad set of customers; • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • our plans to continue to expand our sales force, marketing activities and relationships witht channel, technology and system-level partners; our plans to invest in our researchaa and development; our ability to timely and effecff tively scale and adapt our existing technology; the benefits realized by our customers in their use of our products and services including lower total cost of ownership; our ability to expandaa our business domestically and internationally; the effecff ts of increased competition in our market and our abilitytt to compete effecff tively; the effecff ts of seasonal and cyclical trends on our results of operations; our expectations concerning relationships witht third parties; the attraction and retention of qualifieff d employees and key personnel; our ability to maintain, protect and enhance our brand and intellectual property;tt economic and industry trends; estimates and estimate methodologies used in preparing our financial statements; future trading prices of our common stock; our belief that we have adequaqq tely reserved for uncertain tax positions; global economic and political conditions that introduce instability into the U.S. economy; the impact of global and domestic tax reform; the impact of tariffsff countritt es on U.S. goods; imposed by the U.S. on goods from othett r countries and tariffsff imposed by other our belief that ouru existing cash and cash equiqq valents together with cash flow from operations will be sufficff ient to meet our working capia tal requirements and our growth strategies for the foreseeabla e future; and our ability to identify, complete and realize the benefits of future acquisitions of or investments in complementary companies, products, services or technologies. These forward-looking statements are subjecb t to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10- K. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differff materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report r materially and advedd rsely from those anticipated or on Form 10-K may not occur and actual results could diffeff implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of futureuu events. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We mayaa not actuatt lly achieve the plans, intentions or expectations disclosed in our forward- looking statements and you should not place undue reliance on ouru forward-looking statements. Our forff ward- looking statements do not reflect the potential impact of any future acquiqq sitions, mergers, dispositions, joint venturtt es or investmet nts we may make. Item 1. Business PART I Arista Networks pioneered software-driven, cognitive cloud networking for large-scale data center and campus workspace environments. Our cloud networking solutions consist of our Extensible Operating System ("EOS"), a set of network applications and our Ethernet switching and routing platforms. Our cloud networking solutions deliver industryt -leading performance, scalability, availability, programmability, automation and visibility. In recent years, we have sought to bring the operational consistency and principles of cloud networking to the broader enterprise and campus markets with our Cognitive Cloud Networking approach. Our cognitive single-tier SplineTM campus network extends EOS across the campus workspace and the data center. In addition, we acquiqq red Mojoo Networks, Inc. (“Mojoo ”), the inventor of Cognitive WiFiTM to extend these same cognitive principles to the wireless network. CloudVision®, our network-wide approach for workload orchestration and automation, leverages EOS and Cognitive WiFiTM features, to deliver a turnkey workflow orchestration and automation solution for cloud networking to our enterprr ise customers. In the early part of 2020, we acquired Big Switch Networks, a pioneer in network monitoring softwa re. These Big Switch capaa bilities, integrated with the Arista switching portfolff io, power the DANZ Monitoring Fabric (DMF), a leading network monitoring solution. We also completed the acquiqq sition of Awake Security, an AI-driven network detection and response (NDR) security company, at the end of 2020. We believe the combination of DMF and Awake Security capaaa bilities delivers the next generation of operationally effiff cient network security and visibility. ff In addition, we continued to expand our data center and campa us network producdd t portfolio duriuu ng 2020 including the introduction of the 750 Series modular chassis, a modular campus PoE switch that delivers high perforff marr nce, security, visibility and power network security and visibility. Since we began shipping our producdd ts, we haveaa grown rapidly, and, according to market research, we have achieved the second largest market share in data center Ethernet switch ports and revenue, excluding China. We have been profitff able and cash flow positive for each year since 2010. We sell our producdd ts through both our direct sales force and our channel partners. Our end customers span a range of industries and include large internet companies, service providers, financial services organizations, government agencies, media and entertainment companies and others. Our customers include six of the largest cloud services providers based on annual revenue. Our Market Opportunity We compete primarily in the data center switching market for 10 Gigabit Ethet rnet and above, excluding blade switches. We added advadd nced routing capabilities to our R-Series switches, which in addition to switching address the Data Center Interconnect (DCI) markeaa t and parts of the wide area networking routing market. We more recently began to compete in the enterprise campus market for 1 Gigabit Ethernet switching and above and in the cloud-managed wireless networking market. In addition, our acquisitions of Big Switch Networks and Awake Security enhance ouru ability to address a portion of the Network Monitoring and Network Detection and Response (NDR) security markets. We believe that cloud computing represents a fundamental shiftff from traditional legacy network architecturtt es. As organizations of all sizes have moved workloads to the cloud, spending on cloud and next- generation data centers has increased rapia dly, while traditional legacy IT spending has grown more slowly. Our Customers As of December 31, 2020, we had delivered our cloud networking solutions to over 7000 end customers worldwide. Our end customers span a range of industries and include large internet companies, service providers, financial services organizations, government agencies, media and entertainment companies and others. For the years ended December 31, 2020, 2019 and 2018, purchases by Microsoftff accounted for more than 10% of our total revenue. 1 Cloud Networking and Digital Transforff mation Market Drivers Digital transforff mation is funda u mentally changing the way IT infrastructure is built and how applications are delivered from a cloud environment. In cloud computing, applications are distritt buted across r, form a pool thousands of servers. These servers are connected with high-speed network switches that, togethet of resources that allows applications to be rapidly deployed and cost-effecff tively updated. Cloud computing enables ubiquitous and on-demand network access to these applications from internet-connected devices including personal computers, tablets, IoT (Internet of Things) devices, and smartpht ones. Nearly all consumer applications today are delivered as cloud services. Enterprise applications are rapia dly moving to the cloud as well since cloud services are easier and more cost effecff tive to deploy,yy scale and operate than traditional applications. Internet leaders like Amazon, Facebook, Google, and Microsoft pioneered the development of large-scale cloud data centers in order to meet the growing demands of their users, including business customers. Enterprises and service providers around the world are adopting cloud computing technologies in order to achieve similar performa nce imprm ovements and cost reductions. ff The aggregate network bandwidth in the cloud can be orders of magnitudtt e higher than typical legacy data center networks. Thereforff e, the networks in such cloud environments must be architected and built in a new way. We refer to these next-generation data center networks as cloud networksrr . Cloud networksrr must deliver high capacity,yy high availability and predictable performance, and must be programmable to allow integration with third-party applications for network, management, automation, orchestration and network services. 2 Examples of key secular trends driving network transforff mation are illustrated below: DIGITAL TRANSFORMATION STREAMING MEDIA SURGE SECURE ACCESS SERVICE EDGE REMOTE WORK Security - Network Security - Network Detection & Response Detection & Response IOT/OT PROLIFERATION 5G & AI APPS CLOUDIFICATION Limitations of Traditional Enterprise Data Center and Campus Networks applications are installed on a small number of servers, and most networkrr We believe that cloud networks and legacy networks are fundamentally different center, specificff or “north-south” traffiff c, which results in perhaps a few terabits/second of aggregate netwott cloud, most netwott can exceed 1 petabit/second, orders of magnitude higher than that of typical legacy data center networks. . In a traditional data traffiff c is server-to-client, idth. In the is server-to-server, or “east-west” traffiff c. The aggregate network bandaa width in the cloud rk bandwaa rk trafficff ff The much larger scale of cloud networks requires much higher network availability since network outages in the cloud are costly to customers. Traditional network switches have evolved, and the features and capaaa bia lities of their operating system have expanded over many years without addressing the structural deficiencies of their underlying softwa , making it difficff ult to achieve high network switch reliability. re architecturesu ff t Some networking vendors have built products that use proprietary protocols to address the scaling needs of next-generation data centers. However, proprietary protocols are generally disfavff ored by internet companies or cloud service providers because they create vendor lock-in. Legacy enterprr ise networks are generally not programmabla e and, as a result, are extremely diffiff cult to integrate with third-party applications for network management, automation, orchestration and network services. This lack of integration forces customers to continue to rely on time consuming, error-prone manual processes that may be cost-prohibitive. Traditional enterprise wired and wireless campus networks must cope witht an ever-increasing number of endpoint IoT (Internet of Things) devices for users to be connected anywhere. Campus admid ors have sought to address the resulting increased network complexities and bottlenecks through the adoption of a myriad of platforms, operating systems, proprietary features and network management tools. Coupled with the explosive growth of IoT and the requirement for workloads, the operational costs of managing these complexities have become prohibitive. t nistrat 3 Our Cloud Networking Solutions Our cloud networking solutions consist of EOS, a set of netwott rnet platforms. At the core of our cloud networking platform is EOS, which was architected to be fully programmable, modular and reliable. The programmability of EOS has allowed us to expand our software applications to address the ever increasing demands of cloud networking, including workflow automation, network visibility, analytics and network detection and response, and has furthett r allowed us to integrate rapidly with a wide range of third-partytt applications for virtuatt lization, management, automation, orchestration and network services. rking applications and our Gigabit Ethett An overview of our cloud networking solutions is shown below: Arista CloudVision® Network Automation Simplicity Complete Network Telemetry Technology Partner Centric One Network Management System Arista Extensible Operating System (EOS®) Trusted by 7000+ Customers Highest Quality Network Operating System Complete Switch & Router Capabilities Full Programmability One Network Operating System Edge Network WAN Network Campus Network Data Center Cloud Native Private Cloud Public Cloud Full Packet Capture & Autonomous Detection AI Enabled Threat Hunting w/ Federated ML DMF – DANZ Monitoring Fabric Service Analytics Recorder For All Places In the Cloud (PICs) Our(cid:3)Mission Deliver(cid:3)the(cid:3)best(cid:3)cloud(cid:3)networking(cid:3)solutions(cid:3)for(cid:3)private,(cid:3)public(cid:3)and(cid:3)hybrid(cid:3)cloud(cid:3)deployments(cid:3) The key benefits of our cloud networking solutions are as follows: Capaa cityii ,yy Perforff marr nce and Scalabi liii tyii ll Our cloud networking platform enables data center networks to scale to hundreddd s of thousands of physical servers and millions of virtual machines with the least number of switching tiers. We achieve this by leveraging standard protocols to meet the scale requirements of cloud computing. We have used active-active Layer 2 and Layer 3 network topologies to enable customers to build extremely large and resilient networks. High Availability Our highly modular EOS software architecture was designed to be fault-isolating and self-hff ealing in order to deliver higher availability compared to legacy network operating systems. In addition, our customers can non- disruptively upgrade our switches running in the network using our Smart System Upgrade, or SSU application, without interruptuu ing the network service. Open and Programrr mablell 4 Our EOS software was purpose-built to offer re. This has allowed us to integrate our cloud networking platforff m with a wide range es throughout all levels of our of leading third-partytt softwa ff applications. For example, we support VMware NSX, OpenConfigff and Microsoftff System Center for orchestration and fast provisioning, enabling true workload mobility and automatic provisioning of physical switches. We enable customers, through Application Programming Interfaces (APIs), to write their own scripts to customize and optimize their networks. programmable interfacff /YANGYY aa ff Workflk owll Automatiott n l network orchestrat Our EOS software enables enterprr ises to provision networking resources in minutes with no manual et, intervention through our Zero Touch Provisioning. We also natively suppo virtuat tion applications and third-partytt management tools. CloudVision, a network-wide approach for workload orchestration and workflow automation, delivers a turnkey solution to enterprises looking to modernize their data centers for cloud networking. CloudVisVV ion extends the same EOS architectural approach across the network for state, topology, monitoring and visibility. This enablea s enterprises to move to cloud-class automation without needing significant internal development. Finally, EOS embraces the DevOps model, which is a software development method that combines development and operations, to provision and monitor servers, storage and network resources in a unifieff d fashion. rt Ansible, CFEngine, Chef, Puppu uu Networkrr Visiii biii liii ty ff Our EOS softwa re provides a set of tools and applications that proactively monitor, detect and notifyff network manaaa gers when network issues arise, delivering real-time data to third-party network perforff mance and security applications to provide detailed application visibility.tt Our network visibility applications provide real-time insight into the status of the netwott rk. Through the integration of DANZ features native to Arista switches with Big Switch’s monitoring software, we provide the DANZ Monitoring Fabric (DMF). DMF delivers network traffiff c analysis, data analytics and contextual insights to enterprises looking for network wide observability. Security Macro-Segmentation Services (MSSTM) is one of the services enabled via CloudVisVV ion. Since CloudVisioVV n maintains a network-wide database of all states within the network, as well as direct integration with hypervisor resources like VMware vSphere and NSX, Macro-Segmentation extends the concept of fine-grained inter-hypervisor l workloads, and is a security to cloud networks by enabling dynamic securiuu ty and services for physical to virtuat l complement to fine-grained security delivered via Micro-Segmentation that is already implemented in the virtuatt switch of the physical host on which a VM is running. Lower Total Cost of Ownershrr ip rking platform offeff rs architectural and system advantages that provide our customers with Our cloud netwott tive and highly available cloud networking solutions. We believe our programmable, scalable leaf-sff pine cost-effecff architecturtt es, combined with industryt -leading applications, significff antly reduce networking costs when compared to legacy network designs, enabling faster time to service and improved availability.tt Ouruu automation tools reduce the operational costs of provisioning, managing and monitoring a data center network and speed up service delivery.rr Our visibility tools provide high levels of visibility into complex network environments without the need for additional data collection equipment. As a result, this lowers operational costs because fewer network engineers are needed to operate large networks. Cognitive Cloud Networking for the Campus Workspace Our Cognitive Cloud Networking solutions for the next-generation campus are based on three principles: Universal Cloud Networkrr - We offeff r our Universal Cloud Network as an alternative to brittle, proprietary solutions from legacy vendors. Our Universal Cloud Network is an open, standards-based design focusing on softwa re-driven control principles. Our collapsed Spline™ approach consolidates traditional campus core and ff aggregation layers into a simple single tier with high availability. 5 Cognitive Management Plane - There is a void in management plane consistency and a need for data-driven analytics in the campus, as in the data center. We believe that a common model canaa be applied across both footprt ints, saving customers operational costs. The Cognitive Management Plane (CMP) is a data-dridd ven repository for the automated actions across network analytics. Securing The Campus - Securing the Campus spline requiqq res a holistic approach to network segmentation, device compliance and auditing, as well as service integration with ouruu security partaa ners. We deliver these a capaa bilit ies through EOS, DMF, Awake Security, and CloudVisiVV on. Our Competitive Strengths We believe the following strengths will allow us to maintain and extend our technology leadership position in cognitive cloud networking and next-generation data center and campum s workspace Ethet rnet products: • Purpose-Bu- iltll Cloud Networkirr ngii networking platform that uses softwa providers, and large enterprr entertainment companies, including virtuat networking platform does not have the inherent limitations of legacy network architecturtt es. rr We have developed a highly scalable cloud re to address the needs of large-scale internet companies, cloud service ises including financial services organizations, government agencies and media and lization, big data and low-latency applications. As a result, our cloud Platforff m. ff • Broad and Diffi erff enr tiated Portfott switches, capaa ble of routing, with industryt have innovated in areas such as deep packet buffers options. Our broad portfolio has allowed us to offeff ff lio. Using multiple merchant silicon architecturtt es, we deliver city, low latency, port density and power effiff ciency,yy and , highly available modular hardware, and reversible cooling -leading capaaa ff r customers producdd ts that best match their specific requirements. • Singln ell Binaii are allows us to maintain featurtt e consistency across our entire product portfolio and enables us to introduce new software innovations into the market that become available to our entire installed base without a “forff kliftff upgrade” (i.e., a broad upgrade of the data center infrastructure). re.ee The single binary image of EOS softwff ry Imagea Softo watt Rapia d Development of New Features and Applic • atiott ns. Our highly modular EOS software has allowed us to rapida ly deliver new features and applications while preserving the structurtt al integrity and qualitytt of ilities more quickly than our network operating system. We believe our ability to deliver new features and capabaa legacy switch/router operators provides us with a strategic advantage given that the requiqq rements in cloud and next- generation data center networking continue to evolve rapidly. pp • Deep Understandindd gn of Customer Requirements.tt We have developed close working relatioaa nships with many of our largest customers that provide us with insights about their needs and future requirements. This has allowed us to develop and deliver producdd ts to market that meet customer demands and expectations as well as to rapia dly grow sales to existing customers. Strongn Managea ment and Engin neii • Networkirr ngii Expexx rtisett .ee Our management and engineering team consists of networking veterans with extensive data center and campus networking expex rtise. Our President and Chief Executive Offiff cer, Jayshree Ullal, has over 30 years of networking expertise from silicon to systems companies. Andy Bechtolsheim, our Founder and Chief Development Offiff cer, was previously a founder and chief system architect at Sun Microsystems. Kenneth Duda, our Founder and Chief Technology Offiff cer, led the softwa ering Team with Signi re development effoff nt Datatt Centertt rt of EOS. ificaff ff • Significaff fundamental advance in networking softwar state-driven and a result of tremendous research and development effort nt Technologyo Lead.dd We believe that our networking technology represents a re stack that is e. Our EOS softwatt re is a key cloud networking softwatt s. ff tt Our Products and Technology Our portfolff io of products and technology consists of our Core Data center/Cloud Switching Products, our Adjacd ent Campus and Routing Producd ts and our Network Software and Services. Extensible Operating Systemtt 6 s The core of ouruu cloud networking platform is our EOS which runs on top of standard Linux and offer programmability at all layers of the stack. All of ouru Ethernet switching and routing platforff ms run on our EOS ff softwa re. ff EOS is based on a new and innovative architecture that is highly modular and consists of more than 100 separate processes that we call agents, each one handl protocol processing, device driver or system ing specificff management functions. Each agent runs in user space as a separate Linux process and is completely protected and isolated from all other agents. aa We are constantly investing in our core infraff structure to provide the capaaa bilities required for building modern cloud networks and enhancing scalability. New requiqq rements for use in cloud and service provider networks and hybrid cloud deployments in enterprises require on-going upgrades and extensions to our state- oriented architecturtt e. EOSOO Attribtt utes The modular and programmable architecturtt e of EOS enables us to offer featurtt es that are essential for cloud networking and next-generation data centers. ff a set of attributes, capaa bilities and High Availability EOS is self-hff ealing in the sense that individual processes can be restarted without impacting application traffiff c. This architecturtt al design principle supports self-healing resiliency in our software, easier software maintenance and module independence, higher software quality overall, and faster time-to-market for new features that customers require. Progrr rammable at All Layers a EOS is programmable at all layers from the Linuxn kernel to switch configuff and detailed monitoring of the network. Public cloud providers haveaa Development Kit (“SDK”) and eAPI to implement fully customized infrastructurtt e automation solutions. leveraged tools such as the EOS Softwa ration, provisioning, automation re ff Workflkk ow Visibility Through EOS, we have developed a wide range of applications available to our customers for purchase as additional licenses that enable enhanced network monitoring and visibility without requiring additional external monitoring devices. This includes (i) DataANalyZer (DANZ), which provides access to raw network data for shooting and performance management tools, (ii) Latency/loss ANalyZer (LANZ), analysis by security, troubleu nce loads and packet loss and latency occurring at the which provides access to internal network performa microsecond level, (iii) Network Telemetry,y which provides network state information including correlations with the dynamic state of the systems operating on the network such as Hypervisors and, distributed job controls, and (iv) Network Tracers, which provide active integration and diagnostics for various workload conditions dependent upon network performance. ff Networkrr Automation EOS supports Puppet, Chef and Ansible, which enable automatic network configff uration in the same manner as servers and storage. In addition, EOS provides tools that greatly reducdd e network operational costs. Core Datacentertt /Crr loCC ud We offeff r one of the broadest product lines of datacenter 1/2.5/5/10/25/40/50/100/400 Gigabit Ethet rnet switches in the industry, comprising of 7000 Series, 7130 Series, 7150 Series, 7160 Series, 7170 Series and 7500 Series. We deliver switching platforms ff with industry-leading capaaa city, low latency, port densitytt and power effiff ciency. We have also innovated in areas such as deep packet buffeff rs, embem dded optics and reversible cooling. Adjadd cent Campus and Routingtt Cognitive Campus Switching and Routing 7 Our adjacd ent products include our Cognitive Campus switching products such as our 720XP fixed PoE switches, 750 modular PoE switches and 7300X3 spline switches, as well as our Universal Spine and Leaf Routing producdd ts such as ouruu 7020R fixed routers, 7280R fixed routers, 7368X4 modular router, 7500R modular routers and 7800R modular routers. Cognitive WiFi ii Cognitive WiFi consists of our access point solutions (“APs”) that are tailored for a controller-less wireless network. These APs are available in disaggregated options harnessing the power of cloud, machine learnirr ng and cognitive networking. By integrating with CloudVisiVV on, Cognitive WiFi is based on a similar CMP model for cognitive analytics unifying the operational experience across wired and wireless. It enhances real-time insight into the experience of WiFi clients to connect and utilize the network. Cognitive WiFi also includes a suite of WiFi Tracer tools for wireless security, reachability and network healtht diagnostics. Networkirr ngii Softo watt re and Services Cloull dVisiVV onii CloudVision is our network management plane solution for workload orchestration and workflow tion of the physical automation, which delivers a turnkey solution for cloud networking. CloudVision’s abstractt network to a broader, network-wide perspective provides a simplified approach for consistent network operations across network domains, including data center, campum s wired and wireless, routing interconnect, and multi-cloud networks. tt tt l workload orchestrat CloudVision highlights include: Central ized representation of distritt buted network state, allowing for a single point of integration and network-wide visibility and analytics; Controller-agnostic support for physical and ion through open APIs; Turn-key automation for zero touch provisioning, configff uration virtuat management and network-wide upgrades and rollback; Compliance dashboardaa for security, audit and patch management; Cognitive AI/ML for dynamic insights and recommendations, built on a modern approach of real-time streatt ming for telemetry and as a replacement for legacy polling per device; Granular visibility and historical troubleshooting with predictive insights across the unified edge wired and wireless networks, including IoTvision, and finally Multi-domain segmentation for the zero trust enterprise, enabling macro-segmentation services (MSS®) for an open and scalable approach for network policy manaaa gement and with dynamic integrations into securitytt management systems from Arista’s security ecosystem partnet rs. DANZ Monitoii ring Fabricrr (DMF)FF DANZ Monitoring Fabric (DMF) is a next-generation network packet broker (NPB) architected for pervasive, organization-wide visibility and security,tt delivering multi-tenantaa monitoring-as-a-service. DMF enables IT operators to pervasively monitor all user, device/IoT and application traffiff c (north-south and east-west) by gaining complete visibility into physical, virtuatt l and container environments. Deep hop-by-hop visibility, predictive analytics and scale-out packet capture — integrated through a single dashboard — enable simplified network perforff marr nce monitoring (NPM) and SecMon workflows for real-time and historical context, delivering a one-stop visibility solution for on-premise data centers, enterprise campa us/branch and 4G/5G mobile networks. Awake Securitytt Awake Security is an advadd nced network detection and response (NDR) solution that delivers answers, not alerts. By combining artificff expertise, Awake Security autonomously hunts for both insider and external attacker behaviors, while providing triage, digital forensics and incident response across the new network — campus workspace, data center, Internet of Things (IoT)/operational technology (OT) and cloud networks. ial intelligence with humanaa The Awake AI-driven Securiu ty Platform deeply analyzes billions of network communications to autonomously discover, profileff and classify every device, user and application across any network. Using a multi- dimensional ensemble machine learning approach, Awake Security then models complex adversarial behaviors and detects threats by connecting the dots across entities, time, protocols and attack stages. Cloull dEOS 8 CloudEOS™ is Arista’s multi-cloud and cloud-native networking solution enabling a highly secureu and reliable networking experience with consistent segmentation, telemetry,rr provisioning and troubleshooting for the entire enterprise. It can be deployed across the enterprise edge, WAN,AA campus workspace, data center, on-premises Kubernetes clusters, and multiple public and private clouds. CloudEOS provides multi-cloud connectivity across the are entire enterprise cloud environment with high-performance virtual and container-based instances of EOS softwff that simplify network operations and integrate with declarative cloud provisioning toolchains like Terraformff , Ansible, and other popular CloudOps and DevOps tools. CloudEOS is designed for consumption on Amazon AWS, Microsoft Azure, and Google public clouds via their marketpltt ace and service catalogs, and it is also available as a cloud-native instance for deployment in Kubernetes clusters. With CloudEOS and CloudVisioVV n, customers can integrate their cloud network deployments with the elasticity and automation of the publu ic cloud, private cloud and cloud native platforms. Arista A-Care Services We have designed our customer support offeff rings, Arista A-Care Services, to provide our customers with high levels of support. Our global team of support engineers engages directly with client IT teams and is available at all times over e-mail, by phone or through our website. We offeff r multiple service options that allow our customers to select the product replacement service level that best meets their needs. We stock spare parts in over 183 locations aroundu the world through our third-partytt logistics suppliers. All of our service options include unlimited access to bug-fixes, new-featurt e-releases, online case management and our community forums. Sales and Marketing We market and sell our products through our direct sales force and in partnett rship witht our channel partners, including distributors, value-added resellers, systems integrators and OEM partaa ners. We also sell in conjunction with rs. To facilitate channel coordination and increase producdd tivity, we have created a partner various technology partnett r Program, to engage partners who provide value-added services and extend our reach into program, the Arista Partnett the marketplt ace. Authorized training partnett rs and end customers. rs commonly receive an order from an end customer prior to placing an order with us, and we confirm the Our partnett rs generally do not stock inventory identification of the end customer prior to accepting such orders. Our partnett received from us. rs perforff m technical training of our channel partnet Our sales organization is supported by systems engineers with deep technical expertise and responsibility for pre-sales technical support and solutions engineering for ouru end customers, systems integrators, original equipment manufacturers, or OEMs, and channel partners. A pool of shared channel sales and marketing representatives also supports these teams. Each sales team is responsible for a geographical territory, has responsibilitytt for a number of majoa r direct end-customer accounts or has assigned accounts in a specific vertical market. Our marketing activities consist primarily of technology conferff ences, web marketing, trade shows, product demonstrations, seminars and events, public relations, analyst relations, demand generation and direct marketing to build our brand, increase end-customer awareness, communm icate our product advantages and generate qualifieff d leads for our field sales force and channel partnett rs. Seasonality Our rapida historical growth may have reducdd ed the impact of seasonal or cyclical factors that might have influenced our business to date. As our increasing size causes our growth rate to slow, seasonal or cyclical variations in our operations may become more pronouncuu ed over time and may materially affeff ct our business, financial condition, results of operations and prospects. We operate on a December 31st year end and have typically experienced higher sequential producdd t revenue growth in the fourthtt quarter, followed by flat-to-declining sequential growth in the first quarter of the following year. We believe that this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of our end customers. Research and Development 9 We believe our future success depends on our ability to develop new producdd ts and featurtt es that address the needs of our end customers. Our in-house engineering personnel are responsible for the development, quality, documentation, support and release of our products. We plan to continuenn to invest in resources to conduct ouruu research and development effor ts. ff Manufacff turing We subcontract the manufacturtt turiu ng partnet rs are Jabil Circuit and Sanmina Corpor turiu ng overhead and inventoryrr position and allows us to adjust manufacff manufacff demand. We require all of our manufacff facilities worldwide to hold finished goods inventory,yy perforff m producdd t transforff mations, and install our EOS softwa to ship to customers and partner ing of all of our products to various contract manufactureu rs. Our primary ation. This approach allows us to reduce our costs, more quickly to changing end-customer turing locations to be ISO-9001 certifieff d. We have four direct fulfillmen t re s. d ff ff r t Our contract manufacturtt ing partners procure the majoa rity of the components needed to build our products asing power and assemble our products according to ouru design specifications. This allows us to leverage the purchu of our contract manufacff turing partners. We retain complete control over the bills of material, test procedures and quality assurance programs. Our personnel work closely with our partners and review on an ongoing basis forecasts, ing partaa ners procure inventoryrr components and assemble our producdd ts based on our demand forecasts. These forecasts represent our estimates of future demand for our products based upon historical trends and analyses from our sales and product management functions as adjud sted for overall market conditions. city, yields and overall quality. Ouru contract manufacturtt levels, processes, capaa Our products rely on key compom nents, including merchant silicon, integrated circuit components and power supplies purchased from a limited number of suppliers, including certain sole source providers. We also expect to see increased consolidation among our component suppliers. Generally, neithet r we nor our contract manufacturers have a written agreement with these component providers to guarantee the supply of the key components used in our shortages, delay producdd ts, nor do we have exclusive rights to such key components, and our suppliers could sufferff shipments, prioritize shipments to other vendors, increase prices or cease manufacturing such products or selling them to us at anynn time. The suppu ted by geopolitical conditions such as international trade wars like the U.S. trade war with China and the impam ct of publu ic health epidemics like the coronavirus currently spreading around the world. ly of components may also be adversely affecff Our product development effoff rts also depend upon continued collaboration with our key suppliers, and including our merchant silicon vendors such as Broadcom and Intel. As we develop our product roadmapa r merchant silicon vendors, it is critical that we work in continue to expax nd our relationships with these and othet tandem with our key merchantaa silicon vendors to ensure that their silicon includes improved features and that our producdd ts take advantage of such improved features. This enables us to focus our research and development resources ff on softwa ts made by merchant silicon vendors to achieve cost- t tive solutions. effecff re core competencies and to leverage the investmen Once the completed products are manufacturedu facturiu ng partners ship them nt facilities in the United States, the Netherlands and Singapore for final configff uration, to various direct fulfillme quality-controt r the products are shipped to our end customers, ouru producdd ts are installed by the end customers or by third-party service providers such as system integrators or value-added resellers on their behalf. l inspection and shipment to our distribution partners and end customers. Afteff and tested, our contract manuaa ff Competition The markets in which we compete are highly competitive and characterized by rapia dly-changing standards, frequent introductions of new products and technology,yy changing end-customer needs, evolving industrytt services and industry consolidation. We expect competition to intensifyff in the future as the market for cloud networking expax nds and existing competitors and new market entrants introduce new products or enhance existing productdd s. The data center and campum s networking markets have been historically dominated by Cisco, with competition also coming from other large networkrr equipment and system vendors, including Extreme Networks, Dell/EMC, Hewlett Packard Enterprise and Juniper Networks. Most of our competitors and some strategic alliance 10 rs have made acquiqq sitions and/or have entered into or extended partnett partnett r strategic relationships to offer ff more comprehensive product lines, including cloud networking solutions. For example, Broadcom acquired Brocade Communications Systems, Extreme Networks purchased certain data center networking assets from Broadcom/Brocade and Avaya as well as Aerohive Networks, Dell acquired EMC, Hewlett Packard Enterprise acquired Aruba Networks and Juniper Networks acquired Mist Systems. rships or othet We also face competition from othet r companies and new market entrants, current technology partners and end customers who may acquire or develop network switches and cloud service solutions for internal use and/or to broaden their portfolio of products to market and sell to customers. Some of these competitors are developing -shelf or commoditized hardware technology, or “white box” hardware, networking producdd ts based on off-tff het particularly where an end customer’s network strat rings or adopt a disaggregated approach to the procurement of hardware and softwar e. End customers may also increase their adoption of networkirr ng solutions based upon open source network operating systems that may be provided for free and used either on “white box” or proprietary hardware. The entrance of new competitors into our markets or the increased adoption of these new technology solutions or consumption models may cause downward pricing pressures, result in lost sales or othet rwise have a material adverse effeff ct on our business, prospects, financial condition and operating results. egy seeks to emphasize deployment of such producdd t offeff tt tt In the network detection and response (NDR) market, Awake Security competes with othet r network security vendors including Cisco, DarkTracTT e, and ExtraHop. Lastly, in the network packet broker (NPB) market, Arista DANZAA Monitoring Fabric competes with Gigamon, IXIA, and othet r network monitoring software providers. Our relationships with our strategic alliance partners dynamics change. If strategic alliance partners acquire or develop competitive products or services, our relationship with those partners may be advedd rsely impacted, which could lead to more variability to our results of operations and impact the t pricing of our solutions. or suppliers may also shiftff as industryt tt The principal competitive factors applicable to our products include: • • • • • • • • • • breadtht of product offeri ff ; ngs and featuresu reliability and producdd t quality; ease of use; pricing; total cost of ownership, including automation, monitoring and integration costs; perforff marr nce and scale; programmability and extensibility; interoperabia lity with other products; ability to be bundled with other vendor offeff rings; and quality of service, support and fulfillmff ent. respect to these factors. Our EOS software offer We believe our producd ts compete favorably witht s high reliability,y integrates with existing network protocols and is open and programmable. We believe the combination of EOS, a set of netwott rk applications and our 1/2.5/5/10/25/40/50/100/400 Gigabit Ethernet platforff ms make ouru ing highly competitive for both cloud and enterprise data centers. However, many of our competitors have ff offer greater name recognition, longer operating histories, larger sales and marketing budgets and resources, broader distribution and established relationships with channel partners and end customers, greater access to larger end- customer bases, greater end-customer support resources, greater manufacff turing resources, the ability to leverage io of producdd ts, the ability to leverage purchasing power when purchasing their sales effoff subcomponents, the abilitytt ngs witht other producdd ts and services, the ability to develop their own silicon chips, the ability to set more aggressive pricing policies, lower labor and development costs, to bundle competitive offeri rts across a broader portfolff ff ff 11 greater resources to make acquisitions, larger intellectuatt technical, research and development or other resources. l property portfolios and substantially greater financial, Intellectual Property Our success and ability to compete depend substantially upon our core technology and intellectual property. We rely on patent, trademark and copyright laws, trade secret protection and confidff entiality agreements with our employees, end customers, resellers, systems integrators and others to protect our intellectual property rights. We file U.S and foreign patent applications to protect our intellectual property and believe that the duration of our issued patents is adequate relative to the expex cted lives of ouru products. Patents generally have a duration of twenty years from filing. The remaining duration on the individual patents in our patent portfolio varies. We cannot assure that any of our patent applications will result in the issuance of a patent or whether the examination process will result in patents of valuable breadthdd or applicability. In addition, any patents that mayaa be issued may be contested, circumvented, found unenforceabla e or invalidated, and we may not be able to prevent third parties from infringing them. We also license software from third parties for integration into our products, including open source software and othet r software available on commercially-reasonable terms. We own a number of trademarks in the U.S. and other jurisdictions, including Arista, EOS, CloudVisioVV n, CloudStream, CVP, CVX, Health Tracer, MapReduce Tracer, Path Tracer, MXP, MSS, RAIL, Score, SPLINE, SuperSpine, SSU, FlexRoute, NetRollBack, NetDB, OSFP,PP AlgoMatch, Macro-Segmentation and Macro-Segmentation Service. re, technology and othet We control access to and use of our softwatt r proprietary information through internal rs. and external controls, including contrat ctuatt rts to Our software is protected by U.S. and international copyright, patent and trade secret laws. Despite our effoff protect our softwatt r proprietary information, unauthorized parties may still copy or otherwise obtain and use ouru software, technology and other proprietary information. In addition, we intend to expax nd our international operations, and effeff ctive patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. l protections with employees, contractors, end customers and partnet re, technology and othet Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual propertytt rights. If we become more successful, we believe that competitors will be more likely to try to develop producdd ts that are similar to ours and that may infringe ouruu proprietary rights. It may also be more likely that competitors or other third partaa ies will claim that our products infringe their proprietary rights. In particular, large and establis hed companies in our industry have extensive patent portfolios and are regularly involved in both offeff nsive and defensive litigation. From time to time, third parties, including certain of these large companiaa es and non-practicing entities, may assert patent, copyright, trademark and othet r intellectual property rights against us, our channel partaa ners or ouru end customers, whom our standard license and other agreements obligate us to indemnifyff against such claims. a s or perforff mi Successful claims of infringement by a third party,tt if any, could prevent us from distritt buting certain ng certain services, require us to expend time and money to develop non-infringing solutions or productdd force us to pay subsu tantial damages, royalties or other fees. We cannot assure that we do not currently infringe, or that we will not in the future infringe, upon anynn third-partytt patents or other proprietary rights. rr Human Capital Resources At Arista, we seek to maintain an environment that is open, diverse and inclusive, and where our people feel valued, included and accountable. One of Arista’s key principles is always doing the right thing for our employees. We are committed to maintaining the highest level of profesff sional and ethical standards in the conduct of our business around the world. As of December 31, 2020, we employed approximately 2613 full-time employees worldwide. None of our employees is represented by unions. We consider our relationship with our employees to be good and have not expex rienced significff ant interruprr tions of operations due to labor disagreements. rr Diversity and Equal Employme o nt We seek to maintain an environment that is open, diverse and inclusive, and where our employees feel valued. We believe that diverse and inclusive teams enhance individual and company perforff mance and help us attract and retain the best talent available. We strive to build an inclusive culture that encourages, supports and 12 celebrates the diverse voices of our emplm oyees. As part of the Arista way, we believe in treating peers with respect, mentoring individuals and developing teams for overall success. We are proud to be an S&P 500 companynn witht both a female CEO and CFO. We also actively promote the hiring of female engineers by supporting periodic technology sessions for female engineers. In addition, we support under-represented employee affiff nity organizations and actively recruit from under-represented universities and profesff sional societies. Arista affiff rms the principle of equal employment opportunity without regard to any protected characteristic, including but not limited to race, religion, national origin, color, gender, age, disability, pregnancy,yy marital status, ancestry, military status or sexual orientation. We practice and promote such policies in all locations as appropriate under applicable law. We affiff rm this principle of freedom from discrimination in all aspects of the employment relationship from recruitment and hiring, through perforff mance evaluations, compensation and promotions. At Arista, we believe that all employees should be treated with dignity and respect. Healthll and Safea ty We are committed to protecting the health and safetyff of our employees, visitors, and the public. Our policy is to maintain our facilities and run our business operations in a manner that does not jeopardize the occupational health and safety of emplm oyees. During the COVID-19 pandemic, Arista asked its employees to work from home with limited exceptions. Essential workers have been given to access to our facilities as may be permitted under applicable laws afteff r instituting additional health and safety measures to reduce the risk of COVID-19. We work to provide safe working environments in our operations. Compensation and Benefie tsii Arista provides competitive and comprehensive benefitff packages that are designed to help employees make tyle. Our compensation committee provides oversight the best decisions for themselves, their famia of our compensation policies, plans, benefit programs and overall compensation philosophy. ly and their lifesff Along with Arista’s traditional healthcare benefits, Arista has created a detailed injun ry and illness prevention program to better protect employees from occupational risks of injun ry or illness. Arista periodically hosts wellness days, whose purpose is to raise awareness on healtht issues, increase education on preventive medicine and available services and shiftff employee behavior through interactive activities and live presentations. We also maintain a community engagement program, which provides opportunities for our emplm oyees to engage in community service. Available Inforff mation Our website is located at www.arista.com and our located at investors.arista.