April 20, 2022
2021 Milestones:
• Revenue for our fiscal year 2021 was $2.95 billion, an increase of 27.2%
compared to fiscal year 2020.
• Arista expanded the Arista EOS® network stack with the introduction of
Network Data Lake (NetDLTM) for data-driven cloud networking, endorsed by
Equinix, Palo Alto Networks, Red Hat, Slack, Splunk, VMware, and Zscaler.
• Arista introduced a new zero trust security framework, Multi-Domain Macro-
Segmentation Service, a suite of capabilities for integrating security policy with
the network through open and consistent network segmentation.
• Arista expanded its Cognitive Campus with the latest generation Wi-Fi 6E
solution to meet enterprise IoT and collaborative applications requirements.
• Arista expanded 400G for enterprise and cloud customers with the next
generation of the 7050X and 7060X Series, providing performance and cost
benefits for customers of all sizes as they transition to 400G networks.
• KuppingerCole has recognized Arista NDR as a leader in the 2021 Leadership
Compass for Network Detection and Response (NDR).
As we enter the next era of data-driven cloud networking, Arista is well positioned
to continue its track record of relentless innovation to bring highly differentiated
products to market.
I thank Arista stockholders, customers, partners and our employees for your
continued support.
The Arista family has shown great
resilience and flexibility in the last year,
maintaining operational excellence in the
face of industry-wide challenges to
establish Arista among the fastest
growing networking companies in this
decade.
I am delighted with Arista’s record 2021
milestones in innovation, diversified
customer momentum, and earnings. Our
customer base now exceeds 8000, as
we experienced continued strength in our
cloud and enterprise business, including
growing our campus revenues 100% year
over year. Customer demand remains
strong for Arista products as we are
gaining market share in 100G, 200G and
400G high performance switching
according to market analysts.
JAYSHREE ULLAL
Chief Executive Officer, President and Director
Arista Networks, Inc.
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, May 31, 2022
Dear Stockholders of Arista Networks, Inc.:
The 2022 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, May 31, 2022 at 11:00 a.m. Pacific Time. Due
to the COVID-19 pandemic and related public health concerns, the Annual Meeting will be conducted in a virtual format to provide a
safe experience for our stockholders and employees. You will be able to attend the Annual Meeting online and submit your questions
during the meeting at www.virtualshareholdermeeting.com/ANET2022. 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 6, 2022 as the record date for the Annual Meeting. Only stockholders of
record on April 6, 2022 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 61 of the accompanying proxy statement.
On or about April 20, 2022, 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 20, 2022
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TABLE OF CONTENTS
2022 PROXY STATEMENT SUMMARY
OUR COMMITMENT TO THE ENVIRONMENT
SOCIAL RESPONSIBILITY AND GOVERNANCE
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 Evaluation Process
Board Meetings and Committees
Compensation Committee Interlocks and Insider
Participation
Considerations in Evaluating Director Nominees
Stockholder Recommendations for Nominations to the
Board of Directors
Stockholder Outreach
Communications with the Board of Directors
Risk Management
Executive Talent Management and Succession Planning
Director Compensation
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Nominees
Vote Required
PROPOSAL NO. 2 ADVISORY VOTE ON
EXECUTIVE COMPENSATION
Vote Required
1
4
11
15
16
19
19
19
20
20
21
24
24
24
25
25
25
27
27
29
29
29
30
30
PROPOSAL NO. 3 ADVISORY VOTE ON THE
FREQUENCY OF FUTURE ADVISORY VOTES
ON NAMED EXECUTIVE OFFICER
COMPENSATION
Vote Required
PROPOSAL NO. 4 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 2021 Summary Compensation Table
Outstanding Equity Awards at 2021 Fiscal Year-End
Fiscal 2021 Grants of Plan-Based Awards
Fiscal 2021 Option Exercises and Stock Vested
Pension Benefits
Nonqualified Deferred Compensation
Potential Payments Upon Termination or Change in
Control
Risk Assessment and Compensation Practices
31
31
32
32
32
33
33
34
35
37
37
38
39
39
42
47
48
49
52
53
53
53
53
54
i
Other Compensation Policies
Tax and Accounting Considerations
CEO Pay Ratio
Compensation Committee Report
Equity Compensation Plan Information
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
RELATED PERSON TRANSACTIONS
Other Transactions
Policies and Procedures for Related Party Transactions
54
55
55
56
57
58
60
60
60
QUESTIONS AND ANSWERS
OTHER MATTERS
Householding
Stockholder Proposals
Availability of Bylaws
Fiscal Year 2021 Annual Report and SEC Filings
61
64
64
64
65
65
ii
2022 PROXY STATEMENT
2022 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 2022 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, May 31, 2022 at
11:00 a.m. Pacific Time
Virtual Meeting
www.virtualshareholdermeeting.com/ANET2022
Record Date
April 6, 2022
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:
Elect two Class II directors to serve until the 2025 annual meeting of stockholders
Board Voting Recommendation:
FOR the election of Charles Giancarlo and Daniel Scheinman
Page
29
2
Page
30
3
Page
31
4
Page
32
Proposal for your Vote:
Advisory vote to approve named executive officer compensation
Board Voting Recommendation: FOR
Proposal for your Vote:
Advisory vote on the frequency of future advisory votes on named executive officer compensation
Board Voting Recommendation:
FOR a frequency of every “ONE YEAR”
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
Age
Director Since
Independent
Committees
Charles Giancarlo
Chief Executive Officer and Chairman of the Board of Directors of Pure
Storage, Inc.
Daniel Scheinman
Lead Independent Director
64
2013
59
2011
Compensation
Nominating
and Corporate
Governance
Compensation
Nominating
and Corporate
Governance
1
2022 Proxy Statement Summary
2021 Business Highlights
REVENUE
$2.95B
GAAP GROSS MARGIN
63.8%
CUSTOMERS:
• Over 8,000 customers
Board of Directors Snapshot
22%
78%
• All of our non-employee directors are independent
• Added a new independent director in 2021
44%
56%
• 4/9 of our directors are women or
from underrepresented communities.
• Board diversity enhances board independence
33%
67%
• 3/9 of our directors have served for less than
6 years
2
2022 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 stockholder outreach, current literature and corporate
governance organizations.
2022 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
Regularly reviews succession plans for CEO and other key
executives
Executive sessions of independent directors at each regularly
scheduled board 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 board and committee structure and composition,
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 55 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 THE ENVIRONMENT,
SOCIAL RESPONSIBILITY AND GOVERNANCE
Arista is committed to transparency, engagement and consistent communication of our Environmental, Social & Governance (“ESG”)
strategies and programs. While our core competency is designing, manufacturing and delivering leading software driven cloud
networking solutions, Arista is dedicated to delivering a superior client experience, increasing shareholder value, serving our
communities and creating a workplace where talent can thrive. We believe that sustainability and business growth are closely linked
and delivering products that are sustainable truly enables our customers’ success. To maximize our efforts, we focus our sustainability
program around environmental, social and governance programs, including:
Environment
Social
Responsibility
Supply Chain
Governance
ESG Oversight
In 2021 and 2022, Arista continued to evolve our ESG strategy. Our executive leadership team and Board recognized the importance
of these responsibilities, and our internal committee is tasked with driving additional progress in initiatives that promote sustainability,
diversity, inclusion, equity and further transparency. Our sustainable governance structure begins at the very top. The core values of
Arista reflect what is truly important to us as an organization. Arista was founded on the principle of doing things the “Arista Way,”
which is to drive for customer success in every aspect of what we do. We build and deliver innovative, high-quality products and
services through commitment, innovation and uncompromising focus on customer needs. This includes a commitment to designing,
manufacturing and delivering leading software driven cloud networking solutions in an environmentally and socially sustainable manner.
THE ARISTA WAY
customers and daily interactions
quality, innovation and experience
1 Drive for customer success in every aspect: support,
2 Do the right thing be it for products, quality,
3 Challenge status quo, question traditional habits and
4 Develop alternative ways of achieving disruptive
5 Develop agile and mobile teams that can respond to
innovation in every function, preserving quality
priorities (as opposed to fixed or top-down
organizations)
be cost-effective
6 Maintain the highest level of integrity in conduct
7 Discuss, debate but quickly align to priorities
8 Treat your peers, vendors, customers with respect
9 Mentor individuals and develop teams for overall
10 Cultivate Arista pride but never ego or arrogance in
and develop a win-win partnership
success, not personal, success
our culture
4
2022 PROXY STATEMENT
Our Commitment to The Environment, Social Responsibility and Governance
ENVIRONMENT
Arista is committed to responsible ESG practices that include
climate change resilience, conservation of natural resources,
pollution prevention and reduction of waste. We are committed
to creating environmental awareness with our employees and
other partners and to engage them to reduce their footprint,
manage waste properly and encourage reuse or recycling.
We recognize the need to comply with applicable environmental
standards and an increasing number of applicable environmental
laws and regulations. We are committed to making the
necessary investments to ensure compliance. We are
continuously researching innovative ways to boost efficiency in
our offices, such as utilizing high-efficiency electrical equipment
including LED and motion-detector lighting, solar panels and
high-efficiency HVAC units.
We have implemented an Environmental Management System
(EMS) that lays out our objectives for achieving pollution
prevention, environmental protection and monitoring, and
continual improvements in the environmental performance of our
operations. Backed by our Environmental Policy, the EMS
provides a framework for monitoring of progress, internal
employee training to embed sustainability into our business,
external stakeholder engagement, and setting measurable
targets to drive performance.
In 2021, Arista amended its Audit Committee charter to provide
that the Audit Committee has responsibility for reviewing and
discussing with management Arista’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 including:
• LEED Gold Certification & Efficient Offices: 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,
accordingly, moved our Bangalore operations to a facility that
was built according to LEED Gold Level rating benchmarks.
• 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
implement 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.
5
Our Commitment to The Environment, Social Responsibility and Governance
• Each new generation of our products demonstrates improved
network capacity, and energy efficiency, which reduces
overall greenhouse gas emissions and power consumption for
our customers. In addition, our new products use power
supplies that are rated 80-Plus Platinum or better, which
helps reduce the total product power consumption and heat
generated from the power supplies.
We believe that our focus on innovation, with the objective of
reducing costs and improving sustainability of our operations,
provides a strategic benefit through the ability to fund, develop
and implement new technologies and quickly respond to
changes in customer requirements and industry demands. We
continue to look for opportunities to minimize our environmental
impact and to support public and private organizations that
advance sustainability initiatives by driving toward a more digital
work environment, encouraging remote work practices and
making investments to reduce waste at all of our office locations.
SOCIAL RESPONSIBILITY
A great experience starts with a great team. We are focused on
growing our team of employees and aiding in their professional
development. We believe that our ongoing success depends
upon a skilled, satisfied and valued workforce. As such, Arista
provides opportunities for employees to gain the skills and
knowledge they need to advance and fulfill personal career
goals. In 2021, we began implementing Human Capital
Management (HCM) reporting and practices to establish a
foundation to enable leaders to better hire talent and manage
teams, including setting goals, performance evaluations,
succession planning, and learning and development.
We also offer competitive compensation and benefits packages
that reflect the needs of our workforce. In the U.S., we offer:
• Medical, dental and vision benefits for employee, spouse and
dependents
• Flexible spending accounts for both healthcare and
dependent care
• Health savings accounts and health reimbursement accounts
• Wellness program with incentives for participants who meet
certain criteria
• Life-, short- and long-term disability insurance
• Flexible time off for full and part-time associates
• Paid maternity and parental leave
• 401(k) retirement savings program with company matching
contributions
6
• Day care and caregiver assistance
• Employee Assistance Program, including behavioral health
and emotional support assistance
In addition to base salary and benefits, Arista’s employees
participate in incentive plans that support our organizational
philosophy of allowing employees to share in our performance
and success. Our executive compensation program is designed
to attract, retain, and reward performance and align incentives
with achievement of the Arista’s strategic plan and both short-
and long-term operating objectives. In accordance with our
compensation philosophy established by the Compensation
Committee Charter and the board, we believe our executive pay
is well aligned with performance, creating a positive relationship
between our operational performance and shareholder returns.
2022 PROXY STATEMENT
Our Commitment to The Environment, Social Responsibility and Governance
Arista has never experienced a strike or similar work stoppage
and we believe our employee relations are strong. We conduct
employee engagement surveys globally on a regular basis to
gather information and feedback on our team members. We will
use a holistic organization-wide approach to respond to the
results of the survey, analyzing the data for potential actions that
can be taken in the areas of leadership, communication, culture,
inclusion, growth and development, and other areas. Beyond
the workplace, the health and wellbeing of our colleagues is our
top priority and in recognition of this, Arista aims to support the
wellness of all colleagues by:
• Possessing a diverse management team that includes our
Chief Executive Officer, Chief Financial Officer and Group Vice
President, Worldwide Human Resources and Operations all of
whom are women, and our Chief Executive Officer and Chief
Operating Officer, both of whom are people of color.
• Increasing recruitment and engagement efforts for women
and members of underrepresented minorities, including by
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 and
mentorship opportunities facilitated by our Women@Arista
employee resource group.
• Actively promoting the hiring of female engineers through
special activities like our Arista India Recruit by Her event and
through the efforts of our Women at Arista employee resource
group. We also actively recruit from underrepresented
universities and professional societies, including professional
societies that support Black engineers, Latin Americans and
veterans.
Arista is all about respect, integrity, innovation, passion, pride
and trust. We strive to build an inclusive culture that encourages,
supports and celebrates the diverse voices of our employees. It
fuels our innovation and connects us closer to the customers
and communities we serve. We believe that the voices of our
employees are the ultimate barometer in evaluating the success
of our Diversity and Inclusion efforts. In a recently completed
employee survey, Arista received our highest scores (very high,
90% percentile) from all demographic groups in the areas of
fairness. Per Great Place To Work, the global authority on
workplace culture, our scores were higher than the average of
the top 100 overall performing companies in the US.
We are committed to developing a qualified and motivated
workforce to power our continued evolution. We take the health
and safety of our employees seriously. 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 our
employees. We expect each employee to follow our safety
standards and protocols. Our Global Facilities team continues to
proactively work to reduce and eliminate potential risks and
ensures compliance with local laws and regulations. To evaluate
performance, we regularly measure and monitor workplace
safety.
In response to the COVID-19 pandemic, we implemented
standards to operate in accordance with social-distancing
protocols and public health authority guidelines. We also offered
extended benefits to employees, including increased sick pay
and waived premium payments on healthcare benefits for
furloughed employees. Furthermore, we formed an internal task
force that developed policies, procedures, safety training and
protocols for the safety of our employees and was one of the
first Silicon Valley companies to provide drive-thru on-site
COVID vaccinations as a benefit to our employees.
In response to increasing COVID cases in India in May 2021, we
created a special India COVID Task Force to acquire and deploy
oxygen concentrators and to build relationships and
partnerships with hospitals and medical groups to provide
access to hospital beds and vaccinations. We continue to be
proud of our efforts, as we have had zero employee deaths or
known cases of spread at Arista facilities through 2021.
7
Our Commitment to The Environment, Social Responsibility and Governance
Arista is passionate about being good corporate citizens in the
communities where we live and work. Through strategic nonprofit
partnerships, pro bono work, volunteerism and philanthropy, our
corporate responsibility is focused on contributing to the creation
of a better world. Going forward, Arista will continue to partner
with nonprofit organizations that work to increase the number of
individuals with financial literacy, decrease the number of
individuals facing economic barriers and make our communities
reflections of our commitments and values.
We are aware of how our presence and partnership can affect
others. Therefore, we are consciously working to systemically
create positive social change and are focused on supporting
various organizations through fundraising efforts, educational
sponsorship, community development efforts, charity drives,
and partnerships. In 2021 and 2022, Arista is proud to:
• Give annually to select non-profit organizations. Arista
Foundation’s giving priorities are generally to non-profits
focused on education, hunger, environmental sustainability or
disaster relief.
• Donated to Santa Clara University, HelpAge India, Code2040,
Resource Area for Teaching, Roswell Park Hospital and
Communities in Schools of Washington.
• Raised over $600,000 from employee donations, executive
matching and Arista Foundation grants for India COVID relief
with American India Foundation, SEWA International-AIMS, Save
Life Foundation, Give India, PM Cares and One More Breath.
• Planted an additional 2,500 trees for a total of over 77,000
trees to-date worldwide through the personal efforts of Arista
executive Pravin Bhagwat and India non-profit partner, 14
Trees Foundation.
• Continued our global employee fundraising event with the goal
of providing food to people in need. Over 1.7 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, RISE
Against Hunger, Greater Vancouver Food Bank, Peter
McVerry Trust and Foodbank, Australia, in the largest Arista
philanthropy event ever.
8
2022 PROXY STATEMENT
Our Commitment to The Environment, Social Responsibility and Governance
SUPPLY CHAIN
Manufacturing our products creates environmental and social
impacts that extend far beyond the walls of Arista. We engage
with suppliers throughout our global supply chain to manage
and improve these impacts to conserve resources, save costs,
and promote ethical social practices. Our Supply Chain
Sustainability Expectations Policy initially sets forth the
requirement to align with industry expectations. As a member of
the Responsible Business Alliance (RBA), we support 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.
Arista takes steps to validate the absence of slavery, human
trafficking and forced labor in our supply chain and therefore
ensure compliance with the California Transparency in Supply
Chains Act and the UK Modern Slavery Act. We perform
supplier risk assessments of our suppliers and encourage them
to adhere to the RBA Code of Conduct. Furthermore, we are a
member of the Responsible Minerals Initiative (RMI) and have
management systems in place to ensure that the components of
our products are sourced responsibly.
GOVERNANCE
Arista is committed to achieving excellence in our governance
practices and to establishing a strong foundation for our long-
term success. We emphasize a culture of accountability and
conduct our business in a manner that is fair, ethical, and
responsible to earn the trust of our stakeholders, including
customers, employees, investors, partners, and regulators. As a
publicly traded company, it is incumbent upon us to ensure that
our operations are conducted in a manner that is both consistent
with environmental preservation and supportive of the entire
community in which we operate.
Arista has adopted a culture of ethics. Our Code of Ethics and
Business Conduct emphasizes the importance of honest
business conduct and solid business ethics. Our Code applies to
all personnel employed by or engaged to provide services to
Arista 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. Arista
provides annual training on our Code. Our Code addresses,
among other things, conflicts of interest, business practices,
compliance with laws and regulations, and interacting fairly and
Arista’s website contains information on our environmental and
social programs. We routinely engage with our shareholders to
better understand their views, carefully considering the feedback
we receive and acting when appropriate. Arista reviews the results
of the annual advisory vote on executive compensation in making
determinations about the structure of our pay programs. For more
information, please visit our corporate website: arista.com
respectfully with each other, our customers, partners, suppliers
and host communities. Furthermore:
• 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 further supports our stated goals
with our governance structure while encouraging
transparency, facilitating confidentiality, and providing 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.
9
Our Commitment to The Environment, Social Responsibility and Governance
Our board of directors, consisting of 9 directors (7 of whom are
independent), is responsible for oversight of the management of
the company for the long-term benefit of our stakeholders. Our
corporate governance policies and practices include evaluations
of the board and its committees and continuing director
education. Our Nominating and Corporate Governance
Committee oversees corporate governance matters. Our Audit
Committee reviews our policies and practices relating to
financial, environmental and social responsibility, and monitors
certain key risks including cybersecurity risks.
We believe that diversity with respect to tenure is important in
order to provide for both fresh perspectives and deep experience
and knowledge. Our Nominating and Corporate Governance
Committee considers diversity and a broad range of
backgrounds and experiences in making determinations
regarding nominations of directors.
Our internal risk management teams oversee compliance with
applicable laws and regulations and coordinate with subject
matter experts throughout our business to identify, monitor and
mitigate risk including information security risk management and
cyber defense programs. These teams maintain testing
programs and provide updates to the Audit Committee and the
board. Arista also has an information security program that
incorporates multiple layers of physical, logical and written
controls. Arista leverages encryption configurations and
technologies on its systems, devices, and third-party
connections.
Arista performs an enterprise risk assessment that is reviewed by
the Audit Committee on an annual basis and monitored on a
quarterly basis by the Audit Committee. The enterprise risk
assessment is an assessment of key risks, including information
security risks, data privacy, supply chain, human capital, and
others.
Under Arista’s IT security program, our Cybersecurity Executive
Committee and Information Security Steering Committee meet
throughout the year to monitor and assess information security
risks. Additionally, all employees receive annual Data Protection
and Privacy training.
10
2022 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 independent director
• Open access to management and 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 and experiences
• Board/management succession planning
• 7/9 directors are independent
• Code of Ethics and Business Conduct for our directors and
• Our Chairman and CEO are the only non-independent directors
employees
• 4/9 directors are women and/or from underrepresented
• Stock ownership requirements for our directors and CEO
communities
• Clawback policy for our executives
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 we do not maintain a specific policy with respect to board diversity, our board of directors
believes that it 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 and
committee evaluations.
78%
44%
1-5
years
33%
5+
years
67%
OF DIRECTORS ARE
INDEPENDENT
OF DIRECTORS ARE WOMEN OR FROM
UNDERREPRESENTED COMMUNITIES
DIRECTOR
TENURE
The following table sets forth information, as of April 6, 2022, for each of our directors with terms expiring at the
Annual Meeting:
Directors with Terms Expiring at the Annual Meeting/Director Nominees
Class
Age
Director
Since
Current Term
Expires
Expiration of
Term for Which
Nominated
Board Committees
Audit
Comp.
Nom. &
Gov.
Independent
II
II
II
64
61
59
2013
2022
2025
CHAIR
Š
2013
2022
N/A
2011
2022
2025
Š
CHAIR
Name
Charles
Giancarlo
(Director
Nominee)
Ann Mather*
Daniel
Scheinman
(Director
Nominee)
* Ms. Mather’s term of office will expire at the Annual Meeting. We are grateful for Ms. Mather’s distinguished service and leadership on the board and its committees
throughout her tenure, including chairing the Audit Committee for over seven years.
12
2022 PROXY STATEMENT
The following table sets forth information, as of April 6, 2022, for each of the continuing members of our board of
directors:
Board of Directors and Corporate Governance
Continuing Directors
Name
Kelly Battles
Andreas
Bechtolsheim
Jayshree Ullal
Lewis Chew
Mark
Templeton
Nikos
Theodosopoulos
Class
Age
Director
Since
Current Term
Expires
I
I
I
III
III
III
55
66
61
59
69
59
2020
2004
2008
2021
2017
2014
2024
2024
2024
2023
2023
2023
Audit
Š
CHAIR
Š
Š
Board Committees
Comp.
Nom. &
Gov.
Independent
Š
Š
13
Board of Directors and Corporate Governance
Board Skill Matrix
The following table summarizes the key qualifications, skills and attributes of our director nominees and the continuing members of our
board of directors. A mark indicates a specific area of focus or expertise on which our board of directors particularly relies. Not having a
mark does not mean the director does not possess that qualification or skill. Our directors’ biographies describe each director’s
background and relevant experience in greater detail.
m
i
e
h
s
l
o
t
h
c
e
B
s
e
l
t
t
a
B
l
a
l
l
U
w
e
h
C
s
o
l
u
o
p
o
s
o
d
o
e
h
T
n
o
t
e
l
p
m
e
T
o
l
r
a
c
n
a
G
i
n
a
m
n
i
e
h
c
S
Industry Expertise
Insight in the cloud and software industry to oversee our business
and the risks we face.
