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.
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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
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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
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4
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11
14
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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
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40
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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
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OTHER MATTERS
Householding
Stockholder Proposals
Availability of Bylaws
Fiscal Year 2020 Annual Report and SEC Filings
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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
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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
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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.
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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.
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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
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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
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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;
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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
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