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reportsrr filed or furnuu ished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on the Investors portion of our web-site as soon as reasonabla y practicable after ff we electronically file such material with, or furnish it to, the Securiu ties and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. relations website is investor Webcasts of our earnaa ings calls and certain events we participate in or host with members of the investmet nt community are on our investor relations website. Additionally, we announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events, and our press and earnings releases, on our investor relations website. Investors and othet tions of new information posted on our investor relations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, ate governance guidelines, board committee including our corpor charters, and code of conduct, is also available on our investor relations website under the heading “Governance.” The contents of our websites, or information that can be accessed through ouru websites, are not incorpor ated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textuat rs can receive notificaff l references only. r rr 13 Item 1A. Risk Factors You shouldll consider carefue llyll infon rmation in this Annual Repor results of operatrr ions and prosrr pes uncertainties not currerr ntly known to us or that we currenrr business, financial condition, results of operatrr t on ForFF mrr cts.tt e ions and prosrr pes cts. the riskii skk and uncertaitt nties described below, together with all of the other 10-K,KK which couldl materially affect our business, financial condition, skk and tly deem to be immaterial alsoll maya materially affeff ct our The riskskk described below arerr not the only riskskk facing us. Riskii Risk Factors Summary Our business is subject to numerous risks and uncertainties, including those highlighted in Part I, Item 1A titled “Risk Factors.” These risks include, but are not limited to, the following: the COVID-19 pandemic could materially adversely affecff the networking market is rapidly evolving; failure to successfully pursue new products and services and expand into adjad cent markets could adversely t our business; our revenue and revenuenn growth may decline; our results of operations may vary significff antly from period to period; our gross margins vary and may be adversely affeff cted; shipment delays could cause revenue to fall; adverse economic conditions and reduced information technology and netwott rk infrastructure spending mayaa we face intense competition and industrytt we are subjeb ct to risks associated with international sales and operations; we face risks associated with the acquisition and integration of complementary companies, producd ts or consolidation; Risks Related to Our Business and Industry • • • affeff ct our business; • • • • • adversely affect • • • technologies; • • • our business; ff seasonal fluctuations impact revenue; fluctuations in currency exchange rates could adversely affeff ct our business; failure to raise any needed capia tal on favorabla e terms could harm ouruu business. if we are unable to attract new large customers or sell additional products and services to our existing ted; large purchases by a limited number of customers represent a subsu tantial portion of our revenue; if we are unable to increase market awareness of our products, our revenue may not continue to grow or Risks Related to Customers and Sales • customers, our revenue growth will be adversely affff ecff • • may decline; • • • • • • • • • • some large customers require more favor sales of our switches generate most of our product revenuenn ; sales prices of our producdd ts and services may decrease; sales cycle can be long and unprnn edictable; inability to offer declines in maintenance renewals by customers could harm our business; indemnificaff we rely on distrit butors, systems integrations and resellers to sell our products; sales to government entities are subjeb ct to a number of risks and challenges; we are exposed to credit risk of channel partnet tion provisions under sales contracts could expose us to losses; rs and customers. able terms; aa ff high quality support and services could adversely affeff ct our business; Risks Related to Products and Services • • • producdd t quality problems, defects, errors or vulnerabilities could harm our business; failure to anticipate technological shiftsff our products must interoperate with operating systems, software and hardware developed by others. could harm our business; 14 managing the supply of our products and product components is complex; some key components in our producdd ts come from sole or limited sources of supply which results in risks of turing Risks Related to Supply Chain and Manufacff • • supply shortages and supply changes; • • rers to build our products; we depend on third-party manufnn actu future sales forecasts may be materially inaccurate which could result incorrect levels of inventory.rr ff Risks Related to Intellectual Property and Other Proprietary Rights • • • • • access to our software and selected source code to certain partners, which creates additional risks. assertions by third partaa ies of intellectual property infringement could harm our business; failure to protect our intellectual property rights could harm our competitive position; we rely on the availability of licenses to third partytt softwff failure to comply with open source software could restrict our ability to sell our products; risk that our competitors could develop products that are similar to or better than oursuu are and othet r intellectual property;tt because we provide Risks Related to Litigation • we may become involved in litigation that may materially advedd rsely affeff ct us. Risks Related to Cybersecurity and Data Privacy • security breaches could harm our business; • defects, errors or vulnerabilities in our security network products or the failure of our products to detect breaches of our cybersecurity systems or other security breaches could harmaa our business and our products. failure to maintain effecff tive internal control over financial reporting could adversely affeff ct the accuracy if our critical accounting policies are based on incorrect assumptions, our results of operations could fall Risks Related to Accounting, Compliance, Regulation and Tax • and timing of our financial reporting; • below analyst and investor expex ctations and result in a decline in the markaa et price of our common stock; • business; • • • international markets or subject us to liability for violations. changes in our effecff failure to comply with governme we are subjeb ct to governmental export and import controls that could impam ir our ability to compete in t our results; nt laws and regulations could harm our business; import/et xport restrictions or other trade barriers may negatively affecff tive tax rate or new tax laws could advedd rsely affecff enhanced U.S. tax, tariff,ff t our rr Risks Related to Ownership of Our Common Stock • • common stock to decline; • • • entrenchment. the trading price of ouru common stock is volatile and the value of your investmet any reduction or discontinuance of our stock repurcu hase programa nt may decline; could cause the market price of our sales of substantial amounts of our common stock could reduce the market price of ouru common stock; insiders have substantial control over us; our charter documents and Delaware law could discourage takeover attempts and lead to management General Risks • • • if we are unable to hire, retain and train personnel and senior management, ouru business could suffeff natural disasters, terrorism and other catastrot phic events could harm ouru business; we have not paid dividends and do not intend to pay dividends for the foreseeable future. r; 15 Risks Related to Our Business and Industry The COVID-19 pandemic could materially adversely affeff ct our business, financial condition, results of operations and prospects. The COVID-19 pandemic has had and could continue to haveaa an adverse impact on the business operations of our company and our customers, partaa ners, manufacturtt ers, suppliers, distribution fulfilff lment centers and service depots. To comply with the shelter in place orders and to safeguard our emplm oyees, we closed all of ouruu offiff ces, with limited exceptions for essential employees in certain locations, and the vast majoa rity of our employees continuenn to work from home. In addition, we expex rienced, and may continue to experience, manufacturing and supply chain disruptions and logistic challenges. Our contract manufacturers in Malaysia, Mexico and the United States are aa mic and have expex rienced shelter in place orders, workforce disruptions and delays in impacted by the pande ting products. While our contract manufacturers have made significff ant progress, they may be producdd tion and expor subjeb ct to supply constraints. Similar to our manuf ent centers and service depots riu ng facilities, our direct fulfillmff ff continue to operate with varying degrees of governme nt restriction on access, which can materially impact our ability to ship products or provide support services to our customers. As a result of COVID-19 related turiu ng disruptions, the lead times for our products have increased and our supply chain costs have increased manufacff which has adversely impam cted our gross margins. In addition, we have and may continue to purchase buffeff r supply to support long- inventories of components and products that have extended lead times to ensure adequateaa a term customer demand, and this may increase the risk of future excess and obsolete inventory and could haveaa negative impact on our gross margins. actu r x aa As the COVID-19 pandemic continues, we haveaa expex rienced and may continue to expex rience additional risks including: • • • • • more manufacff turing disruptions and supply shortages; longer lead-times for component parts incorporated into our producdd ts; reduced capaaa citytt and output tt at factories and factory closures; disruptions in logistics which impact the movement of components and finished producdd ts; overall increased demand for materials which could result in a limited supply of materials and components that are incorporated in ouruu products; • customers; • delays in product shipments and limits on our ability to provide in-person support services to increased risk of future excess and obsolete inventory as we increase our inventory bufferff s of long lead time components to support longer term customer demand; and • further increased lead times for our products. The COVID-19 pandemic could limit our ability to add new customers and cause sales disruptions, order cancellations, longer upgrade cycles by customers for network equiqq pment and overall lower demand for ouru productdd s and services. Customers may purchase products in advance of their internal demand which could result in lower purchases in subsequent quarters. We could face increased risk of customer defaulaa ts and delays in payment. In addition, the COVID-19 pandemic has adversely affecff ted, and may continue to adversely affeff ct, the global economy and financaa ial markets, which may result in an extended economic slowdown or a global recession that could adversely impact our business. Due to the duration of the pandemic, the uncertainty around vaccination deployment with respect to the COVID-19 pandemic, the uncertainty around the impam ct of new strains of COVID- 19 and uncertain timing of a global recovery,rr we are unable to predict the full impact of the COVID-19 pandemic on our business operations and financial perforff mance. The networking market is rapidly evolving. If this market does not evolve as we anticipate or our target end customers do not adopt our networking solutions, we may not be able to compete effeff ctively,yy and our ability .rr to generate revenue will sufferff A substantial portion of ouru business and revenue depends on the growth and evolution of the networking market. The market demand for networking solutions has increased in recent years as end customers have deployed 16 larger, more sophisticated networks and have increased the use of virtualization and cloud computing. The continuenn d growth of this market will be dependent upon many factors including but not limited to the adoption of and demand for our end customers’ products and services, the expansion, evolution and build out of our end customers’ networks, the capacity utilization of existing network infrastrutt cturtt es, changes in the technological requirements for the producdd ts and services to be deployed in these networks, the amount and mix of capital spending by our end customers, the development of network switches and cloud service solutions by our large end customers for internal use, the financial performance and prospects of our end customers, the availability of capita l resources to our end customers, changes in government regulation that could impact netwott rking business models including those regulations related to cybersecurity,tt privacy, data protection and net neutrality, our ability to provide networking solutions that address the needs of end customers more effeff ctively and economically than those of other competitors or existing technologies and general economic conditions, including the impact of the COVID-19 pande aa mic. a If the networking solutions market does not develop in the way we anticipate or otherwise experiences a slow-down, if ouru solutions do not offer benefits compared to competing networking producdd ts or if end customers do not recognize the benefits that our solutions provide, then our business, financial condition, results of operations and prospects could be materially adversely affeff cted. ff We pursue new product and service offeff rings and expand into adjad cent markets, and if we fail to successfully carry out these initiatives, our business, financial condition, or results of operations could be adversely impacted. s through our acquisitions and research and development effoff We have made substantial investments to develop new producdd ts and services and enhancements to existing rings and productdd by introducing maintain our revenue growth. If we are unable to anticipate technological changes in our industrytt new or enhanced products and services in a timely and cost-effecff tive manner, if we fail to introducdd e products and services that meet market demand, or if we do not successfully expand into adjad cent markets, we may lose our competitive position, our products may become obsolete, and our business, financial condition or results of ted. For example, as we introducdd e our 400 GbE and 800 GbE products, our operations could be adversely affecff ability to continue to maintain our competitive position with our customers will depend on their acceptance of these productdd rts to expand our product offeff s. ff rking and netwott ngs, we haveaa Additionally, from time to time, we invest in expansion into adjacent markets, including campaa rk security markets. Although we believe these solutions are complementaryrr ff less experience and a more limited operating history in these markets, and our effor us switching, to our WiFi netwott current offeri ts in this area may not be successful. Expanding our services in existing and new markets and increasing the depth and breadtht of our presence imposes significant burdens on ouru marketing, compliance, and othet tive and and deepen our market share in our existing markaa ets and possibly expand managerial resources. Our plan to expandaa into additional markets is subject to a variety of risks and challenges. Our success in these new markets depends on a variety of factors, including but not limited to ouru ability to develop new products, new product features and services that address the customer requirements for these markets, attract a customer base in markets in which we have less experience, compete with new and existing competitors in these adjad cent markets, and gain market acceptance of our new products. r administratt Developing our products is expensive, and the investmet involve a long payback cycle. We expex ct to continue to invest heavily in software development in order to expand the capabilities and introduce new products and features. We expect that our results of operations of our cloud networking platformff will be impacted by the timing and size of these investments. These investments may take several years to generate positive returt ns, if ever. nt in product development mayaa Additionally, future market share gains may take longer than planned and causaa e us to incur significant costs. If we are unable to attract new large end customers or to sell additional products and services to our existing growth will be adversely affeff cted and our revenue could decrease. Difficff ulties in any of end customers, our revenuenn our new product development effoff rts to enter adjad cent markets could advedd rsely affeff ct our operating results and financial condition. rts or our effoff Our revenue and our revenue growth rate may decline. Our revenue growth rate in previous periods mayaa not be indicative of our future performance. We have experienced annual revenue growth rates of -3.9%, 12.1%, and 30.7% in 2020, 2019, and 2018, respectively. In the 17 future our revenue growth rates may be volatile as we become more penetrated in our existing customer base and producdd t markets, and as we look to enter and expax nd into new markets. In addition, COVID-19 related disruptions a negative impam ct on demand from our customers in future periods and on our ability to add new may haveaa customers. Othet r factors may also contribute to declines in our growth rates, including changes in demand for our producdd ts and services, particularly from our large end customers, changes in capital spending by our large end customers, increased competition, our ability to successfully manage our expax nsion or continue to capitalize on growth opportunities, the maturation of our business, general economic and international trade conditions, and our us switching, WiFi networking markets and network ability to be successful in adjacent markets, such as campa in demand from certain of our large end customers. security markets. For example, we have experienced volatilitytt revenue Overall demand from larger customers may decline in future periods, which would impact our futureu growth. You should not rely on our revenue for any prior quarterly or annual period as an indication of our future revenue or revenue growth. If we are unable to maintain consistent revenue or revenue growth, our business, financial condition, results of operations and prospects could be materially adversely affect ed and our stock price could be volatile. ff Our results of operations may vary significff antly from period to period and be unpredictable and if we fail to meet the expectations of analysts or investors or our previously issued financial guidance, or if any forward- looking financial guidance does not meet the expectation of analysts or investors, the market price of our common stock could decline substantially. Our results of operations have historically varied from period to period, and we expex ct that this trend will continue. As a result, you should not rely upon our past financial results for any period as indicators of future perforff marr are outside of our control and may be difficff ult to predict, including: nce. Ouru results of operations in anynn given period can be influenced by a number of factors, many of which • • the disruption caused by COVID-19 and the government restrictions in response to the pandemic; our inability to fulfilff l our end customers’ orders due to the availability of inventory,rr supply chain delays, access to key commodities or technologies or events that impact our manufactu ff rers or their suppliers; • end customers; our ability to increase sales to existing customers and attract new end customers, including large • the budgeting, sales and implementation cycles, purchasing practices and buying patterns of end customers, including large end customers who may receive lower pricing terms due to volume discounts and who may or may not make large bulk purchases in certain quarters or who may elect to re-assign allocations to multiple vendors based upon specific network roles or projects; • changes in the growtht rate of existing or new customers, including large end customers and service providers, changes in end-customer, distributor or reseller requirements or market needs, and changes in growth rates of the networking market; • the cost and potential outcomes of existing and future litigation; • and tariffsff various imports from China; increased expenses resulting from the tariffsff imposed by other countries on U.S. goods, including the tariffsff imposed by the U.S. on goods from other countries implemented by the U.S. government on • • changes in our pricing policies, whether initiated by us or as a result of competition; the amount and timing of operating costs and capia tal expenditures related to the operation and expansion of our business; • difficff ulty forecasting, budgeting and planning due to limited visibility beyond the first two quarters into the spending plans of current or prospective customers; • deferral, reducd tion or cancellation of orders from end customers, including in anticipation of new producdd ts or product enhancements announced by us or ouru competitors, or warranty returns; 18 • of those products; • the inclusion of any acceptance provisions in our customer contracts or any delays in acceptance competitors or any other change in the competitive landscape of our industryt competitors or end customers; the actual or rumored timing and success of new product and service introductions by us or our , including consolidation among our • • our ability to successfully expand our business domestically and internationally; our ability to increase the size and production of our sales or distribution channel, or any disruption in, or termination of, our sales or distritt bution channels; • decisions by potential end customers to purchase our netwott rking solutions from larger, more established vendors, white box vendors or their primary network equiqq pment vendors; • their ability to purchase or pay for our products and services, or confroff nting our key suppliers, including our sole source suppliers, which could disrupt our supply chain; g our end customers, which could advedd rsely affect insolvency or credit difficff ulties confrontin ff ff • • seasonality or cyclical fluctuations in our markets; future accounting pronouncements or changes in our accounting policies; • our overall effeff ctive tax rate, including impacts caused by any reorganization in our corpor rate strutt cturtt e, any changes in our valuation allowance for domestic deferred tax assets and any new legislation or regulatory developments, including the Tax Cuts and Jobs Act of 2017 (thett “TaxTT Act”); • increases or decreases in ouruu expenses caused by fluctuations in foreign currency exchange rates, as an increasing portion of our expenses are incurred uu and paid in currencies other than the U.S. dollar; • general economic conditions, both domestically and in foreign markets, and disruptions in our epidemics, natural disasters, terrorism and other business and the markets due to, among other things, healtht catastrot phic events; • • increases in cybersecurity threats, including security threats from state sponsors; and othet r risk factors described in this Annual Report on Form 10-K. Any one of the factors above or the cumulative effecff t of several of the factors described above may result nt fluctuations in our financial and other results of operations and may causaa e the markaa et price of ouru in significaff common stock to decline. In the past, we have failed to meet investor financaa ial expectations and the market price of our common stock declined. This variability and unpredictability could result in our failure to meet ouru revenue, gross margins, results of operations or other expectations contained in anynn forward looking financial guidance we have issued or the expectations of securities analysts or investors for a particular period. If we fail to meet or exceed such guidance or expex ctations for these or any other reasons, the market price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits. We expect our gross margins to vary over time and to be adversely affecff ted by numerous factors. We expect our gross margins to varyrr over time and the gross margins we have achieved in recent years mayaa not be sustainablea and may be adversely affeff cted in the future by numerous factors, including but not limited to changes in end-customer, geographic or product mix, increased price competition, introduction of new products and re and subscription solutions, increases in new business models including the sale and delivery of more softwatt material or component costs and producdd tion costs, entry into new markets or growth in lower margin markets, entry in markets with differff ent pricing and cost structures, pricing discounts given to customers, costs associated with defending intellectual propertytt r claims and the potential outcomes of such disputes, excess inventoryrr and inventory holding charges, changes in shipment volume, the timing of revenue recognition and increased costs arising from epidemics, changes in , revenue deferrals, increased costs arising from tariffsff distribution channels, increased warrantytt costs, and our ability to execute ouru operating plans. We determine our operating expenses largely on the basis of anticipated revenues and a high percentage of our expex nses are fixed in the short and medium term. As a result, a failure or delay in generating or recognizing revenue could causaa e 19 infringement and othet significant variations in our operating results and operating margin from quartaa er to quarter. Failure to sustain or t on our business and improve our gross margins reduces our profitaff bia lity and may haveaa stock price. a material adverse effecff Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels. We may be subject to supply chain delays, or end-customer buying patternsrr in which a subsu tantial portion of sales orders and shipments may occur in the second half of each quarter. This places significant pressure on order review and processing, supply chain management, manuaa and quality control management, shipping and trade compliance to ensure that we have properly forecasted supply purchasing, manufacturiu ng city, inventory and quality compliance and logistics. A significant interruption in these critical functions, it capaa could result in delayed order fulfilff lment, adversely affecff t our business, financial condition, results of operations and prospects and result in a decline in the markaa et price of our common stock. facturing, inventoryrr Adverse economic conditions or reduced information technology and network infrastructure spending may adversely affecff t our business, financial condition, results of operations and prospects. Our business depends on the overall demand for information technology, network connectivitytt and access to data and applications. Weak domestic or global economic conditions, fear or anticipation of such conditions, international trade disputes, global pandemics, or a reduction in information technology and network infrastructure spending even if economic conditions imprm ove, could adversely affecff t ouru business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, lower prices for our products and services, higher default rates among our distributors, and reduced unit sales and lower or no growth. For example, ed by, among other things, the COVID-19 ff the global macroeconomic environment could be negatively affect pandemic or othett r epidemics, instability in global economic markets resulting from fiscal and monetary stimulus measures to counteract the impact of the COVID-19 pandemic, increased U.S. trade tariffsff and trade disputes between the U.S., China and other countries, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, including the instability in the geopolitical environment as a result of the withdrawal of the United Kingdom from the European Union ("EU"), political demonstrations, and foreign governmental debt concernsrr . Such challenges have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets. In addition, the COVID-19 pandemic has caused eling capital expex nditures on business disruptions around the world and may result in customers delaying or cancaa the overall demand for our products. information technology and network infrastrutt cturtt e, which may affff ecff infrastructure, Continuing or worsening economic instability could adversely affecff systems and tools. A longer period of economic uncertainty or a downturn may also significantly affecff t financing ing arrrr angements, including the overall cost markets, the availability of capiaa tal and the terms and conditions of financaa of financing as well as the financial health or creditworthiness of our end customers. Circumstances may arise in which we need, or desire, to raise additional capita l, and such capital may not be available on commercially reasonabla e terms, or at all. t spending for IT, networkrr a t We face intense competition, especially from larger,rr well-established companies and industry consolidation may lead to further increased competition, which may harm our business, financial condition, results of operations and prospects. The markets in which we compete, including the markets for data center, campa us networking and network security, are intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. This competition could result in increased pricing pressure, reduced profitff margins, increased sales and marketing expenses and our failure to increase, or the loss of,ff market share, any of which would likely seriously harm our business, financial condition, results of operations and prospects. The data center and campum s networking markets have been historically dominated by Cisco, with competition also coming from other large networkrr equipment and system vendors, including Extreme Networks, Dell/EMC, Hewlett Packard Enterprise, and Juniper Networks. Most of our competitors and some strat tegic alliance r strategic relationships to partnett offer ff more comprehensive product lines, including cloud networking solutions and network security.tt For example, Broadcom acquired Brocade Communications Systems, Extreme Networks purcu hased certain data center networking assets from Broadcom/Brocade and Avaya, Dell acquired EMC, and Hewlett Packard Enterprise rs have made acquiqq sitions and/or have entered into or extended partnett rships or othet 20 acquired Aruba Networks. This industry consolidation may lead to increased competition and may harmaa our business. Large system vendors are increasingly seeking to deliver top-to-bottot m cloud networking solutions to end customers that combine cloud-focff used hardware and softwatt re solutions to provide an alternative to our producdd ts. We expect this trend to continue as companies attempt to strengthen their market positions in an evolving industrytt and as companies are acquiqq red or are unable to continuenn Industry consolidation may result in stronger competitors that are better able to compete with us, and this could lead to more variaa ability in our results of operations and could have a material adverse effect on our business, the pricing of our solutions, financial condition, results of operations and prospects. operations. ff We also face competition from other companies and new market entrants, including current technology rs, suppliers and end customers or other cloud service providers who may acquire or develop network partnett switches and cloud service solutions for internal use and/or to broaden their portfolio of products to market and sell Some of these competitors are developing networking products based on off-tff he-shelf or to customers. re, particularly where an end customer’s network commoditized hardaa ware technology, or “white box” hardwadd rings or adopt a disaggregated approach to the tt strat procurement of hardwareaa also increase their adoption of networking solutions based upon open source network operating systems that may be provided for free and used either on “white box” or proprietary hardware. The entrance of new competitors into our markets or the increased adoption of these new technology solutions or consumption models may cause downward pricing pressures, result in lost sales or otherwise have a material adverse effect on ouruu business, prospects, financial condition and operating results. egy seeks to emphasize deployment of such product offeff re. End customers mayaa and softwatt ff Our relationships with our stratt dynamics rs acquire or develop competitive products or services, our relationship witht rs may be adversely impacted, which could lead to more variaa ability to ouru results of operations and or suppliers may also shiftff as industryt tegic alliance partners tt changes. If strategic alliance partnett those partnett impact the pricing of our solutions. Many of our existing and potential competitors enjoy subsu tantial competitive advantages, such as greater larger sales and marketing budgets and resources, broader name recognition and longer operating histories, s and end customers, the ability to leverage their sales distribution and established relationships with channel partner effoff rings with other products and services, the ability to develop their own silicon chips, the ability to set more aggressive pricing policies, lower labor , and and development costs, greater substantially greater financial, technical, research and development or other resourcu es. rts across a broader portfolio of products, the ability to bundle competitive offeff resources to make acquisitions, intellectual propertytt ff portfolio larger t In addition, large competitors may have more extensive relationships with and within existing and potential end customers that provide them with an advantage in competing for business with those end customers. For example, certain large competitors encourage end customers of their other products and services to adopt their data networking solutions through discounted bundled product packages. Ouruu ability to compete will depend upon ouru ability to provide a better solution than our competitors at a more competitive price. We may be required to make substantial additional investments in research, development, marketing and sales in order to respond to competition, nts will achieve any returns for us or that we will be able to compete and we cannot assure you that these investmet successfully in the futureu . We also expect increased competition if our market continues to expax nd. As we continue to expand globally, we may see new competition in differff ent geographic regions. In partaa icular, we may experience price- focused competition from competitors in Asia, especially from China. As we expand into new markets, we will face competition not only from our existing competitors but also from othett r competitors, including existing companies with strong technological, marketing, and sales positions in those markets, as well as those with greater resources, including technical and engineering resources, than we do. Conditions in ouru market could change rapidly and significantly as a result of technological advadd ncements or other factors. rr We are subject to a number of risks associated with the expansion of our international sales and operations. Our ability to grow our business and ouru future success will depend to a significant extent on our ability to rs, suppliers and expand our operations and customer base worldwide. Many of our customers, resellers, partnet manufacff operate around the world. Operating in a global marketplace, we are subject to risks associated with having an international reach and compliance and regulatory requirements. Our international sales and operations are subjeb ct to a number of risks, including the following: u turers 21 • • business; • • • • • • ability to establish necessaryrr business relationships and to comply with local business requirements, including distrit butor and reseller relationships; • greater difficff ulty in enforcing contracts and accounts receivabla e collection and longer collection periods and non-standard terms with customers related to payment, warranties or perforff mance obligations; increased expenses incurred in establishing and maintaining our international operations; fluctuations in exchange rates between the U.S. dollar and foreign curreu ncies where we do general economic and political conditions in these foreign markets; corruption, anti-bribery,rr privacy, data protection and the importation, certification and localization of our productdd foreign countries; including those relating to anti- s in risks associated with U.S. and foreign legal requirements, risks associated with U.S. government trade restrictions, including those which may impose of re-exportation, sale, shipment or other transferff restritt ctions, including prohibitions, on the exportation, programming, technology, components, and/or services to foreign persons; • greater risk of unexpected changes in regulatory practices, tariffsff and tax laws and treaties, including the Tax Act, particularly since there has been a changaa e in U.S. presidential administration; greater risk of unexpected change aa s in tariffsff imposed by the U.S. and other countries; United Kingdom and the EU, which could have a material adverse effecff countritt es; deterioration of political relatioaa ns between the U.S. and China, Russia, Canada, Mexico, the t on our sales and operations in these • the uncertainty of protection for intellectual propertytt rights in some countries; and • s and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of,ff or irregularities in, financial statements. business practices in certain geographie heightened risk of unfaiff r or corruptu a These and other factors could harm our ability to gain future international revenue and, consequently, materially affecff t our business, financial condition, results of operations and prospects. Expanding our existing international operations and entering into additional international markets will require significant management attention and financial commitments. Our failure to successfully manage our international operations and the associated risks effecff tively could limit our future growth or materially adversely affeff ct our business, financial condition, results of operations and prospects. We may invest in or acquire other businesses which could require significff ant management attention, disrupt our business, dilute stockholder value and adversely affeff ct our business, financial condition, results of operations and prospects. ry 2020 which require management to focus effoff As part of our business strategy, we may make investments in complementary companies, products or technologies which could involve licenses, additional channels of distritt bution, discount pricing or investments in or acquisitions of other companies. For example, we completed the acquisitions of Awake Security in October 2020 and Big Switch Networks in Februarr rts on integrating Awake Security and Big Switch Networks with the compam ny. We may not be able to find suitable investment or acquisition candidates and we may not be able to complete such investments or acquisitions on favorable terms, if at all. If we do complete investments or acquisitions, we may not ultimately strengthen our competitive position or achieve ouru nts or acquisitions we complete could be viewed negatively by our end customers, investors goals, and any investmet and securities analysts. Through acquisitions, we continuenn to expand into new markets and new market segments and we may experience challenges in entering into new market segments for which we have not previously manufacff ulty achieving expected business results due to a lack of expex rience in new markets, producd ts or technologies or the initial dependence on unfamiliar distribution partnet and sold producdd ts, including facing exposure to new market risks, difficff rs or vendors. turedu 22 In addition, investments and acquisitions may result in unforeseen operating difficff ulties and expenditureu s. at integrating any acquisitions or retaining key talent from those acquisitions, or For example, if we are unsuccessfulff the technologies associated with such acquisitions, into our company, the business, financial condition, results of operations and prospects of the combined company could be adversely affecff ted. We may have difficff ulty retaining the employees of any acquired business or the acquired technologies or research and development expectations may prove unsuccessful. Any integration process may require significff ant time and resources, and we may not be able to manage the process successfulff ly. Acquisitions may also disrupt our ongoing business, divert our resources and require significff ant management attention that would otherwise be available for development of our business. We may not successfully evaluate or utilize the acquired technology or personnel or accurately forecast thet financial s of an acquisition transaction, including accounting charges. Any acquisition or investment could expose us to ff effect unknown liabilities. Moreover, we cannot assure you that the anticipated benefits of any acquisition or investmet nt would be realized or that we would not be expos ed to unknown liabilities. We may not be successful in retaining or expanding the customers and sales activities of any acquired business or in realizing the expected operational and cost effiff ciencies anticipated with the acquisition. We may have to pay cash, incur debt or issue equity securities to pay for anynn such investment or acquisition, each of which could adversely affeff ct our financial condition or the market price of our common stock. The sale of equitytt or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and r restritt ctions that would impede our ability to manage our operations. Moreover, could also include covenants or othet if the investment or acquisition becomes impaired, we may be required to take an impairmerr nt charge, which could adversely affeff ct our financial condition or the market price of our common stock. x Seasonality may cause fluctuations in our revenue and results of operations. We operate on a December 31st year end and have typically experienced higher sequential product revenue growth in the fourth quarter, followed by flat to declining sequential growth in the first quarter of the following year. We believe that this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of our end customers. Ouru rapiaa d historical growth may haveaa reduced the impam ct of seasonal or cyclical factors that might have influenced our business to date. As our increasing size causes our growth rate to slow, seasonal or cyclical variations in our operations may become more pronounced over time and may materially affeff ct our business, financial condition, results of operations and prospects. We are exposed to fluctuations in currency exchange rates, which could adversely affeff ct our business, financial condition, results of operations and prospects. Our sales contracts are primarily denominated in U.S. dollars, and thereforff e, substan tially all of our revenue is not subjecb t to foreign currency risk. However, a strengthet ning U.S. dollar could increase the real cost of ouru producdd ts to our end customers outside of the U.S., which could advedd rsely affeff ct our business, financial condition, results of operations and prospects. In addition, a decrease in the value of the U.S. dollar relative to foreign currencies could increase our product and operating costs in foreign locations. Further, a portion of our operating expenses is incurred outside the U.S., is denominated in foreign currencies and is subject to fluctuations due to hedge against the risks associated with changes in foreign currency exchange rates. If we are not able to successfully the currency fluctuations, our business, financaa ial condition, results of operations and prospects could be advedd rsely affecff ted. u ff If we needed to raise additional capital to expand our operations, invest in new products or for other corporate purposes, our failure to do so on favorable terms could reduce our ability to compete and could harm our business, financial condition, results of operations and prospects. We expect that our existing cash and cash equivalents, will be sufficff ient to meet our anticipated cash needs for the foreseeabla e future. If we did need to raise additional funds to expand our operations, invest in new products r corporate purposes, we may not be able to obtain additional debt or equity financing on favorable terms. or for othet If we raise additional equiqq ty financing, our stockholders may expex rience significant dilution of their ownership interests, and the market price of our common stock could decline. Furthet rmore, if we engage in debt financing, the holders of such debt would haveaa priority over the holders of common stock, and we may be required to accept terms that restrict our ability to incuru additional indebtedness or impose other restrictions on ouruu business. We may also be required to take other actions that would otherwise be in the interests of the debt holders, including maintaining specified liquidity or other ratios, any of which could harm our business, financial condition, results of operations and prospects. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among 23 othet r things, enhance our products and services, expand our sales and marketing and research and development organizations, acquire complementary technologies, producdd ts or businesses, and respond to competitive pressures or unanticipated working capiaa tal requirements. Our failure to do any of these things could seriously harm our business, financial condition, results of operations and prospects. Risks Related to Customers and Sales If we are unable to attract new large end customers or to sell additional products and services to our existing end customers, our revenue growth will be adversely affeff cted and our revenue could decrease. nt given their existing infrastructureu To increase our revenue, we must add new end customers and large end customers and sell additional producdd ts and services to existing end customers. For example, one of ouruu sales strategies is to target specificff projects at our current end customers because they are familiar with the operational and economic benefits of our solutions, ity with current end customers to thereby reducdd ing the sales cycle into these customers. We also believe the opportuntt egies is be significaff egies focused on focused on increasing penetration in the enterprr expansion to adjad cent markets can require more time and effor t since enterprise and campus end customers typically a long testing period. For this reason, in order to grow our revenue, it is start witht small purchases, and there is oftenff important for us to attract new large end customers. Some factors that may limit our abilitytt to attract new large end limited to, saturation with certain of the large cloud networking customers, customers include, but are not competition, decreased capital spending of such customers, a limited number of such customers, and a decline in growth of such customers. If we fail to attract new large end customers, including enterprise and campus end customers, or fail to reduce the sales cycle and sell additional producdd ts to our existing end customers, our business, financial condition, results of operations and prospects will be harmed. and expected future spend. Another one of our sales strat ise and campus markets. However, sales strat ff tt tt We expect large purchases by a limited number of end customers to continue to represent a substantial portion of our revenue, and any loss, delay,yy decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations. Historically, large purchases by a relatively limited number of end customers have accounted for a significant portion of our revenue. We have experienced unpredictability in the timing of orders from these large end to these customers, the time it takes these end customers primarily due to changes in demand patterns specificff customers to evaluate, test, qualify and accept ouru products, and the overall complexity of these large orders. We expect continued variaa ability in our customer concentration and timing of sales on a quarterly and annual basis. For example, sales to our end customer Microsoft and Facebook in fiscal 2019 collectively represented 40% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 amounted to 21.5% of our revenues, with our end customer Facebook representing less than 10% of our revenues in the period. These changes contributed to a year-over-year decline in our revenue for fiscal 2020 compared to fiscal 2019. However, this decline in revenue was offsff et in part by stronger sales to our enterprise and other cloud and service provider customers. In addition, we typically provide pricing discounts to large end customers, which may result in lower margins for the period in which such sales occur. As a consequence of the concentrated nature of our customer base and their purchu asing behavior, ouru quarterly revenue and results of operations may fluctuate from quartaa er to quarter and are difficff ult to estimate. Changes in the business requirements or focus, upgrade cycles, vendor selection, project prioritization, manner in which spending allocations are assigned among multiple vendors based upon specific network roles or projects, financial prospects, lack of growth of our customers, capital or purchasing behaviaa or and deceleration in spending of our key end customers could significff antly decrease our sales to such end customers or could lead to delays, reducdd tions or cancellations of planned purchases of our products or services. Moreover,rr rwise because our sales will be based primarily on purchase orders, our customers may cancel, delay, reduce or othet modify their purchase commitments with little or no notice to us. This limited visibility regarding our end customers’ product needs, the timing and quantaa ity of which could vary significff antly, requiqq res us to rely on estimated demand forecasts to determine how much material to purchuu ase and product to manufacture. Our failure to accurately g current and future purchase forecast demand can lead to product shortages which could lead to delays in fulfillin orders that can impede production by our customers and harm our customer relationships. And, in the event of a cancellation or reduction of an order, we mayaa not haveaa enough time to reduce operating expenses to mitigate the effecff t of the lost revenue on our business, which could materially affecff resources and expex ndituresu t our operating results. a ff 24 r existing end customers at the rate we anticipateaa We may be unabla e to sustain or increase our revenue from ouru large end customers, grow revenues with or at all, or offsff et the discontinuation of concentrated new or othet purchases by our larger end customers witht purchases by new or existing end customers. These customers could choose to divert all or a portion of their business with us to one of our competitors, re-assign spending allocations, increase their adoption of "white box" solutions and open source network operating systems, demand pricing ed services that increase our costs, or reducdd e their concessions for our services, require us to provide enhancaa spending levels. If these factors drove some of our large customers to cancel all or a portion of their business relationships with us, the growtht in our business and the ability to meet our current and long-term financial forecasts may be materially impacted. We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable future and that our results of operations may fluctuate mateaa rially as a result of such larger end customers’ buying patterns. In addition, we may see consolidation of our customer base, such as among Internet companiaa es and cloud service providers, which could result in loss of end customers. The loss of such end customers, or a significff ant delay or reduction in their purchases, including reductions or delays due to customer departurtt es from recent buying patterns, or an unfavff orable change in competitive conditions could materially harm our business, financial condition, results of operations and prospects. If we are unable to increase market awareness of our company and our new products and services, our revenue may not continue to grow or may decline. We have not yet established broad market awareness of our new products and services, including new producdd ts we introducd ed in the campus workspace and network security markets. Market awareness of our value proposition and products and services will be essential to our continued growth and ouru success, particularly for the service provider and broader enterprise markets. If our marketing effoff in creating market awareness of our company and our products and services or in gaining access to new customer markets, then our business, financial condition, results of operations and prospects will be adversely affecff ted, and we will not be able to achieve sustained growth. rts are unsuccessfulff Some of our large end customers require more favorable terms and conditions from their vendors and may request price concessions. As we seek to sell more products to these end customers, we may be required to t on our business or ability to recognize revenue. agree to terms and conditions that may have an adverse effecff nt purchasing power and, as a result, may receive more favorable Our large end customers have significaff r end customers, including lower prices, bundled upgrades, terms and conditions than we typically provide to othet extended warrarr nties, acceptance terms, indemnificff ation terms and extended return policies and other contractt tual rights. As we seek to sell more products to these large end customers, an increased mix of our shipments may be subjeb ct to such terms and conditions, which may reduce our margins or affecff t the timing of our revenue recognition and thus may have an advedd rse effeff ct on our business, financial condition, results of operations and prospects. Sales of our switches generate most of our product revenue, and if we are unable to continue to grow sales of these products, our business, financial condition, results of operations and prospects will suffer. Historically, we have derived substantially all of our product revenue from sales of our switches, and we expect to continue to do so for the foreseeabla e future. We have experienced declines in sales prices for ouru producdd ts, including ouru 10 Gigabia t Ethet rnet modular and fixed switches. A decline in the price of switches and related services, or our inability to increase sales of these producd ts, would harm our business, financial condition, results of nt revenue from a larger variety of product lines operations and prospects more seriously than if we derived significaff and services. Our future financial perforff mance will also depend upon successfully developing and selling next- generation versions of our switches. If we fail to deliver new products, new features, or new releases that end customers want and that allow us to maintain leadership in what will continue to be a competitive market environment, our business, financial condition, results of operations and prospects will be harmed. The sales prices of our products and services may decrease, which may reduce our gross profitff s and adversely affecff t our results of operations. The sales prices for our producd ts and services may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and services, the introduction of new products and services by us or by our competitors including the adoption of “white box” solutions, promotional programs, producdd t provided, and may in the future and related warranty costs or broader macroeconomic factors. In addition, we haveaa 25 provide, pricing discounts to large end customers, which may result in lower margins for the period in which such sales occur. Our gross margins may also fluctuate as a result of the timing of such sales to large end customers. We have experienced declines in sales prices for our products and services. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, rings thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offeff may reducdd e the price of products and services that compete with ours or may bundle them with othet r products and services. Additionally, although we generally price our products and services worldwide in U.S. dollars, currency fluctuations in certain countries and regions may advedd rsely affeff ct actual prices that partners and end customers are for our producdd ts may willing to pay in those countritt es and regions. Furthett and advedd rsely decrease over product lifeff cycles. Decreased sales prices for any reason may reduce our gross profitsff affecff rmore, sales prices and gross profitsff t our result of operations. Our sales cycles can be long and unpredictable, and our sales effoff rts require considerable time and expense. As a result, our sales and revenue are diffiff cult to predict and may vary substantially from period to period, which may cause our results of operations to fluctuate significff antly.yy recognition is diffiff cult The timing of our sales and revenuenn to predict because of the length and unpredictability of ouru products’ sales cycles. A sales cycle is the period between initial contact with a prospective involve the purchase of multiple products. end customer and any sale of our products. End-customer orders oftenff These orders are complex and difficff ult to complete because prospective end customers generally consider a number of factors over an extended period of time before committing to purchase the products and solutions we sell. End customers, especially our large end customers, ofteff n view the purchase of our producdd ts as a significant and strat egic decision and requiqq re considerable time to evaluate, test and qualifyff ouru products prior to making a purchase decision and placing an order. The lengtht of time that end customers devote to their evaluation, contract negotiation and budgeting processes varies significff antly. In addition, customers may delay upgrades to their network infrastructure which extends the upgrade and sales cycle. Our products’ sales cycles can be lengthy in certain cases, especially with respect to our prospective large end customers. During the sales cycle, we expend significff ant time and money on sales and marketing activities and makeaa investments in evaluation equipment, all of which lower our operating margins, particularly if no sale occurs. Even if an end customer decides to purchase our products, there are many factors affecff ting the timing of our recognition of revenue, which makes our revenue difficff ult to forecast. For example, there mayaa be unexpected delays in an end customer’s internal procurement processes, particularly for some of our larger end customers for which ouru products represent a very small percentage of their total procurement activity. In addition, due to the COVID-19 pandemic, the sales cycle may be extended and there may be delays and reductions of expenditures and cancellations by end customers. There are many other factors specificff to end customers that contribute to the timing of their purchases and the variabilitytt of ouru revenue recognition, including the strategic importance of a particular project to an end customer, budgetary constraints and changes in their personnel. tt Even after an end customer makes a purchase, there may be circumstances or terms relating to the purchase that delay ouru ability to recognize revenue from that purchase. In addition, the significance and timing of our producdd t enhancements, and the introduction of new products by our competitors, may also affect end customers’ purchases. For all of these reasons, it is diffiff cult to predict whether a sale will be completed, the particular period in which a sale will be completed or the period in which revenue from a sale will be recognized. If our sales cycles t on our business, financial lengthen, our revenue could be lower than expex cted, which would have an adverse effecff condition, results of operations and prospects. ff Our ability to sell our products is highly dependent on the quality of our support and services offeff rings, and our failure to offeff r high-quality support and services could have a material adverse effecff t on our business, financial condition, results of operations and prospects. Once our products are deployed within our end customers’ networks, our end customers depend on our support orgar nization and our channel partnett rs to resolve any issues relating to our products. High-quality support is critical for the successful marketing and sale of our producdd ts. If we or our channel partnet rs do not assist our end tively, do not succeed in helping our end customers resolve post- customers in deploying ouru producdd ts effecff deployment issues quickly or do not provide adequate ongoing support, or if we expex rience quality issues with these t our ability to sell our producdd ts to existing end customers and could harm our new producdd ts, it could adversely affecff rt reputation with potential end customers. In addition, as we expand our operations internationally, our suppo uu 26 organization will face additional challenges, including those associated with delivering support, training and rs to maintain high- lureuu documentation in languages other than English. Our faiff quality support and services could have a material adverse effeff ct on our business, financaa ial condition, results of operations and prospects. of our channel partnett or the failureu Our business depends on end customers renewing their maintenance and support contracts. Any decline in maintenance renewals could harm our future business, financial condition, results of operations and prospects. We typically sell our products with maintenance and support as part of the initial purchase, and a portion of e and support contracts. Our end customers have no our annual revenue comes from renewals of maintenancaa obligation to renew their maintenance and support contracts afteff r the expiration of the initial period, and they may elect not to renew their maintenance and support contracts, to renew their maintenance and support contracts at rs or to reducdd e the product quantity under their maintenance and lower prices through alternative channel partnett ts. If our end support contract customers, especially our large end customers, do not renew their maintenance and suppo rt contracts or if they renew them on terms that are less favorable to us, our revenue may decline and our business, financial condition, . results of operations and prospects will sufferff thereby reducing our future revenue from maintenance and support contract ts, u tion provisions requiring us to defend our end customers Our standard sales contracts contain indemnificaff against third-party claims, including against infrinff gement of certain intellectual property rights that could expose us to losses which could seriously harm our business, financial conditions, results of operations and prospects. Under the indemnificff ation provisions of our standard sales contracts, we agree to defend our end customers and channel partnet rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. An adverse ruling in such litigation may potentially expose us to claims in the event that claims are brought against our customers based on the ruling and we are required to indemnify such customers. rs against third-partaa y claims asserting infringement of certain intellectual propertytt x Our expos ure under these indemnificff ation provisions is frequently limited to the total amount paid by ouru end customer under the agreement. However, certain agreements include indemnificff ation provisions that could potentially expose us to losses in excess of the amount received under the agreement. Any of these events, including claims for indemnificff ation, could seriously harmaa our business, financial condition, results of operations and prospects. In addition to our own direct sales force, we rely on distributors, systems integrators and value-added tively develop, manage or prevent disruptions to our resellers to sell our products, and our failure to effecff distribution channels and the processes and procedures that support them could cause a reduction in the number of end customers of our products. revenue for the foreseeabla e futurt e. We provide our channel partnett u in marketing, selling and supportin tive sales incentive programs for our channel partnett Our future success is highly dependent upon maintaining our relationships with distrit butors, systems integrators and value-added resellers and establishing additional sales channel relationships. We anticipate that sales of our products to a limited number of channel partners will continue to account for a material portion of ouruu total training and programs to productdd assist them in selling our producd ts, but these steps may not be effecff rs may be g our products and services. If we are unable to develop and unsuccessfulff rs, we may not be able to incentivize these maintain effecff rs may have incentives to promote ouruu competitors’ partnett producdd ts to the detriment of our own or mayaa cease selling our producdd ts altogether. One of our channel partnett rs could rship with one of our competitors, which could reduce or eliminate elect to consolidate or enter into a strategic partnet rs may generally be our future opportunities with that channel partner. Ouruu agreements with ouru channel partnet rs or terminated for any reason by either partytt with advance notice. We may be unable to retain these channel partnett secure additional or replacement channel partners. The loss of one or more of ouru significant channel partnett rs requires extensive training, and any new or expanded relationship with a channel partner may take several months or more to achieve productivity. rs to sell our products to end customers. These partnet tive. In addition, ouru channel partnet rs with specificff Where we rely on the channel partnet rs for sales of ouru producd ts, we may have little or no contact with the ultimate users of ouru products that purchase through such channel partaa ners, thereby making it more difficff ult for us to 27 establish brand awareness, ensure proper delivery and installation of our products, service ongoing end-customer requirements, estimate end-customer demand and respond to evolving end-customer needs. In addition, our channel r sales structure could subject us to lawsuits, potential liability and reputational harm if,ff for example, any of partnett rs misrepresent the functionality of our products or services to end customers, fail to comply with our channel partnet their contractual obligations or violate laws or ouruu corporate policies. If we fail to effecff tively manaaa ge ouru existing g the orders for our producdd ts, if we are unable sales channels, or if our channel partnet to enter into arrangements with, and retain a sufficff channel partners in each of the regions in which we sell producd ts and keep them motivated to sell our producdd ts, our ability to sell our products and our business, financial condition, results of operations and prospects will be harmed. rs are unsuccessful in fulfillin ient number of,ff high-qualitytt ff A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks. rr We anticipate increasing our sales effoff ent for ouru products and services may be affecff rts will generate a sale. The substantial majora rts to U.S. and foreign, federal, state and local governmental end nt entities are subject to a number of risks. Selling to government entities customers in the future. Sales to governme can be highly competitive, expensive and time consuming, ofteff n requiqq ring significant upfront time and expense without any assurance that these effoff itytt of our sales to date to government entities have been made indirectly through our channel partaa ners. Government certification requirements for products like ours may change and, in doing so, restrict our ability to sell into the government sector until we have attained revised certificff ations. Government demand and paymaa ted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affeff cting publu ic sector demand for our producdd ts and services. Government entities may have statutory, contractt tual or other legal rights to terminate contracts witht our distributors and resellers for convenience or due to a default, and any such termination mayaa advedd rsely impact our future business, financial condition, results of operations and prospects. Selling to government entities may also require us to comply with various regulations that are not applicable to sales to non-government entities, including regulations that may relate to pricing, classifiedff material, prohibitions against use of certain foreign components in ouru producdd ts and services and othet r matters. Complying with such regulations and procedures to monitor compliance with the applicable regulations may also require us to put in place controls that may be costly or not possible. We are not currently certifieff d to perforff m work under classifieff d contracts with government entities. Failure to comply with any such regulations could advedd rsely affeff ct our business, prospects, results of operations and financial condition. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government ceasing to buyuu ouru products and services, a reducd tion of revenue, fines or civil or criminal liability if the audit uncovers improper or illegal activities, t our business, financial condition, results of operations and prospects. any of which could materially adversely affecff The U.S. government may require certain products that it purchases to be manuf tured in the U.S. and other aa ing locations, and we may not manufacturtt e all products in locations that meet these relatively high-cost manufacturtt requirements. Any of these and other circumstances could have a material adverse effecff t on our business, financial condition, results of operations and prospects. In addition, the U.S. government may require that producdd ts it purchases contain a certain threshold of “domestic origin” components in order to meet “Buy America” requirements. acff tt We are exposed to the credit risk of our channel partners and some of our end customers, which could result in material losses. Most of our sales are on an open credit basis, with standard payment terms of 30 days in the United States and, because of local customs or conditions, longer in some markets outside the U.S. We monitor individuad l end- customer paymaa ent capability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the end customers can pay and maintain reserves we believe are adequate to cover exposure for doubtfulff accounts. We are unable to recognize revenue from shipments until the collection of those amounts becomes nt delay or default in the collection of significant accounts receivable could result reasonabla y assured. Any significaff in an increased need for us to obtain working capia tal from othet r sources, possibly on worse terms than we could have negotiated if we had established such working capiaa tal resources prior to such delays or defaulaa ts. Any significant default could adversely affeff ct our results of operatioaa ns and delay ouru ability to recognize revenue. A material portion of ouru sales is derived through our distributors, systems integrators and value-added ial t our collection of accounts receivable. Distributors tend to haveaa more resellers. Some of our distributors, systems integrators and value-added resellers may experience financaa difficff ulties, which could adversely affecff 28 limited financial resources than othet r systems integrators, value-added resellers and end customers. Distritt butors represent potential sources of increased credit risk because they may be less likely to have the reserve resources required to meet payment obligations. Our exposure to credit risks of our channel partnett rs may increase if our channel partners and their end customers are adversely affect ed by global or regional economic conditions. One or ff more of these channel partners could delay payments or default on credit extended to them, either of which could materially adversely affeff ct our business, financial condition, results of operations and prospects. Risks Related to Products and Services Product quality problems, defects, errors or vulnerabilities in our products or services could harm our reputation and adversely affect our business, financial condition, results of operations and prospects. ff We producdd e highly complex products that incorporate advanced technologies, including both hardaa ware and softwa ff re technologies. Despite testing prior to their release, our products may contain undetected defects or errors, especially when first introduced or when new versions are released. Product defects or errorr t the nce of our products, could result in a failure of appropriate updates to be distributed or installed, could perforff marr delay the development or release of new products or new versions of products, and could result in warranty claims and product liability claims from customers. Any actual or perceived defect, error, or vulnerability in our products or services, or other allegations of unsatisfactory performance could cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in analyzing, correcting or redesigning the products or othet rwise addressing defects, errors or vulnerabia lities, cause us to lose significff ant end customers, harm ouruu reputation and markaa et positions, subject us to liability for damages, subject us to litigation, regulatory inquiries or investigations, and divert ouruu resources from other tasks, any one of which could materially adversely affecff t our business, financial condition, results of operations and prospects. rs could affecff From time to time, we have had to replace certain components of products that we had shipped and provide remediation in response to the discoveryrr of defects or bugs, including failures in softwatt re protocols or defective component batches resulting in reliability issues, in such producdd ts, and we may be required to do so in the future. We s for such defective products. We cannot assure you that may also be required to provide full replacements or refund such remediation or any of the other circumstances described above, including claims, litigation, or regulatory investigations, would not haveaa t on our business, financial condition, results of operations and prospects. a material effecff ff If we do not successfulff meet those technological shiftsff market acceptance, or if we do not successfulff effecff ly anticipate technological shiftsff and develop products and product enhancements that , if those products are not made available in a timely manner or do not gain ly manage product introductions, we may not be able to compete tively,yy and our ability to generate revenue will suffer. We must continue to enhance our existing products and develop new technologies and products that address emerging technological trends, evolving industry standards and changing end-customer needs. The process of enhancing ouruu existing products and developing new technology is complex and uncertain, and new offer ings requires significant upfront investment that may not result in material design improvements to existing producd ts or result in marketable new producdd ts or costs savings or revenue for an extended period of time, if at all. ff ted if such technologies are widely adopted. For examplm e, end customers may preferff In addition, new technologies could render our existing products obsolete or less attractive to end customers, and our business, financial condition, results of operations and prospects could be materially adversely to address their network affecff switch requirements by licensing software operating systems separately and placing them on “white box” hardaa ware products as has occurred in the server industry. Additionally, end rather than purchasing integrated hardwareaa customers may require product upgrades including higher Ethet rnet speeds and additional functionality to address the increasing demands of the cloud computing environments. In the past several years, we have announced a number of new producdd ts and enhancements to our products and services, including new producdd ts in the campus workspace and network security markets. The success of our new products depends on several factors including, but not limited to, appropriate new producdd t definition, the tly meet end-user requirements, our ability to manage the risks development of product features that sufficien associated with new producdd t production rampa -up issues, component costs, availability of components, timely completion and introduction of these products, promptm solution of any defects or bugs in these products, ouruu ability to support these products, differff entiation of new products from those of our competitors and market acceptance of ff 29 these products. For examplm e, our new producdd t releases will require strong execution from ouru third-partytt merchant silicon chip suppliers to develop and release new merchant silicon chips that satisfy end-customer requirements, to meet expected release schedules and to provide sufficff ient quantities of these components. If we are unabla e to successfully manage our product introductions or transitions, or if we fail to penetrate new markets, as a result of any of these or other factors, our business, financial condition, results of operations and prospects could be adversely affeff cted. Our product releases introduced new softwatt re producdd ts that include the capability for disaggregation of our re operating systems from our hardware. The success of our strategy to expax nd our software business is softwa ff subjeb ct to a numbem r of risks and uncertainties including the additional development effoff rts and costs to create these new products or make them compatible with other technologies, the potential for ouru strateaa gy to negatively impam ct revenues and gross margins and additional costs associated with regulatory compliance. We may not be able to successfulff to changing technology or end-customer ly anticipate or adapt requirements on a timely basis, or at all. If we fail to keep up with technology changes or to convince our end customers and potential end customers of the value of our solutions even in light of new technologies, we may lose customers, decrease or delay market acceptance and sales of our present and future products and services and materially and adversely affeff ct our business, financial condition, results of operations and prospects. are applications and hardware that is Our products must interoperate with operating systems, softwff developed by others, and if we are unable to devote the necessary resources to ensure that our products interoperate with such software and hardware, we may lose or fail to increase market share and experience a weakening demand for our products. ff urtt ed by a wide variety of vendors and original equipment manuaa Generally, our products comprise only a part of the network infraff structure and must interoperate with our end customers’ existing infrastructure, specificff ally their networks, servers, software and operating systems, which may be manufact s, or OEMs. Our producd ts must comply with established industry standards in order to interoperate with the servers, storage, software and r networking equipment in the network infrastrut cture such that all systems function effiff ciently together. We othet depend on the vendors of servers and systems in a data center to support prevailing industry standards. Ofteff n, these vendors are significantly larger and more influential in driving industry standards than we are. Also, some industryt standards may not be widely adopted or implemented uniforff mly and competing standards may emerge that mayaa be preferff red by ouru end customers. factureru In addition, when new or updated versions of these software operating systems or applications are introduced, we must sometimes develop updated versions of our software so that our producdd ts will interoperate properly. We may not accomplm ish these development effoff tively or at all. These development t and the devotion of engineering resources. If we fail to maintain compatibilitytt with effoff these systems and applications, our end customers may not be able to adequately utilize our products, and we may lose or fail to increase market share and experience a weakening in demand for our products, among othett r consequences, which would adversely affecff t our business, financial condition, results of operations and prospects. rts require capital investmen rts quickly, cost-effecff t Risks Related to Supply Chain and Manufacff turing Managing the supply of our products and product components is complex. Insufficient component supply and inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins. Managing our extended supply chain is complex, and ouru inventoryrr management systems and related tively manage the supply of our supply-chain visibility tools may not enable us to forecast accurately and effecff r ted by othet producdd ts and producdd t components. Our ability to manage our supply chain may also be adversely affecff ture our products, a reduction or interruptuu ion of supply, factors including shortages of components used to manufacff prioritization of component shipments to othett ring of such components by ouru suppliers and geopolitical conditions such as the U.S. trade war with China and the impact of publu ic health epidemics like the COVID-19 pandemic. ient component supply, or any increases in the time required to s, may lead to inventory shortages that could result in increased customer lead times for our manufacff ities altogether as potential end customers turn to competitors’ producdd ts, delayed revenue or loss of sales opportunt y turiu ng and suppl emic has created manufacff producdd ts that are readily available. r vendors, cessation of manufactu In addition, the COVID-19 pandaa our productdd Insufficff tureuu uu ff 30 chain disruptions, including temporaryrr closures of certain of ouru contract manufacturer facilities and shortages of certain components and, as a result, has extended lead times for our products. aa In order to reduce manufactu ring lead times and plan for adequate component supply, from time to time we may issue purchase orders for components and products that are non-cancelablea and non-returnable. In addition, we may purchase components and products that have extended lead teams to ensure adequate supply to support long- term customer demand and mitigate the impact of COVID-19 related supply disruptions. We establish a liability for non-cancaa elable, non-returnable purchase commitments with our component inventory suppliers for quantaa ities in excess of our demand forecasts, or for producdd ts that are considered obsolete. In addition, we establish a liability and reimburse our contract manufacturer for component inventory purcu hased on our behalf that has been rendered excess ring and engineering change orders, or in cases where inventory levels greatly exceed or obsolete due to manufactu our demand forecasts. If we ultimately determine that we haveaa excess inventory or obsolete inventory, we mayaa have to reduce our prices and write down inventoryrr to its estimated realizable value, which in turn could result in lower gross margins. If we are unable to effeff ctively manage our supply and inventory, our business, financial condition, results of operations and prospects could be advedd rsely affeff cted. ff Because some of the key components in our products come from sole or limited sources of supply,yy we are susceptible to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our end customers and may result in the loss of sales and end customers. u turers purchuu ase on our behalf from a limited numbem r of suppuu Our producdd ts rely on key components, including merchant silicon chips, integrated circuit components, printed circuit boards, connectors, custom-tooled sheet metal and power supplies that we purchase or our contract liers, including certain sole source providers. manufacff r ts with our component suppuu liers, and our suppliers could suffeff Generally, we do not have guaranteed supply contractt r vendors, increase prices or cease manufacturiuu ng such shortages, delay shipments, prioritize shipments to othet producdd ts or selling them to us at any time. Supply of these components may also be advedd rsely affff ecff ted by industryt consolidation which could result in increased component prices or fewer sourcing options as well as geopolitical conditions such as international trade wars like the U.S. trade war with China and the impact of public health epidemics like the COVID-19 pandemic. For example, in the past, we haveaa experienced shortages in inventory for dynamic rando aa m access memory integrated circuits and delayed releases of the next generation of chipset, which delayed our producdd tion and/or the release of our new producdd ts. We have also recently experienced shortages and delays relating to certain components as a result of manufacturing and supply disruptuu ions due to the COVID-19 pandemic. If we are unable to obtain sufficff ient quantities of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, sales of our products could be delayed or halted entirely or we may be required to redesign our products. Any of these events could result in lost sales, reduced gross margins or damage to our end customer relationships, which would adversely impact ouru business, financial condition, results of operations and prospects. l propertytt intellectuatt Our reliance on component suppliers also yields the potential for the infringement or misappropriation of rights due to the incorporation of such components into our products. We may not be third-partytt indemnifiedff by such component suppliers for such infringement or misappropriation claims. Any litigation for which we do not receive indemnificff ation could require us to incur significff ant legal expenses in defending against such claims or require us to pay substantial royalty payments or settlement amounts that would not be reimbursed by our component suppliers. ff Our product development effor ts are also dependent upon the success of our continued collaboration with our key merchant silicon vendors such as Broadcom and Intel. As we develop our product roadmap, we select specific merchant silicon from these vendors for each new product. It is critical that we work in tandem with these vendors to ensure that their silicon includes improved featurtt es, that our producdd ts take advadd ntage of such improved featurtt es, and that such vendors are able to supply us with suffiff cient quantaa ities on commercially reasonablea term to meet customer demand. Reliance on these relationships allows us to focus our research and development resources on our software core competencies while leveraging their investments and expertise. The merchant silicon vendors may not be successful in continuing to innovate, meet deadlines for the release of their products or produce a sufficff ient supply of their products. Moreover, these vendors may not collaborate with us or may become competitive with us by selling merchant silicon for “white boxes” or othett r products to our customers. 