Senior Leadership
Experience in senior leadership positions to analyze, advise and
oversee management in decision making, operations and policies.
Financial Knowledge and Expertise
Knowledge of financial markets, financing and accounting and
financial reporting processes.
Diverse Backgrounds
Diverse backgrounds and experiences that provide unique
perspectives and enhance decision-making.
Sales, Marketing and Brand Management
Sales, marketing and brand management experience to provide
expertise and guidance to grow sales and enhance our brand.
Global/International
Experience and knowledge of global operations, business conditions
and culture to advise and oversee our global business.
Governance, Risk Oversight and Compliance
Experience in public company corporate governance, risk oversight
and management, privacy, compliance, policy and creating long term
sustainable value.
Emerging Technologies and Business Models
Experience identifying and developing emerging technologies and
business models to advise, analyze and strategize regarding
emerging technologies, business models and potential acquisitions
disrupting our industry, business and company.
Human Capital Management
Experience attracting and retaining top talent to advise and oversee
our people and compensation policies.
Public Company Board
Experience to understand the dynamics and operation of a public
company and the applicable legal and regulatory landscape and risks.
14
2022 PROXY STATEMENT
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.
Board of Directors and Corporate Governance
NOMINEES FOR DIRECTOR
Charles Giancarlo
Age: 64
Director Since: 2013
Experience
Mr. Giancarlo has served as a member of our board of directors since April 2013. Mr. Giancarlo has been
chief executive officer and a member of the board of directors of Pure Storage, Inc., a data storage
solutions company, since August 2017, and Chairman of the board of directors of Pure Storage since
September 2018. 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 technology and networking
company, 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 November 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.
Committees:
Compensation
(Chair)
Nominating and
Corporate
Governance
Daniel Scheinman
Age: 59
Director Since: 2011
Experience
Mr. Scheinman has served as a member of our board of directors since October 2011. Since April 2011,
Mr. Scheinman has been an angel investor. 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 has served as a member of the board of directors of Zoom Video Communications,
Inc., a cloud-based video communications company, since October 2011, where he is lead director, chair
of the audit committee and a member of the compensation committee and SentinelOne, Inc., an
autonomous AI endpoint security platform since September 2015, where he is lead independent director,
chair of the nominating and corporate governance committee and a member of the compensation
committee. He also currently serves on the board of directors of several private companies. 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.
15
Committees:
Compensation
Nominating and
Corporate
Governance (Chair)
Lead independent
director
Board of Directors and Corporate Governance
CONTINUING DIRECTORS
Kelly Battles
Age: 55
Director Since: 2020
Committees:
Audit
Experience
Ms. Battles has served as a member of our board of directors since July 2020. Ms. Battles has over 30
years of finance, strategy and operational leadership experience. From July 2020 to January 2022,
Ms. Battles served as chief financial officer of Alpha Medical Group, a telemedicine provider, where she has
served as a member of the board of directors since January 2022. From November 2016 to March 2020,
Ms. Battles served as chief financial officer of Quora, a knowledge platform. Ms. Battles also previously
served as chief financial officer of Bracket Computing, a cloud computing company, and Host Analytics,
Inc., a cloud-based enterprise performance management solutions company. She served as vice president
of finance of IronPort Systems, director of strategy and corporate development group of Hewlett-Packard
Company, and as an associate at both McKinsey and Company and JPMorgan Chase and Company
earlier in her career. Ms. Battles currently serves as an independent board member and audit committee
chair of DataStax, Inc., Genesys Cloud Services, Inc., Clari, Inc. and Plex, Inc. 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: 66
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.
16
2022 PROXY STATEMENT
Jayshree Ullal
Age: 61
Director Since: 2008
Board of Directors and Corporate Governance
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.
Committees:
N/A
Lewis Chew
Age: 59
Director Since: 2021
Committees:
Audit (Chair)
Experience
Mr. Chew has served as a member of our board of directors since July 2021. From June 2012 to October
2021, Mr. Chew served as executive vice president and chief financial officer of Dolby Laboratories, Inc., an
audio, voice and imaging technology company. From 2001 to 2011, Mr. Chew served as senior vice
president and chief financial officer of National Semiconductor Corporation, a designer and manufacturer of
semiconductor components. Prior to joining National Semiconductor Corporation, Mr. Chew was a partner
at KPMG LLP, an accounting firm. Since March 2020, Mr. Chew has served on the board of directors of
Cadence Design Systems, Inc., a multinational computational software company, where he is chair of the
audit committee. From 2009 to 2019, Mr. Chew served as a director of PG&E Corporation, an energy-
based holding company, where he served as chair of both the public policy committee and the audit
committee. Mr. Chew holds a B.S. degree in Accounting from the Leavey School of Business at Santa
Clara University.
Qualifications
We believe Mr. Chew possesses specific attributes that qualify him to serve as a member of our board of
directors, including his extensive experience as a senior executive of large technology companies and as a
board member of two large public companies.
17
Board of Directors and Corporate Governance
Mark B. Templeton
Age: 69
Director Since: 2017
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 and a member of the board of directors 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 February 2008 to November 2018 and
Keysight Technologies, Inc. from November 2015 to July 2018. 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.
Committees:
Audit
Compensation
Nikos Theodosopoulos
Age: 59
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 an independent director, advisor, and consultant to the
technology industry through his advisory firm NT Advisors LLC. He has worked with numerous companies
ranging from startups, private equity funds and publicly traded companies in the areas of strategy, M&A,
and investor positioning. 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
September 1985 to April 1994, Mr. Theodosopoulos served in various capacities at AT&T Bell Laboratories
and AT&T Network Systems, a provider of 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. Mr. Theodosopoulos has served on the board of directors of
Harmonic, Inc., a provider of video delivery infrastructure for emerging television and video services since
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.
18
2022 PROXY STATEMENT
Board of Directors and Corporate Governance
Key Elements of Board Independence at Arista
Our board of directors’ independence enables it to be objective and critical in carrying out its oversight responsibilities.
Our 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:
• 7/9 of the directors are independent: We are
• Lead independent director: Our lead
committed to maintaining a substantial majority of
directors who are independent of the Company and
management. Except for our employee directors, all
directors 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.
independent 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.
Board Leadership Structure
We believe that the structure of our board of directors and its committees provides strong overall management of our
Company and supports the risk oversight function of the board. 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 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.
19
Board of Directors and Corporate Governance
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 independent directors when
• ensuring that the board of directors fulfills its
necessary 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 Evaluation Process
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.
Our board of directors seeks to operate with the highest degree of effectiveness, supporting a dynamic boardroom culture of
independent thought and intelligent debate on critical matters. The Nominating and Corporate Governance Committee
oversees this process, which is led by the chair of the committee. Our board and committee evaluation process allows for
annual assessment of our board practices and the opportunity to identify areas for improvement.
The annual assessment includes an evaluation of:
• Board structure and composition
• Board culture and relationship with management
• Information received by the board
• Quality of board meetings, board responsibilities and performance
• Current topics
20
2022 PROXY STATEMENT
The following is an overview of the board evaluation process.
Evaluation process discussed at Nominating and
Corporate Governance Committee meeting
Each board member assesses performance and effectiveness of
the board, and as applicable, the committees
Board members meet one-on-one with outside counsel to
discuss their assessments and to provide feedback
Outside counsel shares feedback received with the General Counsel,
Nominating and Corporate Governance Committee and the full board
The full board reviews and develops plans to take actions
based on the results, as appropriate
Board of Directors and Corporate Governance
How results are used:
by the board, to identify skills or expertise
that may be used as criteria when the board
considers new board candidates
by the board, to identify strengths and
areas of opportunity of each board member
and to provide insight into how each
board member can be most valuable to Arista
by the board, to improve their agenda topics
so that the information they receive enables
them to effectively address the issues
they consider most critical
by the Nominating and Corporate Governance
Committee, as part of its annual review of
each director's performance when considering
whether to nominate the director
for re-election to the board
Board Meetings and Committees
During our fiscal year ended December 31, 2021, 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 2021 annual meeting.
Number of board and committee meetings held in 2021
Audit Committee
4
Nominating and Corporate
Governance Committee
4
5
Board of Directors
17
meetings
4
Compensation
Committee
21
Board of Directors and Corporate Governance
Our board of directors has three standing 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
Lewis Chew (since November 2021)
Ann Mather (until November 2021)
Members
Kelly Battles
Mark Templeton
Nikos Theodosopoulos
Independence/Qualifications:
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
• All committee members are independent under the
• Serving as the Qualified Legal Compliance
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
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
22
2022 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 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
23
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 and
ethnicity composition requirements in accordance with 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
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)
3 new director
nominees in the last
five years
Mr. Chew, who was appointed to the board by our other directors in July 2021, was initially suggested to the Nominating and
Corporate Governance Committee of the board for consideration as a potential director by a third party search firm retained by the
Company to assist in identifying and evaluating potential director nominees for board membership.
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 the minimum amount in
market value of the Company’s securities entitled to vote on the election of directors as set forth in applicable SEC rules and regulations 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, including SEC rules and regulations. 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.
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 2023 annual meeting of stockholders, our General Counsel or Legal
Department must receive the nomination no earlier than February 4, 2023 and no later than March 6, 2023.
24
2022 PROXY STATEMENT
Stockholder Outreach
We believe that effective corporate governance should include regular, constructive conversations with our stockholders. Over the past
year, our board of directors engaged with stockholders, including seeking and encouraging feedback from stockholders about our
corporate governance practices by conducting stockholder outreach and engagement throughout the year.
Board of Directors and Corporate Governance
Who
Participates
•
•
•
Lead independent director
Senior management
Investor relations
How We
Engage
Other Ways
We Engage
•
•
One-on-one and group meetings in-person and virtually
Written and electronic communications
•
•
•
•
Quarterly earnings calls
Industry presentations and conferences
Company-hosted events and presentations
Securities analyst meetings
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 of directors by the Audit Committee.
25
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
• Confirms 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
26
2022 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 of each of our non-employee directors in 2021. 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
Lewis Chew(3)
Charles Giancarlo
Ann Mather
Daniel Scheinman
Mark Templeton
Nikos Theodosopoulos
Fees Earned
or Paid in
Cash ($)(1)
Stock
Awards ($)(2)
Option
Awards ($)
85,000
42,500
97,000
100,000
142,000
95,000
95,000
232,400
222,704
—
—
—
232,400
232,400
—
—
—
—
—
—
—
Total ($)
317,400
265,204
97,000
100,000
142,000
327,400
327,400
(1) The amounts reported represent the fees earned for service on our board of directors and committees of our board of directors for 2021.
(2)
In accordance with SEC rules, the amounts shown reflect the aggregate grant date fair value of restricted stock units granted to non-employee directors during 2021,
computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC 718”). The grant date fair value for
restricted stock units is measured based on the closing price of Arista’s common stock on the date of grant. Mr. Chew received an award of 2,460 restricted stock units
on July 19, 2021, the effective date of his appointment to the board. Each of Ms. Battles and Messrs. Templeton and Theodosopoulos received an award of 2,776
restricted stock units on June 1, 2021. The number of shares subject to each of these restricted stock unit awards has been adjusted to reflect our four-for-one stock
split that was effective November 11, 2021.
(3) Mr. Chew was appointed to our board of directors and the Audit Committee on July 19, 2021. The amounts reported represent the pro-rated cash retainer and equity
grant earned for a partial year of service on our board of directors and the Audit Committee.
27
Board of Directors and Corporate Governance
The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2021.
Director
Kelly Battles
Lewis Chew
Charles Giancarlo
Ann Mather
Daniel Scheinman
Mark Templeton
Nikos Theodosopoulos
Stock
Awards (#)(1)(2)
Option
Awards (#)(2)
1,388
1,228
1,756
1,756
1,756
1,388
1,388
—
—
—
1,668
—
—
—
(1) Represents the number of restricted stock units unvested as of December 31, 2021.
(2) The stock and option awards have been adjusted to reflect our four-for-one stock split that was effective November 11, 2021.
With respect to 2021 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 non-chair 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 non-employee 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, the annual equity grants began upon their election at the 2020 annual meeting; for our Class I non-employee directors, the
annual equity grants began upon their election at the 2021 annual meeting; and for our Class II non-employee directors, the annual
equity grants will begin upon their election at the Annual Meeting.
STOCK OWNERSHIP GUIDELINES
In April 2019, our board of directors adopted stock ownership guidelines that 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.
28
2022 PROXY STATEMENT
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our board of directors is currently composed of nine members. However, our board of directors has resolved that the authorized
number of directors will be decreased from nine to eight effective at the Annual Meeting in light of Ms. Mather’s term of office as a
Class II director ending at the Annual Meeting. We are grateful for Ms. Mather’s distinguished service and leadership on the board and
its committees throughout her tenure, including chairing the Audit Committee for over seven years.
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, two Class II 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, Charles
Giancarlo and Daniel Scheinman, as nominees for election as Class II directors at the Annual Meeting. If elected, each of Charles
Giancarlo and Daniel Scheinman will serve as Class II directors until the 2025 annual meeting of stockholders and until their successors
are duly elected and qualified. Each of the nominees is currently a director of our Company.
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 election of:
• Charles Giancarlo
• Daniel Scheinman
Charles Giancarlo and Daniel Scheinman 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.
29
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, as amended (the “Exchange Act”). 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 39 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.
30
2022 PROXY STATEMENT
PROPOSAL NO. 3
ADVISORY VOTE ON THE FREQUENCY
OF FUTURE ADVISORY VOTES ON
NAMED EXECUTIVE OFFICER
COMPENSATION
The Dodd-Frank Act and Section 14A of the Exchange Act also enable our stockholders to indicate their preference at least once every
six years regarding how frequently we should solicit a non-binding advisory vote on the compensation of our named executive officers
as disclosed in our proxy statement. Accordingly, we are asking our stockholders to indicate whether they would prefer an advisory
vote every one, two or three years. Alternatively, stockholders may abstain from casting a vote.
After considering the benefits and consequences of each alternative, our board of directors recommends that the advisory vote on the
compensation of our named executive officers be submitted to the stockholders each year. In formulating its recommendation, our
board of directors considered that, while our compensation strategies are related to both short-term and longer-term business
outcomes, compensation decisions are made annually and an annual advisory vote on executive compensation will allow stockholders
to provide more frequent feedback on our compensation philosophy, policies and practices. We understand that our stockholders may
have different views as to what is the best approach for the company, and we look forward to hearing from our stockholders on this
proposal.
While our board of directors believes that its recommendation is appropriate at this time, the stockholders are not voting to approve or
disapprove that recommendation, but are instead asked to indicate their preference, on an advisory basis, as to whether the
non-binding advisory vote on the approval of our named executive officer compensation should be held every year, two years or three
years.
Our board of directors and our Compensation Committee value the opinions of our stockholders in this matter and, to the extent there
is any significant vote in favor of one time period over another, will take into account the outcome of this vote when making future
decisions regarding the frequency of holding future advisory votes on the compensation of our named executive officers. However,
because this is an advisory vote and therefore not binding on our board of directors or our company, our board of directors may decide
that it is in the best interests of our stockholders that we hold an advisory vote on the compensation of our named executive officers
more or less frequently than the option preferred by our stockholders. The results of the vote will not be construed to create or imply
any change or addition to the fiduciary duties of our board of directors.
Vote Required
The alternative among one year, two years or three years that receives the highest number of votes from the holders of shares of our
common stock present at the Annual Meeting (including by proxy) and entitled to vote thereon will be deemed to be the frequency
preferred by our stockholders. Abstentions and broker non-votes will have no effect on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO HOLD FUTURE
ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION EVERY
“ONE YEAR.”
31
PROPOSAL NO. 4
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, 2022. During our fiscal years ended December 31, 2021 and
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,
2022. 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, 2020 and 2021.
Audit Fees(1)
Audit-Related Fees(2)
Tax Compliance Fees(3)
Tax Advice and Planning Fees(4)
All Other Fees(5)
Total Fees
2020
2021
(in thousands)
$2,559
$2,748
—
1,042
577
—
—
842
469
—
$4,178
$4,059
(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, 2021, 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.
32
2022 PROXY STATEMENT
Proposal No. 4—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, 2020 and 2021 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.
33
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 statements
• received the written disclosures and the letter from EY
with management and EY;
• discussed with EY the matters required to be discussed
by the applicable requirements of the Public Company
Accounting Oversight Board and the SEC; and
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, 2021 for filing with the SEC.
Respectfully submitted by the members of the Audit Committee of the board of directors:
Lewis Chew (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.
34
2022 PROXY STATEMENT
EXECUTIVE OFFICERS
The following table identifies certain information about our executive officers as of April 6, 2022. Officers are appointed by our board of
directors to hold office until their successors are appointed. 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
61
66
55
50
62
45
53
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-
Continuing Directors.”
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, and a member of the board of directors of Planet Labs PBC, an Earth-imaging satellite company,
since June 2021, where she also serves as chair of the audit committee. 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.
35
Executive Officers
John McCool
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.
36
2022 PROXY STATEMENT
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, 2021
(our “Named Executive Officers”) is set forth in detail in the Fiscal 2021 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 2021:
• Jayshree Ullal, our President and Chief Executive Officer;
• Anshul Sadana, our Chief Operating Officer; and
• Ita Brennan, our Chief Financial Officer;
• Marc Taxay, our Senior Vice President, General 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 expanded performance-based equity
as a significant part of our compensation program for
our other Named Executive Officers as well.
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 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.
37
Executive Compensation
Overview
FISCAL 2021 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 2021, including:
Revenue
REVENUE
$2.95B FY2021
8K+
CUSTOMERS
Operating Income
$1.14B
FY2021 OPERATING INCOME
38.7%
OF REVENUE
Product Innovations
Revenue for our fiscal 2021 was $2.95 billion, representing an increase of 27.2% compared to
fiscal 2020, and 6.7% above our internal targets set at the beginning of the year. This
outperformance reflected strong sales to our enterprise and other cloud and service provider
customers throughout the year. In addition, we experienced healthy qualification and order
activity with our cloud titan customers in the second half of 2021 as we ramped production of
our next generation products. We exited the year with over 8,000 customers and continue to
add new customers and expand and diversify our market position.
Our non-GAAP operating income for fiscal 2021 was $1.14 billion or 38.7% of revenue,
representing a 30.3% increase compared to fiscal 2020 and 10.6% above our internal targets
set at the beginning of the year. This outperformance reflected the benefit of increased revenue
growth and careful expense management throughout the year. 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 2021 Bonus Plan (as defined below).
In 2021, Arista expanded the Arista EOS® network stack with the introduction of Network Data
Lake (NetDLTM) for data-driven cloud networking. Arista introduced a new zero trust security
framework, Multi-Domain Macro-Segmentation Service, a suite of capabilities for integrating
security policy with the network through open and consistent network segmentation. Arista
expanded its Cognitive Campus with the latest generation Wi-Fi 6E solution to meet enterprise
IoT and collaborative applications requirements. Arista expanded 400G for enterprise and cloud
customers with the next generation of the 7050X and 7060X Series; providing performance and
cost benefits for customers of all sizes as they transition to 400G networks.
38
2022 PROXY STATEMENT
Executive Compensation
FISCAL 2021 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 2021 Business Highlights” section above, our fiscal 2021 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 2021 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, in fiscal 2021 we achieved revenue of
approximately $2.95 billion representing an increase of
27.2% compared to fiscal 2020, and 6.7% above our
internal targets, combined with Operating Income of
$1.14 billion an increase of 30.3% from 2020 and 10.6%
above our internal targets.
In addition to this financial performance, we made
significant progress on our business diversification goals
with strong growth in our enterprise and provider
businesses. We demonstrated continued excellence in
product quality, innovation and support as demonstrated
by healthy new product qualification and order activity with
our cloud titan customers. Performance across all of these
metrics resulted in payments to our Named Executive
Officers under the 2021 Bonus Plan.
• Equity Awards Promoting Our Stockholders’
Interests—Long-term equity incentives constitute a
significant majority of compensation paid to Named
Executive Officers in 2021. Long-term equity incentives
align the interests of executives with those of our
stockholders.
• Equity Awards Subject to Achievement—
Performance-based equity was continued as an important
portion of our executive compensation program for our
Chief Executive Officer, and implemented for all of our
other Named Executive Officers.
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 2021 annual meeting of stockholders, approximately 90.4% of the votes cast approved the compensation program for
our Named Executive Officers as described in our 2021 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 extended the performance-based equity component of our executive compensation program in the form of
performance-based restricted stock units (“PRSUs”) that was implemented for only our Chief Executive Officer in 2020 to all of our
Named Executive Officers. 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.
39
Executive Compensation
The specific objectives of our executive compensation program are to:
• reward the successful achievement of our financial growth
• recognize strong performers by offering cash
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 2021 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 both PRSUs 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.
Additionally, equity awards for shares of our common stock serve as a key component of our executive compensation program. For
2021, we granted (i) PRSUs (which become eligible to vest only if the threshold performance is achieved) to all of our Named Executive
Officers and (ii) RSUs (which provide certain value to recipients and limit dilution to our stockholders) to our Named Executive Officers
other than our Chief Executive Officer. 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
and (ii) the performance-based equity grant to 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.
40
2022 PROXY STATEMENT
Executive Compensation
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.
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 2021, our Compensation Committee continued to engage AON, 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 2021. Our Compensation Committee provided AON 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 AON 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
AON to evaluate the following components to assist the Compensation Committee in establishing fiscal 2021 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.
AON does not provide any services to us other than the services provided to our Compensation Committee. Our Compensation
Committee has assessed the independence of AON 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 AON 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, AON provided
market data for the compensation peer group approved by our Compensation Committee.
Competitive Positioning
In fiscal 2021, 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); (iii) companies with market capitalization generally between $5 and
$35 billion (approximately 0.3x to 2x of our then-current market capitalization); and (iv) companies with positive revenue growth. As a
result, the following group was our executive compensation peer group for fiscal 2021 compensatory decisions made prior to July 19,
2021:
41
Executive Compensation
Executive Compensation Peer Group from July 20, 2020 to July 18, 2021
Akamai Technologies
Autodesk
Citrix Systems
Dropbox
F5
Fortinet
Juniper Networks
NetApp
Nutanix
Palo Alto Networks
ServiceNow
Splunk
Twitter
VMWare
Workday
With respect to fiscal 2021 executive compensation decisions made on and following July 19, 2021, 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); (iii) companies
with market capitalization generally between $8 and $52 billion (approximately 0.3x to 2x of our then-current market capitalization); and
(iv) companies with positive revenue growth, with a preference for companies at or above 10% revenue growth. As a result, the
following group was our executive compensation peer group for fiscal 2021 compensatory decisions made on and following July 19,
2021:
Executive Compensation Peer Group on and following July 19, 2021
Akamai Technologies
Autodesk
Citrix Systems
Dropbox
F5
Fortinet
Juniper Networks
NetApp
Nutanix
Palo Alto Networks
ServiceNow
Splunk
Twitter
VMWare
Workday
As a result of changes in our compensation peer group, we positioned at the 21st percentile in terms of revenue and the 53rd percentile
in terms of market capitalization.