31 If our key merchant silicon vendors do not continue to innovate, if there are delays in the release of their red producdd ts or supply shortages, if they no longer collaborate in such fashion or if such merchant silicon is not offeff to us on commercially reasonabla e terms, ouru products may become less competitive, our own product launches could be delayed or we may be required to redesign our products to incorporate alternative merchant silicon, which could result in lost sales, reduce gross margins, damaa rwise have a material effecff t on revenue and business, financial condition, results of operations and prospects. ge to our customer relationships or othet u In the event of a shortage or supply interruption from our component suppliers, we may not be able to develop alternate or second sources in a timely manner. Further, long-term supply and maintenance obligations to end customers increase the duration for which specific components are required, which may increase the risk of rs change their selling component shortages or the cost of carryirr ng inventory. In addition, ouru component supplie prices frequeqq ntly in response to market trends, including indusdd try-wide increases in demand, and becausaa e we do not have contracts with these suppliers or guaranteed pricing, we are susceptible to availabia litytt or price fluctuations related to raw materials and components. If we are unable to pass component price increases along to our end ted and our business, financial customers or maintain stable pricing, ouru gross margins could be advedd rsely affecff condition, results of operations and prospects could suffeff r. uu Because we depend on third-party manufacturers to build our products, we are susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping end-customer orders on time, if at all, or on a cost-effecff tive basis, which may result in the loss of sales and end customers. aa reducdd es our controt We depend on third-partytt contract manufacturers to manufacturtt e our product lines. A significff ant portion of our cost of revenue consists of payments to these third-party contract manufacturers. Our reliance on these third- partytt contract manuf l over the manufacturiu ng process, quality assurance, product costs uu actu rers ff turers also yields the and producdd t supply and timing, which expos ing of our products or potential for their infringement of third partytt r customers’ products. If we are their misappropriation of ouru intellectuatt tively, or if these third-partaa y unable to manage our relationships with our third-party contract delays or disruptions or quality control problems in their operations, experience increased manufacff manufacff requirements for timely delivery,rr ouruu ability to ship products to ouru end customers would be severely impaired, and our business, financial condition, results of operations and prospects would be seriously harmed. es us to risk. Our reliance on contract manuf l property rights in the manufacturtt turers u turiu ng lead times, capaaa city constraints or fail to meet our futureu l property rights in the manufacff t manufacturers effecff turiuu ng of othet intellectuatt sufferff acff x aa To the extent that our producdd ts are manufactured at facilities in foreign countries, we may be subjecb t to additional risks associated with complying with local rules and regulations in those jurisdictions, including shelter in place orders issued in connection with the COVID-19 pandemic. For example, due to the COVID-19 pandemic, turers experienced temporary closures and labor shortages as a result of shelter in some of our contract manufacff place orders similar to the orders currently issued in their local jurisdictions. While our manufacturtt ing sites are currently operational, further shelter in place orders or factory closures in these or othet r manufacturing sites would y shortages of our products. result in material disruptions, increased lead times and suppl uu acff ts with our third-partytt manuf Our contract manufacturtt ers typically fulfillff our supply requirements on the basis of individual orders. We do not have long-term contractt city, the continuation of aa particular pricing terms or the extension of credit limits. Accordingly, they are not obligated to continue to fulfilff l our supply requirements, which could result in supply shortages, and the prices we are charged for manufacturing services could be increased on short notice. For example, a competitor could place large orders with the third-partytt , thereby utilizing all or substantially all of such third-partaa y manufacturtt er’s capacity and leaving the manufacff manufacff ouruu individual orders without price increases or delaysaa , or at all. Our little or no capacity to fulfillff contract with one of our contratt ct manufacturers permits it to terminate the agreement for convenience, subject to prior notice requirements. We may not be able to develop alternate or second contract manufactureu rs in a timely manner. turers that guarantee capaaa tureru tureru If we add or change contract manufacturtt ers or change any manufacturtt tureru ing plant locations withit n a contract manufacff network, we would add additional complexity and risk to our supply chain management and may increase our working capital requirements. Ensuring a new contract manufacturer or new plant location is qualifieff d to manufacturtt e our products to our standards and industry requirements could take significant effoff rt and be time consuming and expensive. Any addition or change in manufnn acff turers mayaa be extremely costly, time consuming and . we may not be able to do so successfully ff 32 t or manufacturtt In addition, we may be subjeu ct to additional significff ant challenges to ensure that quality,yy processes and issues, are consistent with our expectations and those of our customers. A new contract costs, among other ing location may not be able to scale its production of our products at the volumes or manufacff tureru quality we require. This could also adversely affeff ct our abilitytt to meet our scheduled product deliveries to our end customers, which could damage our customer relationships and cause the loss of sales to existing or potential end t our gross customers, late delivery penalties, delayed revenue or an increase in our costs which could adversely affecff margins. This could also result in increased levels of inventory subju ecting us to increased excess and obsolete charges that could have a negativaa e impact on our operating results. Any production interruptions, labor shortages or disruptions for any reason, including those noted above, as well as a natural disaster, epidemic (such as the COVID-19 pandemic), capacity shortages, adverse results from intellectual propertytt t sales of ouru product lines manufactured by that manufacturtt ing partner and adversely affeff ct our business, financial condition, results of operations and prospects. litigation or quality problems, at one of our manufacturing partnet rs would adversely affecff We base our inventory requirements on our forecasts of future sales. If these forecasts are materially inaccurate, we may procure inventory that we may be unable to use in a timely manner or at all. We and our contract manufacturers procure components and build ouruu products based on our forecasts. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and analysis from our sales and marketing organizations, adjud sted for overall market conditions and other factors. To the extent our forecasts are materially inaccurate or if we otherwise do not need such inventory,y we may under- or over-procure inventory, and such inaccurau cies in ouru forecasts could materially adversely affecff t ouru business, financial condition and results of operations. Risks Related to Intellectual Property and Other Proprietary Rights Assertions by third parties of infringement or other violations by us of their intellectual property rights, or nt costs and substantially harm our business, other lawsuits asserted against us, could result in significaff financial condition, results of operations and prospects. rr Patent and other intellectuatt l propertytt disputes are common in the network infrastructure, network securitytt resulted in protracted and expex nsive litigation for many companies. Many companies and Wi-Fi industries and haveaa reuu , network security and Wi-Fi industries, including our competitors and other third in the network infrastructu parties, as well as non-practicing entities, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of patent infrinff r violations of intellectual propertytt rights against us. From time to time, they have or may in the future also assert such claims against us, our against claims that our products infringe, end customers or channel partners whom we typically indemnifyff misappropriate or otherwise violate the intellectual property rights of third parties. For example, we have previously been involved in litigation with Cisco and OptumSoft. gement, misappropriation, or othet As the number of products and competitors in our markaa et increases and overlapsaa occur or if we enter into rights may new markets, claims of infringement, misappropriation and other violations of intellectuatt increase. Any claim of infringement, misappropriation or other violations of intellectual property rights by a third even those without merit, could cause us to incur subsu tantial costs defending against the claim, distract our party,tt management from our business and require us to cease use of such intellectuatt l property. In addition, some claims for relate to subcu omponents that we purchase from third parties. If these third parties are patent infringement mayaa unable or unwilling to indemnifyff us for these claims, we could be substantially harmed. l propertytt The patent portfolios of most of our competitors are larger than oursu . This disparity may increase thet risk that our competitors may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses. In addition, future assertions of patent rights by third parties, and any resulting litigation, may involve patent holding companies or other adverse patent owners who have no ce or relevant product revenue and against whom our own pateaa nts may therefore provide little or no deterrenrr protection. We cannot assure you that we are not infringing or otherwise violating any third-partaa y intellectuatt l propertytt rights. The third-partytt asserters of intellectual property claims may be unreasonable in their demands, or may simply refuse to settle, which could lead to expensive settlement payments, longer periods of litigation and related 33 expenses, additional burdens on employees or other resources, lost sales. u distract tion from our business, supply stoppages and ging technology, which may not be successful; An adverse outcome of a dispute may require us to pay substantial damages or penalties including treble ly infringed a third party’s patents; cease making, licensing, using or damages if we are found to have willfulff ge or misappropriate the intellectual property of importing into the U.S. products or services that are alleged to infrinff rs; expend additional development resources to attempt to redesign our products or services or otherwise to othet enter into potentially unfavorable royalty or develop non-infrinff license agreements in order to obtain the right to use necessary technologies or intellectual propertytt rights; and indemnifyff our partners and other third parties. Any damages, penalties or royaltytt obligations we may become subjeb ct to as a result of an adverse outcome, and any third-party indemnity we may need to provide, could harm ouruu business, financial condition, results of operations and prospects. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and othet r, there is little or no information publicly available concerning market or fair values for license fees, which can lead to overpayment of license or settlement fees. In addition, some licenses may be non- exclusive, and thereforff e our competitors may have access to the same technology licensed to us. Suppliers subject to third-partytt or alter their arrangements with us, with little or no advance notice to us. Any of these events could seriously harm our business, financial condition, results of operations and prospects. intellectual propertytt claims also may choose or be forced to discontinuenn r expex ndituresu . Furthet ff In any effoff l propertytt or that is acceptable to our customers. These redesign effoff In the event that we are found to infringe any third party intellectual property,yy we could be enjon ined, or subjeb ct to othet r remedial orders that would prohibit us, from making, licensing, using or importing into the U.S. such products or services. In order to resume such activities with respect to any affeff cted products or services, we (or intellectual propertytt our component suppliers) would be required to develop technical redesigns to this third partytt that no longer infringe the third party intellectual property.tt rts to develop technical redesigns for these producdd ts or services, we (or our component suppliers) may be unable to do so in a manner that does not continue to infringe the third party intellectuatt rts could be extremely costly and time consuming as well as disruptive to our other development activities and distracting to management. Moreover, such redesigns could require us to obtain approvals from the court or administrative body to resume the activities with respect to these affecff rts to obtain such approvals in a timely manner, or at all. Any failure to effeff ctively redesign our solutions or to obtain timely approval nistrative body may causaa e a disruption to our product shipments and materially of those redesigns by a court or admid and adversely affeff ct our business, prospects, reputation, results of operations, and financial condition. For example, in two prior investigations brought by Cisco in the International Trade Commission (“ITC”), we were subjected to remedial orders that prohibited us from importing and selling afteff r importation any products the ITC found to infringe Cisco’s patents. As a result, we were required to redesign certain aspects of our products and obtain U.S. Customs and Border Protection’s approval of those redesigns before we could continue to import those products into the United States. ted solutions. We may not be successfulff in our effoff If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significff ant expenses to enforce our rights. We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright only limited and trademark laws and confidff entiality agreements with emplm oyees and third partaa ies, all of which offer protection. ff The process of obtaining patent protection is expex nsive and time-consuming, and we may not be able to prosecute all necessaryrr or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Further, we do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. To the extent that additional patents are issued from our patent applications, which is not certain, they may be contested, circumvented or invalidated in the future. Moreover, the rights granted under any issued patents may not provide us with proprietary protection or competitive advadd ntages, and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future. In addition, we rely on confidff entialitytt or license agreements with third parties in connection with their use of our products and technology. There is no guarantee that such parties will abide 34 by the terms of such agreements or that we will be able to adequately enforce our rights, in part because we rely on “shrink-wrap”a licenses in some instances. We have not registered our trademarks in all geographic markets. Failure to secure those registrations could t our ability to enforce and defend our trademark rights and result in indemnificff ation claims. Further, adversely affecff even those claims without merit, could cause us to incur subsu tantial costs any claim of infringement by a third party,tt defending against such claim, could divert management attention from our business and could require us to cease use of such intellectual propertyrr in certain geographic markaa ets. ff Despite our effor ts, the steps we have taken to protect our proprietary rights mayaa not be adequate to preclude misappropriation of our proprietary inforff mation or infriff ngement of our intellectual property rights, and ouruu ability to police such misappropriation or infringement is uncertain, partaa icularly in countritt es outside of the United States. Detecting and protecting against the unauthorized use of our producdd ts, technology and proprietary rights is in the future to enforce or defend expensive, difficff ult and, in some cases, impossible. Litigation may be necessaryrr our intellectual propertytt rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business, financial condition, results of operations and prospects, and there is no guarantee nt and potential competitors have the ability to dedicate that we would be successful. Furthermore, many of our curreu substantially greater resources to protecting their technology or intellectual property rights than we do. Accordingly, despite our effoff rts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property, which could result in a substantial loss of ouruu market share. We rely on the availability of licenses to third-party software and other intellectual property. tt ff e or other intellectual propertytt re and other intellectual propertytt Many of our producdd ts and services include softwar licensed from third licensed from third parties in our business. parties, and we otherwise use softwa difficff ulties This exposes us to risks over which we may have little or no control. For examplm e, a licensor may haveaa that it keeping up with technological changes or may stop supporting the software or othet licenses to us. Also, it will be necessaryrr in the future to renew licenses, expand the scope of existing licenses or seek new licenses, relating to various aspects of these products and services or otherwise relating to our business, which may result in increased license fees. These licenses may not be available on acceptable terms, if at all. In addition, a third party may assert that we or our end customers are in breach of the terms of a license, which could, among other things, give such third partaa y the right to terminate a license or seek damages from us, or both. The inability to obtain or maintain certain licenses or other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in releases of producdd ts and services and rwise disrupt our business, until equivalent technology can be identifieff d, licensed or developed, if at all, could othet and integrated into our products and services or otherwise in the conduct of our business. Moreover, the inclusion in our products and services of softwar licensed from third parties on a nonexclusive basis may limit our ability to diffeff rentiate our producdd ts from those of our competitors. Any of these events could have a material adverse effect on ouruu business, financial condition, results of operations and prospects. r intellectual propertytt e or other intellectuatt l propertytt ff tt Our products contain third-party open source softwff the underlying open source software licenses could restrict our ability to sell our products. are components, and failure to comply with the terms of tt e modules licensed to us by third-partytt authors under “open source” licenses. Our products contain softwar Use and distritt bution of open source softwa re may entail greater risks than use of third-partytt commercial software, as ff open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source re that we use. If we code for modificaff re in a certain manner, we could, under certain open source licenses, combine our softwar tt be required to release portions of the source code of our softwatt re to the public. This would allow our competitors to create similar producdd ts with lower development effoff rt and time and ultimately could result in a loss of producd t sales for us. tions or derivative works we create based upon the type of open source softwa e with open source softwa ff ff Although we monitor our use of open source software to avoid subjecting our producdd ts to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our 35 ff re in ouru producdd ts. Moreover, we cannaa ot assure you that our processes for controt ive. If we are held to have breached the terms of an open source software license, we could be producdd ts will be effect required to seek licenses from third parties to continue offeri ng our products on terms that are not economically ff feasible, to re-engineer our producdd ts, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis or to make generally available, in source code formff , our proprietary code, any of which could adversely affecff t our business, financial condition, results of operations and prospects. lling our use of open source softwa ff We provide access to our software and other selected source code to certain partners, which creates additional risk that our competitors could develop products that are similar to or better than ours. ff Our success and ability to compete depend substantially upon ouruu internally developed technology, which is incorporated in the source code for our products. We seek to protect the source code, design code, documentation tion relating to ouru software, under trade secret, patent and copyright laws. However, we have and other informa chosen to provide access to selected source code of our software to several of our partner s for co-development, as well as for open application programming interfaces ("APIs"), formats and protocols. Though we generally control access to our source code and other intellectuatt l propertytt and enter into confidff entialitytt or license agreements with such partners as well as with our employees and consultants, this combination of procedural and contractual ient to protect our trade secrets and other rights to our technology. Our protective safegff uards may be insufficff rs, employees or measures may be inadequaqq te, especially because we may not be able to prevent ouru partnett consultants from violating any agreements or licenses we may have in place or abusing their access granted to ouru source code. Improper disclosure or use of our source code could help competitors develop products similar to or better than ours. tt Risks Related to Litigation We may become involved in litigation that may materially adversely affecff t us. From time to time, we mayaa become involved in legal proceedings relating to matters incidental to the ordinary course of our business, including patent, copyright, commercial, producdd t liability, employment, class action, whistleblower and othet r litigation, in addition to governmental and other regulatory investigations and proceedings. Such matters canaa be time-consuming, divert management’s attention and resources, cause us to incuruu significant expenses or liability and/or require us to change our business practices. For example, we were previously involved in litigation witht Cisco and OptumSoft. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we have meritorious claims or defenses. Although we have insurance which may provide coverage for some kinds of claims we may face, that insurance may not cover some kinds of claims or types of relief and may not be adequaqq te in a particular case. Because litigation is inherently unpredictable, we canno you that the results of any of these actions will not have a material adverse effeff ct on our business, financial condition, results of operations and prospects. t assureu aa For more information regarding the litigation in which we haveaa been involved, see the “Legal Proceedings” subheading in Note 7. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K incorporated herein by reference. Risks Related to Cybersecurity and Data Privacy Defects, errors or vulnerabilities in our products, the failure of our products to detect security breaches, the misuse of our products or the risks of product liability could harm our reputation and adversely impact our operating results. Our products, services and internal network systems could become a target for securiuu ty attacks, including attacks specificff ally designed to disrupt ouru business and our customers and introduce malicious software and attacks by state sponsors. If our producdd ts, services or internal networks, system or data are or are perceived to have been compromised, ouru reputation may be damaged and our financial results may be negatively affecff ted. Organizations are increasingly subjeb ct to a wide variety of attacks on their networks, systems, endpoints, producdd ts and services, and no security solution, including our security platform, can address all possible security threats or block all methods of penetrating a network, products and services or otherwise perpetrating a securitytt incident. Additionally, anynn defects, errors, or vulnerabilities in our securiu ty platform or in the hardware upon which it is deployed, including a failure to implement updates to such platforff m, could temporarily or permanently limit our detection capabilities and expose our end-customers’ networks, leaving their networks unprnn otected against the latest 36 security threats. If customers of our security platform do suffeff r a data security incident or data breach, even if it is not attributable to a failure of our platform to identifyff any threat or vulnerability, customers may believe that our platform failed to detect a threat or vulnerability, which could harm our reputation or negatively affecff t our financial results. The classifications of applicatioaa n type, virus, spyware, vulnerabia lity explx oits, data, or URL categories by our securiu ty platform may also falsely detect, report and act on applications, content, or threats that do not actually exist. These false positives may impair the perceived reliability of our security platform and may therefore adversely impact market acceptance of our security platformff . Any such false identificff ation of important files or applications could result in damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, increased costs to remedy any problem, and costly litigation. Breaches of our cybersecurity systems, or other security breaches or incidents with respect to our products, services, networks, systems, or data, could degrade our ability to conduct our business operations and deliver products and services to our customers, delay our ability to recognize revenue, compromise the integrity of our software products and our networks, systems, and data, result in significff ant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significff ant additional costs to maintain the security of our networks and data. ntial, personal, or othet We increasingly depend upon our IT systems to conduct virtuat internal operations and producd t development activities to our marketing and sales effoff lly all of our business operations, ranging rts and from ouruu communications with our customers and business partnett rs. Computer programmers or other persons or organizations may attempt to penetrate our network security, or that of our website or systems, and access or obtain rwise sensitive or proprietary information about us or our customers or causaa e confideff interruptu ions of our service. These risks may increase due to the current COVID-19 pandemic. Because the techniques used to access or sabotage networks and systems change frequently and may not be recognized until launched against a target, we may be unabla e to anticipate these techniques. In addition, our software and sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and othet e or applications to fail or otherwise to unexpectedly interferff e with the operation of the system. We face risks of others rized access to our products and services and introducing malicious software. We have also gaining unauthot turers, logistics providers, and outsourced a number of our business functions to third-parties, including our manufacff cloud service providers, and our business operations also depend, in part, on the success of these third parties’ own cybersecurity measures. Similarly, we rely upon distributors, resellers and system integrators to sell our producdd ts and our sales operations depend, in part, on the reliability of their cybersecurity measures. Additionally, we depend upon our emplm oyees to appropriately handle confidential data and deploy our IT resources with the use of security measures designed to prevent exposure of our network systems to security breaches and the loss of data. We and all of the aforementioned third parties also face the risk of malicious software, phishing schemes and other social engineering methods, fraudaa sance, cybey rsecurity threats from state sponsors, and intentional or negligent acts or omissions of employees and contractors. Furthermore, our acquisition of Awake Security and our provision of its NDR platform may result in us being a more attractive target for such attacks. Accordingly, if ouru cybersecurity systems and measures or those of any of the aforff ementioned third parties fail to protect against the mishandling of data by employees and contractors, or any other means of sophisticated cyber-attacks, ring process, products, services, networks, systems, or data that we unauthorized access to, or use of,ff our manufactu tively could be damaged or such third parties maintain, operate, or process, our abilitytt in a number of ways, including: r problems that could causaa e the softwar to conduct our business effecff and other malfeaff ff tt • sensitive data regarding our business or our customers, including intellectuatt l propertytt and othet r proprietary data, could be stolen; • our electronic communications systems, including email and othet r methods, or other systems, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored, which we may be unable to achieve in a prompt manne r or at all; aa • our ability to process customer orders and electronically deliver producdd ts and services could be degraded, and our distritt bution channels could be disrupted, resulting in delays in revenue recognition; 37 • defects and security vulnerabia lities could be introduced into our softwatt thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerabla e to further data loss and cybey r incidents; re, • our manufacturtt ing process, producd ts, services, supply chain, network systems and data could be corruprr ted; and • personal data of our customers, employees, contractors, and business partners could be accessed, obtained, or used without authorization, or otherwise compromised. a rt to prevent furthet Should any of the above events occur, or be perceived to occur, we could be subject to significant claims rs and regulatory investigations and actions from governmental agencies, for liability from our customers and othet l and othet r resources to remediate and otherwise address any and we could be required to expend significant capita individuals, entities, or regulatory bodies and to implement data security incident or breach, including to notifyff r breaches or incidents. In addition, our ability to protect our intellectual measures in an effoff propertytt rights could be compromised and our reputation and competitive position could be significantly harmed. l actions, litigation, investigations, fines, penalties and liabilities relating to data Also, the regulatory and contractuat ge or destruction of,ff or unauthorized access to or acquisition of,ff credit card breaches that result in losses of,ff damaaa information or othett r personal or sensitive data of users of our services can be significant in terms of fines and reputational impact and necessitate changes to our business operations that mayaa be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and other measures in an effoff rt to prevent security breaches and other incidents. Even the perception of inadequate securiu ty may damage our reputation and negatively impam ct our ability to win new customers and retain existing customers. Consequently, our financial perforff marr ed by any of the foregoing types of security breaches, ff incidents, vulnerabilities, or othet r matters, or the perception that any of them have occurred. nce and results of operations could be adversely affect In addition, we cannot assure that any limitation of liability provisions in our customer agreements, contracts with third-partaa y vendors and service providers or othet r contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or othet r security-related matter. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any future claim will not be excluded or othet rwise be denied coverage by any insurer. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in ouru insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our reputation, financial condition and operating results. ff Risks Related to Accounting, Compliance. Regulation and Tax If we fail to maintain effeff ctive internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affecff ted. Assessing our processes, procedurd es and staffiff ng in order to improve our internal contrott l over financial reporting is an ongoing process. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, inventory costs and the preparation of ouruu statement of cash flows. While we continue to automate ouruu processes and enhance our review controls to reduce the likelihood for errors, we expect future many of ouruu processes will remain manually intensive and thus subjeb ct to human error. that for the foreseeablea If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect or if there is a change in accounting principles, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the market price of our common stock. The preparation of financial statements in conforff mity with accounting principles generally accepted in the t the amounts reported United States of America requiqq res management to make estimates and assumptions that affecff in the consolidated financaa ial statements and accompanying notes. A change in these principles or interpretations could harm our revenue and financial results, and could affeff ct the reporting of transactions completed before the announcu ement of a change. In addition, we base ouru estimates on historical experience and on various other 38 and expenses that are not readily apparent from othet assumptions that we believe to be reasonabla e under the circumstances, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations", in Part II, Item 7, of this Annual Report on Form 10-K, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenuenn nt assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventoryrr turer/supplier liabilities, income taxes and loss contingencies. If our assumptions valuation and contract change or if actual circumstances diffeff r from those in our assumptions, our results of operations may be adversely affeff cted and may fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock. r sources. Significaff t manufacff Enhanced United States tax, tariff,ff import/export restrictions, Chinese regulations or other trade barriers may have a negative effecff t on global economic conditions, financial markets and our business. There is currently significant uncertaintytt about the future relationship between the United States, and and taxes. In 2018, various other countries, most significantly China, with respect to trade policies, treaties, tariffsff the Offiff ce of the U.S. Trade Representative (the “USTR”) enacted a tariffff of 10% on imports into the U.S. from China, including communications equipment producdd ts and components manuaa factured and imported from China. have been imposed by the USTR on imports into the United States from China, and Since then, additional tariffsff h the United States and China China has also imposed tariffsff on imports into China from the United States. Althoug signed an interim trade agreement in Januaryrr 2020, the parties are continuing to negotiate a trade agreement. t In addition, due to concerns with the security of products and services from certain telecommunications and video providers based in China, U.S. Congress has enacted bans on the use of certain Chinese-origin components or systems either in items sold to the U.S. government or in the internal networks of government contractors and subcontractors (even if those networks are not used for government-related projects). Further, the Chinese Government has responded to these U.S. actions by indicating its intention to develop an unreliable entity list, which may limit the ability of companies on the list to engage in business with Chinese customers. If tariffs,ff trade restrictions, or trade barriers remain in place or if new tariffs,ff trade restrictions, or trade barriers are placed on products such as ours by U.S. or foreign governments, especially China, our costs mayaa increase. We believe we can adjud st ouru supply chain and manufacturiu ng practices to minimize the impact of the tariffsff , there canaa be no assurance that we will not experience a disruption in our business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-consuming, and costly. rts mayaa not be successfulff , but our effoff The U.S. tariffsff may also cause customers to delay orders as they evaluate where to take delivery of our producdd ts in connection with their effoff rts to mitigate their own tariffff exposure. Such delays create forecasting difficff ulties for us and increase the risk that orders might be canceled or might never be placed. Current or future imposed by the U.S. may also negatively impact our customers' sales, thereby causing an indirect negative tariffsff impact on our own sales. Even in the absence of further tariffs,ff the related uncertainty and the market's fear of an escalating trade war might causaa e our distributors and customers to place fewer orders for our products, which could have a material adverse effeff ct on ouru business, liquidity, financial condition, and/or results of operations. Given the relatively fluid regulatory environment in China and the United States and uncertainty how the , international trade agreements and policies, or international trade policies, or additional tax or other U.S. government or foreign governments will act with respect to tariffsff a trade war, furtuu her governmental action related to tariffsff regulatory changes in the future could directly and adversely impact our financial results and results of operations. Changes in our income taxes or our effeff ctive tax rate, enactment of new tax laws or changes in the application of existing tax laws of various jurisdictions or adverse outcomes resulting from examination of our income tax returns could adversely affeff ct our results. Our income taxes are subjeb ct to volatility and could be adversely affecff ted by several factors, many of which are outside of our control, including earnaa ings that are lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; our ability to generate and use tax attributes; changes in the valuation of ouru deferred tax assets and liabilities; expiration of or lapses in the federal research and development (“R&D”) tax credit laws; transferff of nondeductible compensation, pricing adjud stmet including certain stock-based compensation; tax costs related to inter-company realignments; changes in accounting nts; tax effects ff 39 principles; imposition of withholding or other taxes on payments by subsidiaries or customers; or a change in our decision to indefinitely reinvest certain foreign earnir ngs. Significaff nt judgment is requiqq red to evaluate our tax positions and determine our income tax liability. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential t income taxes or additional recovery of previously paid taxes, which if settled unfavff orably could adversely affff ecff paid-in capia tal. In addition, tax laws are dynamic and subject to change. Changes in tax laws and regulations and interpretations of such laws and regulations, including taxation of earnings outside of the U.S., the introduction of a base erosion anti-abuse tax and the disallowance of tax deductions for certain expex nse, as well as changes that may be enacted in the future, could impact the tax treatment of our earnings and cash and cash equivalent balancaa es we economic and political conditions, tax policies or rates in various currently maintain. Furthet jurisdictions, including the United States, may be subjeb ct to significant change. rmore, due to shifting ff r tax authorities. Audits by the IRS or othet Finally, we are subject to the examination of our income tax returns by the Internal Revenue Service r tax authorities are subject to inherent uncertainties and (“IRS”) and othett could result in unfavff orable outcomes, including potential fines or penalties. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interprr etations by tax authorities of these jurisdictions. The expense of defending and resolving such an audit may be significant. The amount of time to resolve an audit is also unprnn edictable and may divert management’s attention from our business operations. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income taxes. We cannot assure you that fluctuations in our provision for income taxes or our effecff tive tax rate, the enactment of new tax laws or changes in the application or interprr etation of existing tax laws or advedd rse outcomes resulting from examination of our tax returns by tax authorities will not have an adverse effeff ct on our business, financial condition, results of operations and prospects. Failure to comply with governmental laws and regulations could harm our business, financial condition, results of operations and prospects. ff be more stringent than those in the United States. For examplm e, Our business is subject to regulation by various federal, state, local and foreign governmrr ental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety,tt product , environmental laws, consumer protection laws, privacy, data protection, anti-bribery laws, import/export safetyff minerals, federal securities laws and tax laws and regulations. In certain jurisdictions, these controls, conflict the EU has regulatory requirements mayaa implemented the General Data Protection Regulation (“GDPR”). The GDPR provides for subsu tantial obligations relating to the handling, storage and other processing of data relating to individuals and administrative fines for violations, which can be up four percent of the previous year’s annual revenuenn or €20 million, whichever is higher.rr We have relied on the E.U.-U.S. and Swiss-U.S. Privacy Shield programs, and the use of model contractual clauses approved by the E.U. Commission, to legitimize these transferff s. Both the E.U.-U.S. Privacy Shield and these model contractuatt l clauses have been subject to legal challenge. We continue to analyze the July 2020 “Schrems II” decision by the Court of Justice of the European Union and its impact on our data transfer mechanisms as well as subsequent ts of this decision are uncertain and difficff ult to predict. Among guidance from data privacy regulators. The effecff othet r effeff cts, we may expex rience additional costs associated with increased compliance burdens and new contract negotiations with third parties that aid in processing data on ouru behalf.ff We may experience reluctance or refusal by current or prospective Eurou pean customers to use our producdd ts, and we may find it necessary or desirable to make ing of personal data of residents of the Eurou pean Economic Area (“EEA”). The further changes to our handl regulatory environment applicable to the handling of EEA residents’ personal data, and our actions taken in response, may cause us to assume additional liabia lities or incur additional costs and could result in our business, operating results and financial condition being harmed. Additionally, we and our customers may face a risk of enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA. Any such enforcement actions could result in substantial costs and diversion of resources, distrat ct management and technical personnel and negatively affeff ct our business, operating results, and financial condition. Further, the UK has implemented legislation that substantially provides for the GDPR, which provides for fines of up to the greater of 17.5 million British Pounds or four percent of the previous year’s annual revenue, whichever is higher. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear following the UK’s exit from the EU, including with respect to regulation of data transferff s between EU member states and the UK. aa 40 ff Several jurisdictions have passed new laws and regulations relating to privacy, data protection, and other r jurisdictions are considering imposing additional restrictions. These laws continue to develop and matters, and othet may be inconsistent from jurisdiction to jurisdiction. For examplm e, the California Consumer Privacy Act (“CCPA”PP ) became operative on January 1, 2020. The CCPA requires covered companies to, among other things, provide new disclosures to California consumers, and affor ds such consumers new abilities to opt-out of certain sales of personal information. Certain aspects of the CCPA and its interprr etation remain uncertain and are likely to remain uncertain for an extended period. Further, a new privacy law, the California Privacy Rights Act (“CPRA”RR ), was approved by the votes in the November 3, 2020 election. The CPRA modifieff s the CCPAPP significantly, creating obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July r 1, 2022, and enforcement beginning July 1, 2023. Passage of the CPRA has resulted, has resulted in furthett uncertainty and may require us to incur additional costs and expenses in an effoff rt to comply. In addition, some countritt es are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. Accordingly, we cannot predict the full impact of the the CPRA or other evolving privacy and data protection obligations on ouru business or operations. CCPA, Complying with emerging and changing legal and regulatory requirements relating to privacy, data protection and othet r matters may cause us to incuru costs or require us to change our business practices, which could harm our business, financial condition, results of operations and prospects. ff We are also subject to environmental laws and regulations governing the management and disposal of hazardous materials and wastes, including the hazardaa ous material content of our products and laws relating to the collection, recycling and disposal of electrical and electronic equipment. Ouruu failure, or the failure of our partaa ners, including our contract manufact urtt ers, to comply witht past, present and future environmental laws could result in fines, penalties, third-partytt claims, reduced sales of our products, re-engineering our products, substantial product and reputational damage, any of which could harm our business, financial condition, results of inventoryrr write-offsff operations and prospects. We also expect that our business will be affecff ted by new environmental laws and regulations on an ongoing basis applicable to us and our partners, including our contract manufacturtt ers. To date, our on our results of operations or cash flows. expenditureuu s for environmental compliance have not had a material effect Although we cannot predict the future effeff ct of such laws or regulations, they will likely result in additional costs or require us to change the content or manufacturiu ng of our products, which could have a material adverse effecff t on our business, financial condition, results of operations and prospects. ff From time to time, we may receive inquiries from governmental agencies or we may make voluntary disclosures regarding ouru compliance with applicable governmental regulations or requirements relating to various matters, including import/export controls, federal securities laws and tax laws and regulations which could lead to formal investigations. Actual or alleged noncompliam nce with applicable laws, regulations or other governmental requirements could lead to regulatory investigations, enforcement actions, and other proceedings, private claims and litigation, and potentially may subjeb ct us to sanctions, mandatoryrr product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injun nctions. If any governmental fines, penalties, or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition, results of operations and prospects could be materially adversely affeff cted. In addition, responding to any investigation, action or other proceeding will likely result in a significff ant diversion of management’s attention and resources and an increase in profesff sional fees. Enforcement actions, investigations, and fines, penalties, and other sanctions could harmaa our business, financial condition, results of operations and prospects. ff We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls. Our products may be subjecb t to various export controls and because we incorporate encryption technology into certain of our products, certain of our products may be exported from various countries only with the required t control export license or through an export license exception. If we were to fail to comply with the applicable expor laws, customs regulations, economic sanctions or other applicable laws, we could be subject to monetary damages or the imposition of restrictions which could be material to our business, operating results and prospects and could also harm our reputation. Furthet including ization incarceration for culpable emplm oyees and managers. Obtaining the necessary export license or other author for a particular sale may be time-consuming and may result in the delay or loss of sales opportuniu ties. Furthermore, certain expor t control and economic sanctions laws prohibit the shipment of certain producd ts, technology, software and services to embargoed countries and sanctioned governments, entities, and persons. Even though we take there could be criminal penalties for knowing or willful violations, r, x x t 41 precautions to ensure that we and ouruu channel partners complm y with all relevant regulations, any failure by us or our rs to comply with such regulations could have negative consequences, including reputational harm, channel partnett government investigations and penalties. As our company grows, we also continue developing procedures and controls to comply with export control and other applicable laws. Historically, we have had some instances where we inadvertently have not fully complied with certain export control laws, but we have disclosed them to, and implemented corrective actions with, the appropriate governmrr ent agencies. In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distrit bute our products or could limit our end customers’ ability to implement our producdd ts in those countrit es. Any change in expor t or import regulations, economic sanctions or related legislation, shiftff in the enforcement or scope of existing regulations or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our products by,yy or in our decreased ability to export or sell our producdd ts to, existing or potential end customers with international operations or create delays in the introduction of our products into international markets. Any decreased use of our products or limitation on our ability to export or sell our products could advedd rsely affeff ct our business, financial condition, results of operations and prospects. x Risks Related to Ownership of Our Common Stock The trading price of our common stock has been and may continue to be volatile, and the value of your investment could decline. The trading price of our common stock has historically been and is likely to continue to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our contrott l. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, forward-looking statements related to future revenue, gross margins and earnings per share, changes or decreases in our growth rate, manufacff l or anticipated announcements of new products by our company or our competitors, litigation, actual or anticipated changes or fluctuations in our results of operations, regulatoaa ry developments, repurchases of our common stock, departurtt es of key executives, majoa r catastrophic events, and broad market and industryt turiu ng, supply or distribution shortages or constraints, ratings changes by securities analysts, actuatt fluctuations. d In addition, technology stocks have historically expex rienced high levels of volatility and, if the market for technology stocks or the stock market in general experiences a loss of investor confidff ence, the market price of our common stock could decline for reasons unrelated to our business, financial condition, results of operations and r prospects. The market price of our common stock might also decline in reaction to events that affeff ct othet companies in our industry even if these events do not directly affecff t us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has ofteff n been brought against that company. If the market price of our common stock is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our manaaa gement’s attention and resources from our business and prospects. This could have a material adverse effeff ct on our business, financial condition, results of operations and prospects. We have adopted a stock repurchase program to repurchase shares of our common stock, however,rr any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase program could cause the market price for our common stock to decline. Although our board of directors has authorized a share repurchase program, any determination to execute our stock repurchase program will be subject to, among other things, our financial position and results of operations, t available cash and cash flow, capia tal requirements, and other factors, as well as our board of director’s continuing determination that the repurchase program is in the best interests of our shareholders and is in compliance with all laws and agreements applicable to the repurchase program. Our stock repurchase program does not obligate us to acquire any common stock. If we fail to meet any expectations related to stock repurchases, the market price of our common stock could decline, and could have a material adverse impact on investor confidence. Additionally, price volatility of our common stock over a given period may cause the average price at which we repurchase our common stock to exceed the stock’s market price at a given point in time. 42 We may furthet r increase or decrease the amount of repurchases of ouru common stock in the future. Any reduction or discontinuance by us of repurchases of our common stock pursuant to our current share repurchase authorization program could cause the market price of our common stock to decline. Moreover, in the event repurchases of our common stock are reduced or discontinued, our failure or inability to resume repurchasing common stock at historical levels could result in a lower market valuation of our common stock. Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur,rr could reduce the market price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us. Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur,u could adversely affecff t the market price of our common stock and may make it more difficff ult for you to sell your common stock at a time and price that you deem appropriate and may dilute your voting power and your ownership interest in us. Based on shares outstanding as of December 31, 2020, holders of approximately 21.9 % of our common stock have rights, subjeb ct to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or othet r and sale of all shares of common stock that we may issue under our equity compensation plans. If holders, by exercising their registration rights, sell large numbers of shares, it could advedd rsely affeff ct the market price of our common stock. r stockholders. In addition, we haveaa registered the offeff Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control. kk Our directors, executive offiff cers and each of our stockhol ders who own greater than 10% of our outstanding common stock together with their affiff liates, in the aggregate, beneficially own approximately 21.8% of the outstanding shares of our common stock, based on shares outstanding as of December 31, 2020. As a result, these stockholders, if acting together, could exercise a significant level of influence over matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other from yours and may vote in a way with which extraordinaryrr you disagree and which may be adverse to your interests. This concentration of ownership may also discourage a potential investor from acquiring our common stock due to the limited voting power of such stock or otherwise may t of delayiaa ng, preventing or deterring a change of control of our company, could deprive our have the effecff ity to receive a premium for their common stock as part of a sale of our company and stockholders of an opportuntt might ultimately affeff ct the market price of our common stock. transactions. They may also have interests that differff Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment. Our amended and restated certificff ate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficff ult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effeff cting changes in our management. These provisions include: • a classifiedff board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majoa rity of our board of directors; ed stock and to determine the price • r terms of those shares, including preferff ences and voting rights, without stockholder approval, which could the ability of our board of directors to issue shares of preferr ff and othet be used to significff antly dilute the ownership of a hostile acquiqq rer; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, deathtt or removal of a director, which prevents stockholders from being able to fill vacancaa ies on our boardaa of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockhol kk ders; • the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, ouru president, ouru secretary or a majoa rity vote of ouruu board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; 43 • the requirement for the affiff rmative vote of holders of at least 66 2/3% of the voting power of all of r as a single class, to amend the provisions of ouruu red stock and management of our t such the then outstanding shares of the voting stock, voting togethet amended and restated certificate of incorporation relating to the issuance of preferff business or ouru amended and restated bylaws, which may inhibit amendments to facilitate an unsolicited takeover attempt; the ability of an acquirer to effecff • the ability of our board of directors, by majoa rity vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or othet rwise attempting to obtain control of us. In addition, as a Delaware corporation, we are subjeb ct to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of ouru outstanding voting stock, from merging or combining with us for a certain period of time. General Risks If we are unable to hire, retain, train and motivate qualifieff d personnel and senior management, our business, financial condition, results of operations and prospects could suffer.rr t Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel, are engineering and sales personnel. In addition, our success in expanding into adjad cent markets particularly softwff rt and financial resources into hiring including the enterprise market requires a significant investment of time, effoff and training our sales force to address these markets. If we do not effecff tively train our direct sales force, we may be unable to add new end customers, increase sales to our existing end customers, and successfully expand into new markets. Competition for highly skilled personnel is ofteff n intense, especially in the San Francisco Bay Area where we have a substantial presence and need for highly skilled personnel. Many of the companies with which we compete for experienced personnel have greater resources than we haveaa to provide more attractive compensation amenities. Research and development personnel are aggressively recruited by startup and growthtt packages and other c regions in which we conduct companies, which are especially active in many of the technical areas and geographi producdd t development. In addition, in making emplm oyment decisions, particularly in the high-technology industry, job candidates ofteff n consider the value of the stock-based compensation they are to receive in connection with their employment. Declines in the market price of ouruu stock could adversely affecff t our ability to attract, motivate or retain key employees. In addition, our future perforff mance also depends on the continuenn d services and continuing contributions of our senior management to execute our business plan and to identifyff and pursue new opportunitie s and product innovations. Our employment arrangements with our emplm oyees do not generally require that they continue to work for us for any specifieff d period, and therefore, they could terminate their employment with us at any time. If we are unable to attract or retain qualifieff d personnel, or if there are delays in hiring required personnel, ouruu business, financial condition, results of operations and prospects may be seriously harmed. aa tt Our business is subject to the risks of earthquakes, fire, power outages, floods, health epidemics and other catastrophic events and to interruption by man-made problems such as terrorism. r Our corpor ate headquarters and the operations of our key manufacturiu ng vendors, logistics providers and rs, as well as many of our customers, are located in areas exposed to risks of natural disasters such as partnett earthqua kes and tsunamis, including the San Francisco Bay Area, Japan and Taiwan. A significff ant natural disaster, t such as an earthquake, tsunami, fire or a flood, or other catastrophic event such as the COVID-19 pandemic or other t on our or their business, which could in turn materially affect disease outbreak, could have a material adverse effecff our financaa ial condition, results of operations and prospects. These events could result in manufacturiu ng and supply chain disruptions, shipment delays, order cancellations, and sales delays which could result in missed financial epidemic could have a material advedd rse effeff ct on our ability to obtain components for our targets. Any healtht urtt e our products in Asia. Any such disruption of our suppliers, lied from Asia or to manufact producdd ts that are suppu our contract manufacturtt ers or our service providers would likely impact our sales and operating results. In addition, a health epidemic could adversely affeff ct the economies of many countries, resulting in an economic downturn that In addition, acts of terrorism could could affecff t demand for our products and likely impact ouru operating results. ff ff 44 cause disruptions in our business or the business of our manufacturtt ers, logistics providers, partnet rs or end customers or the economy as a whole. Given our typical concentration of sales at each quarter end, any disruption in the business of our manufactureru ts sales at the end of our quarter could have a particularly significant adverse effecff s, logistics providers, partners or end customers that affecff t on our quarterly results. We have not paid dividends in the past and do not intend to pay dividends for the foreseeable future. We have never declared nor paid any dividends on our common stock, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a returtt n on youruu investmet the market price of our common stock increases. nt in our common stock if 45 Item 1B. Unresolved Staffff Comments None. Item 2. Properties Our corporate headquarters is located in Santa Clara, California where we curru ently lease approximately 210,000 square feet of space under a lease agreement that expires in 2023. In addition, we lease offiff ce spaces for operations, sales personnel and research and development in locations throughout the U.S. and various international locations, including Ireland, Canada, India, and Australia. We also lease data centers in the U.S., Ireland, Australia and the United Kingdom. We believe that our current facilities are adequate to meet our current needs and are being utilized by our business. Item 3. Legal Proceedings The information set fortht under the “Legal Proceedings” in Note 7. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 46 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE under the symbol “ANET”. As of February 12, 2021, there were 61 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Stock Perforff mance Graph The following shall not be deemed “filff ed” for purposes of Section 18 of the Exchange Act, or incorporated by referff ence into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specificff ally incorporate it by reference into such filing. The following graph compares the cumulative total returtt n of our common stock with the total return for the NYSE Composite Index and the Standard & Poor’s 500 Index (the “S&P 500”) from December 31, 2015 to December 31, 2020. The graph assumes $100 was invested at the market close on December 31, 2015 (thet last trading day of the year) in the Company’s common stock and in each of the aforff ementioned indices with the re-investment of dividends, if any. The stock price perforff mance on the following graph is not necessarily indicative of future stock price perforff mancaa e. (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:76)(cid:86)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81) (cid:36)(cid:85)(cid:76)(cid:86)(cid:87)(cid:68)(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17) (cid:49)(cid:60)(cid:54)(cid:40)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:91) (cid:54)(cid:9)(cid:51)(cid:3)(cid:24)(cid:19)(cid:19) (cid:7)(cid:23)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:22)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:22)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:21)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:21)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:20)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:20)(cid:19)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19) (cid:7)(cid:19)(cid:17)(cid:19)(cid:19) (cid:21)(cid:19)(cid:20)(cid:24) (cid:21)(cid:19)(cid:20)(cid:25) (cid:21)(cid:19)(cid:20)(cid:26) (cid:21)(cid:19)(cid:20)(cid:27) (cid:21)(cid:19)(cid:20)(cid:28) (cid:21)(cid:19)(cid:21)(cid:19) Securities Authorized for Issuance Under Equity Compensation Plans Information about securities authorized for issuance under our equiqq ty compensation plans is provided in Note 8. Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. 47 Recent Sales of Unregistered Equity Securities There were no sales of unregistered securities during fiscal year 2020. Issuer Repurchases of Equity Securities Under ouru equity incentive plans, certain participants may exercise options prior to vesting, subject to a right of repurchase by us. During the fourth quarter of 2020, there were no repurcuu hases of unvested shares of our common stock made pursu uant to our equiqq ty incentive plans as a result of us exercising our rights nor pursuant to any publicly - announced plan or program.aa Stock Repurchase Program In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase Program”). This authorization allows us to repurchase shares of ouru common stock over three years and will be funded from operating cash flows. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investmet nt banking institutions, block purcuu hases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing. The Repurchase Program, which expix res in April 2022, 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. We did not make any repurchases for the three months ended December 31, 2020, as disclosed in the table below (in thousands, except per share amounts). For ouruu repurchase activities made during the rest of the year ended December 31, 2020, please refer to Note 8. Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. Total Number of Shares Purchased Average Price Paid Per Share October 1, 2020 - October 31, 2020 November 1, 2020 - November 30, 2020 December 1, 2020 - December 31, 2020 $ — — — — — — Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs — — — Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs $ 338,685 338,685 338,685 Item 6. Selected Consolidated Financial Data The selected consolidated statements of operations data for fiscal 2020, 2019 and 2018, and the consolidated balance sheet data as of December 31, 2020 and 2019 are derived from our audited financial statements appearing in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Reportrr on Form 10-K. The selected consolidated statements of operations data for fiscal 2017 and 2016, and the consolidated balance sheet data as of December 31, 2018, 2017 and 2016, are derived from audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future. The following selected consolidated financial data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and ial statements, and the accompam nying notes appearing in Part II, Results of Operations,”, our consolidated financaa Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K to fully understand factors that may affecff t the comparability of the information presented below. 48 Year Ended December 31, 2020 2019 2018 2017 2016 (in thousands, except per share data) $2,317,512 $2,410,706 $2,151,369 $1,646,186 $1,129,167 835,626 866,368 777,992 584,417 1,481,886 1,544,338 1,373,377 1,061,769 486,594 229,366 66,242 — 782,202 699,684 39,179 738,863 462,759 213,907 61,898 — 738,564 805,774 56,496 862,270 442,468 187,142 65,420 405,000 1,100,030 273,347 15,454 288,801 349,594 155,105 86,798 — 591,497 470,272 4,488 474,760 406,051 723,116 273,581 130,887 75,239 — 479,707 243,409 (1,184) 242,225 Consolidated Statements of Operations Data: Revenue Cost of revenue (1) Total gross profitff Operating expenses (1): Research and development Sales and marketing General and administrative Legal settlement Total operating expenses Income from operations Other income (expense), net Income before income taxes Provision for (benefitff taxes from) income 104,306 2,403 (39,314) 51,559 58,036 Net income $ 634,557 $ 859,867 $ 328,115 $ 423,201 $ 184,189 NNet income attributable to common stockholders: Basic Diluted NNet income per share attributable to common stockholders: Basic Diluted Weighted-average shares used in computing net income per share attributable to common stockholders: Basic Diluted 634,557 634,557 859,444 859,468 327,926 327,941 422,400 422,468 182,965 183,039 $ $ 8.35 7.99 $ $ 11.26 10.63 $ $ 4.39 4.06 $ $ 5.85 5.35 $ $ 2.66 2.50 75,984 79,465 76,312 80,879 74,750 80,844 72,258 78,977 68,771 73,222 ____ ____ ____ ______ __ (1) Includes stock-based compensation expens ____ ____ ____ ____ x e as follows: Cost of revenue Research and development Sales and marketing General and administrative 2020 2019 2018 2017 2016 Year Ended December 31, (in thousands) $ 6,272 $ 4,637 $ 5,087 $ 4,353 $ 3,620 79,913 34,944 15,913 53,068 29,168 14,407 48,205 24,995 12,915 42,184 17,953 10,937 31,892 15,666 7,854 Total stock-based compensation $ 137,042 $ 101,280 $ 91,202 $ 75,427 $ 59,032 49 December 31, 2020 2019 2018 2017 2016 (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and marketable securities Working capital Total assets Total indebtedness Total deferred revenue and customer contract liabilities Total stockholders’ equity $2,872,868 3,068,755 4,738,919 — $2,724,368 2,874,562 4,185,290 — $1,956,147 2,108,298 3,081,983 37,743 $1,535,555 1,736,524 2,460,860 39,592 $ 867,833 1,066,573 1,729,007 41,210 736,784 3,320,291 636,338 2,894,686 619,822 2,143,389 515,262 1,661,914 372,935 1,107,820 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You shouldll read the following discuii operations together with the consolidatedd this Annual Repoe , expex ll plans fromrr those anticipated in these forward-rr forthtt underdd “Ri“ skii Factors” and elsell whererr in this Annual Report on Form 10-K. is of our financial condition and results of here in t looking statements based upon currenrr that involve risks and uncertainties. Our actual results maya difi fff erff materially including those set d financial statements and related notes that arerr included elsewll looking statements as a result of various factors,rr rt on Form 10-K.KK This discuii ssion contains forward-rr ctations and beliefsff ssion and analysll Overview Arista Networks pioneered software-driven, cognitive cloud networking for large-scale data center and campus workspace environments. Our industry-leading cloud networking platforff m is highly scalable and programmable, and purpose built to address the functional and performance requirements for cloud networks, including workflow automation, network visibility and analytics, and has furtuu her allowed us to integrate rapidly with a wide range of third-partytt ion and network services. lization, management, automation, orchestrat applications for virtuat tt We generate revenue primarily from sales of our switching and routing platforms, which incorpor ate our EOS software, and related network applications. We also generate revenue from post contract support, or PCS, which end customers typically purchase in conjunction witht our products, and renewals of PCS. We sell our producdd ts through botht our direct sales force and our channel partnett rs. Ouru end customers span a range of industritt es and include large internet companies, service providers, financial services organizations, government rs. agencies, media and entertainment companies and othet rr Historically, large purchases by a relatively limited number of end customers have accounted for a significant portion of ouru revenue. We have experienced unpredictability in the timing of orders from these large end customers primarily due to changes in demand patterns specificff to these customers, the time it takes these end customers to evaluate, test, qualify and accept our products, and the overall complexity of these large orders. We expect continued variability in ouru customer concentration and timing of sales on a quarterly and annual basis. For example, sales to our end customers Microsoftff and Facebook in fiscal 2019 collectively represented 40% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 amounted to 21.5% of our revenues, with our end customer Facebook representing less than 10% of our revenues in the period. These changes contributed to a year-over-year decline in our revenue for fiscal 2020. However, this decline in revenue from these large end customers was in part offset ise and other cloud and service provider customers. In addition, we typically provide pricing discounts to large end customers, which may result in lower margins for the period in which such sales occur. by stronger sales to our enterprr ff We believe that cloud networking will continue to replace legacy network technologies across data us environments. Our cloud networking platforff ms are well positioned to address the growing center and campa 50 cloud netwott increasing performff connected devices, as well as the need for constant connectivity and access to data and applications. rking market, and to address ance requirements driven by the growing number of dd consolidation. We expect competition to intensifyff The markets for cloud networking solutions are highly competitive and characterized by rapidly standards, frequent introducd tions of new changing technology,y changing end-customer needs, evolving industrytt in the future as the market producdd ts and services and industryt for cloud networking expandaa s and existing competitors and new market entrants introduce new producdd ts or enhance existing products. Our future success is dependent upon our ability to continue to evolve and adapt to our rapidly changing environment. We must also continue to develop market leading products and featureu s that address the needs of our existing and new customers, and increase sales in the enterprise data center switching, and campus workspace markets. We intend to continue expanding our sales force and marketing activities in key geographies, as well as our relationships with channel, technology and system-level partnet rs in order to reach new end customers more effeff ctively, increase sales to existing customers, and provide services and support. In addition, we intend to continue to invest in our research and development organization to enhance the funcu tionality of our existing cloud networking platform, introduce new products and featurtt es, and build upon our technology leadership. We believe one of our greatest strent gths lies in our ability to rapidly develop new features and applications. Our development model is focused on the development of new products based on our EOS softwa re and enhancements to EOS. We engineer our producdd ts to be agnostic with respect to the underlying merchant silicon architecturtt e. Today, we combine our EOS software with merchant silicon into a family of switching and re core routing products. This enables us to focus our research and development resources on our softwa competencies and to leverage the investmet nts made by merchant silicon vendors to achieve cost-effeff ctive solutions. We work closely with third partytt contract manufacturtt ers to manufacture our producd ts. Our contract manufacff nt partnett rs then perforff m labeling, final configff uration, quality assurance testing and shipment to our customers. deliver our products to our third partytt direct fulfillme nt facilities. We and our fulfillme u turers ff ff ff ff Recent Developments The global coronavirus (“COVID-19”) pandemic and related shelter in place, travel and social rt to contain or slow its spread have distancing restritt ctions imposed by governments around the world in an effoff negatively impacted the global economy, disrupted business, sales activities, supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets, and we expect that the global health crisis caused by COVID-19 will continue to negatively impact business activity for the foreseeabla e future. We have taken numerous steps, and will continue to take further actions, in our approach to address COVID-19. We have prioritized the protection of our emplm oyees during this pandemic and, as a result, have closed our offiff ces across the globe (including our corporate headquarters), limiting access to only those employees providing essential activities, instructed employees to work from home, and implemented travel restritt ctions. We continue to work closely with our contract manufactureu rs and supply chain partners who haveaa experienced delays in component sourcing, workforff ce disruptions and governmental restrictions on the producdd tion and export of their products. Although we haveaa worked diligently to drive improvements in these and incremental purchase commitments, these delays have areas, including funding additional working capital negatively impacted our ability to suppu ly products to our customers on a timely basis. We expect to continue to invest in working capiaa tal as supply availability improves in order to address the risk of future COVID-19 related supply chain disruptions, but we cannot be certain that such disruptuu ions will not occur. When the COVID-19 in customer demand, but sales activity subsequently pandemic began, we initially experienced some volatilitytt stabilized and we experienced incremental improvements in overall demand as the year progressed. However, the supply chain disruptions outlined above and the earlaa ier volatility in customer demand contributed in part to a year-over-year decline in total revenue for the year ended December 31, 2020. aa The extent of the impact of COVID-19 on our operational and financial perforff mance, including our ability to execute ouruu business strategies and initiatives in the expected time frame, will depend on future n of governmental developments, including the duration and spread of the pandemic, the breadth and durauu tioaa 51 containment measures such as shelter in place, travel and social distancing restritt ctions as well as the reauthorization of or increase in such measures in the event of spikes in COVID-19 infection rates, the success of the COVID-19 vaccination deployment, and the impact on our customers, partners, contract manufacturtt ers and supply chain, all of which are uncertain and cannot be predicted. However, any continued or renewed disruption in manufactu ring and supply resulting from the COVID-19 pandemic or related containment measures could negatively impact ouru business. We also believe that any extended or renewed COVID-19 related economic disruption could have a negative impact on demand from our customers in future periods. Accordingly, current results and financial condition discussed herein mayaa not be indicative of future operating results and trends. ff In response to potential future COVID-19 related disruptions to our business, we have continued to carefully review our investment and spending plans, cautiously increasing incremental spending in the second half of fiscal 2020 as overall customer demand stabilized. Although management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industryt ,y and workforce, the full impact of the pandemic continues to evolve as of the date of this report. As such, the Company is unable to estimate the effecff ts of COVID-19 on its future results of operations, financial condition, or liquidity. Acquisitions On Februarr ry 5, 2020, we acquired Big Switch Networks, Inc. (“Big Switch”), a network monitoring and software-definff ed networking pioneer headquartered in Santa Clara, California. With the acquisition of Big rk monitoring and Switch, we expanded our data center networking solutions and furthet observability suite delivered through Arista’s softwar (DataANalyZer) capaa biliti es. In addition, on October 7, 2020, we completed the acquisition of Awake Security Inc. (“Awake a Security”), a network detection and response (“NDR”) platform provider headquartered in Santa Clara, Califorff nia. With the acquisition of Awake Security, we added an NDR platforff m to our producdd t portfolio that combines artificff for and respond to insider and external threats. ial intelligence (AI) with human expex rtise to autonomously huntu r strengthen our netwott and DANZAA e platform CloudVisionVV tt Results of Operations Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Revenue, Cost of Revenue and Gross Profitff (inii thousands,dd except percentagea s) Revenue Product Service Total revenue Cost of revenue Product Service Total cost of revenue Gross profitff Gross margin Year Ended December 31, 2020 2019 $ % of Revenue $ % of Revenue Change in $ % $1,830,842 486,670 2,317,512 749,962 85,664 835,626 $1,481,886 79.0 % $2,021,150 389,556 21.0 2,410,706 100.0 83.8 % $(190,308) 97,114 16.2 (93,194) 100.0 792,382 32.4 73,986 3.7 866,368 36.1 63.9 % $1,544,338 (42,420) 32.9 11,678 3.0 (30,742) 35.9 64.1 % $ (62,452) (9.4)% 24.9 (3.9) (5.4) 15.8 (3.5) (4.0)% 63.9 % 64.1 % 52 Revenue by Geography (inii thousands,dd except percentagea s) Americas Europe, Middle East and Afriff ca Asia-Pacific Total revenue venue Year Ended December 31, 2020 $1,771,992 326,729 218,791 % of Total 2019 76.5 % $1,833,163 381,651 14.1 195,892 9.4 % of Total 76.1 % 15.8 8.1 $2,317,512 100.0 % $2,410,706 100.0 % Product revenue primarily consists of sales of our switching and routing products, and softwatt re licenses. Service revenue is primarily derived from sales of post-contract support, or PCS, which is typically purchased in conjunction with our products, and subsequent renewals of those contracts. We expect our revenue may vary from period to period based on, among other things, the timing, size, and complexity of orders, especially with respect to our large end customers. Product revenue decreased $190.3 million, or 9.4%, in the year ended December 31, 2020 compared to 2019. The decrease was primarily due to the recognition of $125.1 million of deferred product revenue in the year ended December 31, 2019 related to customer acceptance of products shipped in prior periods. In addition, we experienced reduced sales to our larger customers during fiscal 2020, combined with the impact of some COVID-19 related supply constraints. Service revenue increased $97.1 million, or 24.9% in the year ended December 31, 2020 compam red to 2019 as a result of continued growth in initial and renewal support contracts as our customer installed base continued to expax nd. International revenues remained relatively constant at 23.5% of total revenues in the year ended December 31, 2020, compared to 23.9% in 2019, withtt a slight decrease in growth in our EMEA region, mostly offset International revenue generally fluctuates based on the timing of deployments by certain of our large end customers. by an increase in growth in our Asia-Pacific region. ff Cost of Revenue and Gross rr Margin Cost of producd t revenuenn u turers and merchant silicon vendors, overhead costs of our manufacturiu ng operatioaa manufacff associated with manufacturtt consists of personnel and other costs associated with our global customer support and services organizations. ing ouru producdd ts and managing ouruu inventory. Cost of service revenuenn to our third-party contract ns, and other costs primarily primarily consists of amounts paid for inventoryrr Cost of revenue decreased $30.7 million or 3.5% for the year ended December 31, 2020 compared to 2019. The decrease in cost of revenue was primarily due to a corresponding decrease in producdd t revenues, and was partially offsff et by incremental COVID-19 related supply chain costs and increased product transition costs. Gross margin, or gross profitff as a percentage of revenue, has been and will continue to be affeff cted by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales facturiu ng-related costs, including costs to large end customers who generally receive lower pricing, manuaa associated with supply chain sourcing activities, merchant silicon costs, the mix of producdd ts sold, and s for excess/obsolete component inventory held by our excess/obsolete inventory write-downs, including charger contract manuf . We expect our gross margins to fluctuate over time, depending on the factors described above. u turers acff aa Gross margin slightly decreased from 64.1% for the year ended December 31, 2019 to 63.9% in 2020. Gross margin was negatively impacted by incremental COVID-19 related supply chain costs and some increased producdd t transition costs, combined witht the impact of fixed overhead costs on a lower revenue base. These negative impacts were partially offsff et by a reduction in sales to our larger end customers who generally receive larger discounts, and improved service margins as we scale our services organization. 53 Operating Expexx nses (in thousands,s except percentagea s) Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expex nses, sales commissions. Personnel costs also include stock-based compensation and travel expenses. Year Ended December 31, 2020 2019 $ % of Revenue $ % of Revenue Change in $ % $ 486,594 229,366 66,242 $ 782,202 20.9 % $ 462,759 213,907 61,898 33.7 % $ 738,564 9.9 2.9 19.2 % $ 23,835 15,459 4,344 30.7 % $ 43,638 8.9 2.6 5.2 % 7.2 7.0 5.9 % Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Researchrr and development. Research and development expenses consist primarily of personnel costs, prototype expenses, third- partytt engineering costs, and an allocated portion of facility and IT costs. Our research and development effoff rts are focused on new product development and maintaining and developing additional functionality for our existing products, including new releases and upgrades to our EOS softwatt re and applications. We expect our research and development expenses to increase in absolute dollars as we continue to invest in software development in order to expand the capabilities of our cloud networking platforff m, introducdd e new products and featurtt es, and build upon our technology leadership. Research and development expenses increased $23.8 million, or 5.2%, the year ended December 31, 2020 compared to 2019. The increase was primarily due to a $26.8 million increase in stock- based compensation from new and refresh grants during the current fiscal year, and a $7.8 million increase in acquisition-related expenses and amortization of acquired intangible assets from our acquisition of Big Switch and Awake Security,tt partially offsff et by an $11.4 million decrease in new producdd t introduction costs, including third-partytt engineering and othett r product development costs. for Sales and marketing. r Sales and marketing expex nses consist primarily of personnel costs, marketing, trade shows, and othet promotional activities, and an allocated portion of facility and IT costs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to expax nd our sales and markaa eting effoff rts worldwide. Sales and marketing expenses increased $15.5 million, or 7.2%, for the year ended December 31, 2020 compared to 2019. The increase was driven by increased headcount, resulting in increased compensation costs, including salaries and stock-based compensation, partially offsff et by a decrease in travel and other sales and marketing activities due to COVID-19. General and admin dd istrative. General and administrative expenses consist primarily of personnel costs and professional services costs. General and administrative personnel costs include those for our executive, finance, human resources and legal functions. Our professional services costs are primarily related to external legal, accounting, and tax services. General and administrative expenses increased $4.3 million, or 7.0%, for the year ended December 31, to 2019. The increase was primarily driven by acquiqq sition-related costs from our acquisitions of m 2020 compared Big Switch and Awake Security in the current fiscal year. 54 Other Income,e Net (inii thousands,dd excepe t percentagea s) Other income, net consists primarily of interest income from our cash, cash equivalents and marketable securities, gains and losses on our investmet nts in privately-held companies, and foreign currency transaction gains and losses. We expect other income, net may fluctuate in the future as a result of the re-measurement of our private companynn equiqq ty investments upon the occurruu ence of observable price changes and/or impam irments, changes in interest rates or returtt ns on our cash and cash equivalents and marketable securities, and foreign currency exchange rate fluctuations. Year Ended December 31, 2020 2019 $ % of Revenue $ % of Revenue Change in $ % Other income, net: Interest income Gain on sale of marketable securities Gain on investmet privately-held companies Other income (expense) nts in Total other income, net $ 27,139 1.2 % $ 51,144 2.2 % $ (24,005) (46.9)% 9,432 0.4 — — 9,432 100.0 4,164 (1,556) 39,179 $ 0.2 (0.1) 1.7 % $ 5,427 (75) 56,496 (1,263) 0.2 — (1,481) 2.4 % $ (17,317) (23.3) 1,974.7 (30.7)% The unfavorabla e change in othett r income, net, during the year ended December 31, 2020 as compared to 2019 was driven by a $24.0 million decrease in interest income largely due to lower interest rates. This was partially offsff et by a realized gain of $9.4 million on the sale of marketable securities in the third quarter of the year ended December 31, 2020. Provision for Income Taxeaa s (inii thousands,dd except percentages)s We operate in a number of tax jurisdictions and are subjeu ct to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may also be subject to U.S. income tax. Generally, our U.S. tax obligations are reduced by a credit for foreign income taxes paid on these foreign earnings, which avoids double taxation. Our tax expense to date consists of federal, state and foreign current and deferred income taxes. Provision for income taxes Effeff ctive tax rate Year Ended December 31, 2020 2019 Change in $ % of Revenue $ % of Revenue $ % $ 104,306 4.5 % $ 2,403 0.1 % $101,903 4,240.7 14.1 % 0.3 % ff For the years ended December 31, 2020 and 2019, we recorded an expense of $104.3 million and $2.4 tax rate increased from 0.3% in 2019 to 14.1% in 2020. million for income taxes, respectively, and our effective The change in our income taxes was largely attritt butable to a net tax benefit of $86 million in 2019 resulting from an intra-entity transaction to sell our non-Americas economic and beneficial intellectuatt l property rights. Further, while we experienced a decrease in worldwide profitff before tax in 2020 compared to 2019, the tax benefits attributable to stock-based compensation also decreased, along with an increase in foreign earnaa ings taxed in non-zero rate juriu sdictions, resulting in overall higher tax expense. For furtu her information regardaa ing income taxes and the impact on our results of operations and financi al position, refer to Note 10. Income Taxes of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. aa Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Revenue, Cost of Revenue and Gross Profitff (inii thousands,dd except percentagea s) 55 Year Ended December 31, 2019 2018 Change in $ % of Revenue $ % of Revenue $ % $2,021,150 389,556 2,410,706 792,382 73,986 866,368 $1,544,338 83.8 % $1,841,100 310,269 16.2 2,151,369 100.0 85.6 % $180,050 14.4 79,287 259,337 100.0 720,584 32.9 57,408 3.0 35.9 777,992 64.1 % $1,373,377 71,798 33.5 16,578 2.7 36.2 88,376 63.8 % $170,961 9.8 % 25.6 12.1 10.0 28.9 11.4 12.4 % 64.1 % 63.8 % Revenue Product Service Total revenue Cost of revenue Product Service Total cost of revenue Gross profitff Gross margin Revenue by Geography (inii thousands,dd except percentagea s) Americas Europe, Middle East and Afriff ca Asia-Pacific Total revenue venue Year Ended December 31, 2019 $1,833,163 381,651 195,892 % of Total 2018 76.1 % $1,550,453 414,069 15.8 186,847 8.1 % of Total 72.1 % 19.2 8.7 $2,410,706 100.0 % $2,151,369 100.0 % Product revenue increased $180.1 million, or 9.8%, in the year ended December 31, 2019 compared to 2018. The increase was primarily driven by increased demandaa from botht new and existing customers, and the recognition of product deferred revenue related to sales in the prior year for which revenue was recognized in 2019. Service revenue increased $79.3 million, or 25.6% in the year ended December 31, 2019 compared to 2018 as a result of continued growth in initial and renewal support contrat cts as our customer installed base has continued to expax nd. International revenues represented 23.9% of total revenues in the year ended Decembem r 31, 2019, compared to 27.9% in 2018, which was primarily due to a move toward U.S. deployments by certain of ouru large end customers during 2019. We continue to experience pricing pressure on our products and services due to competition, but demand for our products and growth in our installed base has more than offset this pricing pressure duriuu ng the year. However, we have experienced reduced and volatile demand from certain of our large end customers during 2019. ff Cost of Revenue and Gross rr Margin Cost of revenue increased $88.4 million or 11.4% for the year ended December 31, 2019 compareaa d to and service sponding increases in productdd 2018. The increase in cost of revenue was primarily due to the correr revenues. Gross margin increased to 64.1% for the year ended December 31, 2019 compared to 63.8% in 2018. The increase in gross margin was primarily driven by an increase in productd margins due to favorable customer mix, with lower discounts on smaller volume transactions, partially offsff et by increased product transition costs, including excess and obsolete inventory-rr related charges. Operating Expexx nses (inii thousands,s except percentagea s) 56 Year Ended December 31, 2019 2018 $ % of Revenue $ % of Revenue Change in $ % $ 462,759 213,907 61,898 — $ 738,564 19.2 % $ 442,468 187,142 65,420 8.9 2.6 — 405,000 30.7 % $1,100,030 20.6 % $ 20,291 26,765 (3,522) 8.7 3.0 4.6 % 14.3 (5.4) 18.8 (405,000) 51.1 % $(361,466) (100.0) (32.9)% Operating expenses: Research and development Sales and marketing General and administrative Legal settlement Total operating expenses Researchrr and development Research and development expex nses increased $20.3 million, or 4.6%, for the year ended December 31, 2019 compared to 2018. The increase was primarily due to a $17.2 million increase in personnel costs driven primarily by headcount growth, and a $7.8 million increase in development-related facilities costs due to facilities expansion and headcount growth, partially offsff et by a $5.9 million decrease in new product introduction costs, including third-partytt engineering and other product development costs. Sales and marketing Sales and marketing expenses increased $26.8 million, or 14.3%, for the year ended December 31, 2019 compared to 2018. The increase primarily included a $23.4 million increase in personnel costs, which was driven by increased headcountuu as well as higher sales volumes, resulting in increased compensation costs, including commissions and stock-based compensation. General and admin dd istrative General and administrative expenses decreased $3.5 million, or 5.4%, for the year ended December 31, 2019 compared to 2018. The decrease was primarily related to a reduced level of litigation activity as a result of the settlement of ouruu litigation with Cisco in August 2018. Legal settlement During the three months ended June 30, 2018, we recorded $405.0 million in legal settlement expenses in connection with the Term Sheet that was entered into on August 6, 2018 between the Company and Cisco, which included a $400.0 million paymaa the settlement. Pursuant to the Term Sheet, the Company and Cisco obtained dismissals of all then ongoing