AON 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 2021, 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 2021 and the grant-date fair values of the
equity awards granted to our Named Executive Officers in 2021, with each such value calculated in the same manner as set forth in our
Fiscal 2021 Summary Compensation Table below) represented by each material component of our executive compensation program
was as follows:
Base Salary
(5%)
Annual Cash
Incentive
Compensation
(4%)
Equity
Compensation
(91%)
Base Salary
Annual Cash Incentive Compensation
Equity Compensation
42
2022 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 2021.
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 2021, 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 2021 were as follows:
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Base Salary
through 2021
$300,000
$300,000
$300,000
$300,000
$300,000
Annual Cash Incentive Compensation; 2021 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 2021, our Compensation Committee set the terms and conditions of the Employee Incentive Plan for fiscal 2021 (the “2021
Bonus Plan”). The 2021 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 2021 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 2021 Bonus Plan provided for a single annual payout to each
participant following the end of fiscal 2021 after our Compensation Committee evaluated corporate and individual performance as
outlined above.
For purposes of our 2021 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 GAAP financial measure is set forth in
our quarterly and annual press release announcing our financial results for the fourth quarter and fiscal 2021.
Our Compensation Committee approved the following preliminary targets for the 2021 annual cash incentive compensation of our
Named Executive Officers (which provided each of our Named Executive Officers with target total cash compensation around or below
43
Executive Compensation
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 2021 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 2021, we achieved revenue of approximately $2.95 billion (an increase of 27.2% from 2020, and above our plan target by
6.7%). In addition, we achieved non-GAAP operating income of approximately $1.14 billion (an increase of 30.3% from 2020, and
above our plan target by 10.6%). Our Compensation Committee considered our overall achievement against these key metrics and
determined it was appropriate to fund the 2021 Bonus Plan at a level of 122% resulting in an increased bonus accrual of $10 million,
the accrual of which is included in the above financial results.
Following the funding of the 2021 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 significant progress against our
business diversification goals during the year with strong growth in our enterprise and provider businesses. We also demonstrated
continued excellence in product quality, innovation and support as demonstrated by healthy new product qualification and order activity
with our cloud titan customers in the second half of 2021.
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 around or below the 25th percentile of compensation of our peer group,
the total payouts to our Named Executive Officers under the 2021 Bonus Plan were made as set forth below.
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Equity Compensation
Actual Incentive
Compensation
$300,000
$250,000
$225,000
$400,000
$220,000
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 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 AON, 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.
44
2022 PROXY STATEMENT
Executive Compensation
In fiscal years prior to 2020, we provided equity compensation to our Named Executive Officers in a mix of options and RSUs. In fiscal
2020, we provided equity compensation to our Chief Executive Officer in PRSUs only, and to our Named Executive Officers other than
our Chief Executive Officer in RSUs only.
For fiscal 2021, our Compensation Committee again provided equity compensation to our Chief Executive Officer in PRSUs only, but
provided a mix of PRSUs and RSUs to our Named Executive Officers other than our Chief Executive Officer. Our Compensation
Committee determined that this program would best incentivize our Named Executive Officers to drive stockholder value creation, while
also satisfying the need to deliver certain value to our Named Executive Officers other than our Chief Executive Officer. The mix
between PRSUs and RSUs was approximately 40% PRSUs and 60% RSUs, which our Compensation Committee determined were
proportions that provide appropriate incentives to retain and motivate our Named Executive Officers other than our Chief Executive
Officer and help to achieve success in our business. In determining the size of awards to our Named Executive Officers, 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.
2021 Performance-Based Awards Grant and Achievement
In February 2021, we granted performance-based awards of PRSUs to our Named Executive Officers to incentivize our Named
Executive Officers and drive stockholder value creation. The table below describes the PRSUs granted to our Named Executive Officers
(as adjusted to reflect our four-for-one stock split that was effective November 11, 2021). 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
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Target Number of
PRSUs
Intended
Value
200,000
$14,900,000
13,080
$ 1,000,000
9,160
$
700,000
22,840
$ 1,750,000
9,160
$
700,000
The metrics, targets, and actual performance and resulting payout for our Named Executive Officers’ fiscal 2021 PRSUs are shown in
the following table:
Performance Period: January 1, 2021 – December 31, 2021
Metrics
Revenue
Non-GAAP Operating Income
Weight
Performance Range
Payout
Results
Minimum:
50% Target:
Maximum:
Minimum:
50% Target:
Maximum:
$ 2.6 billion
$2.76 billion
$ 3.0 billion
$900 million
$ 1.0 billion
$ 1.1 billion
50%
100% $2.95 billion
200%
50%
100% $1.14 billion
200%
The number of PRSUs determined based on actual achievement as described above became eligible to vest upon determination of
achievement. In the case of our Chief Executive Officer, 25% of PRSUs that became eligible to vest vested 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. In the case of our other Named Executive Officers,
33% of the PRSUs that became eligible to vest vested 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 2 years.
45
Executive Compensation
For fiscal 2021, our revenue was $2.95 billion, above the target goal but below the maximum goal. Our non-GAAP operating income
was $1.14 billion, above the maximum goal. As a result of this achievement, PRSUs became eligible to vest as follows:
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
2021 Time-Based Awards Grant
Number of PRSUs Eligible to Vest
Non-GAAP
Operating
Income
PRSUs
Revenue PRSUs
178,400
200,000
11,667
8,170
20,373
8,170
13,080
9,160
22,840
9,160
In February 2021, we also granted RSUs to our Named Executive Officers other than our Chief Executive Officer. To promote retention,
the awards vest in equal quarterly installments over a period of approximately 4 years beginning February 2022.
The numbers of shares of our common stock covered by each RSU award granted to our Named Executive Officers in 2021 were as
set forth in the chart below (as adjusted to reflect our four-for-one stock split that was effective November 11, 2021). 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
Kenneth Duda
Anshul Sadana
Marc Taxay
RSUs
Intended Value
29,360
$2,250,000
22,840
$1,750,000
52,200
$4,000,000
20,880
$1,600,000
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 2021, 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.
46
2022 PROXY STATEMENT
Executive Compensation
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.
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 or 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 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.
47
Executive Compensation
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
$180,000. Mr. Taxay is also eligible to participate in all of our standard health, vacation and other benefits offered to our
employees.
In addition, we entered into a severance agreement with Mr. Taxay, effective March 2015. The severance agreement provides that
if Mr. Taxay’s employment is involuntarily terminated other than for “cause” (as generally defined below) or if Mr. Taxay resigns for
“good reason” (as generally defined below) then, subject to his execution of a release of claims, Mr. Taxay will receive continuing
payments of his base salary for 12 months and accelerated vesting of time-based equity awards that would have vested had
Mr. Taxay remained employed with us for 12 months following his termination of employment date. If the qualified termination of
employment occurred during the period beginning on, and for 12 months following a change in control, then the equity
acceleration benefit would be 50% of the then-unvested equity awards, if greater than the acceleration benefit described in the
previous sentence.
For purposes of the severance agreement with Mr. Taxay, “cause” and “good reason” have the same general meanings as set forth in
Ms. Brennan’s severance agreement.
Fiscal 2021 Summary Compensation Table
The following table provides information regarding the total compensation for services rendered in all capacities that was earned by our
Named Executive Officers.
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Salary
($)
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
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
48
Bonus
($)
—
—
—
—
—
—
—
5,800
5,800
Stock
Awards
($)(1)
15,384,500
6,033,690
Option
Awards
($)(1)
—
—
— 1,075,639
3,379,242
3,169,865
—
—
1,651,375
537,820
2,550,710
2,323,987
—
—
1,849,540 1,075,639
600(3)
5,976,105
5,282,382
—
—
—
—
—
—
—
5,284,400 1,738,477
2,392,288
2,219,342
—
—
1,651,375
537,820
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
300,000
9,132(2)
15,993,632
—
—
250,000
140,000
150,000
225,000
125,000
160,000
400,000
160,000
220,000
220,000
140,000
150,000
9,282
8,532
6,342,972
1,384,171
9,132(2)
3,938,374
9,282
8,532
3,619,147
2,647,727
9,132(2)
3,084,842
9,282
8,532
2,764,069
3,399,511
9,132(2)
6,685,837
9,282
8,532
5,751,664
7,551,409
6,905(2)
2,919,193
2,809
8,532
2,662,151
2,647,727
2022 PROXY STATEMENT
Executive Compensation
(1) The amounts reported include the aggregate grant-date fair value of 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 these awards are set forth in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K, as filed
with the SEC on February 15, 2022. For performance-based restricted stock units, the amount reported represents the grant-date fair value based upon the probable
outcome of the performance conditions for such awards, consistent with the estimate of aggregate compensation cost to be recognized over the service period
determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. If maximum performance were deemed achieved for the
performance-based restricted stock unit awards in fiscal 2021, the grant-date fair value of such awards would be $30,769,000 for Ms. Ullal, $2,012,293 for Ms.
Brennan, $1,409,220 for Mr. Duda, $3,513,820 for Mr. Sadana, and $1,409,220 for Mr. Taxay. Based on actual achievement for fiscal 2021, 189.2% of the 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 $29,107,474 for Ms. Ullal, $1,903,629 for Ms. Brennan, $1,333,122 for Mr. Duda, $3,324,074 for Mr. Sadana, and $1,333,122 for Mr. Taxay.
(2) The amounts reported for fiscal 2021 include matching contributions from the Company for the contributions made to the 401(k) plan by the Named Executive Officer
and a life insurance premium paid on the Named Executive Officer’s behalf.
(3) The amount reported for fiscal 2021 represents a patent bonus award paid by the Company to Mr. Sadana.
Outstanding Equity Awards at 2021 Fiscal Year-End
The following table sets forth information regarding outstanding stock options and stock awards held by our Named Executive Officers
as of December 31, 2021.
Option Awards
Stock Awards
Name
Jayshree Ullal
Ita Brennan
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(1)
5,332
26,668
27,500
—
2,668
3,332
—
—
4,864
20,736
—
—
7,916
2,708
—
5,416
—
—
—
—
—
5.6225
1/12/2024
—
11,000
—
19,332
29,168
—
—
14.06
23.8775
—
61.05
56.585
—
—
2/11/2026
2/5/2027
—
4/12/2028
2/7/2029
—
—
—
16.115
9/10/2025
4,000
—
—
12,084
7,292
—
14,584
—
—
—
—
14,06
—
—
61.05
61.1075
—
56.585
—
—
—
—
2/11/2026
—
—
4/12/2028
11/8/2028
—
2/7/2029
—
—
—
—
—
—
—
25,000
—
—
9,392
200,000
—
—
9,600
6,248
—
—
9,624
—
17,188
47,256
13,080
29,360
Grant
Date
1/13/2014(3)
2/12/2016(4)
2/6/2017(5)
3/9/2018(6)
4/13/2018(7)
2/8/2019(8)
2/14/2020(9)
2/12/2021(10)
9/11/2015(3)
2/12/2016(11)
3/10/2017(12)
3/9/2018(6)
4/13/2018(7)
11/9/2018(8)
11/9/2018(13)
2/8/2019(8)
5/10/2019(13)
5/8/2020(14)
2/12/2021(15)
2/12/2021(16)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)(2)
—
—
—
3,593,750
—
—
1,350,100
28,750,000
—
—
1,380,000
898,150
—
—
1,383,450
—
2,470,775
6,793,050
1,880,250
4,220,500
49
Executive Compensation
Name
Kenneth Duda
Anshul Sadana
Marc Taxay
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Grant
Date
3/11/2013(17)
80,000
1/13/2014(3)
80,000
2/11/2014(18)(21) 400,000
200,000
80,000
95,000
—
—
12,668
3,252
—
10,832
—
—
—
—
12/16/2014(3)
9/11/2015(3)
2/12/2016(11)
3/10/2017(12)
3/9/2018(6)
4/13/2018(7)
11/9/2018(8)
11/9/2018(13)
2/8/2019(8)
5/10/2019(13)
5/8/2020(14)
2/12/2021(15)
2/12/2021(16)
2/11/2014(18)(22)
80,000
2/12/2016(11)
3/10/2017(12)
3/9/2018(6)
4/13/2018(7)
11/9/2018(8)
11/9/2018(13)
2/8/2019(8)
5/10/2019(19)
5/10/2019(20)
5/10/2019(13)
5/8/2020(14)
2/12/2021(15)
2/12/2021(16)
2/12/2016(11)
3/10/2017(12)
3/9/2018(6)
4/13/2018(7)
11/9/2018(8)
11/9/2018(13)
2/8/2019(8)
5/10/2019(13)
5/8/2020(14)
2/12/2021(15)
2/12/2021(16)
—
—
—
4
—
—
168
—
—
—
—
—
—
—
—
7,916
2,708
—
5,416
—
—
—
—
—
—
80,000
5,000
—
—
19,332
8,748
—
29,168
—
—
—
—
80,000
5,000
—
—
19,332
11,668
—
40,832
2,832
—
—
—
—
—
2,000
—
—
12,084
7,292
—
14,584
—
—
—
—
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(1)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)(2)
—
—
—
—
—
—
16,000
7,500
—
—
13,748
—
19,248
34,644
9,160
22,840
—
—
16,000
8,748
—
—
16,500
—
—
21,600
22,000
78,748
22,840
52,200
—
9,600
6,248
—
—
9,624
—
17,188
33,084
9,160
20,880
—
—
—
—
—
—
2,300,000
1,078,125
—
—
1,976,275
—
2,766,900
4,980,075
1,316,750
3,283,250
—
—
2,300,000
1,257,525
—
—
2,371,875
—
—
3,105,000
3,162,500
11,320,025
3,283,250
7,503,750
—
1,380,000
898,150
—
—
1,383,450
—
2,470,775
4,755,825
1,316,750
3,001,500
Option
Exercise
Price
($)
Option
Expiration
Date
1.94
3/10/2023
5.6225
7.6675
17.085
16.115
14.06
—
—
61.05
61.1075
—
56.585
—
—
—
—
1/12/2024
2/10/2024
12/15/2024
9/10/2025
2/11/2026
—
—
4/12/2028
11/8/2028
—
2/7/2029
—
—
—
—
7.6675
2/10/2024
14.06
—
—
61.05
61.1075
—
56,585
66.055
—
—
—
—
—
2/11/2026
—
—
4/12/2028
11/8/2028
—
2/7/2029
5/9/2029
—
—
—
—
—
14.06
2/11/2026
—
—
61.05
61.1075
—
56.585
—
—
—
—
—
—
4/12/2028
11/8/2028
—
2/7/2029
—
—
—
—
50
2022 PROXY STATEMENT
Executive Compensation
(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, 2021. 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, 2021, based
on the closing price of our common stock, as reported on the New York Stock Exchange, of $143.75 per share on December 31, 2021, the last trading day of our fiscal
2021.
(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 1/16th of the shares each quarter from May 20, 2019.
(7) This option vests with respect to 1/48th of the shares each month from June 1, 2020.
(8) This option vests with respect to 1/48th of the shares each month from December 1, 2020.
(9) This performance stock award was granted in February 2020 and was earned based on attainment of certain performance conditions. The shares earned vested 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.
(10) This performance stock award was granted in February 2021 and is earned based on attainment of certain performance conditions. The number of shares in the table
reflects the shares available at target (100%). Maximum payout is 200%. Shares earned will vest 25% on February 20, 2022, 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 1/60th of the shares each month from April 1, 2017.
(12) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from February 20, 2018.
(13) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from November 20, 2020.
(14) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from May 20, 2021.
(15) This performance stock award was granted in February 2021 and is earned based on attainment of certain performance conditions. The number of shares in the table
reflects the shares available at target (100%). Maximum payout is 200%. Shares earned will vest 1/3 on February 20, 2022, and will continue to vest at a rate of 1/12
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.
(16) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from February 20, 2022.
(17) 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.
(18) 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.
(19) This option vests with respect to 1/48th of the shares each month from June 10, 2019.
(20) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from May 20, 2019.
(21) The option is subject to an early exercise provision and was immediately exercisable at the time of grant. At the end of 2021, 80,000 shares of the exercisable shares
were unvested.
(22) The option is subject to an early exercise provision and was immediately exercisable at the time of grant. At the end of 2021, 80,000 shares of the exercisable shares
were unvested.
51
Executive Compensation
Fiscal 2021 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, 2021. No option awards were granted to our Named Executive Officers during our fiscal year
ended December 31, 2021,
Named Executive Officer
Grant Date
Estimated
Future
Payouts
Under
Non-Equity
Incentive
Plan Awards
(Target)($)(1)
Estimated Future Payouts Under
Equity Incentive Plan Awards
(Target)($)(1)
Threshold
Target
Maximum
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(2)
Grant
Date Fair
Value of
Stock
Awards
($)(3)
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
—
300,000
—
—
—
—
—
2/12/2021
—
100,000
200,000
400,000
— 15,384,500
—
180,000
—
—
—
—
—
2/12/2021
—
6,540
13,080
26,160
29,360
3,379,242
—
180,000
—
—
—
—
2/12/2021
—
4,580
9,160
18,320
22,840
2,550,710
—
180,000
—
—
—
—
—
2/12/2021
—
11,420
22,840
45,680
52,200
5,976,105
—
180,000
—
—
—
—
—
2/12/2021
—
4,580
9,160
18,320
20,880
2,392,288
(1) Our 2021 Bonus Plan does not have thresholds or maximums. However, bonuses would not be paid under our 2021 Bonus Plan if achievement of the revenue metric
was below 85% of target. Each Named Executive Officer has the following target annual bonus under the 2021 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. 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 2021 Bonus Plan, our Compensation Committee
looks at the performance for the year across the key metrics discussed above in the “Compensation Discussion and Analysis” section and factors in individual
performance and market comparable compensation in our peer group in determining a total incentive paid to each Named Executive Officer.
(2) The RSU and PRSU awards were made under the 2014 Equity Incentive Plan.
(3) Represents the grant date fair value of each equity award granted in fiscal 2021, calculated in accordance with ASC Topic 718. Amounts reported for PRSUs are based
upon the probable outcome of the performance conditions, consistent with the estimate of aggregate compensation cost to be recognized over the service period
determined as of the grant date under FASB ASC Topic 718, excluding the effects of estimated forfeitures. If maximum performance were deemed achieved for the
PRSU awards in fiscal 2021, the grant-date fair value of such awards would be $30,769,000 for Ms. Ullal, $2,012,293 for Ms. Brennan, $1,409,220 for Mr. Duda,
$3,513,820 for Mr. Sadana, and $1,409,220 for Mr. Taxay.
52
2022 PROXY STATEMENT
Fiscal 2021 Option Exercises and Stock Vested
The following table presents information regarding the exercise of stock options and the vesting of stock awards by our Named
Executive Officers during our fiscal year ended December 31, 2021.
Executive Compensation
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise
(#)
118,928
110,400
Value Realized
on Exercise
($)(1)
6,846,926
9,257,927
Number of
Shares
Acquired on
Vesting
(#)
Value
Realized
on Vesting
($)(2)
60,320
5,627,946
35,252
3,405,866
480,000
43,314,700
41,996
4,022,035
219,036
15,236,364
76,772
7,377,702
28,000
1,950,525
34,384
3,249,413
(1) Based on the market price of our common stock on the date of exercise less the option exercise price paid for those shares, multiplied by the number of shares for
which the option was exercised.
(2) Based on the market price of our common stock on the vesting date or last trading date, multiplied by the number of shares vested.
Pension Benefits
We did not sponsor any defined benefit pension or other actuarial plan for our Named Executive Officers during fiscal 2021.
Nonqualified Deferred Compensation
We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for our Named
Executive Officers during fiscal 2021.
Potential Payments Upon Termination or Change in Control
The tables below provide an estimate of the value of the compensation and benefits due to each of our Named Executive Officers for
our fiscal year ended December 31, 2021, in the events described below, assuming that the termination of employment and change in
control was effective on December 31, 2021, under the applicable employment agreements described above. The actual amounts to
be paid can only be determined at the time of the termination of employment.
53
Executive Compensation
TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL
Named Executive Officer
Ita Brennan
Marc Taxay
Value of Accelerated Equity
Awards ($)(1)
Salary
Continuation
($)
300,000
300,000
Restricted
Stock Units
Options
Total ($)
7,741,800
1,574,691
9,316,491
6,482,550
1,315,311
7,797,861
(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, 2021, that would become vested by (ii) the difference
between $143.75 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2021) 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, 2021, that would become vested by (ii) $143.75 (the closing market price of our
common stock on the New York Stock Exchange on December 31, 2021).
TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
Named Executive Officer
Ita Brennan
Marc Taxay
Value of Accelerated Equity
Awards ($)(1)
Salary
Continuation
($)
300,000
300,000
Restricted
Stock Units
Options
Total ($)
10,628,588
1,955,355
12,583,943
8,672,725
1,695,975
10,368,700
(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, 2021, that would become vested by (ii) the difference
between $143.75 (the closing market price of our common stock on the New York Stock Exchange on December 31, 2021) 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, 2021, that would become vested by (ii) $143.75 (the closing market price of our common stock on the New York Stock
Exchange on December 31, 2021).
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 performance
factors and allows our Compensation Committee to review
performance on a holistic basis minimizing risk related to our
short-term variable compensation; and
Other Compensation Policies
• Our equity awards include multi-year vesting schedules
requiring a long-term employee commitment.
Stock Ownership Guidelines. In April 2019, our board of directors adopted stock ownership guidelines that 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 was appointed to such role, an investment level in our common stock of three times the Chief Executive Officer’s annual base
salary.
54
2022 PROXY STATEMENT
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 above, 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.
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 2021, 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
$190,816; and
• the annual total compensation of our Chief Executive Officer,
as reported in the Fiscal 2021 Summary Compensation Table
presented elsewhere in this proxy statement, was
$15,993,632.
55
Executive Compensation
Based on this information, for 2021, 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 84 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 2021 Summary Compensation Table.
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, 2021 as the date upon which we
o Amounts paid in foreign currency were converted into
would identify the median employee.
United States dollars using 2021 average exchange rates.
• 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 2021
as of the determination date, and grant date fair value of
equity awards granted in 2021.
o We did not apply any de minimis exclusions to remove
certain employees in non-U.S. jurisdictions allowed by
Item 402(u).
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 2021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total
compensation of $190,816.
With respect to the annual total compensation for our Chief Executive Officer, we used the amount reported in the “Total” column of our
Fiscal 2021 Summary Compensation Table.
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
56
2022 PROXY STATEMENT
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information as of December 31, 2021. 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.
Executive Compensation
(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))
16,500,049(1)
$12.2585(2)
89,541,545(3)
—
16,500,049
—
$12.2585
—
89,541,545
Plan Category
Equity compensation plans approved by
stockholders
Equity compensation plans not approved
by stockholders
Total
(1)
Includes 8,684,970 shares underlying stock options and 7,815,079 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”) 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, 2022, the number of shares available for issuance under
our 2014 Plan increased by 9,230,434 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, 2022, the
number of shares available for issuance under our ESPP increased by 3,076,811 shares pursuant to these provisions. These increases are not reflected in the table
above.
57
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 6, 2022 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 308,204,050 shares of our common stock
outstanding as of April 6, 2022. We have deemed shares of our common stock subject to stock options that are currently
exercisable or exercisable within 60 days of April 6, 2022 and RSUs that vest within 60 days of April 6, 2022, 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)
BlackRock, Inc.(3)
Named Executive Officers and Directors:
Jayshree Ullal(4)
Ita Brennan(5)
Kenneth Duda(6)
Anshul Sadana(7)
Marc Taxay(8)
Kelly Battles(9)
Andreas Bechtolsheim(1)(10)
Lewis Chew(11)
Charles Giancarlo(12)
Ann Mather(13)
Daniel Scheinman(14)
Mark Templeton(15)
Nikos Theodosopoulos(16)
All executive officers and directors as a group (14 persons)(17)
Number of
Shares
Beneficially
Owned
Percentage of
Shares
Beneficially
Owned
46,920,000
24,915,335
17,330,539
10,706,262
87,460
2,364,728
130,645
13,473
2,772
47,021,347
2,460
176,118
5,768
39,200
27,920
23,960
60,619,398
15.22%
8.08%
5.62%
3.47%
*
*
*
*
*
15.26%
*
*
*
*
*
*
19.59%
*
Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.
58
2022 PROXY STATEMENT
Security Ownership of Certain Beneficial Owners and Management
(1)
Includes 46,920,000 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 9, 2022 by The Vanguard Group (“Vanguard”) reporting beneficial ownership as of December 31,
2021. Vanguard reported sole voting power with respect to 0 shares and shared voting power with respect to 386,794 shares. Vanguard reported sole dispositive power
with respect to 23,964,049 shares and shared dispositive power with respect to 951,286 shares. The address for Vanguard is 100 Vanguard Boulevard, Malvern,
Pennsylvania 19355.
(3) Based solely upon a Schedule 13G filed with the SEC on February 7, 2022 by BlackRock, Inc. (“BlackRock”) reporting beneficial ownership as of December 31, 2021
BlackRock reported sole voting power with respect to 15,005,336 shares and sole dispositive power with respect to 17,330,539 shares. The address for BlackRock is
55 East 52nd Street, New York, New York 10055.
(4)
(5)
(6)
(7)
(8)
Includes 6,931,992 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 3,590,400 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 68,669 shares held directly by Ms. Ullal. Includes 115,201 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or the exercise
of outstanding exercisable options held by Ms. Ullal.
Includes 50,706 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by
Ms. Brennan.
Includes 174,386 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 373,056 shares held in
grantor retained annuity trusts of which Mr. Duda is Trustee; 373,056 shares held in grantor retained annuity trusts of which Mr. Duda’s spouse is Trustee; 264,462
shares held in trusts for Mr. Duda’s children for which trusts Mr. Duda serves as Trustee; 279,100 shares held in a 501(c) foundation for which Mr. Duda and his spouse
serve as co-trustees and 29,367 shares held directly by Mr. Duda. Includes 871,301 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units
or the exercise of outstanding exercisable options held by Mr. Duda, of which 40,000 shares may be repurchased by us, if exercised, at the original exercise price.
Includes 102,242 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by
Mr. Sadana, of which 40,000 shares may be repurchased by us, if exercised, at the original exercise price.
Includes 13,473 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by Mr.
Taxay.
(9)
Includes 692 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units held by Ms. Battles.
(10) Includes 91,847 shares held directly by Mr. Bechtolsheim. Also includes 9,500 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or
the exercise of outstanding exercisable options held by Mr. Bechtolsheim.
(11) Includes 616 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock held by Mr. Chew.
(12) Includes 125,586 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 49,656 shares held directly by Mr. Giancarlo. Also includes 876 shares
issuable within 60 days of April 6, 2022 upon vesting of restricted stock units held by Mr. Giancarlo.
(13) Includes 2,544 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units or the exercise of outstanding exercisable options held by
Ms. Mather.
(14) Includes 876 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock held by Mr. Scheinman.
(15) Includes 18,800 shares held in a trust of which Mr. Templeton’s spouse serves as Trustee; 8,428 shares held directly by Mr. Templeton and 692 shares issuable within
60 days of April 6, 2022 upon vesting of restricted stock units held by Mr. Templeton.
(16) Includes 692 shares issuable within 60 days of April 6, 2022 upon vesting of restricted stock units held by Mr. Theodosopoulos.
(17) Includes 1,186,530 shares issuable within 60 days of April 6, 2022 upon vesting of options and restricted stock units or the early exercise of outstanding options, 80,000 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.
59
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.
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. 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 equity awards to our Named Executive Officers and certain of our directors. See the section titled
“Executive Compensation—Outstanding Equity Awards at 2021 Fiscal Year-End” for a description of these awards. 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.
Other than as described above under this section titled “Related Person Transactions,” since January 1, 2021, 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.
60
2022 PROXY STATEMENT
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 30, 2022
(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 30, 2022 (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 attending and voting at the Annual Meeting at
www.virtualshareholdermeeting.com/ANET2022. 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
the instructions that accompanied your proxy materials.
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/ANET2022.
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 6, 2022, the record date,
may vote at the Annual Meeting. As of the record date, there
were 308,204,050 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/ANET2022.
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.
61
Questions and Answers
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 stockholder of record as of the
close of business on April 6, 2022 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/ANET2022. 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/ANET2022. 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.
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 20, 2022 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.
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. If we receive
substantially similar questions, we may group such questions
together and provide a single response to avoid repetition.
62
2022 PROXY STATEMENT
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. Absent direction from you,
your broker will not have discretion to vote on the election of
directors, on the approval, on an advisory basis, of executive
compensation of our named executive officers, or on the
frequency of future stockholder advisory votes on the
compensation of our named executive officers, which are
“non-routine” matters.
Questions and Answers
Annual Meeting?
Q Where can I find the voting results of the
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.
63
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.
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 2023 annual meeting of stockholders, our Secretary must receive the written proposal at our
principal executive offices no later than December 21, 2022. 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 2023 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 4, 2023;
• not later than the close of business on March 6, 2023.
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.”
64
2022 PROXY STATEMENT
Other Matters
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 2021 Annual Report and SEC Filings
Our financial statements for our fiscal year ended December 31, 2021 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.
* * *
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 20, 2022
65
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-K
__________________________________________________
(Mark One)
(cid:1409)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021
Or
(cid:1407)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 001-36468
___________________________________________
ARISTA NETWORKS, INC.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
5453 Great America Parkway
Santa Clara, California 95054
(Address of principal executive offices)
20-1751121
(I.R.S. Employer
Identification Number)
(408) 547-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
_________________________________________________________
Title of each class
Common Stock, $0.0001 par value
Trading Symbol(s)
ANET
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes (cid:1407) No (cid:1409)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1409)
No (cid:1407)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1409) No (cid:1407)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:1409)
(cid:1407)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:1407)
(cid:1407)
(cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:0)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $21,908,602,716 as of June 30, 2021
(the last business day of the registrant's most recently completed second fiscal quarter) based on the closing price of the registrant’s common stock on the New York Stock
Exchange on such date. Shares held by persons who may be deemed affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
On February 8, 2022, 307,766,578 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2022 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the
registrant’s fiscal year end of December 31, 2021 are incorporated by reference into Part III of this Annual Report on Form 10-K.
ARISTA NETWORKS, INC.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff 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.
[Reserved]
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 Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers, 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
Signatures
Page
1
17
52
52
52
52
53
55
55
69
71
114
114
115
116
117
117
117
117
117
118
121
122
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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,” “project,” “plan,” “predict,” “expect” and similar expressions that
convey uncertainty 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 performance,
including our expectations regarding our revenue, cost of revenue, gross profit or gross margin and
operating expenses;
our belief that the networking market is rapidly evolving and has a significant potential opportunity for
growth;
the capabilities of our technology including our cloud networking platform;
our ability to expand our leadership position in the network switch industry, including the areas of
mobility, virtualization, network monitoring, cloud computing and cloud networks, and to develop new
products and expand our business into new markets such as the campus workspace, enterprise data center
and security 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;
our inability to fulfill 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 global coronavirus ("COVID-19") pandemic;
the demand for our solutions, products and services we offer;
our business plan and our ability to effectively manage 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 specific network roles or projects;
the growth and buying patterns of our large end customers in which large bulk purchases may or may
not occur in certain quarters;
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 our
products;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to further penetrate our existing customer base and sell more complex and higher-performance
configurations of our products;
our ability to displace existing products in established markets;
our belief that increasing channel leverage will extend and improve our engagement with a broad set of
customers;
our plans to continue to expand our sales force, marketing activities and relationships with channel,
technology and system-level partners;
our plans to invest in our research and development;
our ability to timely and effectively 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 expand our business domestically and internationally;
the effects of increased competition in our market and our ability to compete effectively;
the effects of seasonal and cyclical trends on our results of operations;
our expectations concerning relationships with third parties;
the attraction and retention of qualified employees and key personnel;
our ability to maintain, protect and enhance our brand and intellectual property;
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 adequately 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 tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other
countries on U.S. goods;
our belief that our existing cash and cash equivalents together with cash flow from operations will be
sufficient to meet our working capital requirements and our growth strategies for the foreseeable 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 subject 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 differ
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 on
Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or
implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions
of future 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 may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we
may make.
Item 1. Business
PART I
Arista Networks pioneered data-driven, cognitive cloud networking for large-scale data center and
campus workspace environments. At the core of Arista's platform is an advanced network operating system,
Arista's Extensible Operating System ("EOS"), combined with a set of network and Ethernet switching and
routing platforms based on merchant silicon. We are a leader in cloud networking solutions delivering high
performance, scalability, availability, programmability, automation, and visibility.
In recent years, we have brought the operational consistency and principles of cloud networking to the
broader enterprise and campus markets with our Cognitive Cloud Networking approach, extending EOS across
the enterprise data center and campus wired and wireless workspace. CloudVision®, our workload orchestration
and automation solution, leverages EOS based network wide data models to deliver turnkey automation and
configuration capabilities across data center, wired and wireless workspaces, multi-cloud, and WAN routing use
cases.
In 2020, we completed the acquisition of Big Switch Networks, a pioneer in network monitoring
software and Awake Security, an AI-driven network detection and response (NDR) company. We believe the
integration of these capabilities with Arista’s network-wide, data-based visibility and telemetry offerings delivers
the next generation of operationally efficient network security and visibility solutions.
In addition, we continued to expand our 400G product portfolio for both enterprise and cloud customers
with the introduction of the next generation 7050X/7060X and 7300X Series switches delivering performance
and cost benefits for customers of all sizes as they transition to 400G. We also continue to expand our cognitive
campus edge portfolio with the new C-360 Wi-Fi 6E access point to take advantage of the greater capacity, higher
bandwidth, and lower latency of Wi-Fi 6E.
Since we began shipping our products, we have 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 profitable and cash flow positive for each year since 2010.
We sell our products 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 Market Opportunity
We compete primarily in the data center switching market for 10 Gigabit Ethernet and above, excluding
blade switches. We added advanced routing capabilities to our R-Series switches, which in addition to switching
address the Data Center Interconnect (DCI) market, cloud-grade routing, next-generation network edge and parts
of the wide area networking routing market. We also 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 our ability to address a portion of the Network Monitoring
and NDR security markets.
We believe that cloud computing represents a fundamental shift from traditional legacy network
architectures. As organizations of all sizes have moved workloads to the cloud, spending on cloud and next-
generation data centers has increased rapidly, while traditional legacy IT spending has grown more slowly.
Our Customers
1
As of December 31, 2021, we had delivered our cloud networking solutions to over 8,000 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, 2021, 2020 and 2019, purchases by Microsoft accounted for more than 10% of our
total revenue.
Cloud Networking and Digital Transformation Market Drivers
Digital transformation is fundamentally changing the way IT infrastructure is built and how applications
are delivered from a cloud environment. In cloud computing, applications are distributed across thousands of
servers. These servers are connected with high-speed network switches that, together, form a pool of resources
that allows applications to be rapidly deployed and cost-effectively updated. Cloud computing enables ubiquitous
and on-demand network access to these applications from internet-connected devices including personal
computers, tablets, Internet of Things (IoT) devices, and smartphones.
Nearly all consumer applications today are delivered as cloud services. Enterprise applications are
rapidly moving to the cloud as cloud services are easier and more cost effective to deploy, scale and operate than
traditional applications. Internet leaders like Amazon, Meta Platforms, 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 performance improvements and cost reductions.
The aggregate network bandwidth in the cloud can be orders of magnitude higher than typical legacy
data center networks. Therefore, 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 networks. Cloud networks must deliver high
capacity, high availability and predictable performance, and must be programmable to allow integration with
third-party applications for network management, automation, orchestration, and network services.
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Examples of key secular trends driving network transformation are illustrated below:
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Limitations of Traditional Enterprise Data Center and Campus Networks
We believe that cloud networks and legacy networks are fundamentally different. In a traditional data center,
specific applications are installed on a small number of servers and most network traffic is server-to-client, or “north-
south” traffic, which results in perhaps a few terabits/second of aggregate network bandwidth. In the cloud, most
network traffic is server-to-server, or “east-west” traffic. The aggregate network bandwidth in the cloud can exceed 1
petabit/second, orders of magnitude higher than that of typical legacy data center networks.
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 capabilities of their
operating system have expanded over many years without addressing the structural deficiencies of their underlying
software architectures, making it difficult to achieve high network switch reliability.
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 disfavored by internet companies or cloud
service providers because they create vendor lock-in.
Legacy enterprise networks are generally not programmable and, as a result, are extremely difficult 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 with an ever-increasing number of
endpoint IoT devices for users to be connected anywhere. Campus administrators 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.
Our Cloud Networking Solutions
The core of Arista's platform is an advanced network operating system, Arista's EOS, which was designed 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 data driven workflow automation,
network visibility, analytics and network detection and response, and has further allowed us to integrate rapidly with
a wide range of third-party applications for virtualization, management, automation, orchestration and network
services.
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An overview of our cloud networking solutions is shown below:
The key benefits of our cloud networking solutions are as follows:
Capacity, Performance and Scalability
Our cloud networking platform enables data center networks to scale to hundreds 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-healing 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 ("SSU") application,
without interrupting the network service.
Open and Programmable
Our EOS software was purpose-built to offer programmable interfaces throughout all levels of our software.
This has allowed us to integrate our cloud networking platform with a wide range of leading third-party applications.
For example, we support VMware NSX, OpenConfig/YANG and Microsoft 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.
Workflow Automation
Our EOS software enables enterprises to provision networking resources in minutes with no manual
intervention through our Zero Touch Provisioning. We also natively support Ansible, CFEngine, Chef, Puppet, virtual
network orchestration applications and third-party management tools. CloudVision, a network-wide approach for
workload orchestration and workflow automation, delivers a turnkey solution to enterprises looking to modernize their
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data centers for cloud networking. CloudVision extends the same EOS architectural approach across the network for
state, topology, monitoring and visibility. This enables 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
unified fashion.
Network Visibility
Our EOS software provides a set of tools and applications that proactively monitor, detect and notify network
managers when network issues arise, delivering real-time data to third-party network performance and security
applications to provide detailed application visibility. Our network visibility applications provide real-time insight into
the status of the network.
Through the integration of DataANalyZer ("DANZ") features native to Arista switches with Big Switch’s
monitoring software, we provide the DANZ Monitoring Fabric (DMF). DMF delivers network traffic 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 CloudVision. Since CloudVision
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
security to cloud networks by enabling dynamic security and services for physical to virtual workloads, and is a
complement to fine-grained security delivered via Micro-Segmentation that is already implemented in the virtual
switch of the physical host on which a VM is running.
Arista network detection and response (NDR) is an advanced solution that delivers answers, not alerts. By
combining artificial intelligence with human expertise, Arista NDR autonomously hunts for both insider and external
attacker behaviors, while providing triage, digital forensics and incident response across the entire network — campus
workspace, data center, IoT/OT and cloud networks
Lower Total Cost of Ownership
Our cloud networking platform offers architectural and system advantages that provide our customers with
cost-effective and highly available cloud networking solutions. We believe our programmable, scalable leaf-spine
architectures, combined with our applications, significantly reduce networking costs when compared to legacy
network designs, enabling faster time to service and improved availability. Our automation tools reduce the operational
costs of provisioning, managing and monitoring a data center network and speed up service delivery. 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 Campus Workspace
Arista’s solutions apply the principles of cognitive cloud computing to campus networks, with the intent of
disrupting the wasteful, oversubscribed legacy three-tier architecture of access-aggregation-core. As the devices move
to more disparate IoT for voice, video, and data traffic, Arista is addressing these trends in the campus network by
using cognitive controls and analytics, driven by a single-image operating system that extends across the campus and
the data center.
Using a cloud-based approach reduces operational costs by incorporating a network that is a seamless end-
to-end solution rather than silos of different places in the network. Arista’s cognitive campus workspace is a data-
driven model coupled with our unified dashboard for wired/wireless edge for next gen zero touch campus
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deployments. Together, with zero trust security, the cognitive campus drives multifaceted visibility for Internet of
things ("IoT") and operational technology ("OT") applications.
Our Cognitive Campus Networking solutions are based on three principles:
Universal Cloud Network - We offer 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
software-driven control principles. Our collapsed Spline™ approach consolidates traditional campus core and
aggregation layers into a simple single tier with high availability.
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 can be applied across both footprints,
saving customers operational costs. The Cognitive Management Plane (CMP) is a data-driven repository for the
automated actions across network analytics.
Securing The Campus - Securing the Campus requires a holistic approach to network segmentation, device
compliance and auditing, as well as service integration with our security partners. We deliver these capabilities through
EOS, DMF, NDR and CloudVision.
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 campus workspace Ethernet products:
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Purpose-Built Cloud Networking Platform. We have developed a highly scalable cloud networking
platform that uses software to address the needs of large-scale internet companies, cloud service providers, and large
enterprises including financial services organizations, government agencies and media and entertainment companies,
including virtualization, big data and low-latency applications. As a result, our cloud networking platform does not
have the inherent limitations of legacy network architectures.
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Broad and Differentiated Portfolio. Using multiple merchant silicon architectures, we deliver
switches, capable of routing, with industry-leading capacity, low latency, port density and power efficiency, and have
innovated in areas such as deep packet buffers, highly available modular hardware, and reversible cooling options.
Our broad portfolio has allowed us to offer customers products that best match their specific requirements.
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Single Binary Image Software. The single binary image of EOS software allows us to maintain
feature 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 “forklift upgrade” (i.e., a broad upgrade of the data
center infrastructure).
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Rapid Development of New Features and Applications. Our highly modular EOS software has
allowed us to rapidly deliver new features and applications while preserving the structural integrity and quality of our
network operating system. We believe our ability to deliver new features and capabilities more quickly than legacy
switch/router operators provides us with a strategic advantage given that the requirements in cloud and next-generation
data center networking continue to evolve rapidly.
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Deep Understanding of Customer Requirements. We have developed close working relationships
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 products to market that meet customer demands and expectations as well as to
rapidly grow sales to existing customers.
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Strong Management and Engineering Team with Significant Data Center Networking Expertise.
Our management and engineering team consists of networking veterans with extensive data center and campus
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networking expertise. Our President and Chief Executive Officer, Jayshree Ullal, has over 30 years of networking
expertise from silicon to systems companies. Andy Bechtolsheim, our Founder and Chief Development Officer, was
previously a founder and chief system architect at Sun Microsystems. Kenneth Duda, our Founder and Chief
Technology Officer, led the software development effort of EOS.
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Significant Technology Lead. We believe that our networking technology represents a fundamental
advance in networking software. Our EOS software is a key cloud networking software stack that is state-driven and
a result of tremendous research and development efforts.
Our Products and Technology
Our portfolio of products and technology consists of our Core Data center/Cloud Switching Products, our
Adjacent Campus and Routing Products and our Network Software and Services.
Extensible Operating System
The core of our cloud networking platform is our data-driven operating system, EOS, which runs on top of
standard Linux and offers programmability at all layers of the stack. System state and data are stored in EOS and
maintained in a highly efficient, centralized system database where data is accessed via an automated
publish/subscribe model. This distinct design principle provides module independence, self-healing resiliency, and
multi-process software stability.
Arista has continued to evolve the principle of EOS State Orientation from a single-system state database,
to NetDB where the network device state is centralized across hundreds of systems, to the EOS Network Data Lake
(NetDL) where, in addition to network device state, additional data sources have been added including packet data,
flow data, and external enrichment data such as DNS naming and BGP Internet performance data.
We believe we are extending classic Software-Defined Networking (SDN) principles to software-driven
networking control and an AI-enabled holistic view with NetDL, while building on Arista’s core pillars of reliability,
open standards, and programmability.
EOS Attributes
The modular and programmable architecture of EOS enables us to offer a set of attributes, capabilities and
features that are essential for cloud networking and next-generation data centers.
High Availability
EOS is self-healing in the sense that individual processes can be restarted without impacting application
traffic. This architectural 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.
Programmable at All Layers
EOS is programmable at all layers from the Linux kernel to switch configuration, provisioning, automation
and detailed monitoring of the network. Public cloud providers have leveraged tools such as the EOS Software
Development Kit (“SDK”) and eAPI to implement fully customized infrastructure automation solutions.
Workflow 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) DANZ, which provides access to raw network data for analysis by security,
troubleshooting and performance management tools, (ii) Latency/loss ANalyZer (LANZ), which provides access to
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internal network performance loads and packet loss and latency occurring at the microsecond level, (iii) Network
Telemetry, 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.
Network Automation
EOS supports Puppet, Chef and Ansible, which enable automatic network configuration in the same manner
as servers and storage. In addition, EOS provides tools that greatly reduce network operational costs.
Core Datacenter/Cloud
We offer one of the broadest product lines of datacenter 1/2.5/5/10/25/40/50/100/400 Gigabit Ethernet
switches in the industry, comprising of 7000 Series, 7130 Series, 7150 Series, 7160 Series, 7170 Series, 7280 Series,
7500 Series and 7800 Series.
We deliver switching platforms with industry-leading capacity, low latency, port density and power
efficiency. We have also innovated in areas such as deep packet buffers, embedded optics and reversible cooling.
Adjacent Campus and Routing
Cognitive Campus Switching and Routing
Our adjacent 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
products such as our 7020R fixed routers, 7280R fixed routers, 7368X4 modular router, 7500R modular routers and
7800R modular routers.
Cognitive WiFi
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 learning and
cognitive networking. By integrating with CloudVision, 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 health diagnostics.
Networking Software and Services
CloudVision
CloudVision is our network management plane solution for workload orchestration and workflow
automation, which delivers a turnkey solution for cloud networking. CloudVision’s abstraction of the physical network
to a broader, network-wide perspective provides a simplified approach for consistent network operations across
network domains, including data center, campus wired and wireless, routing interconnect, and multi-cloud networks.