district court and USITC litigation between us. On December 3, 2018, the parties entered into a mutual release and settlement agreement, which superseded the Term Sheet but did not substantially alter the terms. ent and $5.0 million of legal fees associated witht Other Income,e Net (inii thousands,dd excepe t percentagea s) Year Ended December 31, 2019 2018 $ % of Revenue $ % of Revenue Change in $ % Other income, net: Interest income Interest expense Gain (loss) on investmet privately-held companies Other income (expense) nts in Total other income, net $ $ 51,144 — 5,427 (75) 56,496 2.2 % $ 31,666 (2,701) — 1.4 % $ 19,478 2,701 (0.1) 61.5 % (100.0) (13,800) 0.2 289 — 2.4 % $ 15,454 19,227 (0.6) — (364) 0.7 % $ 41,042 (139.3) (126.0) 265.6 % 57 aa The favor able change in othett r income, net, duriu ng the year ended December 31, 2019 as compared to 2018 was driven by a $19.5 million increase in interest income, as we continued to generate cash and expand our marketable securities portfolff ios, and a $19.2 million favorable change on our investments in privately-held companies resulting from the gain on certain investments of $5.4 million in 2019, compared to a net loss of $13.8 million on these investments during 2018. Upon adoption of Accounting Standard Codificaff tion Topic 842 - Leases (“ASC 842”) on Januann ry 1, 2019, we derecognized the financaa e lease obligation associated with our build-to-suit lease, and therefore ceased to incuru further interest expense as it relates to this obligation. ProPP visioii n for (Benefitff from)m Income Taxeaa s (inii thousands,dd except percentages)s Year Ended December 31, 2019 2018 Change in $ % of Revenue $ % of Revenue $ % Provision for (benefitff income taxes Effeff ctive tax rate from) $ 2,403 0.1 % $(39,314) (1.9)% $ 41,717 (106.1)% 0.3 % (13.6)% For the years ended December 31, 2019 and 2018, we recorded an expense of $2.4 million and a benefit of $39.3 million for income taxes, respectively. The change in our income taxes was largely attributable to a $96.9 million tax benefit from the Cisco settlement in 2018 and an overall increase in worldwide earnings in 2019, partially offsff et by a net tax benefit of $86 million in 2019 resulting from an intra-entity transaction to sell our non-Americas economic and beneficial intellectuatt l property rights. Liquidity and Capital Resources Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of December 31, 2020, our total balance of cash, cash equivalents and marketable securities was $2.9 billion, of which approximately $421.0 million was held outside the U.S. in our foreign subsidiaries. Our cash, cash equivalents and marketable securities are held for general business purpor ses including nt portfolio is primarily invested in highly- the funding of working capia tal. Our marketable securities investmet rated securities, with the primary objecb tive of minimizing the potential risk of principal loss. We plan to continue to invest for long-term growth. We believe that our existing balances of cash, cash equivalents and marketable securities, together with cash generated from operations will be suffiff cient to meet our working capia tal requirements and our growth strategies for at least the next 12 months. Our future capia tal requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support the timing and cost of establishing additional sales and marketing research and development activities, capaa biliti ings, our costs associated witht ff a turing, our costs related to investing in or supply chain activities, including access to outsourced manufacff acquiring complementary or strategic businesses and technologies, the continued market acceptance of our producdd ts, and stock repurchases. If we require or elect to seek additional capia tal through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to us or at all. If we are required and unable to raise additional capital when desired, ouru business, operating results and financial condition mayaa be adversely affeff cted. es, the introduction of new and enhanced product and service offer 58 Cash Flows Cash provided by operating activities Cash (used in) investing activities Cash (used in) provided by financing activities Effeff ct of exchange rate changes NNet increase (decrease) in cash, cash equivalents and restritt cted cash sh Flows from Operatrr ingtt Activitiii es Year Ended December 31, 2020 2019 2018 (in thousands) $ 735,114 $ 963,034 $ 503,119 (608,802) (346,339) 1,966 (284,072) (217,964) 353 (755,113) 42,851 (1,390) $ (218,061) $ 461,351 $ (210,533) Our operating activities consist of net income, adjud sted for certain non-cash items, and changes in assets and liabilities. ff by a net During the year ended December 31, 2020, cash provided by operating activities was $735.1 million, nts to net income of $186.2 million, primarily from net income of $634.6 million and net non-cash adjud stmet increase of $85.7 million in working capiaa tal requirements. The net non-cash partially offset adjud stmet nts primarily consist of $137.0 million of stock-based compensation expenses and $44.6 million of depreciation and amortization expenses. The increase in working capital primarily consisted of a $235.3 million increase in inventory to help mitigate the impact of COVID-19 related supply chain disruptions, partially offsff et by a $50.4 million increase in deferred revenuenn , a $41.1 million increase in accounts payabla e related to the timing of production receipts, and a $17.1 million increase in other liabilities primarily due to an increase in customer contract liabia lities. During the year ended December 31, 2019, cash provided by operating activities was $963.0 million, primarily from net income of $859.9 million and net non-cash adjud stments to net income of $62.4 million, partially offsff et by a net decrease of $40.8 million in cash from changes in our operating assets and liabilities. Cash outflowff s from operating activities consisted of an $11.9 million decrease in deferred revenue primarily due to the recognition of product deferred revenue related to contract acceptance terms, largely offsff et by increased service deferred revenue related to growth in customer service and support contratt cts, a $60.2 million increase in accounts receivable due to timing of shipments, and an $8.1 million increase in other assets resulting from increased spares inventory to support our customer base. These cash outflows were partially offsff et by cash inflows of $54.3 million in prepaid expex nses and othet r current assets from a decrease in deferred cost of inventoryrr due to the recognition of product deferred revenue, $23.5 million from an increase in income taxes payablea , $20.9 million decrease in inventories due to timing of product shipments and receipts, and $16.4 million from increased accrued liabilities primarily due to an increase in supplier liability reserves for excess and obsolete component inventory. Cash Flows from Investintt g Activitiett s Our investing activities consist of ouru marketable securities investments, business combinations, nts in privately-held companies, and capital expex nditures. investmet During the year ended December 31, 2020, cash used in investing activities was $608.8 million, primarily consisting of purcuu hases of available-for-sale securities of $2.7 billion, $227.4 million for the acquisition of Big Switch and Awake Security,yy and purchases of property, equipment and intangi ble assets of 15.4 million, partially offsff et by proceeds of $1.5 billion from maturities of marketable securities, proceeds from the sale of marketable securities of $773.0 million and proceeds from the sale of one of our investments in privately-held companies of $3.4 million. aa 59 During the year ended December 31, 2019, cash used in investing activities was $284.1 million, primarily consisting of purchases of available-for-sale securities of $1.5 billion, and purchases of propertytt and equipment of 15.8 million, partaa ially offsff et by proceeds of $1.2 billion from maturities of marketable securities and proceeds from the sale of one of our investments in privately-held companies of $28.2 million. Cash FloFF ws from Financing Activtt ities Our financing activities consist of proceeds from the issuance of our common stock under emplm oyee equity incentive plans, offsff et by repurchases of our common stock. During the year ended December 31, 2020, cash used in financing activities was $346.3 million, consisting primarily of payments for repurchases of our common stock of $395.2 million and taxes paid of $8.7 million upon vesting of restricted stock units, offset partially by proceeds from the issuance of common stock under employee equity incentive plans of $57.6 million. ff During the year ended December 31, 2019, cash used in financing activities was $218.0 million, consisting primarily of payments for repurchases of our common stock of $266.1 million and taxes paid of $9.2 million upon vesting of restricted stock units, partially offsff et by proceeds from the issuance of common stock under employee equity incentive plans of $57.4 million. Stock Repue rchase Program We have periodically repurchased our common stock pursuant to our Repurchase Program authorized by our board of directors in April 2019. The Repurchase Program allows for stock repurchases of up to $1.0 billion over three years and these repurchases are to be funded from operating cash flows. The Repurchase Program, which expires in April 2022, 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 December 31, 2020, the remaining authorized amount for repurchases under the Repurchase Program was $338.7 million. Refer to Note 8. Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for further discussion. Off-Balance Sheet Arrangements As of December 31, 2020, we did not have any relationships with any unconsolidated entities or rships, such as entities ofteff n referred to as structured finance or special purpose entities that facilitating off-ff balance sheet arrangements or other of r t financial partnett would have been established for contractuatt lly narrow or limited purpos rr the purpose es. Contractual Obligations and Commitments Our contractuatt l commitments will have an impact on our futurtt e liquidity.tt Our contractual obligations represent material expex cted or contractually committed future payment obligations. We believe that we will be these obligations through cash generated from operations and from ouruu existing balances of cash, able to fundu cash equivalent and marketable securities. The following summarizes our contractual obligations and commitmett nts as of December 31, 2020 (in thousands): Operating lease obligations Purchase commitments with contract manufacff uu and suppl Other non-cancellable purchase obligations u turers iers Transition tax payaaa ble Total Payments Due by Period Total 104,258 Less than 1 Year 21,770 1 to 3 Years 3 to 5 Years More than 5 Years 41,423 21,139 19,926 421,857 421,857 32,103 6,343 32,103 — — — — — — 6,343 — — $ 564,561 $ 475,730 $ 41,423 $ 27,482 $ 19,926 60 The contractuatt positions because we are unable to make a reasonably reliable estimate of the timing of settlement, if any,nn these future paymaa l obligation table above excludes tax liabilities of $46.7 million related to uncertain tax of ents. In connection with the Tax Cuts and Jobs Act of 2017, we recorded a federal income tax payable for transition tax on the mandatoryrr deemed repatriation of foreign earnings that will be payabla e over an eight-year period. The amounts included in the table above represent the remaining federal income tax payable after applying the first year's installment payment and early payments of future installments. Critical Accounting Policies and Estimates We have prepared our consolidated financial statements in accordance witht accounting principles generally accepted in the United States ("GAAP" or "U.S. GAAP") and include our accounts and the accounts of our wholly owned subsidiaries. The preparation of these consolidated financial statements requires our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expex nses during the applicable periods. We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe ent assumptions and judgments would change the estimates to be reasonable under the circumstances. Differ used in the preparation of ouru consolidated financaa ial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions and judgments on an ongoing basis. Actual results may differff from these estimates. To the extent that there are material differff ences between these estimates and ouru ted. The critical accounting estimates, assumptions actual results, our future financaa and judgments that we believe have the most significff ant impacm t on ouru consolidated financial statements are the following: ial statements will be affecff ff ff Revenue Recognition o We generate revenue from sales of our producdd ts, which incorpor e and accessories tt rs together witht PCS. We typically sell such as cables and optics, to direct customers and channel partnett producdd ts and PCS in a single contract. We recognize revenue upon transferff of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products or services. We apply the following five-step revenue recognition model: rate our EOS softwar of control tt • • • • • Identification of the contract, or contrat cts, with a customer Identification of the perforff mancaa e obligations in the contract Determination of the transaction price Allocation of the transaction price to the performance obligations in the contratt ct Recognition of revenue when (or as) we satisfy the perforff mancaa e obligation Post-Contract Customer Suppu ort PCS, which includes technical support, hardware repair and replacement parts beyond standard warranty, bug fixes, patches and unspecified upgrades on a when-and-if-avff red under renewable, fee-based contrat cts. We initially defer PCS revenue and recognize it ratably over the lifeff of the PCS contract as there is no discernible pattern of delivery related to these promises. We do not provide unspecified upgrades on a set schedule and address customer requests for technical support if and when they arise, with the related expenses recognized as incurred. PCS contracts generally have a term of one to three years. We include billed but unearned PCS revenue in deferred revenue. ailable basis, is offeff Contrat ctstt with Multiple Perforff mance Obligations Most of our contracts with customers, othet r than renewals of PCS, contain multiple perforff mance as distinct obligations with a combination of products and PCS. Producdd ts and PCS generally qualifyff perforff marr the essential functionality of our products. For contracts which contain multiple performance obligations, we allocate revenue to each distinct performance obligation based on the standalone selling price (“SSP”). Judgment is nce obligations. Our hardware includes EOS softwatt re, which together deliver 61 required to determine the SSP for each distinct performance obligation. We use a range of amountu s to estimate SSP for products and PCS sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and PCS. If we do not have an observabla e SSP, such as when we do not sell a producd t or service separately, then SSP is estimated using judgment and considering all reasonably available information such as market conditions and information about the size and/or purchase volume of the customer. We generally use a range of amounts to estimate SSP for individual producd ts and services based on multiple factors including, but not limited to, the sales channel (reseller, distributor or end customer), the geographies in which our producd ts and services are sold, and the size of the end customer. We limit the amount of revenuenn recognition for contrat cts containing forms of variable consideration, such as future performa nce obligations, customer-specific returns, and acceptance or refund obligations. We include some or all of an estimate of the related at risk consideration in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recorded under each contract will not occur when the uncertainties surrounding the variable consideration are resolved. ff Most of our contracts with customers have payment terms of 30 days, with some large high volume customers having terms of up to 60 days. We have determined that our contracts generally do not include a significant financing component because the Companynn and the customer have specificff business reasons other than financing for entering into such contract ts. Specificff ally, both we and our customers seek to ensure the customer has a simplifieff d way of purchasing our products and services. We account for multiple contrat cts with a single partner as one arrange and/or substance of those agreements indicate that they may be so closely related that they are, in effecff a single contract. aa ment if the contractual terms t, parts of We may occasionally accept returns to address customer satisfaction issues even though there is generally no contractual provision for such returns. We estimate returns for sales to customers based on historical return rates applied against current-period shipments. Specificff customer returns and allowances are considered when determining our sales return reserve estimate. to apply the guidance to a portfolio Our policy applies to the accounting for individual contratt cts. However, we have elected a practical expedient of contracts or perforff mance obligations with similar characteristics so long as such application would not differff materially from applying the guidance to the nce obligations) within that portfolio. Consequently, we have chosen to apply individual contracts (or perforff marr en frequently. Additionally, we will the portfolio approach when possible, which we do not believe will happa evaluate a portfolff io of data, when possible, in various situations, including accounting for commissions, rights of returt nrr and transactions with variable consideration. ff We report revenue net of sales taxes. We include shipping charges billed to customers in revenue and the related shipping costs are included in cost of product revenue. Inventory Valuationii and Contratt ct Manufau cturer/Srr upplie pp r Liabii ilitiell s Inventories primarily consist of finished goods and strategic components, primarily integrated circuits. Inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value. Manufacturing overhead costs and inbound shipping costs are included in the cost of inventory.rr We record a provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjud st inventoryrr to its estimated realizable value. Our contract manufacturers procure components and assemble producdd ts on our behalf based on our forecasts. We record a liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with our contract manufacturers or suppliers for quantities in excess of our demand forecasts or turing and engineering change orders resulting from design that are considered obsolete due to manufacff changes. 62 We use significff ant judgment in establishing our forecasts of future demand and obsolete material exposures. These estimates depend on our assessment of current and expected orders from ouru customers, producdd t development plans and current sales levels. If actual market conditions are less favorabla e than those l, we may be projected by management, which may be caused by factors within and/or outside of our contrott required to increase our inventoryrr write-downs and liabilities to our contract manufacff turers and suppliers, which could haveaa bility. We regularly evaluate ouru expox sure an adverse impact on ouru gross margins and profitaff for inventory write-downs and adequacy of our contract manuaa facturer/supplier liabilities. Income Taxeaa s Income tax expense is an estimate of current income taxes payabla e in the curru ent fiscal year based on red income taxes reflect the effeff ct of temporm aryrr differff ences and es. reported income before income taxes. Deferff carryforwards that we recognize for financial reporting and income tax purpos rr We account for income taxes under the liability approach for deferred income taxes, which requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements, but have not been reflected in our taxable income. Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred income tax assets, which arise from temporary differeff nces and red income tax assets and liabilities are measured using the currently enacted tax rates that carryfrr orff wards. Deferff apply to taxable income in effecff t for the years in which those tax assets are expected to be realized or settled. We regularly assess the likelihood that our deferff rerr d income tax assets will be realized based on the positive and negative evidence available. We record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize. We believe that we have adequately reserved for our uncertain tax positions, although we can provide no assurance that the final tax outcome of these matters will not be materially differff ent. To the extent that the final tax outcome of these matters is differff ent than the amounts recorded, such differenc t the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations. The provision for income taxes includes the effeff cts of any reserves that we believe are appropriate, as well as the related net interest and penalties. es will affecff ff We regularly review our tax positions and benefits to be realized. We recognize tax liabilities based upon our estimate of whether, and to the extent to which, additional taxes will be due when such estimates are more likely than not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. We recognize interest and penalties related to income tax matters as income tax expense. The U.S. tax rules require U.S. tax on foreign earnaa ings, known as global intangible low taxed income (“GILTI”). Under U.S. GAAP,PP we are allowed to make an accounting policy choice of either (1) treating taxes d (the due on future U.S. inclusions in taxable income related to GILTI as a current-period expex nse when incurreu “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferff red method”). We selected the deferred method of accounting and recorded the associated basis differff ences anticipated to influence prospective GILTILL calculations. Loss Contintt gencies In the ordinary course of business, we are a partytt to claims and legal proceedings including matters relating to commercial, emplm oyee relations, business practices and intellectual property.tt In assessing loss contingencies, we use significff ant judgment and assumptions to estimate the likelihood of loss, impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amountuu of loss. We record a provision for contingent losses when it is bothtt probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonabla y estimated. We will record a charge equal to the minimum estimated liability for litigation costs or a loss contingency only when both of the following conditions are met: tion available prior to issuance of ouru consolidated financial statements indicateaa s that it is probable (i) informa ff ial statements and (ii) the range of loss can be that a liability had been incurred at the date of the financaa 63 reasonabla y estimated. We regularly evaluate current informarr accruarr ls should be adjud sted and whether new accruarr ls are required. tion available to us to determine whether such Recent Accounting Pronouncements Refer to “Recent Accounting Pronouncements” in Note 1. Organization and Summary of Significff ant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk x We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our ure is primarily a result of fluctuations in foreign currency exchange rates, interest rates and market risk expos investmet nts in privately-held companies. The ongoing COVID-19 pandemic has increased the volatility of global financial markets, which may increase ouru foreign currency exchange risk and interest rate risk. For further discussion of the potential impacts of the COVID-19 pandemic on our business, operating results, and financial condition, see Risk Factors included in Part I, Item 1A of this Form 10-K. Foreign Currency Exchangen Risk Our results of operations and cash flows are subjeb ct to fluctuations due to changes in foreign currency exchange rates. Substantially all of our revenue is denominateaa d in U.S. dollars, and therefore, our revenue is not ncy risk. A stronger directly subject to foreign curru ency risk. However, we are indirectly exposed to foreign curreu U.S. dollar could make our products and services more expensive in foreign countrit es and thereforff e reduce demand. A weaker U.S. dollar could have the opposite effeff ct. Such economic exposureu to currency fluctuations is difficff ult to measure or predict because our sales are also influenced by many othett r factors. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the U.S. and to a lesser extent in Europe and Asia. Our results of operations and cash flows are, thereforff e, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely ted in the future due to changes in foreign exchange rateaa s. A hypothetical 10% change in foreign currency affecff exchange rates on ouru monetary assets and liabilities would not be material to our financial condition or results of operations. To date, foreign currency transaction gains and losses and exchange rate fluctuatt tions have not been material to our financial statements. While we have not engaged in the hedging of our foreign currency transactions to date and do not enter into any hedging contracts for trading or speculative purpor ses, we may in the future hedge selected significaff nt transactions denominated in currencies othet r than the U.S. dollar. Interest Rate Sensitivitytt As of December 31, 2020 and 2019, we had cash, cash equiqq valents and available-for-sale marketable securities totaling $2.9 billion and $2.7 billion, respectively. Cash equivalents and marketable securities were invested primarily in money market funds, corporate bonds, U.S. agency mortgage-backed securities, U.S. r. Our primary investment objectives are to preserve capital and treasury securities and commercial papea maintain liquidity requirements. ure to any single es and have not used any derivative issuer. We do not enter into investments for trading or speculative purpos financial instruments to manage our interest rate risk exposure. Our primary expos ure to market risk is interest income sensitivity, which is affeff cted by changes in the general level of the interest rates in the U.S. A decline in interest rates would reduce our interest income on our cash, cash equivalents and marketable securities. For the of a hypothetical 100 basis point increase or years ended December 31, 2020, 2019 and 2018, the effect decrease in overall interest rates would not have had a material impact on our interest income. In addition, our policy limits the amount of credit expos x x rr ff On the othet r hand, the fair market value of our investments in fixed income securities may be adversely impam cted. We would incur unrealized losses on fixed income securities if there is an increase in interest rates compared to interest rates at the time of purchase. Under certain circumstances, if we are forced to sell our marketable securities prior to maturity, we mayaa incur realized losses in such investments. However, 64 because of the conservative and short-term nature of the investmett is not expected to have a material impact on our consolidated financial statements. nts in our portfolff io, a change in interest rates Investmett ntstt in Privateltt y-Hll elHH dll Companies Our non-marketable equity investmet nts in privately-held companies are recorded in “Investments” in our consolidated balance sheets. As of December 31, 2020 and 2019, the total carrying amount of ouruu investmet nts in privately-held companies was $8.3 million and $4.2 million. During fiscal 2020, we recorded a net gain of $4.1 million on certain investments, compared to a net gain of $5.4 million during fiscal 2019. See Note 5. Investments of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for details. The privately-held companies in which we invested are in the startup or development stages. These nts are inherently risky because the markets for the technologies or products these companies are investmet developing are typically in the early stages and may never materialize. We could lose ouru entire investment in these companies. Our evaluation of investments in privately-held companies is based on the fundamentals of the businesses invested in, including among othet e of their technologies and potential for financial return. r factors, the naturaa 65 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATEAA D FINANCIAL STATTT EMENTS Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows NNotes to the Consolidated Financial Statements Page 67 70 71 72 73 75 76 66 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Arista Networks, Inc. Opinion on the Financial Statements rks, Inc. (thet Company) as of We have audited the accompanying consolidated balance sheets of Arista Netwott December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and ouruu report dated February 18, 2021 expressed an unqualifiedff opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s manaaa gement. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. aa We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financaa ial statements are free of material misstatement, whethet r due to error or fraud. Ouru audits included perforff ming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and perforff ming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that ouru audits provide a reasonabla e basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communm icated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financaa ial statements and (2) involved ouru especially challenging, subjeb ctive or complex judgments. The communm ication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 67 Descripti Matter ion of the ppu lier Liabilities the consolidated financial statements, Inventory Valuationii & Contract Manufau cturer/Su// As discussed in Note 1 of the Company’s inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value. The Company’s inventoryrr e totaled $480 million on December 31, 2020. The Company records a provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjust inventory to its estimated realizable value. The Company records a contract manufacturtt er/supplier liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with contract manufacturtt ers or suppliers for quantities in excess of the Company’nn s demand forff ecasts, or that are considered obsolete. balancaa uu supplier Auditing management’s assessment of net realizable value for inventoryrr and contract manufacturer/ liabilities was complex and highly judgmental due to the be assessment of management’s estimates of forecasted product demand, which canaa impacted by changes in overall customer demand, changes in the timing of the introduction and customer adoption of new products, adjud stments to manufacturtt ing and engineering schedules, and overall general economic and market conditions. How We Addrdd esrr the Matter in Our Audit sed We obtained an understanding, evaluated the design and tested the operating effeff ctiveness of controls over the Company’s determination of the net realizable value of inventory and turer/supplier liability. This included controls over the preparation of the contrat ct manufacff the demand and production forecasts, and the evaluation of the accuracy and completeness of the inventory provision and contract manufacturt er/supplier liability. To test the inventory provision and contract manufacturtt er/srr upplier liability, we perforff med audit procedures that included, among othet rs, assessing the Company’s methodology over the computation of the provision and liability, testing the significff ant assumptions and the underlying inputs used by the Company in its analysis including historical sales trends, expectations regarding future sales, changes in the Company’s business, customer base, producdd t roadmap and othett r relevant factors. /s/ Ernst & Young LLP We have served as the Company's auditor since 2008. San Jose, Califorff nia February 18, 2021 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Arista Networks, Inc. Opinion on Internal Control Over Financial Reporting ial reporting as of December 31, 2020, We have audited Arista Networks, Inc.’s internal control over financaa based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring COSO criteria). In our opinion, Arista Organizations of the Treadway Commission (2013 frameaa work) (thet Networks, Inc. (the Company) maintained, in all material respects, effecff tive internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Arista Networks Inc. as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equiqq ty and cash flows for each of the three years in the period ended Decemberm 31, 2020, and the related notes of the Company and ouru report dated Februarr 18, 2021 expressed an unqualifiedff opinion thereon. ryaa Basis for Opinion The Company'nn s management is responsible for maintaining effecff tive internal control over financial reporting and for its assessment of the effeff ctiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publu ic accounting firm registered with the PCAOB and are required to be independent with respect to the e with the U.S. federal securities laws and the applicable rules and regulations of the Company in accordancaa Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonable assurance about whether effeff ctive internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that tiveness of internal control a material weakness exists, testing and evaluating the design and operating effecff in the based on the assessed risk, and perforff ming such other procedures as we considered necessaryrr circumstances. We believe that our audit provides a reasonabla e basis for ouru opinion. Definition and Limitations of Internal Control Over Financial Reporting l over financial reporting is a process designed to provide reasonabla e assurance A company’s internal contrott regarding the reliability of financial reporting and the preparation of financial statements for external purpuu oses in accordance with generally accepted accounting principles. A company’s internarr ial reporting includes those policies and procedurd es that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the companyaa ; (2) provide reasonabla e assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance witht generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with author izations of management and directors of the company; and (3) provide reasonabla e assurance regarding prevention or timely detection of unauthorized t on the financial acquisition, use, or disposition of the company’s assets that could have a material effecff statements. l over financaa l controt t limitations, Because of its inherent internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effeff ctiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, Califorff nia February 18, 2021 69 ARISTATT NETWORKS, INC. Consolidated Balance Sheets (In thousands, except par value) ASSETS CURRENT ASSETS: Cash and cash equivalents Marketable securities Accounts receivable, net of rebates and allowances of $4,497 and $6,160, respectively Inventories Prepaid expenses and other curru ent assets Total current assets Property and equiqq pment, net Acquisition-related intangible assets, net Goodwill Investments Operating lease right-of-uff se assets Deferred tax assets Other assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable Accrued liabilities Deferred revenue Other current liabilities Total current liabilities Income taxes payable Operating lease liabilities, non-current Deferred revenue, non-current Deferred tax liabilities, non-curru ent Other long-term liabilities TOTAL LIABILITIES December 31, 2020 2019 $ 893,219 $ 1,111,286 1,979,649 1,613,082 389,540 479,668 94,922 391,987 243,825 111,456 3,836,998 3,471,636 32,231 122,790 189,696 8,314 77,288 441,531 30,071 39,273 45,235 54,855 4,150 87,770 452,025 30,346 $ 4,738,919 $ 4,185,290 $ $ 134,235 143,357 396,259 94,392 768,243 53,053 72,397 254,568 227,936 42,431 92,105 140,249 312,668 52,052 597,074 55,485 83,022 262,620 254,710 37,693 1,418,628 1,290,604 Commitments and contingencies (Note 7) STOCKHOLDERS’ EQUITY: Preferff and outstanding as of December 31, 2020 and 2019 red stock, $0.0001 par value—100,000 shares authorized and no shares issued Common stock, $0.0001 par value—1,000,000 shares authorized as of December 31, 2020 and 2019; 76,174 and 76,389 shares issued and outstanding as of December 31, 2020 and 2019 Additional paid-in capital Retained earnings Accumulated other comprehensive income TOTAL STOCKHOLDERS’ EQUITY TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY The accompanying notes arerr an integrae l part ofo these consolidatedd — 8 1,292,431 2,027,614 238 — 8 1,106,305 1,788,230 143 3,320,291 2,894,686 $ 4,738,919 d financial statements. $ 4,185,290 (cid:26)(cid:19) ARISTATT NETWORKS, INC. Consolidated Statements of Operations (In thousands, except per share amounts) Revenue: Product Service Total revenue Cost of revenue: Product Service Total cost of revenue Gross profitff Operating expenses: Research and development Sales and marketing General and administrative Legal settlement Total operating expenses Income from operations Other income, net Income before income taxes Provision for (benefitff from) income taxes Net income Net income attributable to common stockholders: Basic Diluted Net income per share attributable to common stockholders: Basic Diluted Weighted-average shares used in computing net income per share attrt ibutable to common stockholders: Basic Diluted Year Ended December 31, 2020 2019 2018 $ 1,830,842 $ 2,021,150 $ 1,841,100 486,670 2,317,512 389,556 2,410,706 310,269 2,151,369 749,962 85,664 835,626 792,382 73,986 866,368 720,584 57,408 777,992 1,481,886 1,544,338 1,373,377 486,594 229,366 66,242 — 782,202 699,684 39,179 738,863 104,306 634,557 634,557 634,557 8.35 7.99 75,984 79,465 $ $ $ $ $ 462,759 213,907 61,898 — 738,564 805,774 56,496 862,270 2,403 859,867 859,444 859,468 11.26 10.63 76,312 80,879 442,468 187,142 65,420 405,000 1,100,030 273,347 15,454 288,801 (39,314) 328,115 327,926 327,941 4.39 4.06 74,750 80,844 $ $ $ $ $ $ $ $ $ $ The accompanying notes arerr an integrae l part of these consolidatedd d financial statements. (cid:26)(cid:20) ARISTATT NETWORKS, INC. Consolidated Statements of Comprehensive Income (In thousands) Net income Other comprehensive income (loss), net of tax: Foreign currency translation adjud stments Available-forff -sale investments: Changes in net unrealized gains (losses) on available-for-sale securities Less: reclassificff ation adjustmet income Net change nt for net (gains) included in net Other comprehensive income (loss) Comprehensive income Year Ended December 31, 2020 2019 2018 $ 634,557 $ 859,867 $ 328,115 1,514 (686) (2,069) 8,013 (9,432) (1,419) 95 4,823 — 4,823 4,137 13 — 13 (2,056) $ 634,652 $ 864,004 $ 326,059 The accompanying notes arerr an integrae l part of these consolidatedd d financial statements. (cid:26)(cid:21) ARISTATT NETWORKS, INC. Consolidated Statements of Stockholders’ Equity (In thousands) Common Stock Shares Amount Additional Paid- In Capital Retained Earnings 73,706 $ 7 $ 804,731 $ 859,114 Accumulated Other Comprehensive Income (Loss) (1,938) $ Total Stockholders’ Equity $ 1,661,914 Balance — December 31, 2017 t adjud stmet Cumulative-effecff balance (1) Net income nt to beginning Other comprehensive loss, net of tax Stock-based compensation Issuance of common stock in connection with employee equity incentive plans Tax withholding paid for net share settlement of equity awards Vesting of early-exercised stock options Common stock issued for business combinations Balance — December 31, 2018 t adjud stmet Cumulative-effecff balance (2) Net income nt to beginning Other comprehensive income, net of tax Stock-based compensation Issuance of common stock in connection with employee equity incentive plans Repurchase of common stock Tax withholding paid for net share settlement of equity awards Vesting of early-exercised stock options Balance — December 31, 2019 Net income Other comprehensive income, net of tax Stock-based compensation Issuance of common stock in connection with employee equity incentive plans Repurchase of common stock Tax withholding paid for net share settlement of equity awards Vesting of early-exercised stock options — — — — 1,918 (36) — 80 75,668 — — — — 1,951 (1,189) (41) — 76,389 — — — 1,834 (2,012) (37) — — — — — 1 — — — 8 — — — — — — — — 8 — — — — — — — 8 — — — 91,202 53,657 (8,878) 305 15,555 956,572 — — — 101,280 57,377 — (9,200) 276 3,574 328,115 — — — — — — — — (2,056) — — — — — 3,574 328,115 (2,056) 91,202 53,658 (8,878) 305 15,555 1,190,803 (3,994) 2,143,389 3,702 859,867 — — — (266,142) — — — — 4,137 — — — — — 3,702 859,867 4,137 101,280 57,377 (266,142) (9,200) 276 1,106,305 1,788,230 143 2,894,686 — — 137,128 57,556 634,557 — — — — (395,173) (8,722) 164 — — — 95 — — — — — 634,557 95 137,128 57,556 (395,173) (8,722) 164 $1,292,431 $2,027,614 $ 238 $ 3,320,291 Balance — December 31, 2020 76,174 $ ____ ____ ____ ____ ___ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ______ __ (1) On January 1, 2018, we adopted ASC 606 - Revenue from Contracts with Customers (“ASC 606”) and ASU 2016-16, Income Taxes (TopiTT c 740): Intra-Entity Transferff nt to the beginning balance of Retained Earnings for 2018. (2) On January 1, 2019, we adopted ASC 842 - Leases, which resulted in a cumulative-effecff Retained Earnings for 2019. r Than Inventory, which resulted in a cumulative-effecff nt to the beginning balance of s of Assets Othet t adjud stmet t adjud stmett The accompanying notes arerr an integrae l part of these consolidatedd d financial statements. (cid:26)(cid:22) ARISTATT NETWORKS, INC. Consolidated Statements of Cash Flows (In thousands) CASH FLOWS FROM OPERATR ING ACTIVITIES: NNet income Adjustme activities: d nts to reconcile net income to net cash provided by operating Depreciation, amortization and other Noncash lease expense Stock-based compensation Deferred income taxes (Gain) loss on investmett nts in privately-held companies, net Gain on sale of marketable securities Amortization (accretion) of investment premiums (discounts) Changes in operating assets and liabilities: Accounts receivable, net Inventories Prepaid expenses and other curru ent assets Other assets Accounts payable Accrued liabilities Deferred revenue Income taxes payable Other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of marketable securities Purchases of marketabla e securities Business combinations, net of cash acquired Purchases of property,tt equipment and intangible assets Investments in privately-held companies Proceeds from sale of marketable securities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of lease financing obligations Proceeds from issuance of common stock under equiqq ty plans Tax withholding paid on behalf of emplm oyees for net share settlement Repurchase of common stock Net cash (used in) provided by financing activities Effeff ct of exchange rate changes NNET INCREASE/(DECREASE) IN CASH, CASH EQUIVALVV ENTS AND RESTRICTED CASH CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of pperiod CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period (1) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIAA ON: (cid:26)(cid:23) Year Ended December 31, 2019 2020 2018 $ 634,557 $ 859,867 $ 328,115 44,590 16,970 137,042 (9,144) (4,164) (9,432) 10,381 10,673 (235,318) 13,846 4,965 41,161 2,728 50,352 8,805 17,102 735,114 32,849 16,179 101,280 (75,741) (5,427) — (6,771) (60,210) 20,927 54,259 (8,112) (1,937) 16,366 (11,939) 23,523 7,921 963,034 27,671 — 91,202 (57,896) 13,800 — (3,360) (77,916) 51,054 21,411 (3,389) 39,337 (14,786) 70,533 (112) 17,455 503,119 1,545,689 1,208,717 547,797 (2,688,064) (1,503,893) (1,174,259) (227,420) (15,384) 3,399 772,978 (608,802) — 57,556 (8,722) (395,173) (346,339) 1,966 (1,365) (15,751) 28,220 — (96,821) (23,830) (8,000) — (284,072) (755,113) — 57,378 (9,200) (266,142) (217,964) 353 (1,929) 53,658 (8,878) — 42,851 (1,390) (218,061) 461,351 (210,533) 1,115,515 654,164 864,697 $ 897,454 $ 1,115,515 $ 654,164 ARISTATT NETWORKS, INC. Consolidated Statements of Cash Flows (In thousands) Cash paid for income taxes, net of refunds Cash paid for interest — lease financing obligation SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION: Right-of-use assets recognized upon the adoption of ASC 842 Right-of-use assets obtained in exchange for new operating lease liabilities Common stock issued for business combinations Property and equiqq pment included in accounts payabla e and accrued liabilities Vesting of early exercised stock options and restricted stock awards $ $ Year Ended December 31, 2019 2020 82,601 $ 32,832 $ — — — $ 6,627 — 1,565 164 $ 93,207 10,948 — 2,120 276 2018 17,573 2,692 — — 15,555 2,340 305 ________ ________ ________ ________ ________ ________ ________ ________ ____ ____________ ________ (1) See Note 4 of the accompanyi shown in this consolidated statements of cash flows. ________ ________ ________ ________ aa ________ ________ ________ ________ ________ ________ __________ ________ ________ ng notes for a reconciliation of the ending balance of cash, cash equivalents and restricted cash as The accompanying notes arerr an integrae l part of these consolidatedd d financial statements. (cid:26)(cid:24) ARISTA NETWORKS, INC. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organizatiott n 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 EOS, a set of network applications and our Gigabit Ethernet switching and routing platforff ms. 