CloudVision highlights include: Centralized representation of distributed state based on Arista's Data Lake
(NetDL), allowing for a single point of integration and network-wide visibility and analytics; Controller-agnostic
support for physical and virtual workload orchestration through open APIs; Turn-key automation for zero touch
provisioning, configuration management and network-wide upgrades and rollback; Compliance dashboard for
security, audit and patch management; Cognitive AI/ML, driven by Arista's Autonomous Virtual Assist ("AVA") for
dynamic insights and recommendations, built on a modern approach of real-time streaming 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
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network policy management and with dynamic integrations into security management systems from Arista’s security
ecosystem partners.
DANZ Monitoring Fabric (DMF)
DANZ Monitoring Fabric (DMF) is a next-generation network packet broker (NPB) designed for pervasive,
organization-wide network observability and security visibility, enabling IT to deliver multi-tenant monitoring-as-a-
service. Leveraging Arista's high-performance and versatile 1G/10G/25G, 40G/100G and 400G Ethernet switch
platforms with DMF, IT operators can pervasively monitor all user, device/IoT and application traffic (north-south
and east-west) by gaining complete visibility into physical, virtual and container environments. DMF switch licenses
are procured as subscription software. Additionally, DMF’s advanced services include deep hop-by-hop visibility,
predictive analytics, contextual insights and scale-out packet capture — integrated through a single dashboard — to
provide simplified network performance monitoring (NPM) and SecMon workflows for real-time and historical
context. For enterprises, service providers and cloud providers, DMF provides a one-stop network observability
solution for production data centers, enterprise campus/branch and 4G/5G mobile networks.
Arista Network Detection and Response (NDR)
The AI-driven Security Platform, driven by Arista's Autonomous Virtual Assist ("AVA"), deeply analyzes
billions of network communications to autonomously discover, profile and classify every device, user and application
across any network. Using a multi-dimensional ensemble machine learning approach, Arista NDR then models
complex adversarial behaviors and detects threats by connecting the dots across entities, time, protocols and attack
stages. By combining artificial intelligence with human expertise, Arista NDR hunts for both insider and external
attacker behaviors, while providing triage, digital forensics and incident response across the entire network.
CloudEOS
CloudEOS™ is Arista’s multi-cloud and cloud-native networking solution enabling a highly secure and
reliable networking experience with consistent segmentation, telemetry, provisioning and troubleshooting for the
entire enterprise. It can be deployed across the enterprise edge, WAN, campus workspace, data center, on-premises
Kubernetes clusters, and multiple public and private clouds. CloudEOS provides multi-cloud connectivity across the
entire enterprise cloud environment with high-performance virtual and container-based instances of EOS software that
simplify network operations and integrate with declarative cloud provisioning toolchains like Terraform, Ansible, and
other popular CloudOps and DevOps tools.
CloudEOS is designed for consumption on Amazon AWS, Microsoft Azure, and Google public clouds via
their marketplace and service catalogs, and it is also available as a cloud-native instance for deployment in Kubernetes
clusters. With CloudEOS and CloudVision, customers can integrate their cloud network deployments with the
elasticity and automation of the public cloud, private cloud and cloud native platforms.
Arista A-Care Services
We have designed our customer support offerings, 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 offer 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 200 locations around the world through our third-party
logistics suppliers. All of our service options include unlimited access to bug-fixes, new-feature-releases, online case
management and our community forums.
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Sales and Marketing
We market and sell our products through our direct sales force and in partnership with our channel partners,
including distributors, value-added resellers, systems integrators and original equipment manufacturer ("OEM")
partners. We also sell in conjunction with various technology partners. To facilitate channel coordination and increase
productivity, we have created a partner program, the Arista Partner Program, to engage partners who provide value-
added services and extend our reach into the marketplace. Authorized training partners perform technical training of
our channel partners and end customers. Our partners commonly receive an order from an end customer prior to
placing an order with us, and we confirm the identification of the end customer prior to accepting such orders. Our
partners generally do not stock inventory received from us.
Our sales organization is supported by systems engineers with deep technical expertise and responsibility for
pre-sales technical support and solutions engineering for our end customers, systems integrators, 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 responsibility for a number of major direct end-customer accounts or has
assigned accounts in a specific vertical market.
Our marketing activities consist primarily of technology conferences, 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, communicate our product advantages and generate qualified leads
for our field sales force and channel partners.
Seasonality
Our rapid historical growth may have reduced the impact of seasonal or cyclical factors that might have
influenced our business to date. As our increasing size may cause our growth rate to slow, seasonal or cyclical
variations in our operations may become more pronounced over time and may materially affect our business, financial
condition, results of operations and prospects. 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. In addition, the current
industry-wide supply chain shortages and extended lead times and their impact on our ability to ship products to our
customers in a timely manner may disrupt typical seasonal trends.
Research and Development
We believe our future success depends on our ability to develop new products and features 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 continue to invest in resources to conduct our research
and development efforts.
Manufacturing
We subcontract the manufacturing of all of our products to various contract manufacturers. Our primary
manufacturing partners are Jabil Circuit and Sanmina Corporation. This approach allows us to reduce our costs,
manufacturing overhead and inventory position and allows us to adjust more quickly to changing end-customer
demand. We require all of our manufacturing locations to be ISO-9001 certified. We have four direct fulfillment
facilities worldwide to hold finished goods inventory, perform product transformations, and install our EOS software
to ship to customers and partners.
Our contract manufacturing partners procure the majority of the components needed to build our products
and assemble our products according to our design specifications. This allows us to leverage the purchasing power of
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our contract manufacturing partners. We retain complete control over the bill of materials, test procedures and quality
assurance programs. Our personnel work closely with our partners and review on an ongoing basis forecasts, inventory
levels, processes, capacity, yields and overall quality. Our contract manufacturing partners procure components and
assemble our products 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 adjusted
for overall market conditions. For example, current industry-wide supply chain shortages have resulted in extended
lead times for components and have required us to extend the time horizon of our demand forecasts.
Our products rely on key components, 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, neither we nor our contract manufacturers have a
written agreement with these component providers to guarantee the supply of the key components used in our products,
nor do we have exclusive rights to such key components, and our suppliers could suffer shortages, delay shipments,
prioritize shipments to other vendors, increase prices or cease manufacturing such products or selling them to us at
any time. The supply of components may also be adversely affected by geopolitical conditions such as international
trade wars like the U.S. trade war with China and the impact of public health epidemics like the coronavirus.
Our product development efforts also depend upon continued collaboration with our key suppliers, including
our merchant silicon vendors such as Broadcom and Intel. As we develop our product roadmap and continue to expand
our relationships with these and other merchant silicon vendors, it is critical that we work in tandem with our key
merchant silicon vendors to ensure that their silicon includes improved features and that our products take advantage
of such improved features. This enables us to focus our research and development resources on software core
competencies and to leverage the investments made by merchant silicon vendors to achieve cost-effective solutions.
Once the completed products are manufactured and tested, our contract manufacturing partners ship them to
various direct fulfillment facilities in the United States, the Netherlands and Singapore for final configuration, quality-
control inspection and shipment to our distribution partners and end customers. After the products are shipped to our
end customers, our products are installed by the end customers or by third-party service providers such as system
integrators or value-added resellers on their behalf.
Competition
The markets in which we compete are highly competitive and characterized by rapidly-changing technology,
changing end-customer needs, evolving industry standards, frequent introductions of new products and services and
industry consolidation. We expect competition to intensify in the future as the market for cloud networking expands
and existing competitors and new market entrants introduce new products or enhance existing products.
The data center and campus networking markets have been historically dominated by Cisco, with competition
also coming from other large network equipment and system vendors, including Extreme Networks, Dell/EMC,
Hewlett Packard Enterprise and Juniper Networks. Most of our competitors and some strategic alliance partners have
made acquisitions and/or have entered into or extended partnerships or other strategic relationships to offer 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.
We also face competition from other 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
networking products based on off-the-shelf or commoditized hardware technology, or “white box” hardware,
particularly where an end customer’s network strategy seeks to emphasize deployment of such product offerings or
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adopt a disaggregated approach to the procurement of hardware and software. End customers may 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 our business, prospects, financial condition and
operating results.
In the NDR market, our Arista NDR offerings compete with other network security vendors including Cisco,
DarkTrace, and ExtraHop. Lastly, in the network packet broker (NPB) market, Arista DANZ Monitoring Fabric
competes with Gigamon, Keysight, and other network monitoring software providers.
Our relationships with our strategic alliance partners or suppliers may also shift as industry dynamics change.
If strategic alliance partners acquire or develop competitive products or services, our relationship with those partners
may be adversely impacted, which could lead to more variability to our results of operations and impact the pricing
of our solutions.
The principal competitive factors applicable to our products include:
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breadth of product offerings and features;
reliability and product quality;
ease of use;
pricing;
total cost of ownership, including automation, monitoring and integration costs;
performance and scale;
programmability and extensibility;
interoperability with other products;
ability to be bundled with other vendor offerings; and
quality of service, support and fulfillment.
We believe our products compete favorably with respect to these factors. Our EOS software offers high
reliability, integrates with existing network protocols and is open and programmable. We believe the combination of
EOS, a set of network applications and our 1/2.5/5/10/25/40/50/100/400 Gigabit Ethernet platforms make our offering
highly competitive for both cloud and enterprise data centers. However, many of our competitors have 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 manufacturing resources, the ability to leverage their sales efforts across a
broader portfolio of products, the ability to leverage purchasing power when purchasing subcomponents, the ability
to bundle competitive offerings with other products and services, the ability to develop their own silicon chips, the
ability to set more aggressive pricing policies, lower labor and development costs, greater resources to make
acquisitions, larger intellectual property portfolios and substantially greater financial, technical, research and
development or other resources.
In addition, in the current industry-wide supply constrained environment, the ability to source components
and provide customers with product in a timely manner can result in a significant competitive advantage. While we
have extended our demand planning horizons and increased our component purchase commitments, there is no
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guarantee that suppliers will meet their commitments or that ultimate customer demand will directly match our demand
forecasts.
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 confidentiality agreements with our
employees, end customers, resellers, systems integrators, manufacturers, 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 expected lives of our 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 breadth or applicability. In addition, any patents that may be
issued may be contested, circumvented, found unenforceable 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 other software available on commercially-reasonable terms. We own a number of
trademarks in the U.S. and other jurisdictions, including Arista, EOS, CloudVision, CloudStream, CVP, CVX, Health
Tracer, MapReduce Tracer, Path Tracer, MXP, MSS, RAIL, Score, SPLINE, SuperSpine, SSU, FlexRoute,
NetRollBack, NetDB, OSFP, AlgoMatch, Macro-Segmentation and Macro-Segmentation Service.
We control access to and use of our software, technology and other proprietary information through internal
and external controls, including contractual protections with employees, contractors, end customers and partners. Our
software is protected by U.S. and international copyright, patent and trade secret laws. Despite our efforts to protect
our software, technology and other proprietary information, unauthorized parties may still copy or otherwise obtain
and use our software, technology and other proprietary information. In addition, we intend to expand our international
operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be
limited in foreign countries.
Our industry is characterized by the existence of a large number of patents and frequent claims and related
litigation regarding patent and other intellectual property rights. If we become more successful, we believe that
competitors will be more likely to try to develop products that are similar to ours and that may infringe our proprietary
rights. It may also be more likely that competitors or other third parties will claim that our products infringe their
proprietary rights. In particular, large and established companies in our industry have extensive patent portfolios and
are regularly involved in both offensive and defensive litigation. From time to time, third parties, including certain of
these large companies and non-practicing entities, may assert patent, copyright, trademark and other intellectual
property rights against us, our channel partners or our end customers, whom our standard license and other agreements
obligate us to indemnify against such claims.
Successful claims of infringement by a third-party, if any, could prevent us from distributing certain products
or performing certain services, require us to expend time and money to develop non-infringing solutions or force us
to pay substantial damages, royalties or other fees. We cannot assure that we do not currently infringe, or that we will
not in the future infringe, upon any third-party patents or other proprietary rights.
Human Capital Management
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 professional and ethical standards in the conduct of our business
around the world. As of December 31, 2021, we employed approximately 2,993 full-time employees worldwide.
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None of our employees are represented by unions. We consider our relationship with our employees to be good and
have not experienced significant interruptions of operations due to labor disagreements.
Diversity and Equal Employment
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 performance and help us attract and
retain the best talent available. We strive to build an inclusive culture that encourages, supports and celebrates the
diverse voices of our employees. 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 company with 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 affinity organizations and actively recruit from under-represented universities and
professional societies.
Arista affirms 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, marital status,
ancestry, military status or sexual orientation. We practice and promote such policies in all locations as appropriate
under applicable law. We affirm this principle of freedom from discrimination in all aspects of the employment
relationship from recruitment and hiring, through performance evaluations, compensation and promotions. At Arista,
we believe that all employees should be treated with dignity and respect.
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.
During the COVID-19 pandemic, Arista asked its employees to work from home with limited exceptions.
Essential workers have been given access to our facilities as may be permitted under applicable laws after 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 Benefits
Arista provides competitive and comprehensive benefit packages that are designed to help employees make
the best decisions for themselves, their family and their lifestyle. Our compensation committee provides oversight of
our compensation policies, plans, benefit programs and overall compensation philosophy.
Along with Arista’s traditional healthcare benefits, Arista has created a detailed injury and illness prevention
program to better protect employees from occupational risks of injury or illness. Arista periodically hosts wellness
days, whose purpose is to raise awareness on health issues, increase education on preventive medicine and available
services and shift employee behavior through interactive activities and live presentations. We also maintain a
community engagement program, which provides opportunities for our employees to engage in community service.
Available Information
Our website is located at www.arista.com and our investor relations website is 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 reports filed or furnished 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 website as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission
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(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.
Webcasts of our earnings calls and certain events we participate in or host with members of the investment
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 others can receive notifications 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, including our corporate governance guidelines, board committee 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 our websites, are not incorporated 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 textual references only.
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Item 1A. Risk Factors
You should consider carefully the risks and uncertainties described below, together with all of the other information in
this Annual Report on Form 10-K, which could materially affect our business, financial condition, results of operations and
prospects. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially affect our business, financial condition, results of operations
and prospects.
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:
Risks Related to Our Business and Industry
the networking market is rapidly evolving;
failure to successfully pursue new products and services and expand into adjacent markets could adversely affect
our revenue and revenue growth may decline;
our results of operations may vary significantly from period to period;
our gross margins vary and may be adversely affected by an increase in costs including component, shipping and
•
the COVID-19 pandemic which has led, among other things, to manufacturing disruptions, supply chain shortages
and unpredictable product demand and supply, increased lead times, extended demand planning horizons and increased
purchase commitments, all of which, in turn, could materially adversely affect our business;
•
•
our business;
•
•
•
other product costs;
•
•
shortages, delays, extended lead times or costs, particularly in the current industry-wide supply constrained environment;
•
adversely affect our business;
•
•
•
•
•
•
we face intense competition and industry consolidation;
we are subject to risks associated with international sales and operations;
we face risks associated with the acquisition and integration of complementary companies, products or technologies;
seasonal fluctuations impact revenue;
fluctuations in currency exchange rates could adversely affect our business;
failure to raise any needed capital on favorable terms could harm our business.
shipment delays could cause revenue to fall;
some key components in our products come from sole or limited sources of supply and increases the risk of supply
adverse economic conditions and reduced information technology and network infrastructure spending may
if we are unable to attract new large customers or sell additional products and services to our existing customers,
Risks Related to Customers and Sales
•
our revenue growth will be adversely affected;
•
•
•
•
•
•
•
•
•
large purchases by a limited number of customers represent a substantial portion of our revenue;
if we are unable to increase market awareness of our products, our revenue may not continue to grow or may decline;
some large customers require more favorable terms;
sales of our switches generate most of our product revenue;
sales prices of our products and services may decrease;
sales cycle can be long and unpredictable;
inability to offer high quality support and services could adversely affect our business;
declines in maintenance renewals by customers could harm our business;
indemnification provisions under sales contracts could expose us to losses;
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•
•
•
we rely on distributors, systems integrators and resellers to sell our products;
sales to government entities are subject to a number of risks and challenges;
we are exposed to credit risk of channel partners and customers.
Risks Related to Products and Services
•
•
•
product quality problems, defects, errors or vulnerabilities could harm our business;
failure to anticipate technological shifts could harm our business;
our products must interoperate with operating systems, software and hardware developed by others.
Risks Related to Supply Chain and Manufacturing
•
•
•
commitments.
managing the supply of our products and product components is complex;
we depend on third-party manufacturers to build our products;
future sales forecasts may be materially inaccurate which could result in incorrect levels of inventory and purchase
Risks Related to Intellectual Property and Other Proprietary Rights
•
•
•
•
•
our software and selected source code to certain partners, which creates additional risks.
assertions by third parties 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-party software and other intellectual property;
failure to comply with open-source software licenses could restrict our ability to sell our products;
risk that our competitors could develop products that are similar to or better than ours because we provide access to
Risks Related to Litigation
•
we may become involved in litigation that may materially adversely affect us.
defects, errors or vulnerabilities in our security network products, failure of our products to detect security breaches
Risks Related to Cybersecurity and Data Privacy
•
or incidents, misuse of our products or risks of product liability could harm our business;
•
breaches of our cybersecurity systems or other security breaches or incidents could harm our business and our
products and result in regulatory fines, required changes to our data handling processes or systems, and liability for damages
to affected data subjects.
failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing
if our critical accounting estimates are based on incorrect assumptions, our results of operations could fall below
Risks Related to Accounting, Compliance, Regulation and Tax
•
of our financial reporting;
•
analyst and investor expectations and result in a decline in the market price of our common stock;
•
•
•
•
markets or subject us to liability for violations.
enhanced U.S. tax, tariff, import/export restrictions or other trade barriers may negatively affect our business;
changes in our effective tax rate or new tax laws could adversely affect our results;
failure to comply with government laws and regulations could harm our business;
we are subject to governmental export and import controls that could impair our ability to compete in international
Risks Related to Ownership of Our Common Stock
•
•
stock to decline;
•
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the trading price of our common stock is volatile and the value of your investment could decline;
any reduction or discontinuance of our stock repurchase programs could cause the market price of our common
sales of substantial amounts of our common stock could reduce the market price of our common stock;
•
•
insiders have substantial control over us;
our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
General Risks
•
•
•
if we are unable to hire, retain and train personnel and senior management, our business could suffer;
natural disasters, terrorism and other catastrophic events could harm our business;
we have not paid dividends and do not intend to pay dividends for the foreseeable future.
Risks Related to Our Business and Industry
The COVID-19 pandemic, which has led, among other things, to manufacturing disruptions, supply chain shortages
and unpredictable product demand and supply, extended demand planning horizons and increased purchase
commitments, could materially adversely affect our business, financial condition, results of operations and prospects.
The COVID-19 pandemic has had and could continue to have an adverse impact on the business operations of our
company and our customers, partners, manufacturers, suppliers, distribution fulfillment centers and service depots. The vast
majority of our employees continue to work from home, and this remote model could present operational and other workplace
challenges over time that may affect our business. We have also experienced, and may continue to experience, manufacturing
and supply chain disruptions, components shortages, increased component lead times, unpredictability of supply, logistic
challenges and increased costs.
Our contract manufacturers in Malaysia, Mexico and the United States are impacted by the pandemic and have
experienced shelter in place orders, workforce disruptions, delays and increased costs for production, transit and the import
and export of products. While our contract manufacturers have made progress to minimize disruptions caused by COVID-
19, governments are continuing to impose restrictions on access as a result of COVID-19 variants, which has negatively
impacted the staffing and product output of our contract manufacturers. Our contract manufacturers’ activities are further
limited by supply constraints caused by disruptions in the manufacturing activities of our suppliers. Similar to our
manufacturing facilities, our direct fulfillment centers and service depots continue to operate with varying degrees of
government 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 manufacturing disruptions, the lead times for our products have increased and
our supply chain costs have increased which has and may continue to adversely impact our gross margins. In addition, we
have had to increase our demand planning horizon to address supply chain shortages, combined with increased component
lead times and unpredictability of supply, resulting in significant increases to our purchase commitments and component
buffer inventories. There is however no guarantee that suppliers will meet their commitments or that customers' actual demand
will directly match our demand forecasts and this has increased the risk of future excess and obsolete inventory and could
have a negative impact on our gross margins.
As the COVID-19 pandemic continues, we have experienced and may continue to experience additional risks
including:
•
•
more manufacturing disruptions and supply shortages, including shortages in semiconductors;
increased lead times for our products including longer lead times for component parts incorporated into our
products which, in turn, can increase the risk of order cancellations;
•
•
•
reduced capacity and output at factories and factory closures;
disruptions in logistics which impact the movement of components and finished products;
overall increased demand for materials which could result in a limited or unpredictable supply of materials
and components that are incorporated in our products;
•
and
delays in product shipments and limits on our ability to provide in-person support services to customers;
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increased risk of future excess and obsolete inventory as we extend our demand planning horizon and
increase our purchase commitments and our inventory buffers.
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 equipment and overall lower demand for our products and
services. Customers may purchase products in advance of their internal demand which could result in lower purchases in
subsequent quarters. In addition, given supply chain constraints, customers may give us more optimistic indications about
prospective purchases which could result in lower than expected orders or cancellations of orders. We could also face
increased risk of customer defaults and delays in payment.
In addition, the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the global
economy and financial markets, which may result in an extended economic slowdown or a global recession that could
adversely impact our business. Due to the uncertainty around the duration of the pandemic, the impact of new variants of
COVID-19, the availability, distribution and effectiveness of vaccines and treatments for COVID-19 around the world, the
imposition of public safety measures, the impact of the pandemic on the global economy and the impact of COVID-19 on
our customers, partners, contract manufacturers and supply chain, we are unable to predict the full impact of the COVID-19
pandemic on our business operations and financial performance. In addition, the COVID-19 pandemic and the various
responses to it, may also have the effect of heightening many of the other risks discussed in this “Risk Factors” section.
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 effectively, and our ability to generate revenue
will suffer.
A substantial portion of our 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 larger, more
sophisticated networks and have increased the use of virtualization and cloud computing. The continued 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 infrastructures, changes in the technological requirements for the products 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 capital resources to our end customers, changes in government regulation that could impact networking
business models including those regulations related to cybersecurity, privacy, data protection and net neutrality, our ability to
provide networking solutions that address the needs of end customers more effectively and economically than those of other
competitors or existing technologies and general economic conditions, including the impact of the COVID-19 pandemic.
If the networking solutions market does not develop in the way we anticipate or otherwise experiences a slow-down,
if our solutions do not offer benefits compared to competing networking products 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 affected.
We pursue new product and service offerings and expand into adjacent markets, and if we fail to successfully carry
out these initiatives, our business, financial condition, or results of operations could be adversely impacted.
We have made substantial investments to develop new products and services and enhancements to existing products
through our acquisitions and research and development efforts to expand our product offerings and maintain our revenue
growth. If we are unable to anticipate technological changes in our industry by introducing new or enhanced products and
services in a timely and cost-effective manner, if we fail to introduce products and services that meet market demand, or if
we do not successfully expand into adjacent markets, we may lose our competitive position, our products may become
obsolete, and our business, financial condition or results of operations could be adversely affected. For example, as we
introduce our 400 GbE and 800 GbE products, our ability to continue to maintain our competitive position with our customers
will depend on our ability to deliver these new products in a timely manner and our customers' acceptance of these products.
In addition, the evaluation, testing and qualification of our new products by our customers may be lengthy and may require
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contractual acceptance clauses, which could delay our revenue recognition and impact our revenue and deferred revenue
balances.
Additionally, from time to time, we invest in expansion into adjacent markets, including campus switching, WiFi
networking and network security markets. Although we believe these solutions are complementary to our current offerings,
we have less experience and a more limited operating history in these markets, and our efforts in this area may not be
successful. Expanding our services in existing and new markets and increasing the depth and breadth of our presence imposes
significant burdens on our marketing, compliance, and other administrative and managerial resources. Our plan to expand
and deepen our market share in our existing markets and possibly expand 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 our 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 adjacent
markets, and gain market acceptance of our new products.
Developing our products is expensive, and the investment in product development may involve a long payback
cycle. We expect to continue to invest heavily in software development in order to expand the capabilities of our cloud
networking platform and introduce new products and features. We expect that our results of operations will be impacted by
the timing and size of these investments. These investments may take several years to generate positive returns, if ever.
Additionally, future market share gains may take longer than planned and cause 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 end customers, our
revenue growth will be adversely affected and our revenue could decrease. Difficulties in any of our new product
development efforts or our efforts to enter adjacent markets could adversely affect our operating results and financial
condition.
Our revenue and our revenue growth rates are volatile and may decline.
Our revenue growth rate in previous periods may not be indicative of our future performance. We have experienced
annual revenue growth rates of 27.2%, -3.9%, 12.1%, and 30.7% in 2021, 2020, 2019, and 2018, respectively. In the future,
our revenue growth rates may continue to be volatile as we become more penetrated in our existing customer base and product
markets, and as we look to enter and expand into new markets. In addition, COVID-19 related disruptions may cause delays
in product shipments or cancellation of orders by end customers, and could have a negative impact on demand from our
customers in future periods, and on our ability to add new customers. Other factors may also contribute to declines in our
growth rates, including changes in demand for our products and services, particularly from our large end customers, changes
in capital spending by our large end customers, increased competition, price sensitivities from our customers to increases in
our pricing, our ability to successfully manage our expansion or continue to capitalize on growth opportunities, the maturation
of our business, general economic and international trade conditions, and our ability to be successful in adjacent markets,
such as campus switching, WiFi networking markets and network security markets. For example, we have experienced
volatility in demand from certain of our large end customers. Overall demand from larger customers may decline in future
periods, which would impact our future revenue 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 affected and our
stock price could be volatile.
Our results of operations may vary significantly 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 expect that this trend will
continue. As a result, you should not rely upon our past financial results for any period as indicators of future performance.
Our results of operations in any given period can be influenced by a number of factors, many of which are outside of our
control and may be difficult to predict, including:
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•
the disruption caused by COVID-19 and the government restrictions in response to the pandemic;
•
our inability to fulfill our end customers’ orders or the cancellation of orders by our end customers due to
the unavailability or unpredictable supply of inventory, supply chain delays, access to key commodities or technologies,
manufacturing disruptions or other events that impact our manufacturers or their suppliers;
•
deferral, reduction or cancellation of orders from end customers, due to long lead times, announcements by
us or other competitors of new products or product enhancements, warranty returns or other factors;
•
customers;
our ability to increase sales to existing customers and attract new end customers, including large end
•
the budgeting, sales, implementation and refresh 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 growth 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;
•
increased expenses resulting from increases in material or component costs and production costs including
as a result of shortages in supply for semiconductors or the tariffs imposed by the U.S. on goods from other countries and
tariffs imposed by other countries on U.S. goods, including the tariffs implemented by the U.S. government on various imports
from China;
•
•
of our business;
changes in our pricing policies, whether initiated by us or as a result of competition;
the amount and timing of operating costs and capital expenditures related to the operation and expansion
•
difficulty forecasting, budgeting and planning due to limited visibility beyond the first two quarters into the
spending plans of current or prospective customers;
•
products;
the inclusion of any acceptance provisions in our customer contracts or any delays in acceptance of those
•
the actual or rumored timing and success of new product and service introductions by us or our competitors
or any other change in the competitive landscape of our industry, including consolidation among our competitors or end
customers;
•
•
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 distribution channels;
•
decisions by potential end customers to purchase our networking solutions from larger, more established
vendors, white box vendors or their primary network equipment vendors;
•
insolvency or credit difficulties confronting our end customers, which could adversely affect their ability
to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which
could disrupt our supply chain;
•
seasonality or cyclical fluctuations in our markets;
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•
future accounting pronouncements or changes in our accounting policies;
•
our overall effective tax rate, including impacts caused by any reorganization in our corporate structure,
any changes in our valuation allowance for domestic deferred tax assets and any new legislation or regulatory developments;
•
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an
increasing portion of our expenses are incurred and paid in currencies other than the U.S. dollar;
•
general economic conditions, both domestically and in foreign markets, and disruptions in our business and
the markets due to, among other things, health epidemics, natural disasters, terrorism and other catastrophic events including
international trade wars involving the U.S. and China and the political tensions in Russia, Europe and Asia;
•
•
increases in cybersecurity threats, including security threats from state sponsors; and
other risk factors described in this Annual Report on Form 10-K.
Any one of the factors above or the cumulative effect of several of the factors described above may result in
significant fluctuations in our financial and other results of operations and may cause the market price of our common stock
to decline. This variability and unpredictability could result in our failure to meet our revenue, gross margins, results of
operations or other expectations contained in any 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 expectations 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. In the past, we have failed to meet investor financial expectations and the market price
of our common stock declined.
We expect our gross margins to vary over time and may be adversely affected by numerous factors.
We expect our gross margins to vary over time and the gross margins we have achieved in recent years may not be
sustainable and may be adversely affected 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 new business models
including the sale and delivery of more software and subscription solutions, increases in material or component costs and
production costs including as a result of shortages in supply for semiconductors and other components, entry into new markets
or growth in lower margin markets, entry in markets with different pricing and cost structures, pricing discounts given to
customers, costs associated with defending intellectual property infringement and other claims and the potential outcomes of
such disputes, higher levels of excess or obsolete inventory and inventory holding charges as a result of extended demand
planning horizons due to industry-wide supply shortage, changes in shipment volumes, the timing of revenue recognition and
revenue deferrals, increased costs arising from tariffs, increased costs arising from epidemics, changes in distribution
channels, increased warranty costs, and our ability to execute our operating plans. In addition, inflationary pressures and
shortages have increased and we expect will continue to increase costs for certain materials, components, supplies and
services. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk
factors identified in this risk factors section could be heightened. We determine our operating expenses largely on the basis
of anticipated revenues and a high percentage of our expenses are fixed in the short and medium term. As a result, a failure
or delay in generating or recognizing revenue could cause significant variations in our operating results and operating margin
from quarter to quarter. Failure to sustain or improve our gross margins reduces our profitability and may have a material
adverse effect on our business and stock price.
Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels.
We have been and could continue to be subject to manufacturing disruptions and supply chain delays. This places
significant pressure on supply chain management, manufacturing, inventory and quality control management, shipping and
trade compliance to ensure that we have properly forecasted supply purchasing, manufacturing capacity, inventory and quality
compliance and logistics. A significant interruption in these critical functions could result in delayed order fulfillment,
adversely affect our business, financial condition, results of operations and prospects and result in a decline in the market
price of our common stock.
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Because some of the components in our products come from sole or limited sources of supply, we have increased our
purchase commitments and are susceptible to supply shortages, extended lead times 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.
Our products rely on 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 manufacturers purchase
on our behalf from a limited number of suppliers, including certain sole source providers. Generally, we do not have
guaranteed supply contracts with our component suppliers, and our suppliers could suffer shortages, longer lead times, delay
shipments, prioritize shipments to other vendors, decommit orders, increase prices or cease manufacturing such products or
selling them to us at any time. Supply of these components world-wide are being adversely affected by the COVID-19
pandemic as well as industry consolidation and geopolitical conditions such as international trade wars like the U.S. trade
war with China and increased political tensions in Russia, Europe or Asia. Such shortages, increased component lead times,
reduced allocations of components and decommitments of orders have, and could continue to, result in increased component
prices, fewer sourcing options, unpredictability of supply, manufacturing disruptions and increased product lead times. In the
past, we have also experienced shortages in inventory for dynamic random access memory integrated circuits, semiconductors
and delayed releases of the next generation of chipset, which delayed our production and/or the release of our new products.
In addition, we have experienced an increase in cost of certain components.
Although we have increased our purchase commitments to support long-term customer demand, if we are unable to
obtain sufficient 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, shipments 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 a cancellation of orders, lost sales, reduced gross
margins or damage to our end customer relationships, which would adversely impact our business, financial condition, results
of operations and prospects. Additionally, if our suppliers do not meet their commitments or actual demand does not directly
match with our demand forecasts, it could result in excess or obsolete inventory, which we would be required to write down
to its estimated realizable value, which in turn could result in lower gross margins.
Our reliance on component suppliers also yields the potential for the infringement or misappropriation of third-party
intellectual property rights due to the incorporation of such components into our products. We may not be indemnified by
such component suppliers for such infringement or misappropriation claims. Any litigation for which we do not receive
indemnification could require us to incur significant 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.
Our product development efforts 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 features, that our products take advantage of such improved features, and that such vendors are
able to supply us with sufficient quantities on commercially reasonable 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 sufficient 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 other products to
our customers.
If our key merchant silicon vendors do not continue to innovate, if there are delays in the release of their products
or supply shortages, if they no longer collaborate in such fashion or if such merchant silicon is not offered to us on
commercially reasonable terms, our 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, damage to our customer relationships or otherwise have a material effect on revenue and business,
financial condition, results of operations and prospects.
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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 component shortages or the
cost of carrying inventory. In addition, our component suppliers change their selling prices frequently in response to market
trends, including industry-wide increases in demand, and because we do not have contracts with these suppliers or guaranteed
pricing, we are susceptible to availability or price fluctuations related to raw materials and components. If we are unable to
pass component price increases along to our end customers or maintain stable pricing, our gross margins could be adversely
affected and our business, financial condition, results of operations and prospects could suffer.
Adverse economic conditions or reduced information technology and network infrastructure spending may adversely
affect our business, financial condition, results of operations and prospects.
Our business depends on the overall demand for information technology, network connectivity 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 improve, could adversely affect our 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, the global macroeconomic environment could be negatively
affected by, among other things, the COVID-19 pandemic or other epidemics, instability in global economic markets,
increased U.S. trade tariffs and trade disputes between the U.S., China and other countries, increased political tensions in
Europe and Asia, 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"), the threat of potential Russian invasion of Ukraine, political tensions between Taiwan and China,
political demonstrations, and foreign governmental debt concerns. 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 business disruptions around the world and may result in customers
delaying or canceling capital expenditures on information technology and network infrastructure, which may affect the overall
demand for our products. In light of the manufacturing disruptions and supply chain constraints caused by the COVID-19
pandemic, end customers may also be placing orders in advance of demand to ensure supply. Continuing or worsening
economic instability could result in a cancellation of such orders or otherwise adversely affect spending for IT, network
infrastructure, systems and tools. A downturn may also significantly affect financing markets, the availability of capital and
the terms and conditions of financing arrangements, including the overall cost 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 capital, and
such capital may not be available on commercially reasonable terms, or at all.
We face intense competition, especially from larger, 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, campus 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 profit margins, increased sales and marketing
expenses and our failure to increase, or the loss of, market share, any of which would likely seriously harm our business,
financial condition, results of operations and prospects.
The data center and campus networking markets have been historically dominated by Cisco, with competition also
coming from other large network equipment and system vendors, including Extreme Networks, Dell/EMC, Hewlett Packard
Enterprise, and Juniper Networks. Most of our competitors and some strategic alliance partners have made acquisitions and/or
have entered into or extended partnerships or other strategic relationships to offer more comprehensive product lines,
including cloud networking solutions and network security. For example, Cisco acquired Acacia Communications, Broadcom
acquired Brocade Communications Systems, Extreme Networks purchased certain data center networking assets from
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Broadcom/Brocade and Avaya, Dell acquired EMC, and Hewlett Packard Enterprise acquired Aruba Networks. This industry
consolidation may lead to increased competition and may harm our business. Large system vendors are increasingly seeking
to deliver top-to-bottom cloud networking solutions to end customers that combine cloud-focused hardware and software
solutions to provide an alternative to our products. We expect this trend to continue as companies attempt to strengthen their
market positions in an evolving industry and as companies are acquired or are unable to continue operations. Industry
consolidation may result in stronger competitors that are better able to compete with us, and this could lead to more variability
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.
We also face competition from other companies and new market entrants, including current technology partners,
suppliers and end customers or other cloud service providers 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 networking products based on off-the-shelf or commoditized hardware technology, or “white
box” hardware, particularly where an end customer’s network strategy seeks to emphasize deployment of such product
offerings or adopt a disaggregated approach to the procurement of hardware and software. End customers may 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 our business, prospects, financial condition and operating results.
Our relationships with our strategic alliance partners or suppliers may also shift as industry dynamics changes. If
strategic alliance partners acquire or develop competitive products or services, our relationship with those partners may be
adversely impacted, which could lead to more variability to our results of operations and impact the pricing of our solutions.
Many of our existing and potential competitors enjoy substantial competitive advantages, such as greater name
recognition and longer operating histories, larger sales and marketing budgets and resources, broader distribution and
established relationships with channel partners and end customers, the ability to leverage their sales efforts across a broader
portfolio of products, the ability to bundle competitive offerings with other products and services, the ability to develop their
own silicon chips, the ability to set more aggressive pricing policies, lower labor and development costs, greater resources to
make acquisitions, larger intellectual property portfolio, and substantially greater financial, technical, research and
development or other resources.
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. Our ability to compete will depend upon our 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, and we cannot assure you that these investments will
achieve any returns for us or that we will be able to compete successfully in the future.
We also expect increased competition if our market continues to expand. As we continue to expand globally, we
have seen and continue to see new competition in different geographic regions. In particular, we have experienced and could
continue to 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 other 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 our market could change rapidly and significantly
as a result of technological advancements or other factors.
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 our future success will depend to a significant extent on our ability to expand
our operations and customer base worldwide. Many of our customers, resellers, partners, suppliers and manufacturers operate
around the world. Operating in a global marketplace, we are subject to risks associated with having an international reach
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and compliance and regulatory requirements. Our international sales and operations are subject to a number of risks,
including the following:
•
ability to establish necessary business relationships and to comply with local business requirements,
including distributor and reseller relationships;
•
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods
and non-standard terms with customers related to payment, warranties or performance obligations;
•
•
•
•
increased expenses incurred in establishing and maintaining our international operations;
fluctuations in exchange rates between the U.S. dollar and foreign currencies where we do business;
general economic and political conditions in these foreign markets;
risks associated with U.S. and foreign legal requirements, including those relating to anti-corruption, anti-
bribery, privacy, data protection and the importation, certification and localization of our products in foreign countries;
•
risks associated with U.S. government trade restrictions, including those which may impose restrictions,
including prohibitions, on the exportation, re-exportation, sale, shipment or other transfer of programming, technology,
components, and/or services to foreign persons;
•
•
risks of unexpected changes in regulatory practices, tariffs and tax laws and treaties;
greater risk of unexpected changes in tariffs imposed by the U.S. and other countries;
•
deterioration of political relations between the U.S. and China, Russia, Canada, Mexico, the United
Kingdom and the EU, which could have a material adverse effect on our sales and operations as well as our supply chain in
these countries;
•
•
the uncertainty of protection for intellectual property rights in some countries; and
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent
sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements.
These and other factors could harm our ability to gain future international revenue and, consequently, materially
affect 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 effectively could limit our future
growth or materially adversely affect our business, financial condition, results of operations and prospects.
We have invested and may continue to invest in or acquire other businesses which could require significant
management attention, disrupt our business, dilute stockholder value and adversely affect our business, financial
condition, results of operations and prospects.
As part of our business strategy, we have made and could continue to make investments in complementary
companies, products or technologies which could involve licenses, additional channels of distribution, discount pricing or
investments in or acquisitions of other companies. For example, we completed the acquisition of Awake Security in October
2020 which required management to focus efforts on integrating Awake Security with the company. 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 our goals, and any investments or acquisitions we complete could be viewed negatively by our end
customers, investors and securities analysts. Through acquisitions, we continue 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
manufactured and sold products, including facing exposure to new market risks, difficulty achieving expected business results
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due to a lack of experience in new markets, products or technologies or the initial dependence on unfamiliar distribution
partners or vendors.
In addition, investments and acquisitions may result in unforeseen operating difficulties and expenditures. For
example, if we are unsuccessful at integrating any acquisitions or retaining key talent from those acquisitions, or 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 affected. We may have difficulty retaining the employees of any
acquired business or the acquired technologies or research and development expectations may prove unsuccessful. Any
integration process may require significant time and resources, and we may not be able to manage the process successfully.
Acquisitions may also disrupt our ongoing business, divert our resources and require significant 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 the financial effects of an acquisition transaction, including accounting
charges. Any acquisition or investment could expose us to unknown liabilities. Moreover, we cannot assure you that the
anticipated benefits of any acquisition or investment would be realized or that we would not be exposed 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 efficiencies anticipated with the acquisition. We may have to pay cash, incur debt or issue
equity securities to pay for any such investment or acquisition, each of which could adversely affect our financial condition
or the market price of our common stock. The sale of equity 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 could also
include covenants or other restrictions that would impede our ability to manage our operations. Moreover, if the investment
or acquisition becomes impaired, we may be required to take an impairment charge, which could adversely affect our financial
condition or the market price of our common stock.
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. Our rapid historical growth may have reduced the impact of seasonal or cyclical factors that might have
influenced our business to date. If 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 affect our business, financial condition, results of
operations and prospects. In addition, the current industry-wide supply chain shortages and extended lead times and their
impact on our ability to ship products to our customers in a timely manner may disrupt typical seasonal trends.
We are exposed to fluctuations in currency exchange rates, which could adversely affect our business, financial
condition, results of operations and prospects.
Our sales contracts are primarily denominated in U.S. dollars, and therefore, substantially all of our revenue is not
subject to foreign currency risk. However, a strengthening U.S. dollar could increase the real cost of our products to our end
customers outside of the U.S., which could adversely affect 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 changes in foreign currency exchange rates. If we are not able to
successfully hedge against the risks associated with the currency fluctuations, our business, financial condition, results of
operations and prospects could be adversely affected.
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 sufficient to meet our anticipated cash needs for the
foreseeable future. If we did need to raise additional funds to expand our operations, invest in new products or for other
corporate purposes, we may not be able to obtain additional debt or equity financing on favorable terms. If we raise additional
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equity financing, our stockholders may experience significant dilution of their ownership interests, and the market price of
our common stock could decline. Furthermore, if we engage in debt financing, the holders of such debt would have priority
over the holders of common stock, and we may be required to accept terms that restrict our ability to incur additional
indebtedness or impose other restrictions on our 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 other things, enhance our products and services, expand our sales and
marketing and research and development organizations, acquire complementary technologies, products or businesses, and
respond to competitive pressures or unanticipated working capital 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 affected and our revenue could decrease.
To increase our revenue, we must add new end customers, especially large end customers, and sell additional
products and services to existing end customers. For example, one of our sales strategies is to target specific projects at our
current end customers because they are familiar with the operational and economic benefits of our solutions, thereby reducing
the sales cycle into these customers. We also believe the opportunity with current end customers is significant given their
existing infrastructure and expected future spend. Another one of our sales strategies is focused on increasing penetration in
the enterprise and campus markets. However, sales strategies focused on expansion to adjacent markets can require more
time and effort since enterprise and campus end customers typically start with small purchases, and there is often a long
testing period. For this reason, in order to grow our revenue, it is important for us to attract new large end customers. Some
factors that may limit our ability to attract new large end customers include, but are not limited to, saturation with certain
large cloud networking customers, competition, decreased capital spending by such customers, a limited number of such
customers, and a decline in growth at 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 products to our existing end customers, our
business, financial condition, results of operations and prospects will be harmed.
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, 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 customers primarily due to
changes in demand patterns specific 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 our customer
concentration and timing of sales on a quarterly and annual basis. For example, sales to our end customers Microsoft and
Meta Platforms in fiscal 2019 collectively represented 40% of our total revenue, whereas sales to our end customer Microsoft
in fiscal 2020 and 2021 amounted to 21.5% and 15.0% of our revenues, respectively, with our end customer Meta Platforms
representing less than 10% of our revenues in both fiscal 2020 and 2021. We expect customer concentration with these large
customers to be cyclical and linked to new product introductions and customer investment cycles. 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 purchasing behavior, our quarterly
revenue and results of operations may fluctuate from quarter to quarter and are difficult 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 resources and expenditures or purchasing behavior and deceleration in spending of our key end customers
could significantly decrease our sales to such end customers or could lead to delays, reductions or cancellations of planned
purchases of our products or services.
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Moreover, because our sales are based primarily on purchase orders, our customers may cancel, delay, reduce or
otherwise modify their purchase commitments with little or no notice to us. For example, due to the manufacturing disruptions
and supply chain constraints caused by the COVID-19 pandemic, end customers may be placing orders in advance of demand
to ensure supply. End customers may decide to delay or cancel such orders if economic conditions worsen. This limited
visibility regarding our end customers’ product needs, the timing and quantity of which could vary significantly, requires us
to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture. Our failure
to accurately forecast demand can lead to product shortages which could lead to delays in fulfilling current and future purchase
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 may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue
on our business, and in addition, could incur increased excess and obsolete inventory charges, all of which could materially
affect our operating results.
We may be unable to sustain or increase our revenue from our large end customers, grow revenues with new or other
existing end customers at the rate we anticipate or at all, or offset the discontinuation of concentrated purchases by our larger
end customers with 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 concessions for our services, require us to provide
enhanced services that increase our costs, or reduce their spending levels. If these factors drove some of our large customers
to cancel all or a portion of their business relationships with us, the growth 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 materially as a
result of such larger end customers’ buying patterns. In addition, we may see consolidation of our customer base, such as
among Internet companies and cloud service providers, which could result in loss of end customers. The loss of such end
customers, or a significant delay or reduction in their purchases, including reductions or delays due to customer departures
from recent buying patterns, or an unfavorable 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 products we
introduced 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 our success, particularly for the service provider and broader
enterprise markets. If our marketing efforts are unsuccessful 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 affected, and we will not be able to achieve sustained growth.
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 agree to terms and
conditions that may have an adverse effect on our business or ability to recognize revenue.