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 Northtt America, Europe, Asia and Australia. Basisii of Presentation and Prinr ciplii esll of Consolidatdd iott n The accompanyi ng consolidated financial statements include the accounts of Arista Networks, Inc. and its wholly-owned subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). All significant intercompanyaa accounts and transactions have been eliminated. aa Certain reclassificff ations of prior period amountu s were made in the current year to conforff m to the current period presentation. Riskii and uncertaitt ntiett s The global coronavirus ("COVID-19") pandemic and resulting mitigation effor ts by governments around the world to contain or slow its spread have negatively impacted the global economy, disrupted business, sales activities, global supply chains and workforff ce participation, including our own, and created significant volatilitytt and disruption of financial markets. ff Our contract manuaa facturtt ers and suppliers have experienced delays in the production and export of their producdd tts, which have negatively impacted our supply chain and could negatively impact our business in the future. In addition, COVID-19 related disruptions may have a negative impact on demand from our customers the extent of the impact of COVID-19 on our operational and financial in future periods. Ho ew ver, nce, including our ability to execute our business strategies and initiatives in the expected time frame, perforff marr and the impam ct of any initiatives and programs we mayaa undertake to address financial and operational challenges, will depend on future developments, including the duration and spread of the pandemic and related rts, as well as restrictions on travel and transport, all of which are uncertain and cannot be mitigation effoff is actively monitoring the impact of the pandemic on the Company's financial predicted. Management industry, and workforce. As of the date of issuance of these condition, consolidated financial statements, the extent to which the COVID-19 pandaa emic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. liquidity, operations, suppliers, Use of Estimates The preparation of the accompanying consolidated financial statements in conforff mity with GAAP the amounts reported and disclosed in the requires us to make estimates and assumptions that affeff ct ial statements and accompanying notes. Those estimates and assumptions include, but are consolidated financaa not limited to, revenuenn recognition and deferred revenuenn ; allowance for doubtful accountu s, sales rebates and return reserves; valuation of goodwill and acquisition-related intangible assets, accounting for income taxes, including the recognition of deferred tax assets and liabilities related to an intra-entity transaction to sell ouru non-Americas economic and beneficial intellectuatt valuation allowance on deferred tax assets and l property,tt 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 r contingent liabilities. We evaluate our estimates and assumptions based on historical experience and othet factors and adjud st these estimates and assumptions when facts and circumstances dictate. Actual results could differff materially from these estimates. 76 Concentratiott ns of Business and Creditdd Riskii ff ing services. Our contract manufacff We work closely with third-partytt nt facilities. We and our fulfilff lment partnet contract manufacturers to manufacture our products. As of December 31, 2020, we had two primary contract manufacturing partners, who provided substantially all of ouru turiu ng partners deliver our products to our third-partytt electronic manufacturtt direct fulfillme rs then perform labeling, final configff uration, quality assurance testing and shipment to our customers. Ouruu products rely on key components, including certain integrated circuit components and power supplies, some of which our contract manuf turiuu ng partaa ners purchase iers, including certain sole-source providers. We generally do not uu on our behalf from a limited number of suppl have guaranteed supply contracts with our component suppliers, and ouruu manufacff rs could delayaa shipments or cease manufacturing such producdd ts or selling them to us at any time. If we are unable to obtain a sufficff ient quantity of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, sales of our producdd ts could be delayed or halted nce failures of our products or entirely, or we may be required to redesign our products. Quality or perforff marr changes in our contractors’ or vendors’ financial or business condition could disruptuu our ability to supply qualitytt producdd ts to our customers. Any of these events could result in lost sales and damage to our end-customer relationships, which would adversely impact our business, financial condition and results of operations. turing partnet acff aa Financial instrut ments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equiqq valents, markaa etable securities, restricted cash, and accounts receivable. Our cash equivalents, restritt cted cash and marketable securities are invested in high quality financial instruments with banks and financial institutions. Such deposits may be in excess of insured limits provided on such deposits. Our accounts receivabla e are unsecured and represent amounts due to us based on contractual obligations of our customers. We mitigate credit risk witht respect to accounts receivable by perforff ming ongoing credit evaluations of our customers to assess the probability of collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, the credit limits extended, review of the invoicing terms of the arrangement and current economic conditions that may affecff t a customer’s ability to pay. In situations where a customer mayaa be thinly capiaa talized and we have limited payment history with it, we will either establish a small credit limit or require it to prepay its purchases. We generally do ort accounts receivable. We have recorded an allowance not require ouruu customers to provide collateral to suppu for doubtfulff accounts for accounts receivables that we have determined to be uncollectible. We mitigate credit risk with respect to accounts receivables by performing ongoing credit evaluations of the borrower to assess the probabia lity of collecting all amounts due to us under the existing contractual terms. We market and sell our products through both our direct sales force and our channel partners, including distributors, value-added resellers, system integrators and original equipment manufacturer (“OEM”) partners, and in conjun nction with various technology partaa ners. Significant customers are those that represent more than 10% of our total net revenue during the period or net accounts receivable balance at each respective balance sheet date. As of December 31, 2020, we had two customers who represented 31% and 15% of total accounts receivable, respectively. As of December 31, 2019, we had one customer who represented 39% of total accounts receivable. For the years ended December 31, 2020 and 2018, there was one customer who represented 22% and 27% of our total revenue, respectively. For the year ended December 31, 2019, there were two customers who represented 23% and 17% of our total revenue, respectively. Cash and Cash Equivalentstt We consider all highly liquid investments with original or remaining maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit witht various financial institutions and highly liquiqq d investments in money market funds. Interest is accruerr d as earned. As of December 31, 2020 and 2019, we had restricted cash of $4.2 million, respectively, and that primarily included $4.0 million pledged as collateral representing a security deposit required for a facility lease. Our restricted cash is classifieff d as other assets in the accompam nying consolidated balance sheets. 77 Marketable Securities We classifyff all highly liquid investmet nts in debt and equity securities with maturities of greater than three months at the date of purchase as marketable securities. We have classified and accounted for ouru nts at marketable securities as available-for-sale. We determine the appropriate classificff ation of these investmet the time of purchase and reevaluate such designation at each balance sheet date. We may or may not hold securities with stated maturities greater than 12 monthstt r consideration of ouru risk versus reward objeb ctives, as well as our liquidity requirements, we may sell these securities prior to their stated maturities. 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 marketabla e securities in the accompanying consolidated balance sheets. We carryrr these securities at fair value, and report the unrealized gains and losses, net of taxes, as a component of stockholders’ equity. We determine the cost of the debt investment sold based on r income, net in the an average cost basis at the individual securiu ty level, and record the interest income in othett accompanying consolidated statements of operations. We determine any realized gains or losses on the sale of marketable securities using the specificff r income, net in the accompanyinn ng consolidated statements of operations. identificff ation method, and record such gains and losses in othet until maturity. Afteff For our debt securities in an unrealized loss position, we determine whether a credit loss exists by considering information about the collectability of the instrument and curreu nt market conditions. We recognize an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and write down the amortized cost basis of the investment if it is more likely than not we will be required to sell or we intend to sell the investmet nt before recovery of its amortized cost basis. Accountstt Receivable Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts, accounts based upon the sales rebates and returtt ns reserves. We estimate our allowance for doubtfulff collectability of the receivables in light of historical trends, reasonable and suppu ortable information of our customers' economic conditions that may affeff ct our customers’ ability to pay and prevailing economic conditions. This evaluation is done in order to identify issues that may impact the collectability of receivables nt to bad debt and related estimated required allowance. Revisions to the allowance are recorded as an adjud stmet expense. After appropriate collection effoff accounts receivable deemed to be uncollectible are charged against the allowance in the period they are deemed uncollectible. Recoveries of accounts receivable previously written-offff are recorded as credits to bad debt expense. We primarily estimate our sales rebates and returnu s reserves based on historical rates applied against curreu nt period billings. Specificff customer returtt ns, rebates and allowances are considered when determining our estimates. Revisions to sales rebate and return reserves are recorded as adjud stments to revenue. rts are exhausted, specificff Fair Value Measurementstt Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transferff a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We apply fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. These assets and liabilities include cash and cash equivalents, marketabla e securities, accounts receivable, accounts payable, and accrued liabilities. Cash equivalents, accounts receivable, accounts payabla e and accrued liabilities are stated at carrying values in our consolidated financial statements, which approximate their fair value due to the short-rr term nature of these instruments. Assets and liabilities recorded at fair value on a recurring basis in the accompanyinn ng 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 measureuu fair value, maximizing the use of observable inputs and minimizing the use of unobservablea inputs. The three-tiers of the fair value hierarchy are as follows: Level I—I measurement date; II nputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the 78 II Level II—I nputs are observable, unadjud sted quoted prices in active markets for similar assets or liabilities, unadjud sted quoted prices for identical or similar assets or liabilities in markets that are not active, or othet r inputs that are observarr ble or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and II Level III—Un observable inputs that are supported by little or no market data for the relateaa d assets or liabilities and typically refleff ct management’s estimate of assumptions that market participants would use in pricing the asset or liability.tt Foreign Currency The funcuu tional curren u depending on the nature of the subsidiaries’ activities. cy of our foreign subsidiaries is either the U.S. dollar or their local currency Transaction re-measurement than a s functional curru ency are re-measured into the subsu idiary's functional currency using exchange rates subsidiary’rr in effecff t at the end of the reporting period, with gains and losses recorded in other income, net in the consolidated statements of operations. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements. - Assets and liabilities denominated in a currency other Translation - Assets and liabilities of subsidiaries denominated in foreign functional currencies are translated into U.S. dollars at the closing exchange rate on the balance sheet date and equity-related balances are translated at historical exchange rates. Revenues, costs and expenses in foreign funcu tional currencies are t during the period. Translation translated using average exchange rates that approximate those in effecff adjud stmet total stockholders’ equity. nts are recorded withitt n accumulated other comprehensive income, a separate component of Inventory Valuationii and Contratt ct Manufau cturer/Srr upplie pp r Liabii ilitiell s Inventories primarily consist of finished goods and strat egic components, primarily integrated circuits. Inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value. Manufacturing overhead costs and inbound shipping costs are included in the cost of inventory.rr We is determined to be in excess of anticipated demand, or obsolete, to adjud st record a provision when inventoryrr inventoryrr to its estimated realizable value. For the years ended December 31, 2020, 2019 and 2018, we recorded charges of $50.5 million, $41.2 million and $20.8 million, respectively, within cost of producdd t revenue for inventory write-downs. t ff Our contract manufactu rers procure components and assemble products on ouru behalf based on ouruu forecasts. We record a liability and a corresponding charge for non-cancellable, non-returnable purchase or suppliers for quantities in excess of our demand forecasts or commitments with our contract manufacturers that are considered obsolete due to manufa ng and engineering change orders resulting from design tt cturi changes. For the years ended December 31, 2020 and 2019, we recorded a charge of $14.9 million and $11.7 million, respectively,yy within cost of product revenuenn tureu rs and suppliers. For the year ended December 31, 2018, we did not incur a net loss on such supu plier liabilities. for such liabilities with our contract manufacff u aa We use significff ant judgment in establishing our forecasts of future demand and obsolete material exposures. These estimates depend on our assessment of current and expex cted orders from our customers, producdd t development plans and current sales levels. If actual market conditions are less favorable than those projected by management, which mayaa be caused by factors within and/or outside of ouru control, we may be required to increase our inventory write-downs and liabilities to our contract manufacturers and suppliers, ure which could have an adverse impact on our gross margins and profitab for inventory write-downs and adequacy of our contract manuaa ility. We regularly evaluate our expos facturer/supplier liabilities. x ff Propertytt and Equipme ii nt Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally three years. Our leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the remaining lease term. 79 Leases We lease officff e space, data centers, and equipment under non-cancelable operating leases with various expiration dates through 2028. We determine if an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities, non-current in our consolidated balance sheets. We do not have any financaa e leases in any of the periods presented. ROU assets and lease liabilities are recognized at the commencement date based on the present value ents over the lease term. The interest rate implicit in our operating leases is not readily of remaining lease paymaa available, and thereforff e, an incremental borrowing rate is estimated based on a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives. Our operating lease agreements may contain rent concession, rent escalation, and option to renew provisions. Lease expense is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased property. Our lease terms may include options to extend or terminate the lease when it is reasonabla y certain that the option will be exercised. In addition, certain of our operating lease agreements contain tenant improvement allowances from landlords. These allowances are accounted for as lease incentives, and decrease our right-of-uff se asset and reducdd e lease expense over the lease term. Our lease agreements may contain lease and non-lease components, which are combined and accounted for as a single lease component. We also elect to apply the short-term lease measurement and recognition exemptm ion in which ROU assets and lease liabilities are not recognized for leases with terms of 12 months or less. Busineii ss Combinations We use the acquisqq ition methot d to account for our business combinations in accordance with Accounting Standards Codificff ation ("ASC") 805 - Business Combinations. We allocate the total fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the consideration transferred over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. The results of operations of the acquired businesses are included in our consolidated financial statements from the date of acquisition. Acquisition-related transaction and restrutt cturing costs are expensed as incurred. During the measurement period, which is not to exceed one year from the acquiqq sition date, we may record adjud stments to the acquired assets and liabilities assumed, with a corresponding offsff et to goodwill or the preliminary purchase price, to refleff ct new information obtained about facts and circumstances that existed as of the acquisition date. Upon the conclusion of the measurement period, any subsequent adjustme nts are recorded to earnings. d Goodwidd llii and Acquired Intangible Assets Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company has one reporting unit and tests goodwill for impairment at least annually in the fourth quarter or more frequently if indicators of potential impairment exist. We first perforff m a qualitative assessment to determine whether it is more likely than not that the fair value of ouruu reporting unit is less than its carrying amount. If the reporting unit does not pass the qualitative assessment, a quantitative test is perforff merr d by comparing the fair value of our reporting unit with its carryirr ng amount. We would recognize an exceeds the fair value. There were no impairment impairment loss for the amountuu charges in any of the periods presented in the consolidated financial statements. See Note 6 Goodwill and Acquisition-Related Intangible Assets for additional information. by which the carrying amountu Acquired intangible assets are carried at cost less accumulated amortization. All acquired intangible ight-line basis over their estimated assets have been determined to have definite lives and are amortized on a strat usefulff lives, ranging from one to eight years. Acquired intangible assets are reviewed for impairment under the long-lived asset model described below. There were no impairment charges in any of the periods presented in 80 the consolidated financial statements. See Note 6 Goodwill and Acquisition-Related Intangible Assets for additional information. Investmett ntstt in Privateltt y-Hll elHH dll Companies Our equity investmet nts in privately-held companies without readily determinable fair values are nts-tt Equity Securities as cost, less measured using the measurement alternative, defined by ASC 321 - Investmett impairments, and remeasured based on observablea price changes from orderly transactions of identical or similar securities of the same issuer. Any adjud stments resulting from impairments and/or observable price changes are recorded within other income, net in our consolidated statements of operations. This election is reassessed each reporting period to determine whether investments in privately-held companies have a readily determinable fair value, in which case they would no longer be eligible for this election. The Company did not hold investmet nts in privately-held companies whose fair value was readily determinable as of December 31, 2020 and 2019. ii Impairme nt of Long-Lgg ived Assets and Investmett ntstt in Privately-Held Companies The carrying amounts of our long-lived assets, including property and equipment, intangible assets, nts in privately-held companies, are periodically reviewed for impairment whenever ROU assets and investmet events or changes in circumstances indicate that the carryaa ing value of these assets may not be recoverabla e. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life.ff If the asset is considered to be impaired, the amount of any impairment is measured as the differff ence between the carryirr ng value and the fair value of the impaired asset. We recognized impairment losses on certain private company investmet nts during 2018. Refer to Note 5 Investmet r long-lived assets was identified for any of the periods presented in the consolidated financial statements. nts for additional information. No impairment of any othet Loss Contintt gencies In the ordinary course of business, we are a partytt to claims and legal proceedings including matters In assessing loss relating to commercial, employee relations, business practices and intellectual property.tt nt judgments and assumptions to estimate the likelihood of loss, impam irment of contingencies, we use significaff an asset or the incurruu ence of a liability, as well as our ability to reasonabla y estimate the amount of loss. We record a provision for contingent losses when it is both probable that an asset has been impaired or a liabilitytt has been incurred and the amount of the loss can be reasonably estimated. We will record a charge equal to the minimum estimated liability for litigation costs or a loss contingency only when both of the following conditions are met: (i) information available prior to issuance of our consolidated financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements, and (ii) the range of loss can be reasonabla y estimated. We regularly evaluate current information available to us to determine whether such accruarr ls should be adjud sted and whether new accruals are requiqq red. Revenue Recognition o We generate revenue from sales of our products, which incorporate our EOS software and accessories such as cabla es and optics, to direct customers and channel partners together with post-contractt t customer support (“PCS”). We typically sell products and PCS in a single contract. We recognize revenue upon transfer of control of promised producdd ts or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products or services. We apply the following five-step revenue recognition model: • • • • • Identification of the contract, or contrat cts, with a customer Identification of the perforff mancaa e obligations in the contract Determination of the transaction price Allocation of the transaction price to the performance obligations in the contratt ct Recognition of revenue when (or as) we satisfy the perforff mancaa e obligation 81 Post-Contract Customer Suppu ort PCS, which includes technical support, hardware repair and replacement parts beyond standard red under warranty, bug fixes, patches and unspecifieff d upgrades on a when-and-if-aff vailable basis, is offeff renewable, fee-based contracts. We initially defer PCS revenue and recognize it ratably over the life of the PCS contract as there is no discernible pattern of delivery related to these promises. We do not provide unspecifieff d upgrades on a set schedule and address customer requests for technical support if and when they arise, with the related expenses recognized as incurred. PCS contracts generally have a term of one to three years. We include billed but unearned PCS revenue in deferred revenue. Contrat ctstt with Multiple Perforff mance Obligations Most of our contractt nce obligations. Our hardware includes EOS software, which together deliver ts with customers, other than renewals of PCS, contain multiple perforff mance as distinct obligations with a combination of products and PCS. Products and PCS generally qualifyff perforff marr the essential functionality of our products. For contracts that contain multiple performance obligations, we allocate revenue to each distinct performance obligation based on the standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP for productdd s and PCS sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the variaa ous producdd ts and PCS. If we do not have an observable SSP, such as when we do not sell a producdd t or service separately, then SSP is estimated using judgment and considering all reasonablya available information such as market conditions and information about the size and/or purchase volume of the customer. We generally use a range of amounts to estimate SSP for individuadd l producdd ts and services based on multiple factors including, but not limited to, the sales channel (reseller, distributor or end customer), the geographies in which our products and services are sold, and the size of the end customer. We limit the amount of revenuenn recognition for contracts containing forms of variable consideration, such as future perforff mance obligations, customer-specificff returns, and acceptance or refund obligations. We include some or all of an estimate of the related at risk consideration in the transaction price only to the extent that it is probable that a significant reversal in the amountuu of cumulative revenue recorded under each contract will not occur when the uncertainties surrounding the variable consideration are resolved. Most of our contracts with customers have payment terms of 30 days with some large high-volume customers having terms of up to 60 days. We have determined our contracts generally do not include a significant financing component because the Company and the customer have specificff business reasons other than financing for entering into such contracts. Specificff ally, both we and our customers seek to ensure the customer has a simplifieff d way of purchasing Arista products and services. We account for multiple contratt cts with a single partnett r as one arrangement if the contractuatt and/or substance of those agreements indicate that they may be so closely related that they are, in effff ecff of a single contract. l terms t, parts We may occasionally accept returns to address customer satisfaction issues even though there is generally no contractual provision for such returns. We estimate returns for sales to customers based on historical return rates applied against current-period shipments. Specificff customer returns and allowances are considered when determining our sales return reserve estimate. Our policy applies to the accounting for individual contracts. However, we have elected a practical expedient to apply the guidance to a portfolio of contracts or performance obligations with similar characteristics so long as such application would not differff materially from applying the guidance to the individual contracts (or performa io. Consequently, we have chosen to apply the portfolio approach when possible, which we do not believe will happen frequently. Additionally, we will evaluate a portfolff io of data, when possible, in various situations, including accountuu ing for commissions, rights of returt nrr and transactions with variable consideration. nce obligations) within that portfolff ff 82 We report revenuenn net of sales taxes. We include shipping charges billed to customers in revenue and the related shipping costs are included in cost of product revenue. Contracrr t Balances A contract asset is recognized when we haveaa and partially completed perforff mance obligations that haveaa in othet r current assets in the accompanying consolidated balance sheets. a contractual right to consideration for bothtt completed not yet been invoiced. Contract assets are included A contract liability is recognized when we have received customer paymaa ce of our satisfaction of a perforff mance obligation under a contratt ct that is cancellable. Contract liabilities are included in othet r long-term liabilities in the accompanyinn ng consolidated balance sheets. r curru ent liabilities and othett ents in advandd Assets Recognizeii d from Coststt to Obtain a Contratt ct withii a Customtt er We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales commissions earned by our sales force meet the requirements for capiaa talization. These costs are deferred and then amortized over a lized costs to obtain a contract are period of benefit that we haveaa included in other curru ent and long-term assets on our consolidated balance sheets. As of December 31, 2020 and 2019, total capia talized costs to obtain contracts were $10.1 million and $8.9 million, respectively. determined to be five years. Total capita a Research and Developmo ent Expexx nses Costs related to the research, design and development of our products are charged to research and development expenses as incurred. Software development costs are capia talized beginning when a product’s technological feasibility has been established and ending when the product is available for general release to customers. Generally, our products are released soon afteff r technological feasibility has been established. As a to achieving technological feasibility have not been significant and result, costs incurred subsequent ff accordingly, all softwa re development costs have been expensed as incurred. Warranty tt We offeff e embedm ded in the productdd r a one-yearaa warranty on all of our hardware products and a 90-day warranty against defects in the softwar s. We use judgment and estimates when determining warranty costs based on historical costs to replace producdd t returtt ns within the warranty period at the time we recognize revenue. We accruerr for potential warranty claims at the time of shipment as a component of cost of revenues based on historical experience and other relevant information. We reserve for specificff ally identifieff d producdd ts if and when we determine we have a systemic product failure. Altht ough we engage in extensive product quality programs, if actual producdd t failure rates or use of materials diffeff r from estimates, additional warranty costs may be incurred, which could reduce our gross margin. The accrued warranty liability is recorded in accruerr d liabilities in the accompanyinn ng consolidated balance sheets. Segment Repoe rtintt g ff We develop, market and sell cloud networking solutions, which primarily consist of our switching and and related network applications, and there are no segment managers who are held routing platforms accountable for operations or operating results below the Companynn level. Our chief operatiaa ng decision maker is our Chief Executive Offiff cer, who reviews financial information presented on a consolidated basis for purpos es of allocating resources and evaluating financial performance. Accordingly, we haveaa determined that we operate as one reportable segment. rr - Stock-Base d Compensation Stock-based compensation cost for equity awards is measured at the grant-date fair value using nce period. appropriate valuation techniqueqq s and recognized as expense over the requisite service or performa We account for forfeituresu when they occur. ff Stock-based compensation cost for stock options and restricted stock units ("RSUs") are recognized on a straight-line basis over the requisite service period, which is generally two to five years. The Company has 83 granted RSUs that vest upon the satisfacff tion of both service-based and perforff mance-based conditions. The service-based condition for these awards is generally satisfieff d over four years. The perforff mance-based conditions are satisfied upon achieving specified perforff mance targets, such as financial or operating metrics. We nce-based equity awards on an accelerated attribution record stock-based compensation expense for performa method over the requisite service period, which is generally four years, and only if performance-based conditions are considered probable to be satisfied. ff See Note 8. Stockholders' Equity and Stock-Based Compensation for a detailed discussion of the Company’s stock plans, assumptions to the valuation techniques, and stock-based compensation expense. Income Taxeaa s Income tax expense is an estimate of current income taxes payabla e in the current fiscal year based on t of temporary differff ences and reported income before income taxes. Deferff carryforwards that we recognize for financial reporting and income tax purpos income taxes reflect the effecff es. redrr rr We account for income taxes under the liability approach for deferred income taxes, which requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that not been reflected in ouru taxable have been recognized in ouru consolidated financial statements, but haveaa income. Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverabia litytt nces and carryfrr orff wards. Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effeff ct for the years in which those tax assets are expected to be realized or settled. We regularly assess the likelihood that our deferred income tax assets will be realized based on the positive and negative evidence available. We record a valuation allowancaa e to reduce the deferred tax assets to the amount that we are more likely than not to realize. of certain deferred income tax assets, which arise from temporary differeff We believe that we have adequaqq tely reserved for our uncertain tax positions, although we can provide nt. To the extent that the no assurance that the final tax outcome of these matters will not be materially differeff final tax outcome of these matters is differeff t the provision for income taxes in the period in which such determination is made and could have a material impact ial condition and results of operations. The provision for income taxes includes the effeff cts of any on our financaa reserves that we believe are appropriate, as well as the related net interest and penalties. nt than the amounts recorded, such differff ences will affecff We regularly review ouru tax positions and benefits to be realized. We recognize tax liabia lities based upon our estimate of whether, and to the extent to which, additional taxes will be due when such estimates are more likely than not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. We recognize interest and penalties related to income tax matters as income tax expense. The U.S. tax rules require U.S. tax on foreign earnings, known as global intangible low taxed income (“GILTI”). Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (thet “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the red method”). We selected the deferred method of accounting and recorded the associated basis “deferff differff ences anticipated to influence prospective GILTILL calculations. Net Income per Share Attrtt ibrr utabtt le to Common Stoctt kholdell rs ff Basic and diluted net income per share attributable to common stockholders are calculated in with the two-class method required for participating securities. Our shares of common stock subjeb ct conformity to repurchase are considered participating securities. Under the two-class method, net income attritt butable to common stockholders is calculated as net income less earnings attributable to participating securities. In computing diluted net income attributable to common stockholders, undistributed earnirr ngs are re-allocated to reflect the potential impact of dilutive securities. Basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding duriu ng the period. Diluted net income per share attritt butable to common stockholders is computed 84 by dividing the net income attrtt shares outstanding, including potentially dilutive common shares assuming the dilutive effecff stock options, restricted stock units, and employee stock purchase plan using the treasuryrr Potentially dilutive shares whose effecff diluted net income per share. ibutable to common stockholders by the weighted-average number of common t of outstanding stock method. t would have been antidilutive are excluded from the computation of Recentlytt Adopdd ted Accountingn Pronouncements Credit Losses of Financial Instruments In June 2016, the Financial Accounting Standards Board ("FASFF B") issued Accounting Standard Update ("ASU") 2016-13 (TopiTT c 326), Financial Instrutt ments-CreCC dit Losses: Measurement of Credrr it Losses on Financial Instrut ments, to replace the incurred loss impairment methodology with a methodology that reflects rtable information expected credit losses and requires consideration of a broader range of reasonable and suppo to inform credit loss estimates. The proposed standard requiqq res a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. For trade receivables, we are required to estimate lifetime expected credit losses. For available-for-sale debt securities, we are required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. We adopted the new standard on Januaryrr 1, 2020 under the modified retrospective approach with no material impact on our consolidated financial statements upon adoption. In addition, we continue to monitor the financial implications of the COVID-19 pandemic on expected credit losses. uu Simplifyinff g the Test for Goodwidd ll Impairment In Januaryrr 2017, the FASB issued ASU 2017-04 (TopiTT c 350), Simplifyi ing the test for goodwill impairment, to eliminate Step 2 of the goodwill impairment test. Entities are required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. We adopted this standard prospectively on January 1, 2020 with no impact to our consolidated financial statements. Changes to the Disclosure Requirements for Fair Value Measurement eworkrr - Changes to the Discii In August 2018, the FASB issued ASU 2018-13 (TopicTT 820), Fair Value Measurement: Disclosure nts for Fair Value Measurement, which eliminates, adds, and Framrr modifies certain disclosure requirements for fair value measurements. We adopted this standard on January 1, 2020 with no material impact on our consolidated financial statements. See Note 5 Investments for additional information on our Level 3 investments. losurerr Requireme rr Recent Accounting Pronouncements Not Yet Effeff ctive Income Taxes In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topico 740): Simplifyiff ng the the accounting for incomes taxes by removing certain Accounting for Income Taxes, which simplifiesff exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application. This new standard is effeff ctive for our interim and annual periods beginning January 1, 2021 with earlier adoption permitted. Most amendments withit n this standard are required to be applied on a prospective ective or modified retrospective basis. We are basis, while certain amendments must be applied on a retrosp currently evaluating the adoption impacts on our consolidated financial statements. t 2. Business Combinations On February 5, 2020, the Company completed its acquisition of Big Switch Networks, Inc. (“Big Switch”), a network monitoring and software-defined networking pioneer headquartered in Santa Clara, Califorff nia. With the acquisition of Big Switch, we expect to expand ouruu data center networking solutions and further strengthen our networkrr monitoring and observarr bility suite delivered through Arista’s softwatt re platform CloudVision and DANZ (DataANaa alyZer) capaa bia lities. We paid an aggregate of $73.3 million in cash for the acquisition of Big Switch, of which $5.3 million r costs accounted for as a post-combination expense and excluded from the purchase was severance and othet 85 consideration. We also incurred certain acquisition-related expenses and restructuring costs of $6.6 million, which primarily consisted of retention bonuses to continuing emplmm oyees, profess ional and consulting fees, and facilities restructuring costs. ff the Companynn On October 7, 2020, completed its acquiqq sition of Awake Security,yy Inc. (“Awake Security”), a network detection and response (“NDR”) platform provider headquartered in Santa Clara, Califorff nia. With the acquisition of Awake Security, we added an NDR platforff m to our producdd t portfolio that combines artificff and respond to insider and external threats. ial intelligence (AI) with human expex rtise to autonomously huntu forff The Company acquired all outstanding shares of Awake Security for a total purchase consideration of $180.5 million witht cash. The acquisition-related costs were immaterial. Certain unvested stock options held by Awake Security emplm oyees were assumed by the Company in connection with the acquisition. The portion of the fair value of the assumed stock options associated witht pre- acquisition service of Awake employees was immaterial. The fair value of $21.3 million of the unvested replacement options was excluded from the purcha se price. These awards, which are subject to the recipients’ continued service with the Company, will be recognized ratably as stock-based compensation expense over the requisite service period. u ase price Both acquisitions were accounted for as a business combination with the aggregate purchu allocated to the assets acquired and liabia lities assumed based on their estimated fair values as of the acquisition date. The Company prepared an initial assessment of the fair value of the assets acquired and liabilities assumed information. Accordingly, the preliminary values reflected in the as of the acquisition date using preliminaryaa table below are subjeb ct to potential measurement period adjustmd ents. The fair value is as follows (in thousands): Cash and cash equivalents Other tangible assets Liabilities Intangible assets Goodwill Net assets acquired Preliminary Purchase Price Allocation $ $ 21,051 19,580 (28,598) 101,640 134,841 248,514 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 weighted average estimated useful lives: Developed technology Customer relationships Trade name Others Total intangible assets acquired Acquisition Date Fair Value $ $ 72,220 18,840 6,520 4,060 101,640 Weighted Average Estimated Useful Lifeff 7 years 7 years 5 years 2 years The goodwill of $134.8 million is primarily attributable to the expected synergies created by incorporating the solutions of the acquired businesses into ouru technology platforff m, and the value of the 86 assembled workforce. The goodwill is not deductible for income taxes purpor ses. The Company’s consolidated financial statements include the accounts of Big Switch and Awake Security starting as of the acquisition date. Pro forma and historical post-acquisition results of operations for these acquiqq sitions were not material to the Company’s consolidated financial statements. 3. Fair Value Measurements We measure and report our cash equiqq valents, restricted cash, and available-forff -sale marketable securities at fair value on a recurring basis. The following tabla es summarize the amortized costs, unrealized gains and losses, and fair values of these financaa investment categoryrr and their levels within the fair value hierarchy (in thousands): ial assets by significaff ntaa December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Level I Level II Level III $ 438,854 $ — $ — $ 438,854 $438,854 $ — $ — 51,211 50,136 523,320 878,484 475,132 1,978,283 — 3 187 1,167 343 1,700 — — (1) (330) (3) 51,211 50,139 523,506 879,321 475,472 — — 523,506 — — 51,211 50,139 — 879,321 475,472 (334) 1,979,649 523,506 1,456,143 4,235 — — 4,235 4,235 — — — — — — — — $2,421,372 $ 1,700 $ (334) $2,422,738 $966,595 $1,456,143 $ — Financial Assets: Cash Equivalents: Money market funds Marketakk ble Securities: Commercial papea r Certificff ates of deposits (1) U.S. government notes Corporate bonds Agency securities er Assets: Money market funds - restricted Total Financial Assets ((1) As of December 31, 2020, all of our certificaff tes of deposits were domestic deposits. 87 December 31, 2019 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Level I Level II Level III $ 562,580 $ — $ — $ 562,580 $ 562,580 $ — $ — 4,001 566,581 66,717 3,000 518,884 787,741 233,491 1,609,833 — — — — 414 2,392 577 3,383 — — — — (20) (73) (41) 4,001 566,581 — 562,580 4,001 4,001 66,717 3,000 519,278 790,060 234,027 — — 519,278 — — 66,717 3,000 — 790,060 234,027 (134) 1,613,082 519,278 1,093,804 4,229 — — 4,229 4,229 — — — — — — — — — — $2,180,643 $ 3,383 $ (134) $2,183,892 $1,086,087 $1,097,805 $ — Financial Cash Money market funds Certificff ates of deposits (1) ble rketakk Securities: Commercial Certificff ates of deposits (1) U.S. governmrr Corporate ent Agency iti er Assets: Money market funds - Total Financial (1) As of December 31, 2019, all of our certificaff tes of deposits were domestic deposits. As of December 31, 2020 and 2019, total unrealized losses of our marketable securities were immaterial. We invest in marketable securities that have maximum maturities of up to two years and are generally deemed to be low risk based on their credit ratings from the majoa r 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 December 31, 2020. We did not recognize any credit losses or non-credit-related impairments related to our available-forff -sale marketable securities for the year ended December 31, 2020. We determined that the gross unrealized losses on our marketable fixed-income securities as of December 31, 2019 and 2018 were temporm aryrr in nature and therefore, we did not recognize any impairment of our marketable fixed-income securities for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2020, the contractual maturities of ouruu investments did not exceed 24 months. The fair values of available-for-sale marketable securities, by remaining contractual maturity, are as follows (in thousands): Due in 1 year or less Due in 1 year through 2 years Total marketable securities 88 December 31, 2020 $ $ 1,151,647 828,002 1,979,649 The weighted-average remaining duration of our current marketable securities is approximately 0.9 years as of December 31, 2020. 89 4. Financial Statements Details Cash, Cash Equivalents and Restricted Cash The reconciliation of cash, cash equivalents and restricted cash reported in the accompanying consolidated balance sheets to the total of the same such amounts in the accompanying consolidated statements of cash flows is as follows (in thousands): Cash and cash equivalents Restritt cted cash included in othet r assets Total cash, cash equivalents and restrit cted cash Accounts Receivable, net Accounts receivable, net consists of the following (in thousands): Accounts receivable Allowance for doubtfulff accounts Product sales rebate and returns reserve Accounts receivable, net Allowance for Doubtful Accounts December 31, 2020 893,219 4,235 897,454 2019 1,111,286 4,229 1,115,515 $ $ $ $ December 31, 2020 394,037 $ 2019 398,147 (659) (3,838) (638) (5,522) 389,540 $ 391,987 $ $ Activities in the allowance for doubtful accounts consist of the following (in thousands): Balance at the beginning of year Additions charged to expense Deductions/write-offsff Balance at the end of year Product Sales Rebate and Returns Reserve Year Ended December 31, 2019 2020 2018 $ $ $ 638 397 (376) 659 $ 507 221 (90) 638 $ $ 112 500 (105) 507 Activities in the producd t sales rebate and returt ns reserve consist of the following (in thousands): Balance at the beginning of year Additions charged against revenue Consumption Balance at the end of year Year Ended December 31, 2019 2020 2018 $ $ $ 5,522 9,454 (11,138) $ 8,613 2,032 (5,123) 3,838 $ 5,522 $ 7,423 4,269 (3,079) 8,613 90 Inventories Inventories consist of the following (in thousands): Raw materials Finished goods Total inventories Prepaid Expenses and Other Current Assets December 31, 2020 219,218 260,450 479,668 $ $ 2019 96,712 147,113 243,825 $ $ Prepaid expenses and other curren uu t assets consist of the following (in thousands): $ $ $ Inventory deposits Prepaid income taxes Other current assets Other prepaid expenses and deposits Total prepaid expenses and othett r current assets Property and Equipment, net Property and equiqq pment, net consists of the following (in thousands): Equipment and machinery Computer hardware and softwff are Furniture and fixtures Leasehold improvements Construction-in-process Property and equiqq pment, gross Less: accumulated depreciation Property and equiqq pment, net December 31, 2020 2019 $ 18,783 267 60,556 15,316 13,716 20,153 64,464 13,123 94,922 $ 111,456 December 31, 2020 2019 $ 70,655 40,081 3,787 31,448 1,441 147,412 (115,181) $ 32,231 $ 64,748 36,627 3,774 31,235 265 136,649 (97,376) 39,273 Depreciation expense was $20.1 million, $19.0 million and $21.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. 91 Accrued Liabilities Accrued liabilities consist of the following (in thousands): Accrued payraa oll related costs turing costs Accrued manufacff Accrued product development costs Accrued warranty costs Accrued profess ff ional fees Accrued taxes Other December 31, 2020 2019 $ $ 73,634 43,181 6,733 9,314 5,211 1,870 3,414 80,133 31,920 11,410 6,742 6,335 1,716 1,993 Total accrued liabilities $ 143,357 $ 140,249 Warranty Accrual The following table summarizes the activity related to our accruedr liability for estimated future warranty costs (in thousands): Warranty accrual, beginning of year Liabilities accrued for warranrr ties issued during the year Warranty costs incurred during the year Warranty accrual, end of year Contract Balances Year Ended December 31, 2019 2020 $ $ $ 6,742 9,737 (7,165) 9,314 $ 5,362 7,169 (5,789) 6,742 The following table summarizes the beginning and ending balances of our contract assets (in thousands): Contract assets, beginning balance Contract assets, ending balance Year Ended December 31, 2020 2019 $ $ 25,565 16,380 6,341 25,565 The following table summarizes the activity related to our contract liabilities (in thousands): Contract liabilities, beginning balance Less: Revenue recognized from beginning balance Less: Beginning balance reclassified to deferred revenuenn Add: Contract liabilities recognized Contract liabilities, ending balance Year Ended December 31, 2020 2019 $ $ 61,050 $ (23,394) (1,638) 49,939 85,957 $ 32,595 (12,887) (894) 42,236 61,050 As of December 31, 2020 and 2019, $34.5 million and $23.4 million, respectively, of our contract liabilities was recorded within other current liabilities with the remaining balance recorded within other long- term liabilities in the accompanying consolidated balance sheets. 92 Deferred Revenue and Perforff mance Obligations Deferred revenue is comprised mainly of unearned revenue related to multi-year PCS contracts, services and product deferrals related to acceptance clauses. The following table summarizes the activity related to our deferred revenue (in thousands): Deferred revenue, beginning balance Less: Revenue recognized from beginning balance Add: Deferff pperiod ral of revenue in current period, excluding amountu s recognized during the Deferred revenue, ending balancaa e Revenue fromrr Remaining Perforff marr nce Obligat i ions Year Ended December 31, 2020 $ $ 575,288 (305,792) 381,331 650,827 Revenue from remaining perforff mance obligations represents contracted revenue that has not yet been recognized, which primarily includes contract liabilities and deferff revenue that will be recognized as revenue in future periods. As of December 31, 2020, approximately $900.5 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 79% of these remaining performa nce obligations over the next 2 years and 21% during years 3 to 5. redrr ff Other Income, Net Other income, net consists of the following (in thousands): Other income, net: Interest income Interest expense Gain on sale of marketable securities Gain (loss) on investmet nts in privately-held companies Other income (expense) Total other income, net 5. Investments Investments in Privately-Held Companies Year Ended December 31, 2020 2019 2018 $ 27,139 $ 51,144 $ 31,666 — 9,432 4,164 (1,556) — — 5,427 (75) (2,701) — (13,800) 289 $ 39,179 $ 56,496 $ 15,454 Our investments in privately-held companies do not have readily determinable fair values. Their initial cost is subsequently adjud sted 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 classifiedff within Level III of the fair value hierarchy as we estimate the value based on valuation methods using r significant unobservable inputs, such as the observable transaction price at the transaction date and othet 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. The following table summarizes the activity related to ouru investments in privately-held companies held as of December 31, 2020 and 2019 (in thousands): 93 Cost of investment Cumulative impairment Cumulative upward adjud stmet nt Carrying amount of investmet nt December 31, 2020 December 31, 2019 $ $ 3,000 $ — 5,314 8,314 $ 3,000 — 1,150 4,150 During the year ended Decembem r 31, 2019, we recorded a realized gain of $4.3 million upon the sale of one of our investmet nts. In each of the years ended December 31, 2020, 2019 and 2018, we recorded $4.2 million, $1.2 million and $1.2 million of unrealized gains, respectively. These unrealized gains were recorded on investments that were re-measured to fair value as of the date observable transactions occurred. In addition, during the year ended December 31, 2018, we recorded an impairment of $15.0 million on one of our disposed investments. The aforementioned realized and unrealized gains and impairment were recorded within othet r income, net in the accompanying consolidated statements of operations. 6. Goodwill and Acquisition-Related Intangible Assets Goodwill The changes in the carrying values of goodwill for the years ended Decembem r 31, 2020 and 2019 are as follows (in thousands): Balance at December 31, 2018 Additions related to acquisitions Balance at December 31, 2019 Additions related to acquisitions (See Note 2 for additional information) Balance at December 31, 2020 Carrying Value $ $ 53,684 1,171 54,855 134,841 189,696 The Company performe ff d an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2020 and 2019 and determined that goodwill was not impaired. Acquisition-Related Intangible Assets The following table presents details of our acquisition-related intangible assets as of December 31, 2020 and 2019 (in thousands, except for years): Developed technology Customer relationships Trade name Others Total December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount $ 124,730 $ (31,805) $ 25,920 8,990 5,720 (4,298) (2,946) (3,521) 92,925 21,622 6,044 2,199 $ 165,360 $ (42,570) $ 122,790 Weighted Average Remaining Usefulff Life (In Years) 5.2 6.2 4.3 1.1 5.3 94 Developed technology Customer relationships Trade name Others Total December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount $ 52,510 $ (14,326) $ 38,184 7,080 2,470 1,660 (1,387) (1,112) (1,660) 5,693 1,358 — $ 63,720 $ (18,485) $ 45,235 Weighted Average Remaining Usefulff Life (In Years) 3.7 5.8 1.7 0.0 3.9 Amortization expex nse related to acquisition-related intangible assets was $24.1 million, $13.4 million and $5.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, future estimated amortization expense related to the acquired-related intangible assets is as follows (in thousands): Years Ending December 31, 2021 2022 2023 2024 2025 Thereafter ff Total $ Future Amortization Expense 29,235 26,774 22,781 16,103 9,750 18,147 $ 122,790 7. Commitments and Contingencies Operating Leases We lease various offiff ces and data centers in North America, Europe, Asia and Australia under non- cancelable operating lease arrangements that expire on various dates through 2028. Some of ouru leases include options to extend the term of such leases for a period from three months to up to 10 years and/or options to early terminate the leases. As of December 31, 2020, we did not include any such options in determining the lease terms because we were not reasonably certain that we would exercise these options. The following table summarizes the supplemental balance sheet information related to our operating leases (in thousands): Right-of-use assets: Operating lease right-of-uff se assets Lease liabilities: Operating lease liabilities, current (included in other current liabilities) Operating lease liabilities, non-current Total operating lease liabilities 95 December 31, 2020 December 31, 2019 $ 77,288 $ 87,770 17,773 72,397 90,170 $ 16,052 83,022 99,074 $ The following table summarizes our lease costs (in thousands): Operating lease costs: Fixed lease costs Variable lease costs Total operating lease costs Year Ended December 31, 2019 2020 $ $ 23,392 7,459 30,851 $ $ 22,544 6,255 28,799 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term lease costs were immaterial. Fixed lease costs include expenses recognized for base rent payments on a straight-lined basis. Variable lease costs primarily include maintenance, utilities and operating expex nses that are incremental to the fixed base rent payments, and are excluded from the calculation of operating lease liabilities and ROU assets. For the years ended December 31, 2020 and 2019, cash paid for amounts associated with our operating lease liabilities were approximately $20.2 million and $18.6 million, respectively, which were classified as operating activities in the accompanying consolidated statements of cash flows. Maturities of operating lease liabilities as of December 31, 2020 are presented in the tablea below (in thousands): Years ending December 31, 2021 2022 2023 2024 2025 2026 and thereafter ff Total undiscounted operating lease payments (excluding non-lease components) Less: imputed interest Present value of operating lease payments as of December 31, 2020 $ $ 21,770 21,890 19,533 11,730 9,409 19,926 104,258 (14,088) 90,170 Weighted-average remaining lease term — operating leases Weighted-average discountu rate — operating leases Purchase Commitments December 31, 2020 5.4 years 5.0% December 31, 2019 6.0 years 5.1% In addition, we purchase strategic component inventoryrr We outsource most of our manufacturiu ng and supply chain management operations to third-partytt contract manufacturers, who procure components and assemblm e producd ts on our behalf.ff A significant portion of our purchase orders to our contract manufacturers for finished producdd ts consists of non-cancellable purchase commitments. from certain suppliers under non- including integrated circuits, which are consigned to our contract cancellable purchase commitments, ellable purchase commitments of $454.0 million, of s. As of December 31, 2020, we had non-cancaa ff manufactu which $421.9 million was to our contract manufacturers and suppliers. In addition, we had deposits to our contract manufacturtt ers to secure our purchase commitments in the amount of $21.5 million and $16.5 million as of December 31, 2020 and 2019, respectively, which were recorded within prepaid expenses and othet r current assets, as well as other assets in the accompanying consolidated balance sheets. reru 96 Guarantees We have entered into agreements with some of our direct customers and channel partnett rs that contain tion provisions relating to potential situations where claims could be alleged that our products indemnificaff rights of a third party.tt We have at our option and expense the ability to repair infringe the intellectual propertytt any infringement, replace product with a non-infrinff ging equiqq valent-in-function product or refund ouru customers all or a portion of the value of the product. Other guarantees or indemnification agreements include guaraaa ntees nce and standby letters of credit for leased facilities and corporate credit cards. of product and service perforff marr tee provisions and our guarantee We have not recorded a liability related to these indemnificff ation and guaranaa and indemnificff ation arrangements have not had any material impact on our consolidated financial statements to date. Legal Proceedings In the ordinary course of business, we are a partytt to claims and legal proceedings including matters relating to commercial, employee relations, business practices and intellectuatt l property.tt We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss canaa be reasonably estimated. Based on currently availabla e information, management does not believe that any liabilities relating to other unresolved matters are probable or that the amountu of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effecff t on ouru financial position, results of operations or cash flows. However, litigation is subjeb ct to inherent uncertainties and our view of these matters may change in the future. Were an unfavorabla e 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 unfavor able outcome occurs, and potentially in future periods. aa 8. Stockholders' Equity and Stock-Based Compensation Stock Repurchase Program In April 2019, our board of directors authorized a $1.0 billion stock repurchase program. This authorization allows us to repurchase shares of our common stock over three years and is funded from working capia tal. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structurtt ed through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing. The Repurchase Program, which expires in April 2022, does not obligate us to acquire any of ouruu common stock, and mayaa be suspended or discontinued by us at any time without prior notice. As of December 31, 2020, the remaining authorized amount for stock repurchases under this program was approximately $338.7 million. A summary of the stock repurchase activity under the Repurchase Program is as follows (in thousands, except per share amounts): Aggregate purchase price Shares repurchased Average price paid per share Year Ended December 31, 2020 395,173 2,012 196.43 $ $ 2019 266,142 1,189 223.57 $ $ The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained earnings. All shares repurchased under the Repurchase Program have been retired. 2014 Equity Incentive Planll In April 2014, the board of directors and stockholders approved the 2014 Equiqq ty Incentive Plan (the “2014 Plan”), effeff ctive on the first dayaa that ouru common stock was publu icly 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. 97 Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restrit cted 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 Januaryrr 1 of each year commencing with 2016 by the number of shares equal to 3% of the outstanding shares of ouru common stock on the immediately preceding December 31, but not to exceed 12,500,000 shares (the “2014 Plan Evergreen Increase”), unless the board of directors, in its discretion, determines to make a smaller increase. Effeff ctive January 1, 2020, our board of directors authorized an increase of 2,291,660 shares to the shares available for issuance under the 2014 Plan. In connection with our acquiqq sition of Awake Security, Inc., we assumed the stock options outstanding under the Awake Security 2014 Equiqq ty Incentive Plan and registered an additional 115,338 shares to be available for future issuance. As of December 31, 2020, there remained approximately 21.5 million shares available for issuance under the 2014 Plan. On February 8, 2021, our board of directors authorized an increase of 2,285,228 shares to shares available for future issuance under the 2014 Plan effeff ctive Januann ry 1, 2021. 2014 Emplm oyll ee Stock Purchase Planll In April 2014, the boardaa “ESPP”). The ESPP became effecff of directors and stockholders approved the 2014 Employee Stock Purchase tive on the first day that our common stock was publicly traded. The Plan (thet number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1% of our shares outstanding immediately preceding December 31, but not to exceed 2,500,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase. Effeff ctive January 1, 2020, our board of directors authorized an increase of 763,886 shares to shares available for issuance under the ESPP.PP As of December 31, 2020, there remained 3,850,993 shares available for issuance under the ESPP.PP On February 8, 2021, our board of directors authorized an increase of 761,742 shares to shares available for issuance under the ESPP effecff tive January 1, 2021. Under our 2014 ESPP,PP eligible employees are permitted to acquiqq re shares of our common stock ring at 85% of the lower of the fair market value of ouru common stock on the first trading day of each offeff ing period lasts approximately two years starting on the first trading period or on the exercise date. Each offer date afteff 15 and August 15 of each year. Participants may purchase shares of common stock through payroll deductions up to 10% of their eligible compensation, subju ect to Internal Revenue Service mandated purchase limits. r Februaryaa ff During the year ended Decembem r 31, 2020, we issued 105,667 shares at an average purchase price of $183.45 under ouru 2014 ESPP.PP Stock Optionii Activii tieii s The following table summarizes the option activities and related information (in thousands, except years and per share amounts): Number of Shares Underlying Outstanding Options Weighted- Aver gage Exercise Price per Share Weighted- Aver gage Remaining Contractual Term (In Years) Aggregate Intrinsic Value Balance—December 31, 2019 Options granted Options exercised Options canceled Balance—December 31, 2020 Vested and exercisable—December 31, 2020 4,564 $ 115 (1,210) (39) 3,430 2,263 $ $ 42.50 28.01 31.55 105.51 45.17 32.25 4.4 $ 740,387 3.6 $ 841,659 3.1 $ 584,598 The weighted-average grant-date fair value of options granted during the years ended December 31, 2020, 2019 and 2018 was $184.96, $107.42 and $121.18 per share, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $245.9 million, $323.1 98 million and $283.8 million, respectively. The total fair value of options vested for the years ended December 31, 2020, 2019 and 2018 was approximately $20.0 million, $23.0 million and $31.9 million, respectively. Restritt ctedtt Stock Unit (RSUR )UU Activitieii s The following table summarizes the RSU activities and related information (in thousands, except per share amounts): Unvested balance—December 31, 2019 RSUs granted RSUs vested RSUs forfeited ff /canceled Unvested balance—December 31, 2020 Number of Shares Weighted- Average Grant Date Fair Value Per Share $ 1,070 1,361 (519) (96) 1,816 $ 190.35 216.46 164.46 220.92 215.68 The total fair value of RSUs vested for the years ended December 31, 2020, 2019 and 2018 was approximately $85.4 million, $65.7 million, and $52.5 million, respectively. Shares Availaii blell for Granrr t The following table presents the stock activities and the total number of shares available for grant as of December 31, 2020 under our 2014 Equity Incentive Plan (in thousands): Balance—December 31, 2019 Authorized (1) Options granted RSUs granted Options canceled RSUs forfeited Shares traded for taxes Balance—December 31, 2020 Number of Shares 15,146 2,407 (115) (1,361) 39 96 37 16,249 99 (1): The authorized number of shares consists of 2,291,660 shares approved by our board of directors under the aforff ementioned 2014 Equity Incentive Planaa effeff ctive Janua aa ry 1, 2020, and 115,338 shares assumed under the Awake Security 2014 Equiqq ty Incentive Plan in conjun ncuu tion with our acquisition of Awake Security.tt - Stock-Base d Compensation Expexx nse The following table summarizes the stock-based compensation expense related to our equity awards (in thousands): Cost of revenue Research and development Sales and marketing General and administrative Year Ended December 31, 2020 2019 2018 $ $ 6,272 79,913 34,944 15,913 $ 4,637 53,068 29,168 14,407 5,087 48,205 24,995 12,915 91,202 Total stock-based compensation $ 137,042 $ 101,280 $ Determinationii of Fair Value We record stock-based compensation awards based on fair value as of the grant date. We value RSUs rings, we use at the market close price of our common stock on the grant date. For option awards and ESPP offeff the Black-Scholes option pricing model to determine fair value. We recognize such costs as compensation expense generally on a straight-line basis over the requisite service period of the award. Stock Optionii s For the years ended Decembem r 31, 2020, 2019 and 2018, the fair value of each stock option granted under our plans was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: Expected term (in years) Risk-freff e interest rate Expected volatility Dividend rate ESPPSS Year Ended December 31, 2020 2019 2018 5.0 0.4 % 43.5 % — % 6.9 2.5 % 42.8 % — % 7.0 2.9 % 44.6 % — % The following table summarizes the assumptions relating to our ESPP: Expected term (in years) Risk-freff e interest rate Expected volatility Dividend rate Year Ended December 31, 2020 2019 2018 1.6 0.4 % 45.1 % — % 1.1 1.8 % 42.5 % — % 1.1 2.4 % 41.9 % — % 100 As of December 31, 2020, unrecognized stock-based compensation expenses by awardaa type and their expected weighted-average recognition periods are summarized in the following table (in thousands, except years). Unrecognized stock-based compensation expex nse Weighted-average amortization period 9. Net Income Per Share December 31, 2020 Stock Option RSU ESPP Restricted Stock $ 46,111 $337,835 $ 9,494 $ 8,309 2.8 years 3.4 years 1.2 years 3.2 years The following table sets forth the computation of ouru basic and diluted net income per share attrt ibutable to common stockholders (in thousands, except per share amounts): Year Ended December 31, 2020 2019 2018 Numerator: Basic: Net income Less: undistributed earnings allocated to participating securities Net income attributable to common stockholders, basic Diluted: Net income attributable to common stockholders, basic Add: undistributed earnings allocated to participating securities Net income attributable to common stockholders, diluted $ 634,557 $ 859,867 $ 328,115 — (423) (189) $ $ 634,557 634,557 $ $ 859,444 859,444 $ $ 327,926 327,926 — 24 15 $ 634,557 $ 859,468 $ 327,941 Denominator: Basic: Weighted-average shares used in computing net income per share attributable to common stockholders, basic 75,984 76,312 74,750 Diluted: Weighted-average shares used in computing net income per share attributable to common stockholders, basic Add weighted-average effeff cts of dilutive securities: Stock options and RSUs Employee stock purchase plan Weighted-average shares used in computing net income per share attributable to common stockholders, diluted Net income per share attributable to common stockholders: Basic Diluted 75,984 76,312 74,750 3,462 19 4,565 2 6,083 11 79,465 80,879 80,844 $ $ 8.35 7.99 $ $ 11.26 10.63 $ $ 4.39 4.06 101 The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common stockholders because their effeff cts would have been anti-dilutive for the periods presented (in thousands): Stock options and RSUs Employee stock purchase plan Total 10. Income Taxes Year Ended December 31, 2020 2019 2018 345 83 428 318 82 400 140 71 211 The components of income before provision for income taxes are as follows (in thousands): Domestic Foreign Income before income taxes Year Ended December 31, 2020 621,838 117,025 738,863 $ $ 2019 727,632 134,638 862,270 $ $ 2018 136,818 151,983 288,801 $ $ The components of the provision for income taxes are as follows (in thousands): Year Ended December 31, 2020 2019 2018 $ 58,187 19,067 928 78,182 362,056 (4,511) (433,324) (75,779) 2,403 $ $ 6,113 2,018 10,451 18,582 (57,726) (4,164) 3,994 (57,896) (39,314) Current provision for income taxes: Federal State Foreign Total current Deferred tax expense (benefit): Federal State Foreign $ 78,843 21,135 12,891 112,869 (17,592) (849) 9,878 Total deferred tax expex nse (benefit)ff Total provision for (benefit from) income taxes (8,563) 104,306 $ $ 102 The reconciliation of the statutory federal income tax rate and our effeff ctive income tax rate is as follows (in percentages): U.S. federal statutory income tax rate State tax, net of federal benefit Taxes on foreign earnaa ings differential Tax credits Change in valuation allowance Intra-Entity Sale Stock-based compensation Tax Cuts and Jobs Act Acquisition and integration costs Other, net Effeff ctive tax rate Year Ended December 31, 2020 2019 2018 21.00 % 2.23 21.00 % 1.30 21.00 % (0.59) (0.92) (2.64) (0.18) — (5.65) — 0.27 0.01 (2.59) (3.10) (0.10) (9.95) (6.56) — 0.04 0.24 (3.37) (7.68) 1.00 — (24.90) (1.72) 2.12 0.53 14.12 % 0.28 % (13.61)% Excess tax benefits resulting from stock awards were $58.7 million, $77.9 million and $75.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. We have operations and a taxable presence in numerous jurisdictions outside the U.S. On December 31, 2019, we completed an intra-entity transaction to sell ouru non-Americas economic and beneficial intellectual propertytt ("IP") rights in exchange for a non-interest-bearing note of $3.4 billion. As a result of the transaction, red equaled the fair market value of the qualifying IP that resulted in the recognition tax basis in the IP transferff tax asset of $429.1 million, which was largely offsff et by a deferred tax liability of $343.3 million of a deferredrr associated witht the future US tax on foreign earnaa ings arising from the transaction for the differff ence between the local tax basis and U.S. GAAP book basis of the IP rights. The tax effecff ts of temporary differeff nces that give rise to significant portions of deferred tax assets (liabilities) are as follows (in thousands): 103 Deferred tax assets: Intangible assets Reserves and accruarr ls not currently deductible Tax credits Lease financing obligation Capitalized research and development expenses Stock-based compensation Net operating losses Other Gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities: US tax on foreign earnaa ings Right of use asset Other Total deferred tax liabilities Net deferred tax assets December 31, 2020 2019 $ 392,053 $ 419,911 80,550 68,592 22,080 23,656 18,548 23,998 3,873 633,350 (82,638) 550,712 (317,970) (18,764) (383) (337,117) 71,945 54,867 22,547 16,169 15,856 8,857 3,950 614,102 (67,331) 546,771 (326,967) (20,038) (2,451) (349,456) $ 213,595 $ 197,315 The following table presents the breakdown between non-curreuu nt deferred tax assets and liabilities (in thousands): Deferred tax assets, non-current Deferred tax liabilities, non-curru ent Total net deferred tax assets December 31, 2020 441,531 (227,936) 213,595 $ $ 2019 452,025 (254,710) 197,315 $ $ Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. We believe that all deferred tax assets are realizable with the exception of California, Canada, and U.K. we recorded a valuation allowance of $82.6 million and $67.3 million as of deferred tax assets. Therefore, December 31, 2020 and 2019, respectively, against California, Canada, and U.K. deferred tax assets, since it is more likely than not that these assets will be not be recognized. ff As of December 31, 2020, we had $245.1 million and $97.4 million of net operating loss carryforff wards for federal and state income tax purposes, respectively, from the acquisition of Mojoo Networks, Big Switch Networks and Awake Security. These federal and state losses will begin to expire in 2027 and 2029, respectively. For foreign jurisdictions, we had combined foreign net operating loss carryf orff wards of $12.8 million, which do not expire. aa We had a federal credit of $2.0 million from the acquisition of Awake Security,tt which will begin to expire in 2038 and a California state credit of $128.7 million, which can be carrirr ed over indefinitely. For foreign jurisdictions, we had $0.5 million of Canadian scientificff research and expex rimental development tax credit forwards, which will begin to expix re in 2034. carry-rr Utilization of the net operating losses and tax credit carryfrr orff wards may be subject to limitations due to ownership change limitations provided in the Internal Revenue code and similar state or foreign provisions. 104 The Tax Cuts and Jobs Act enacted on December 22, 2017 requires a Transition Tax on previously untaxed accumulated and curru ent foreign earnaa ings. Correspondingly, all undistrit buted earnings are deemed to be taxed and distributions of the unremitted earnings do not have any significant U.S. federal income tax impact. We have not provided for any remaining tax effeff ct, if any, of limited outside basis differff ences of ouru nt. The determination of the future tax consequeqq nces foreign subsidiaries based upon plans of future reinvestmet of the remittance of these earnir ngs is not practicable. Uncertain Tax Positions We recognize uncertain tax positions only to the extent that management believes that it is more likely than not the position will be sustained. The reconciliation of the beginning and ending amount of gross unrecognized tax benefits as of December 31, 2020, 2019 and 2018 is as follows (in thousands): Gross unrecognized tax benefits—beginning balance $ Increases related to tax positions taken in a prior year Increases related to tax positions taken during current year Decreases related to tax positions taken in a prior year Decreases related to settlements witht taxing authorities Decreases related to lapse of statute of limitations Adjud stment for acquisition Year Ended December 31, 2020 93,806 3,103 20,274 (18,029) — (6,654) — $ 2019 74,436 11,171 22,714 (89) (12,388) (2,120) 82 $ 2018 48,835 330 27,413 (675) — (2,173) 706 Gross unrecognized tax benefits—ending balance $ 92,500 $ 93,806 $ 74,436 As of December 31, 2020, 2019 and 2018, the total amount of gross unrecognized tax benefits was $92.5 million, $93.8 million and $74.4 million, respectively, of which $44.7 million, $28.5 million and $35.7 million would affecff tive tax rate if recognized. t our effecff Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We have recorded a net expense for interest and penalties of $0.1 million and $0.2 million in the years ended December 31, 2020 and 2019, respectively. As of Decemberm 31, 2020 and 2019, we recognized a liability for interest and penalties of $2.0 million and $2.2 million, respectively. The statute of limitations for Federal and most states remain open for 2017 and forward. Some states have net operating loss and tax credit carryforff wards, and thereforeff itytt of our foreign tax returns are open to audit under the statute of limitations of the respective foreign countries, where the subsidiaries are located. It is possible that the amount of existing unrecognized tax benefits mayaa decrease within the next 12 months as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions; however, an estimate of the range remain open to examination. The majora cannaa ot be made. aa 11. Geographical Information We operate as one reportable segment. The following table represents revenue based on customers' shipping addresses (in thousands): Americas Europe, Middle East and Afriff ca Asia Pacific Total revenue Year Ended December 31, $ 2020 1,771,992 326,729 218,791 $ 2019 1,833,163 381,651 195,892 $ 2018 1,550,453 414,069 186,847 $ 2,317,512 $ 2,410,706 $ 2,151,369 105 Long-lived assets, excluding intercompany receivables, investments in subsidiaries, investmet nts in privately-held companies and deferred tax assets, net by locatiaa on are summarized as follows (in thousands): United States International Total December 31, 2020 2019 $ $ 24,110 8,121 32,231 $ $ 32,565 6,708 39,273 12. Post-Employment Benefitff s We have a 401(k) Plan that covers substantially all of our employees in the U.S. Effecff tive January 1, 2017, we haveaa elected to match 100% of emplm oyees' contributions up to a maximum of 3% of an employee's annual salary. Matching contributions are immediately vested. For the years ended December 31, 2020, 2019 and 2018, we contributed approximately $7.4 million, $5.1 million and $4.6 million for the matching contributions, respectively. 106 13. Selected Quarterly Financial Information (Unaudited) The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the quarters in the years ended December 31, 2020 and 2019. This unaudited selected quarterly financial data has been prepared on the same basis as our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the opinion of management, the financial data set forth in the tables below reflect all normal recurring adjustments necessary for the fair statement of results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expex cted in the r interim period are not necessarily indicative of the results future and the results of a particular quartaa er or othett for a full year. This financial data should be read in conjun nction with the Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Dec. 31, 2020 Sep. 30, 2020 Jun. 30, 2020 Three Months Ended Dec. 31, Mar. 31, 2019 2020 Sep. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 (in thousands, except for per share amounts) $518,281 $480,242 $421,413 $410,906 $447,498 $555,066 $513,171 $505,415 130,201 125,189 119,157 112,123 105,048 99,349 95,150 90,009 648,482 605,431 540,570 523,029 552,546 654,415 608,321 595,424 210,436 199,465 176,432 163,629 175,476 218,220 200,534 198,152 23,462 21,004 20,049 21,149 20,767 18,921 17,596 16,702 venue: oduct Service Total revenue Cost of revenue: oduct Service Total cost of revenue 233,898 220,469 196,481 184,778 196,243 237,141 218,130 214,854 oss profitff 414,584 384,962 344,089 338,251 356,303 417,274 390,191 380,570 Operating expenses: search and development Sales and marketing General and administrative Total operating expenses Income from operations Total other income, net Income before income taxes Provision for (benefitff from) income taxes Net income NNet income per share attributable to common Basic Diluted 133,847 128,049 111,544 113,154 110,063 118,732 114,295 119,669 67,671 53,372 51,237 57,086 54,535 55,279 53,040 51,053 18,428 15,146 14,319 18,349 15,716 14,657 16,019 15,506 219,946 196,567 177,100 188,589 180,314 188,668 183,354 186,228 194,638 188,395 166,989 149,662 175,989 228,606 206,837 194,342 5,542 13,224 8,256 12,157 11,183 19,169 13,811 12,333 200,180 201,619 175,245 161,819 187,172 247,775 220,648 206,675 17,222 33,244 30,452 23,388 (73,520) 38,880 31,397 5,646 $182,958 $168,375 $144,793 $138,431 $260,692 $208,895 $189,251 $201,029 $ $ 2.41 2.31 $ $ 2.22 2.12 $ $ 1.91 1.83 $ $ 1.82 1.73 $ $ 3.41 3.25 $ $ 2.73 2.59 $ $ 2.47 2.33 $ $ 2.65 2.47 107 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Discii losure Controls and Procedures Management, with the participation of our Chief Executive Offiff cer (“CEO”) and our Chief Financial Offiff cer (“CFO”), evaluated the effecff tiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedurdd es of a companynn that are designed to ensure that information required to be disclosed by a companynn in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specifieff d in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that informa tion required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communm icated to the company’s management, including its principal executive and principal financial offiff cers, as appropriate to allow timely decisions regarding required disclosure. ff Based on the evaluation of ouru disclosure controls and procedures as of December 31, 2020, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures are designed at a reasonable assurance level and are effeff ctive to provide reasonabla e assurance that information we are required to disclose in reports that we filff e or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission (SEC) rules and forms, and that such information is accumulated and communicated to our management, including ouruu CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Changen s in Internal Control tt over Finaii ncial Repoe rtintt g There were no changes in our internal controt l over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Securities and Exchange Act of 1934, as amended, that occurruu ed during the year ended Decembem r 31, 2020 that materially affecff ted, or are reasonably likely to materially affeff ct, our internal control over financial reporting. Inherent Limi taii ii tions of Internal Controls tt Our management, including our CEO and CFO, does not expect that our disclosure controls and procedurdd es or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision- making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential futurtt e conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedurd es may deteriorate. Because of the inherent limitatioaa tive control system, misstatements due to error or fraudaa mayaa occur and not be detected. ns in a cost-effecff Managea ment's Repoe rt on Internal Contrott l over Finaii ncial Repoe rtingn Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)ff and 15d-15(f) under the Exchange Act. Our internal control 108 over finff ancial reporting is a process designed under the supervision of our principal executive and principal financial offiff cers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. rr aa l over financaa of records that, Our internal controt in reasonable detail, accurately and fairly reflect ial reporting includes those policies and procedures that: (i) pertain to the transactions and the maintenance dispositions of our assets; (ii) provide reasonabla e assurance that transactions are recorded as necessaryrr t rr to permi preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expex ndituresu are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could haveaa a material effeff ct on the Consolidated Financial Statements. l over financial reporting may not prevent or detect Because of its inherent limitations, internal contrott misstatements. Also, projections of any evaluation of effecff tiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the l over policies or procedurdd es may deteriorate. Management assessed the effeff ctiveness of our internal controt financial reporting as of December 31, 2020, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013 framework). Based on that assessment, management concluded that, as of December 31, 2020, its internal to provide reasonable assurance regarding the reliability of control over financial reporting was effeff ctive financial reporting and the preparation of financaa ial statements in accordance with U.S. GAAP.PP The effeff ctiveness of our internal control over financial reporting, as of December 31, 2020, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audits our Consolidated Financial Statements, as stated in their report included in Item 8 of this Annual Report on Form 10-K, which expresses an unqualifieff d opinion on the effecff tiveness of our internal control over financial reporting as of December 31, 2020. Item 9B. Other Inforff mation None. 109 Item 10. Directors, Executive Offiff cers, and Corporate Governance PART III Information required by this Item is incorpor with respect to our 2021 Annual Meeting of Stockhol of the fiscal year covered by this Annual Report on Form 10-K. rr kk ated herein by referff ence to our definitive proxy statement ders to be filed with the SEC within 120 days after the end Item 11. Executive Compensation Information required by this Item is incorpor with respect to our 2021 Annual Meeting of Stockhol of the fiscal year covered by this Annual Report on Form 10-K. rr kk ated herein by referff ence to our definitive proxy statement ders to be filed with the SEC within 120 days after the end Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this Item is incorpor with respect to our 2021 Annual Meeting of Stockhol of the fiscal year covered by this Annual Report on Form 10-K. rr kk ated herein by referff ence to our definitive proxy statement ders to be filed with the SEC within 120 days after the end Item 13. Certain Relationships and Related Transactions and Director Independence Information required by this Item is incorpor with respect to our 2021 Annual Meeting of Stockhol of the fiscal year covered by this Annual Report on Form 10-K. rr kk ated herein by referff ence to our definitive proxy statement ders to be filed with the SEC within 120 days after the end Item 14. Principal Accountant Fees and Services Information required by this Item is incorpor with respect to our 2021 Annual Meeting of Stockhol of the fiscal year covered by this Annual Report on Form 10-K. rr kk ated herein by referff ence to our definitive proxy statement ders to be filed with the SEC within 120 days after the end 110 PART IV Item 15. Exhibits and Financial Statement Schedules Documents filed as part of this Annual Report on Form 10-K are as follows: 1. Consolidated Financial Statements Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K. 2. Financial Statement Schedules Financial statement schedules have been omitted because they are not required, not applicable, not ission of the schedule, or the required information is shown in the present in amountu s sufficff Consolidated Financial Statements or Notes thereto. ient to require submu 3. Exhibits The exhibits listed in the following Exhibit Index are filed or incorporated by reference into this report: 111 Exhibit Number 3.1 2 4.1 4.2 4.3 10.1 10.2 † 10.3 † 10.4 † 10.5 † 10.6 † 10.7 † 10.8 † 10.9 † 10.10 † 10.11 10.12 10.13 10.14‡ 10.15 † 10.16 † 10.17 † 10.18 † 10.19 † 10.20 † EX HIBIT INDEX Incorporated by Reference Form 10-Q File No. 001-36468 Exhibit 3.1 Filing Date 8/8/2014 Filed Herewith Description Amended and Restated Certificaff Incorporation of the Registrant. te of Bylaws of the Registrant. 10-Q 001-36468 Form of the Registrant's ff certificat e. aa common stock S-1/A 333-194899 Investors’ Rights Agreement, dated October 16, 2004, between Registrant and certarr in holders of Registrant’s capiaa tal stock named therein. S-1 333-194899 3.2 4.1 4.2 8/8/2014 4/21/2014 3/31/2014 (cid:57) Description of Registrant’s securities registered under Section 12 of the Exchange Act Form of Indemnification Agreement between the Registrant and each of its directors and . executive officers ff 2004 Equity Incentive Plan. 2011 Equity Incentive Plan. 2014 Equity Incentive Plan. 2014 Emplmm oyee Stock Purchase Plan. Letter, dated October 17, 2004, by and Offer ff bbetween the Registrantaa and Kenneth Duda. Letter, dated June 8, 2007, by and ff Offer bbetween the Registrantaa and Anshul Sadanaaa . 10-Q 001-36468 10.1 11/1/2019 S-1 S-1 333-194899 333-194899 S-1/A 333-194899 10-K S-1 001-36468 333-194899 10.2 10.3 10.4 10.5 10.6 3/31/2014 3/31/2014 5/27/2014 3/12/2015 3/31/2014 S-1 333-194899 10.7 3/31/2014 Offer ff bbetween the Registrantaa Letter, dated August 1, 2008, by and and Jayshree Ullal. S-1 333-194899 10.8 3/31/2014 Letter, dated March 27, 2013, by and Offer ff bbetween the Registrantaa and Charles Giancarlo. Offer ff bbetween the Registrantaa Letter, dated June 3, 2013, by and and Ann Mather. Lease between Arista Netwot rks, Inc. and The Irvine Company LLC, dated August 10, 2012, as amended on February 28, 2013. Second Amendment to Lease, by and between Arista Netwott rks, Inc. and The Irvine Company LLC, dated July 30, 2014. License Agreement, dated November 30, 2004, byby and between the Registrant and Optumtt Soft, Inc. Manufacturing Services Letter Agreement, dated Februarr and Jabil Circuit, Inc. ry 5, 2007, between the Registrant S-1 333-194899 10.9 3/31/2014 S-1 333-194899 10.10 3/31/2014 S-1 333-194899 10.15 3/31/2014 10-Q 001-36468 10.1 8/8/2014 S-1 333-194899 10.16 3/31/2014 S-1 333-194899 10.17 3/31/2014 Employee Incentive Plan. S-1/A 333-194899 10.21 4/21/2014 Offer ff bbetween the Registrantaa Letter, dated May 18, 2015, by and and Ita Brennan. Severancaa tive May 18, 2015, bby and between the Registrant and Ita Brennan. e Agreement, effecff 8-K 001-36468 10.1 5/14/2015 8-K 001-36468 10.2 5/14/2015 2015 Global Sales Incentive Plan. letter, dated Januan ry 2, 2013, by and ff Offer bbetween the Registrantaa and Marc Taxay. 10-Q 10-Q 001-36468 001-36468 10.3 10.1 5/5/2016 5/8/2017 Severancaa bby and between the Registrant and Marc Taxay. e Agreement, dated March 30, 2015, 10-Q 001-36468 10.2 5/8/2017 112 Exhibit Number 10.21 † 22 † 10.23 ‡ 10.24 ‡ 10.25 † 21.1 23.1 31.1 31.2 32.1* Description letter, dated February 14, 2017, by and Offer ff bbetween the Registrantaa and John McCool. e Agreement, dated March 20, 2017, Severancaa byby and between the Registrant and John McCool. Term Sheet of Mutual Release and Settlement Agreement, dated August 6, 2018, between the Registrant and Cisco Systems, Inc. Mutual Release and Settlement Agreement, dated August 6, 2018, by and between the Registrant and Cisco Systems, Inc. Awake Security, Inc. 2014 Equity Incentive Plan List of Subsu idiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Certification of the Chief Executive Offiff cer purpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Chief Financial Offiff cer purpursuant to Section 302(a) of the Sarbanes- Oxley Act of 2002. Certifications of Chief Executive Office r and Chief Financial Offiff cer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbar nes-Oxley Act of 2002. ff Incorporated by Reference Form 10-Q File No. Exhibit Filing Date 001-36468 10.3 5/8/2017 Filed Herewith 10-Q 001-36468 10.4 5/8/2017 10-Q 001-36468 10.1 11/5/2018 10-K 001-36468 10.24 2/15/2019 S-8 333-249591 99.1 10/22/2020 (cid:57) (cid:57) (cid:57) (cid:57) (cid:57) 101.INS XBRL Instance Document. 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104.0 XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Labea Document. l Linkbase XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) _____ ____ __ ___ ___ __ ___ __ ____ __ ____ ___ ___ † Indicates a management contract or compemm nsatory planaa or arrangaa ement. ‡ Confidff ential treatment has been requested for portions of this exhibit. These portions have been omitted and haveaa filed separateaa ly witht the Securities and Exchange Commission. been ff * The certificat ions attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are not deemed filed with the , Inc. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Arista Networksrr under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. 113 Item 16. Form 10-K Summary None. 114 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 18, 2021 By: /s/ JAYSAA HREE ULLAL ARISTATT NETWORKS, INC. (Registrant) Jayshree Ullal President, Chief Executive Offiff cer and Director (Principal Executive Offiff cer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below t, witht constitutes and appoints Jayshree Ullal and Ita Brennan, jointly and severally, his or her attorney-in-facff the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report r documents in connection therewith, with the on Form 10-K and to file the same, with exhibits thereto and othet Securities and Exchange Commission, hereby ratifying and confirmff t, or ing all that each of said attorneys-in-facff his or her subsu titute or substitutes, may do or causaa e to be done by virtuet hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capaa cities and on the dates indicated: Signature Title /s/ JAYSAA HREE ULLAL Jayshree Ullal /s/ ITATT BRENNAN Ita Brennan President, Chief Executive Offiff cer and er) Director (Principal Executive Officff Chief Financial Offiff cer (Principal Accounting and Financial Offiff cer) Date February 18, 2021 February 18, 2021 /s/ ANDY BECHTOLSHEIM Andy Bechtolsheim Founder, Chief Development Offiff cer and Chairman of the Board of Directors February 18, 2021 /s/ ANN MATHAA ER Ann Mather /s/ CHARLES GIANCARLO Charles Giancarlo /s/ DAN SCHEINMAN Dan Scheinman /s/ KELLY BATTAA LES Kelly Battles /s/ MARK TEMPLETON Mark Templeton /s/ NIKOS THEODOSOPOULOS Nikos Theodosopoulos Director Director Director Director Director Director 115 February 18, 2021 February 18, 2021 February 18, 2021 February 18, 2021 February 18, 2021 February 18, 2021 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] 

Continue reading text version or see original annual report in PDF format above