Our large end customers have significant purchasing power and, as a result, may receive more favorable terms and
conditions than we typically provide to other end customers, including lower prices, bundled upgrades, extended warranties,
acceptance terms, indemnification terms and extended return policies and other contractual rights. As we seek to sell more
products to these large end customers, an increased mix of our shipments may be subject to such terms and conditions, which
may reduce our margins or affect the timing of our revenue recognition and thus may have an adverse effect 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 foreseeable future. We have experienced declines in sales prices for our products, including our 10
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Gigabit Ethernet modular and fixed switches. A decline in the price of switches and related services, or our inability to increase
sales of these products, would harm our business, financial condition, results of operations and prospects more seriously than
if we derived significant revenue from a larger variety of product lines and services. Our future financial performance 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 profits and adversely affect
our results of operations.
The sales prices for our products 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, product and related warranty costs
or broader macroeconomic factors. In addition, we have provided, and may in the future 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, thereby leading to
increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of
products and services that compete with ours or may bundle them with other 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 adversely affect actual prices that partners and end customers are willing to pay in those countries and regions.
Furthermore, sales prices and gross profits for our products may decrease over product life cycles. Decreased sales prices for
any reason may reduce our gross profits and adversely affect our result of operations.
Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a
result, our sales and revenue are difficult to predict and may vary substantially from period to period, which may
cause our results of operations to fluctuate significantly.
The timing of our sales and revenue recognition is difficult to predict because of the length and unpredictability of
our products’ sales cycles. A sales cycle is the period between initial contact with a prospective end customer and any sale of
our products. End-customer orders often involve the purchase of multiple products. These orders are complex and difficult 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, often view the
purchase of our products as a significant and strategic decision and require considerable time to evaluate, test and qualify our
products prior to making a purchase decision and placing an order. The length of time that end customers devote to their
evaluation, contract negotiation and budgeting processes varies significantly. 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 significant time and
money on sales and marketing activities and make 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
affecting the timing of our recognition of revenue, which makes our revenue difficult to forecast. For example, there may be
unexpected delays in an end customer’s internal procurement processes, particularly for some of our larger end customers for
which our 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 specific to end customers that contribute to the timing of their purchases and the
variability of our revenue recognition, including the strategic importance of a particular project to an end customer, budgetary
constraints and changes in their personnel.
Even after an end customer makes a purchase, there may be circumstances or terms relating to the purchase that
delay our ability to recognize revenue from that purchase. In addition, the significance and timing of our product
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enhancements, and the introduction of new products by our competitors, may also affect end customers’ purchases. For all of
these reasons, it is difficult 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 lengthen, our revenue could be lower than
expected, which would have an adverse effect on our business, financial condition, results of operations and prospects.
Our ability to sell our products is highly dependent on the quality of our support and services offerings, and our failure
to offer high-quality support and services could have a material adverse effect 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
organization and our channel partners to resolve any issues relating to our products. High-quality support is critical for the
successful marketing and sale of our products. If we or our channel partners do not assist our end customers in deploying our
products effectively, do not succeed in helping our end customers resolve post-deployment issues quickly or do not provide
adequate ongoing support, or if we experience quality issues with these new products, it could adversely affect our ability to
sell our products to existing end customers and could harm our reputation with potential end customers. In addition, as we
expand our operations internationally, our support organization will face additional challenges, including those associated
with delivering support, training and documentation in languages other than English. Our failure or the failure of our channel
partners to maintain high-quality support and services could have a material adverse effect on our business, financial
condition, results of operations and prospects.
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 our
annual revenue comes from renewals of maintenance and support contracts. Our end customers have no obligation to renew
their maintenance and support contracts after 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 lower prices through alternative
channel partners or to reduce the product quantity under their maintenance and support contracts, thereby reducing our future
revenue from maintenance and support contracts. If our end customers, especially our large end customers, do not renew their
maintenance and support 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 suffer.
Our standard sales contracts contain indemnification provisions requiring us to defend our end customers against
third-party claims, including against infringement 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 indemnification provisions of our standard sales contracts, we agree to defend our end customers and
channel partners against third-party claims asserting infringement of certain intellectual property 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.
Our exposure under these indemnification provisions is frequently limited to the total amount paid by our end
customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose
us to losses in excess of the amount received under the agreement. Any of these events, including claims for indemnification,
could seriously harm 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 resellers to sell
our products, and our failure to effectively develop, manage or prevent disruptions to our distribution channels and
the processes and procedures that support them could cause a reduction in the number of end customers of our
products.
Our future success is highly dependent upon maintaining our relationships with distributors, systems integrators and
value-added resellers and establishing additional sales channel relationships. We anticipate that sales of our products to a
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limited number of channel partners will continue to account for a material portion of our total product revenue for the
foreseeable future. We provide our channel partners with specific training and programs to assist them in selling our products,
but these steps may not be effective. In addition, our channel partners may be unsuccessful in marketing, selling and
supporting our products and services. If we are unable to develop and maintain effective sales incentive programs for our
channel partners, we may not be able to incentivize these partners to sell our products to end customers. These partners may
have incentives to promote our competitors’ products to the detriment of our own or may cease selling our products altogether.
One of our channel partners could elect to consolidate or enter into a strategic partnership with one of our competitors, which
could reduce or eliminate our future opportunities with that channel partner. Our agreements with our channel partners may
generally be terminated for any reason by either party with advance notice. We may be unable to retain these channel partners
or secure additional or replacement channel partners. The loss of one or more of our significant channel partners requires
extensive training, and any new or expanded relationship with a channel partner may take several months or more to achieve
productivity.
Where we rely on the channel partners for sales of our products, we may have little or no contact with the ultimate
users of our products that purchase through such channel partners, thereby making it more difficult for us to 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 partner sales structure could subject
us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresent the
functionality of our products or services to end customers, fail to comply with their contractual obligations or violate laws or
our corporate policies. If we fail to effectively manage our existing sales channels, or if our channel partners are unsuccessful
in fulfilling the orders for our products, if we are unable to enter into arrangements with, and retain a sufficient number of,
high-quality channel partners in each of the regions in which we sell products and keep them motivated to sell our products,
our ability to sell our products and our business, financial condition, results of operations and prospects will be harmed.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and
risks.
We anticipate increasing our sales efforts to U.S. and foreign, federal, state and local governmental end customers
in the future. Sales to government entities are subject to a number of risks. Selling to government entities can be highly
competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that
these efforts will generate a sale. The substantial majority of our sales to date to government entities have been made indirectly
through our channel partners. 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 certifications. Government demand and
payment for our products and services may be affected by public sector budgetary cycles and funding authorizations, with
funding reductions or delays adversely affecting public sector demand for our products and services. Government entities
may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience
or due to a default, and any such termination may adversely 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, classified material,
prohibitions against use of certain foreign components in our products and services and other matters. Complying with such
regulations may also require us to put in place controls and procedures to monitor compliance with the applicable regulations
that may be costly or not possible. We are not currently certified to perform work under classified contracts with government
entities. Failure to comply with any such regulations could adversely affect 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 buy our products and services, a reduction of revenue, fines or
civil or criminal liability if the audit uncovers improper or illegal activities, any of which could materially adversely affect
our business, financial condition, results of operations and prospects. The U.S. government may require certain products that
it purchases to be manufactured in the U.S. and other relatively high-cost manufacturing locations, and we may not
manufacture all products in locations that meet these requirements. Any of these and other circumstances could have a
material adverse effect on our business, financial condition, results of operations and prospects. In addition, the U.S.
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government may require that products it purchases contain a certain threshold of “domestic origin” components in order to
meet “Buy America” requirements.
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 individual end-customer payment
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 doubtful accounts. We are unable to recognize
revenue from shipments until the collection of those amounts becomes reasonably assured. Any significant delay or default
in the collection of significant accounts receivable could result in an increased need for us to obtain working capital from
other sources, possibly on worse terms than we could have negotiated if we had established such working capital resources
prior to such delays or defaults. Any significant default could adversely affect our results of operations and delay our ability
to recognize revenue.
A material portion of our sales is derived through our distributors, systems integrators and value-added resellers.
Some of our distributors, systems integrators and value-added resellers may experience financial difficulties, which could
adversely affect our collection of accounts receivable. Distributors tend to have more limited financial resources than other
systems integrators, value-added resellers and end customers. Distributors 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 partners may increase if our channel partners and their end customers are adversely affected by global or
regional economic conditions. One or more of these channel partners could delay payments or default on credit extended to
them, either of which could materially adversely affect 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.
We produce highly complex products that incorporate advanced technologies, including both hardware and software
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 errors could affect the performance of our products,
could result in a failure of appropriate updates to be distributed or installed, could 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 otherwise addressing defects, errors or vulnerabilities, cause us to lose significant
end customers, harm our reputation and market positions, subject us to liability for damages, subject us to litigation, regulatory
inquiries or investigations, and divert our resources from other tasks, any one of which could materially adversely affect our
business, financial condition, results of operations and prospects.
From time to time, we have had to replace certain components of products that we had shipped and provide
remediation in response to the discovery of defects or bugs, including failures in software protocols or defective component
batches resulting in reliability issues, in such products, and we may be required to do so in the future. We may also be required
to provide full replacements or refunds for such defective products. We cannot assure you that such remediation or any of the
other circumstances described above, including claims, litigation, or regulatory investigations, would not have a material
effect on our business, financial condition, results of operations and prospects.
If we do not successfully anticipate technological shifts and develop products and product enhancements that meet
those technological shifts, if those products are not made available in a timely manner or do not gain market
acceptance, or if we do not successfully manage product introductions, we may not be able to compete effectively, and
our ability to generate revenue will suffer.
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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 our
existing products and developing new technology is complex and uncertain, and new offerings require significant upfront
investment that may not result in material design improvements to existing products or result in marketable new products or
costs savings or revenue for an extended period of time, if at all.
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 affected if such
technologies are widely adopted. For example, end customers may prefer to address their network switch requirements by
licensing software operating systems separately and placing them on “white box” hardware rather than purchasing integrated
hardware products as has occurred in the server industry. Additionally, end customers may require product upgrades including
higher Ethernet 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 products and enhancements to our products and
services, including new products 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 product definition, the development of product
features that sufficiently meet end-user requirements, our ability to manage the risks associated with new product production
ramp-up issues, component costs, availability of components, timely completion and introduction of these products, prompt
solution of any defects or bugs in these products, our ability to support these products, differentiation of new products from
those of our competitors and market acceptance of these products. For example, our new product releases will require strong
execution from our third-party 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 sufficient quantities of these components. If
we are unable 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
affected.
Our product releases introduced new software products that include the capability for disaggregation of our software
operating systems from our hardware. The success of our strategy to expand our software business is subject to a number of
risks and uncertainties including the additional development efforts and costs to create these new products or make them
compatible with other technologies, the potential for our strategy to negatively impact revenues and gross margins and
additional costs associated with regulatory compliance.
We may not be able to successfully anticipate or adapt to changing technology or end-customer 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 affect our business, financial
condition, results of operations and prospects.
Our products must interoperate with operating systems, software applications and hardware that is 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.
Generally, our products comprise only a part of the network infrastructure and must interoperate with our end
customers’ existing infrastructure, specifically their networks, servers, software and operating systems, which may be
manufactured by a wide variety of vendors and OEMs. Our products must comply with established industry standards in
order to interoperate with the servers, storage, software and other networking equipment in the network infrastructure such
that all systems function efficiently together. We depend on the vendors of servers and systems in a data center to support
prevailing industry standards. Often, these vendors are significantly larger and more influential in driving industry standards
than we are. Also, some industry standards may not be widely adopted or implemented uniformly and competing standards
may emerge that may be preferred by our end customers.
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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 products will interoperate properly. We may not
accomplish these development efforts quickly, cost-effectively or at all. These development efforts require capital investment
and the devotion of engineering resources. If we fail to maintain compatibility with 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 other consequences, which would adversely affect our business, financial
condition, results of operations and prospects.
Risks Related to Supply Chain and Manufacturing
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 our inventory management systems and related supply-chain
visibility tools may not enable us to forecast accurately and effectively manage the supply of our products and product
components. Our ability to manage our supply chain may also be adversely affected by other factors including geopolitical
conditions such as the impact of the COVID-19 pandemic and the U.S. trade war with China and increased political tensions
in Russia, Europe and Asia. The COVID-19 pandemic and related global geopolitical and economic conditions have resulted
in manufacturing and supply chain disruptions, including temporary closures of certain contract manufacturer and supplier
facilities which, in turn, have caused (and may continue to cause) shortages of, and extended lead times for, components used
to manufacture our products, a reduction, unpredictability or interruption of supply, prioritization of component shipments to
other vendors and decommitments of orders. Insufficient component supply, or any increases in the time required to
manufacture our products, may lead to inventory shortages and manufacturing disruptions that could result in increased
customer lead times for our products, delayed revenue, cancellation of orders or loss of sales opportunities altogether as
potential end customers turn to competitors’ products that are readily available.
In order to reduce manufacturing lead times and plan for adequate component supply, we have issued and expect to
continue to issue purchase orders for components and products that are non-cancellable and non-returnable, including
purchase commitments for semiconductors as disclosed 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. As a result of COVID-
19 related supply disruptions, we have extended our demand planning horizon and increased our purchase commitments for
components and products in order to support long-term customer demand. There is however no guarantee that suppliers will
meet their commitments or that actual customer demand will directly match our demand forecasts. We establish a liability for
non-cancellable, non-returnable purchase commitments with our component inventory suppliers for quantities in excess of
our demand forecasts, or for products that are considered obsolete. In addition, we establish a liability and reimburse our
contract manufacturer for component inventory purchased on our behalf that has been rendered excess or obsolete due to
manufacturing and engineering change orders, or in cases where inventory levels greatly exceed our demand forecasts. Our
non-cancellable commitments and the cash deposits to secure our purchases to our contract manufacturers are disclosed 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. If we ultimately determine that we have excess inventory or obsolete inventory, we may
have to reduce our prices and write down inventory to its estimated realizable value, which in turn could result in lower gross
margins. If we are unable to effectively manage our supply and inventory, our business, financial condition, results of
operations and prospects could be adversely affected.
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-
effective basis, which may result in the loss of sales and end customers.
We depend on third-party contract manufacturers to manufacture our product lines. A significant portion of our cost
of revenue consists of payments to these third-party contract manufacturers. Our reliance on these third-party contract
manufacturers reduces our control over the manufacturing process, quality assurance, product costs and product supply and
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timing, which exposes us to risk. Our reliance on contract manufacturers also yields the potential for their infringement of
third-party intellectual property rights in the manufacturing of our products or their misappropriation of our intellectual
property rights in the manufacturing of other customers’ products. If we are unable to manage our relationships with our third-
party contract manufacturers effectively, or if these third-party manufacturers suffer delays or disruptions or quality control
problems in their operations, experience increased manufacturing lead times, capacity constraints or fail to meet our future
requirements for timely delivery, our ability to ship products to our end customers would be severely impaired, and our
business, financial condition, results of operations and prospects would be seriously harmed.
To the extent that our products are manufactured at facilities in foreign countries, we may be subject 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, some of our contract
manufacturers have experienced temporary closures and labor shortages as a result of shelter in place orders issued in their
local jurisdictions. While our manufacturing sites are currently operational, further shelter in place orders, factory closures
or reductions in staffing in these or other manufacturing sites would result in material disruptions, increased lead times and
supply shortages of our products.
Our contract manufacturers typically fulfill our supply requirements on the basis of individual orders. We do not
have long-term contracts with our third-party manufacturers that guarantee capacity, the continuation of particular pricing
terms or the extension of credit limits. Accordingly, they are not obligated to continue to fulfill 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-party manufacturer, thereby utilizing all or
substantially all of such third-party manufacturer’s capacity and leaving the manufacturer little or no capacity to fulfill our
individual orders without price increases or delays, or at all. Our contract with one of our contract 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 manufacturers in a timely manner.
If we add or change contract manufacturers or change any manufacturing plant locations within a contract
manufacturer 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 qualified to manufacture our
products to our standards and industry requirements could take significant effort and be time consuming and expensive. Any
addition or change in manufacturers may be extremely costly, time consuming and we may not be able to do so successfully.
In addition, we may be subject to additional significant challenges to ensure that quality, processes and costs, among
other issues, are consistent with our expectations and those of our customers. A new contract manufacturer or manufacturing
location may not be able to scale its production of our products at the volumes or quality we require. This could also adversely
affect our ability 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 customers, late delivery penalties, delayed revenue or an
increase in our costs which could adversely affect our gross margins. This could also result in increased levels of inventory
subjecting us to increased excess and obsolete charges that could have a negative 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 property
litigation or quality problems, at one of our manufacturing partners would adversely affect sales of our product lines
manufactured by that manufacturing partner and adversely affect our business, financial condition, results of operations and
prospects.
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 our 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, adjusted for overall market conditions and other factors. More recently, in order
to address supply chain shortages and extended lead times, we have extended our demand planning horizon and increased
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our purchase commitments with our contract manufacturers and suppliers, and we have issued and may continue to issue
purchase orders for components and products that are non-cancellable and non-returnable including purchase commitments
for semiconductors as disclosed 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. However, there is no guarantee that suppliers
will meet their commitments or that actual customer demand will directly match our demand forecasts. Our non-cancellable
commitments and the cash deposits to secure our purchases to our contract manufacturers are disclosed 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. If our forecasts are materially inaccurate, customers' orders are cancelled or if we otherwise do not
need such inventory, we may under- or over-procure inventory, and such inaccuracies in our forecasts could materially
adversely affect our 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 other
lawsuits asserted against us, could result in significant costs and substantially harm our business, financial condition,
results of operations and prospects.
Patent and other intellectual property disputes are common in the network infrastructure, network security and Wi-
Fi industries and have resulted in protracted and expensive litigation for many companies. Many companies in the network
infrastructure, network security and Wi-Fi industries, including our competitors and other third 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 infringement, misappropriation, or other violations of intellectual property rights against us. From time to
time, they have or may in the future also assert such claims against us, our end customers or channel partners whom we
typically indemnify against claims that our products infringe, misappropriate or otherwise violate the intellectual property
rights of third parties. For example, we have previously been involved in litigation with Cisco and OptumSoft, and are
currently involved in litigation with WSOU, which is described in the “Legal Proceedings” subheading 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.
As the number of products and competitors in our market increases and overlaps occur or if we enter into new
markets, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim
of infringement, misappropriation or other violations of intellectual property rights by a third-party, even those without merit,
could cause us to incur substantial costs defending against the claim, distract our management from our business and require
us to cease use of such intellectual property. In addition, some claims for patent infringement may relate to subcomponents
that we purchase from third parties. If these third parties are unable or unwilling to indemnify us for these claims, we could
be substantially harmed.
The patent portfolios of most of our competitors are larger than ours. This disparity may increase the 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 relevant product revenue and against whom
our own patents may therefore provide little or no deterrence or protection. We cannot assure you that we are not infringing
or otherwise violating any third-party intellectual property rights.
The third-party 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 expenses, additional
burdens on employees or other resources, distraction from our business, supply stoppages and lost sales.
An adverse outcome of a dispute may require us to pay substantial damages or penalties including treble damages if
we are found to have willfully infringed a third-party’s patents; cease making, licensing, using or importing into the U.S.
products or services that are alleged to infringe or misappropriate the intellectual property of others; expend additional
development resources to attempt to redesign our products or services or otherwise to develop non-infringing technology,
which may not be successful; enter into potentially unfavorable royalty or license agreements in order to obtain the right to
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use necessary technologies or intellectual property rights; and indemnify our partners and other third parties. Any damages,
penalties or royalty obligations we may become subject to as a result of an adverse outcome, and any third-party indemnity
we may need to provide, could harm our 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 other expenditures. Further, 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 therefore our competitors may have access to the same technology licensed to us. Suppliers subject
to third-party intellectual property claims also may choose or be forced to discontinue 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.
In the event that we are found to infringe any third-party intellectual property, we could be enjoined, or subject to
other 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 affected products or services, we (or our component suppliers)
would be required to develop technical redesigns to this third-party intellectual property that no longer infringe the third-
party intellectual property. In any efforts to develop technical redesigns for these products 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 intellectual property or that is
acceptable to our customers. These redesign efforts 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 affected solutions. We may not
be successful in our efforts to obtain such approvals in a timely manner, or at all. Any failure to effectively redesign our
solutions or to obtain timely approval of those redesigns by a court or administrative body may cause a disruption to our
product shipments and materially and adversely affect 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 after 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.
If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be
required to incur significant expenses to enforce our rights.
We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and
trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection.
The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute
all necessary 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 advantages, 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 confidentiality
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 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” licenses in some instances.
We have not registered our trademarks in all geographic markets. Failure to secure those registrations could
adversely affect our ability to enforce and defend our trademark rights and result in indemnification claims. Further, any claim
of infringement by a third-party, even those claims without merit, could cause us to incur substantial costs defending against
such claim, could divert management attention from our business and could require us to cease use of such intellectual
property in certain geographic markets.
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Despite our efforts, the steps we have taken to protect our proprietary rights may not be adequate to preclude
misappropriation of our proprietary information or infringement of our intellectual property rights, and our ability to police
such misappropriation or infringement is uncertain, particularly in countries outside of the United States.
Detecting and protecting against the unauthorized use of our products, technology and proprietary rights is
expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our
intellectual property 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 that we would be successful.
Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to
protecting their technology or intellectual property rights than we do. Accordingly, despite our efforts, 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 our market share.
We rely on the availability of licenses to third-party software and other intellectual property.
Many of our products and services include software or other intellectual property licensed from third parties, and
we otherwise use software and other intellectual property licensed from third parties in our business. This exposes us to risks
over which we may have little or no control. For example, a licensor may have difficulties keeping up with technological
changes or may stop supporting the software or other intellectual property that it licenses to us. Also, it will be necessary 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-party 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 products and services and could otherwise disrupt our business, until equivalent technology can be identified,
licensed or developed, if at all, and integrated into our products and services or otherwise in the conduct of our business.
Moreover, the inclusion in our products and services of software or other intellectual property licensed from third parties on
a nonexclusive basis may limit our ability to differentiate our products from those of our competitors. Any of these events
could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our products contain third-party open source software components, and failure to comply with the terms of the
underlying open source software licenses could restrict our ability to sell our products.
Our products contain software modules licensed to us by third-party authors under “open source” licenses. Use and
distribution of open source software may entail greater risks than use of third-party commercial software, as 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 code for modifications or derivative
works we create based upon the type of open source software that we use. If we combine our software with open source
software in a certain manner, we could, under certain open source licenses, be required to release portions of the source code
of our software to the public. This would allow our competitors to create similar products with lower development effort and
time and ultimately could result in a loss of product sales for us.
Although we monitor our use of open source software to avoid subjecting our products 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 products. Moreover,
we cannot assure you that our processes for controlling our use of open source software in our products will be effective. If
we are held to have breached the terms of an open source software license, we could be required to seek licenses from third
parties to continue offering our products on terms that are not economically feasible, to re-engineer our products, to
discontinue the sale of our products if re-engineering could not be accomplished on a timely basis or to make generally
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available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition,
results of operations and prospects.
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.
Our success and ability to compete depend substantially upon our internally developed technology, which is
incorporated in the source code for our products. We seek to protect the source code, design code, documentation and other
information relating to our software, under trade secret, patent and copyright laws. However, we have chosen to provide
access to selected source code of our software to several of our partners 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
intellectual property and enter into confidentiality or license agreements with such partners as well as with our employees
and consultants, this combination of procedural and contractual safeguards may be insufficient to protect our trade secrets
and other rights to our technology. Our protective measures may be inadequate, especially because we may not be able to
prevent our partners, employees or consultants from violating any agreements or licenses we may have in place or abusing
their access granted to our source code. Improper disclosure or use of our source code could help competitors develop
products similar to or better than ours.
Risks Related to Litigation
We may become involved in litigation that may materially adversely affect us.
From time to time, we may become involved in legal proceedings relating to matters incidental to the ordinary course
of our business, including patent, copyright, commercial, product liability, employment, class action, whistleblower and other
litigation, in addition to governmental and other regulatory investigations and proceedings. Such matters can be time-
consuming, divert management’s attention and resources, cause us to incur significant expenses or liability and/or require us
to change our business practices. For example, we were previously involved in litigation with Cisco and OptumSoft. In
addition, on November 25, 2020, WSOU Investments LLC ("WSOU") filed a lawsuit against us in the Western District of
Texas asserting that certain of our products infringe three WSOU patents. WSOU's allegations are directed to certain features
of our wireless and switching products. WSOU seeks remedies including monetary damages, attorney’s fees and costs. On
February 4, 2021, we filed an answer denying WSOU's allegations. On November 5, 2021, the case was transferred to the
Northern District of California; trial has been set for October 23, 2023. We intend to vigorously defend against the claims
brought against us by WSOU. However, we cannot be certain that any of WSOU's claims will be resolved in our favor,
regardless of the merits of those claims. Any adverse litigation ruling could result in a significant damages award against us
and injunctive relief.
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 adequate in a
particular case. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions
will not have a material adverse effect on our business, financial condition, results of operations and prospects.
For more information regarding the litigation in which we have been involved, see the “Legal Proceedings”
subheading 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 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 or incidents,
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 security attacks, including attacks
specifically designed to disrupt our business and our customers and introduce malicious software and attacks by state
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sponsors. If our products, services or internal networks, system or data are or are perceived to have been compromised, our
reputation may be damaged and our financial results may be negatively affected.
Organizations are increasingly subject to a wide variety of attacks on their networks, systems, endpoints, products
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 security incident. Additionally, any
defects, errors, or vulnerabilities in our security platform or in the hardware upon which it is deployed, including a failure to
implement updates to such platform, could temporarily or permanently limit our detection capabilities and expose our end-
customers’ networks, leaving their networks unprotected against the latest security threats. If customers of our security
platform do suffer a data security incident or data breach, even if it is not attributable to a failure of our platform to identify
any threat or vulnerability, customers may believe that our platform failed to detect a threat or vulnerability, which could
harm our reputation or negatively affect our financial results.
The classifications of application type, virus, spyware, vulnerability exploits, data, or URL categories by our security
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 platform. Any such false identification 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 significant data losses and the theft of our intellectual property, damage
our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain
the security of our networks and data.
We increasingly depend upon our IT systems to conduct virtually all of our business operations, ranging from our
internal operations and product development activities to our marketing and sales efforts and communications with our
customers and business partners. Computer programmers or other persons or organizations may attempt to penetrate our
network security, or that of our website or systems, and access, use, or obtain confidential, personal, or otherwise sensitive
or proprietary information about us or our customers, or via these or other methods, including denial of service attacks and
other cyberattacks, disrupt or cause interruptions of our service. These risks may increase due to the current COVID-19
pandemic. Because the techniques used to access, disrupt, or sabotage networks and systems change frequently and may not
be recognized until launched against a target, we may be unable 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 vulnerabilities or defects in design or manufacture, including “bugs” and other problems that could cause the software
or applications to fail or otherwise to unexpectedly interfere with the operation of the system or that could result in a breach
of or disruption to our systems, products, services or networks or the systems, networks, products, or services of third parties
that support us and our services. We also face risks of others gaining unauthorized access to our products and services and
introducing malicious software, and such malicious software, defects, bugs or vulnerabilities, or other defects, bugs, or
vulnerabilities in our products or services may result in failures or interruptions of our products or services or expose our end-
customers' networks, leaving their networks unprotected against the latest security threats. We have also outsourced a number
of our business functions to third parties, including our manufacturers, logistics providers, and 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 products and our sales operations depend, in part, on the
reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential,
sensitive, and proprietary data and deploy our IT resources with the use of security measures designed to prevent exposure
of our networks and systems to security breaches and incidents and the loss of data. We and all of the aforementioned third
parties also face the risk of ransomware and other malicious software, phishing schemes and other social engineering methods,
fraud and other malfeasance, cybersecurity threats from state sponsors and other actors, and intentional or negligent acts or
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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 our cybersecurity systems and
measures or those of any of the aforementioned third parties fail to protect against sophisticated cyber-attacks, other means
of effectuating security breaches or incidents, interruptions or other disruptions of our or our third-party service providers’
systems, networks, products, or services, the mishandling of data by employees and contractors, or any other means of
unauthorized access to, or use of, our manufacturing process, products, services, networks, systems, or data that we or such
third parties maintain, operate, or process, our ability to conduct our business effectively could be damaged in a number of
ways, including:
•
sensitive data regarding our business or our customers, including intellectual property and other
proprietary data, could be stolen or lost, modified, rendered unavailable, or otherwise used or processed;
•
our electronic communications systems, including email and other methods, or other systems, and
access to or availability of data, could be disrupted or harmed, and our ability to conduct our business operations
could be seriously damaged until such systems or data access and availability can be restored, which we may be
unable to achieve in a prompt manner or at all;
•
our ability to process customer orders and electronically deliver products and services could be
degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;
•
defects and security vulnerabilities could be introduced into our software, thereby damaging the
reputation and perceived reliability and security of our products and potentially making the data systems of our
customers vulnerable to further data loss and cyber incidents;
•
our manufacturing process, products, services, supply chain, network systems and data could be
corrupted; and
•
personal data of our customers, employees, contractors, and business partners could be lost,
accessed, obtained, modified, disclosed or used without authorization, or otherwise compromised.
Should any of the above events occur, or be perceived to occur, we could be subject to significant claims for liability
from our customers and others and regulatory investigations and actions from governmental agencies, and we could be
required to expend significant capital and other resources to remediate and otherwise address any data security incident or
breach, including to notify individuals, entities, or regulatory bodies and to implement measures in an effort to prevent further
breaches or incidents. In addition, our ability to protect our intellectual property rights could be compromised and our
reputation and competitive position could be significantly harmed. Also, the regulatory and contractual actions, proceedings,
litigation, investigations, fines, penalties and liabilities relating to any actual or perceived data breaches or security incidents
that result in losses of, damage or destruction of, or unauthorized access to or acquisition of, credit card information or other
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 may be disruptive to us. Additionally, we could incur significant costs in order to
upgrade our cybersecurity systems and other measures in an effort to prevent network and system disruptions and other
security breaches and other incidents. Even the perception of inadequate security may damage our reputation and negatively
impact our ability to win new customers and retain existing customers. Consequently, our financial performance and results
of operations could be adversely affected by any of the foregoing types of security breaches, incidents, vulnerabilities, or
other matters, or the perception that any of them have occurred.
In addition, we cannot assure that any limitation of liability provisions in our customer agreements, contracts with
third-party vendors and service providers or other 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 other 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 otherwise 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 our insurance policies,
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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.
Risks Related to Accounting, Compliance. Regulation and Tax
If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our
financial reporting may be adversely affected.
Assessing our processes, procedures and staffing in order to improve our internal control 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 our statement of cash flows. While we continue to automate our processes
and enhance our review controls to reduce the likelihood for errors, we expect that for the foreseeable future many of our
processes will remain manually intensive and thus subject to human error.
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 conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. A change in these principles or interpretations could harm our
revenue and financial results, and could affect the reporting of transactions completed before the announcement of a change.
In addition, we base our estimates on historical experience and on various other assumptions that we believe to be reasonable
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, revenue and expenses. Significant assumptions and estimates used in
preparing our consolidated financial statements include those related to revenue recognition, inventory valuation and contract
manufacturer/supplier liabilities, income taxes and loss contingencies. If our assumptions change or if actual circumstances
differ from those in our assumptions, our results of operations may be adversely affected and may fall below the expectations
of securities analysts and investors, resulting in a decline in the market price of our common stock.
Enhanced United States tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may have
a negative effect on global economic conditions, financial markets and our business.
There is currently significant uncertainty about the future relationship between the United States, and various other
countries, most significantly China, with respect to trade policies, treaties, tariffs and taxes. In 2018, the Office of the U.S.
Trade Representative (the “USTR”) enacted a tariff of 10% on imports into the U.S. from China, including communications
equipment products and components manufactured and imported from China. Since then, additional tariffs have been imposed
by the USTR on imports into the United States from China, and China has also imposed tariffs on imports into China from
the United States. Although the United States and China signed an interim trade agreement in January 2020, the new
administration has not yet negotiated a trade agreement.
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, trade restrictions, or trade barriers remain in place or if new tariffs, trade restrictions, or trade barriers are
placed on products such as ours by U.S. or foreign governments, especially China, our costs may increase. We believe we
can adjust our supply chain and manufacturing practices to minimize the impact of the tariffs, but our efforts may not be
successful, there can be no assurance that we will not experience a disruption in our business related to these or other changes
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in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-
consuming, and costly.
The U.S. tariffs may also cause customers to delay orders as they evaluate where to take delivery of our products in
connection with their efforts to mitigate their own tariff exposure. Such delays create forecasting difficulties for us and
increase the risk that orders might be canceled or might never be placed. Current or future tariffs imposed by the U.S. may
also negatively impact our customers' sales, thereby causing an indirect negative impact on our own sales. Even in the absence
of further tariffs, the related uncertainty and the market's fear of an escalating trade war might cause our distributors and
customers to place fewer orders for our products, which could have a material adverse effect on our 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 U.S.
government or foreign governments will act with respect to tariffs, international trade agreements and policies, a trade war,
further governmental action related to tariffs or international trade policies, or additional tax or other regulatory changes in
the future could directly and adversely impact our financial results and results of operations.
Changes in our income taxes or our effective 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 affect our results.
Our income taxes are subject to volatility and could be adversely affected by several factors, some of which are
outside of our control, including earnings 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
our deferred tax assets and liabilities; transfer pricing adjustments from tax authorities challenging our methods for valuing
developed technology or intercompany arrangements; tax effects of nondeductible compensation, including certain stock-
based compensation; tax costs related to inter-company restructuring; changes in accounting principles; imposition of
withholding or other taxes on payments by subsidiaries or customers; or a change in our decision to indefinitely reinvest
certain foreign earnings.
Significant judgment is required 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 recovery of previously
paid taxes, which if settled unfavorably could adversely affect income taxes or additional paid-in capital.
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. may have adverse effects on our operating results and could
impact the tax treatment of our earnings and cash and cash equivalent balances we currently maintain. Furthermore, due to
shifting economic and political conditions, tax policies or rates in various jurisdictions, including the United States, may be
subject to significant change. For example, the House of Representatives passed the Build Back Better Act containing tax
reform legislation that includes changes to provisions addressing global intangible low-taxed income, foreign derived
intangible income and the base erosion anti-abuse tax, and the disallowance of tax deductions for certain expenses, all of
which could result in increased marginal corporate tax rates if the bill is passed in the Senate. Beginning in 2022, the Tax
Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to deduct research and development expenditures currently and
requires taxpayers to amortize them over five years pursuant to IRC Section 174. Although Congress is considering legislation
that would defer the capitalization and amortization requirement to later years, we have no assurance that the provision will
be repealed or otherwise modified. If the requirement is not modified, it will materially increase our cash taxes beginning in
2022. We do not, however, anticipate any material change to our effective tax rate as we selected the deferred method of
accounting with respect to global intangible low tax income calculations. In addition, several countries, including the United
States and Ireland as well as the Organization for Economic Cooperation and Development have reached agreement on a
global minimum tax initiative. Many countries are also actively considering changes to existing tax laws or have proposed
or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way
we operate our business.
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Finally, we are subject to the examination of our income tax returns by the Internal Revenue Service (“IRS”) and
other tax authorities. Audits by the IRS or other tax authorities are subject to inherent uncertainties and could result in
unfavorable 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 interpretations 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
unpredictable 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 effective tax rate, the enactment of new tax laws or changes in the
application or interpretation of existing tax laws or adverse outcomes resulting from examination of our tax returns by tax
authorities will not have an adverse effect 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.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including
agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety,
environmental laws (including new laws related to climate change), consumer protection laws, privacy, data protection, anti-
bribery laws, import/export controls, conflict minerals, federal securities laws and tax laws and regulations. In certain
jurisdictions, these regulatory requirements may be more stringent than those in the United States. For example, the EU has
implemented the General Data Protection Regulation (“GDPR”). The GDPR provides for substantial 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 revenue or €20 million, whichever is higher. We have relied on the E.U.-U.S.
and Swiss-U.S. Privacy Shield programs, and the use of standard contractual clauses approved by the European Commission
("SCC"), to legitimize these transfers. Both the E.U.-U.S. Privacy Shield and the SCCs have been subject to legal challenge.
We continue to analyze the July 2020 “Schrems II” decision by the Court of Justice of the E.U. ("CJEU") and its impact on
our data transfer mechanisms as well as subsequent guidance from data privacy regulators and new SCCs published by the
European Commission in June 2021. The effects of the CJEU's decision and related developments relating to cross-border
data transfer are uncertain and difficult to predict. Among other effects, we may experience additional costs associated with
increased compliance burdens and new contract negotiations with third parties that aid in processing data on our behalf. We
may experience reluctance or refusal by current or prospective European customers to use our products, and we may find it
necessary or desirable to make further changes to our handling of personal data of residents of the European Economic Area
(“EEA”). The regulatory environment applicable to the handling of EEA residents’ personal data, and our actions taken in
response, may cause us to assume additional liabilities 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, distract management and technical personnel and
negatively affect 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 transfers between EU member states and the UK.
Several jurisdictions have passed new laws and regulations relating to privacy, data protection, and other matters,
and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be
inconsistent from jurisdiction to jurisdiction. For example, the California Consumer Privacy Act (“CCPA”) became operative
on January 1, 2020. The CCPA requires covered companies to, among other things, provide new disclosures to California
consumers, and affords such consumers new abilities to opt-out of certain sales of personal information. Certain aspects of
the CCPA and its interpretation remain uncertain and are likely to remain uncertain for an extended period. Further, a new
privacy law, the California Privacy Rights Act (“CPRA”), was approved in the November 3, 2020 election. The CPRA
modifies the CCPA significantly, creating obligations relating to consumer data beginning on January 1, 2022, with
implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. Passage of the CPRA
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has resulted in further uncertainty and may require us to incur additional costs and expenses in an effort to comply. In addition
to the CCPA, numerous other states’ legislatures are considering similar laws that will require ongoing compliance efforts
and investment. For example, in March 2021, Virginia enacted a Consumer Data Protection Act that will go into effect on
January 1, 2023 and in June 2021, Colorado enacted a Colorado Privacy Act that will go into effect on July 1, 2023, both of
which share similarities with the CCPA, CPRA, and legislation proposed in other states.
In addition, some countries 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
CCPA, the CPRA or other evolving privacy and data protection obligations on our business or operations. Complying with
emerging and changing legal and regulatory requirements relating to privacy, data protection and other matters may cause us
to incur costs or require us to change our business practices, which could harm our business, financial condition, results of
operations and prospects.
We are also subject to environmental laws and regulations governing the management and disposal of hazardous
materials and wastes, including the hazardous material content of our products and laws relating to the collection, recycling
and disposal of electrical and electronic equipment. Our failure, or the failure of our partners, including our contract
manufacturers, to comply with past, present and future environmental laws could result in fines, penalties, third-party claims,
reduced sales of our products, re-engineering our products, substantial product inventory write-offs and reputational damage,
any of which could harm our business, financial condition, results of operations and prospects. We also expect that our
business will be affected by new environmental laws and regulations on an ongoing basis applicable to us and our partners,
including our contract manufacturers. To date, our expenditures for environmental compliance have not had a material effect
on our results of operations or cash flows. Although we cannot predict the future effect of such laws or regulations, they will
likely result in additional costs or require us to change the content or manufacturing of our products, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
From time to time, we may receive inquiries from governmental agencies or we may make voluntary disclosures
regarding our 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 noncompliance 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 subject us to
sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal
penalties or injunctions. 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 affected. In addition, responding to any investigation, action or other proceeding will likely result in a significant
diversion of management’s attention and resources and an increase in professional fees. Enforcement actions, investigations,
and fines, penalties, and other sanctions could harm our business, financial condition, results of operations and prospects.
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 subject 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 export license
or through an export license exception. If we were to fail to comply with the applicable export control 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.
Further, there could be criminal penalties for knowing or willful violations, including incarceration for culpable employees
and managers. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and
may result in the delay or loss of sales opportunities. Furthermore, certain export control and economic sanctions laws prohibit
the shipment of certain products, technology, software and services to embargoed countries and sanctioned governments,
entities, and persons. Even though we take precautions to ensure that we and our channel partners comply with all relevant
regulations, any failure by us or our channel partners to comply with such regulations could have negative consequences,
including reputational harm, government investigations and penalties.
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Although we have developed 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 government 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 distribute our products or could limit our end
customers’ ability to implement our products in those countries. Any change in export or import regulations, economic
sanctions or related legislation, shift 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, or in our
decreased ability to export or sell our products 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 adversely affect our business, financial condition, results of operations and
prospects.
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 control. 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, manufacturing, supply or distribution shortages or constraints,
ratings changes by securities analysts, actual or anticipated announcements of new products by our company or our
competitors, litigation, actual or anticipated changes or fluctuations in our results of operations, regulatory developments,
repurchases of our common stock, departures of key executives, major catastrophic events, and broad market and industry
fluctuations.
In addition, technology stocks have historically experienced high levels of volatility and, if the market for technology
stocks or the stock market in general experiences a loss of investor confidence, the market price of our common stock could
decline for reasons unrelated to our business, financial condition, results of operations and prospects. The market price of our
common stock might also decline in reaction to events that affect other companies in our industry even if these events do not
directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation has often 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 management’s
attention and resources from our business and prospects. This could have a material adverse effect on our business, financial
condition, results of operations and prospects.
We have adopted stock repurchase programs to repurchase shares of our common stock; however, any future decisions
to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase programs could cause the
market price for our common stock to decline.
Although our board of directors has authorized stock repurchase programs, any determination to execute our stock
repurchase programs will be subject to, among other things, our financial position and results of operations, available cash
and cash flow, capital requirements, and other factors, as well as our board of director’s continuing determination that the
repurchase programs are in the best interests of our shareholders and is in compliance with all laws and agreements applicable
to the repurchase programs. Our stock repurchase programs do 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.
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We may further increase or decrease the amount of repurchases of our common stock in the future. Any reduction
or discontinuance by us of repurchases of our common stock pursuant to our current stock repurchase programs 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,
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, could adversely affect the market price of our common stock and may make it more difficult 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, 2021, holders of approximately 21.1% of our common stock have
rights, subject 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 other stockholders. In addition, we have registered the
offer 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 adversely affect the market price of our common stock.
Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions,
including a change of control.
Our directors, executive officers and each of our stockholders who own greater than 10% of our outstanding common
stock together with their affiliates, in the aggregate, beneficially own approximately 19.6% of the outstanding shares of our
common stock, based on shares outstanding as of December 31, 2021. 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 extraordinary transactions. They may also have interests that
differ from yours and may vote in a way with which 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 have the effect of delaying, preventing or deterring a change of control of our
company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of
our company and might ultimately affect the market price of our common stock.
Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
Our amended and restated certificate 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 difficult for stockholders to
elect directors that are not nominated by the current members of our board of directors or take other corporate actions,
including effecting changes in our management. These provisions include:
•
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders
to change the membership of a majority of our board of directors;
•
the ability of our board of directors to issue shares of preferred stock and to determine the price and other
terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquirer;
•
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, death or removal of a director, which prevents stockholders from being able to fill
vacancies on our board 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 stockholders;
49
•
the requirement that a special meeting of stockholders may be called only by the chairman of our board of
directors, our president, our secretary or a majority vote of our 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;
•
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then
outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated
certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and
restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover
attempt;
•
the ability of our board of directors, by majority 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 otherwise attempting to obtain control
of us.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law.
These provisions may prohibit large stockholders, in particular those owning 15% or more of our 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 qualified personnel and senior management, our business, financial
condition, results of operations and prospects could suffer.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel,
particularly software engineering and sales personnel. In addition, our success in expanding into adjacent markets including
the enterprise market requires a significant investment of time, effort and financial resources into hiring and training our sales
force to address these markets. If we do not effectively train our direct sales force, we may be unable to add new end
customers, increase sales to our existing end customers, or successfully expand into new markets. Competition for highly
skilled personnel is often 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 have to provide more attractive compensation packages and other amenities. Research and development personnel
are aggressively recruited by startup and growth companies, which are especially active in many of the technical areas and
geographic regions in which we conduct product development. In addition, in making employment decisions, particularly in
the high-technology industry, job candidates often consider the value of the stock-based compensation they are to receive in
connection with their employment. Declines in the market price of our stock could adversely affect our ability to attract,
motivate or retain key employees. In addition, our future performance also depends on the continued services and continuing
contributions of our senior management to execute our business plan and to identify and pursue new opportunities and product
innovations. Our employment arrangements with our employees do not generally require that they continue to work for us
for any specified period, and therefore, they could terminate their employment with us at any time. If we are unable to attract
or retain qualified personnel, or if there are delays in hiring required personnel, our business, financial condition, results of
operations and prospects may be seriously harmed.
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.
Our corporate headquarters and the operations of our key manufacturing vendors, logistics providers and partners,
as well as many of our customers, are located in areas exposed to risks of natural disasters such as earthquakes and tsunamis,
including the San Francisco Bay Area, Japan and Taiwan. A significant natural disaster, such as an earthquake, tsunami, fire
or a flood, or other catastrophic event such as the COVID-19 pandemic or other disease outbreak, could have a material
50
adverse effect on our or their business, which could in turn materially affect our financial condition, results of operations and
prospects. These events could result in manufacturing and supply chain disruptions, shipment delays, order cancellations,
and sales delays which could result in missed financial targets. Any health epidemic could have a material adverse effect on
our ability to obtain components for our products that are supplied from Asia or to manufacture our products in Asia. Any
such disruption of our suppliers, our contract manufacturers or our service providers would likely impact our sales and
operating results. In addition, a health epidemic could adversely affect the economies of many countries, resulting in an
economic downturn that could affect demand for our products and likely impact our operating results. In addition, acts of
terrorism could cause disruptions in our business or the business of our manufacturers, logistics providers, partners 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 manufacturers, logistics providers, partners or end customers that affects sales at the end of our quarter could
have a particularly significant adverse effect 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 return on your investment in our common stock if the market
price of our common stock increases.
51
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Santa Clara, California where we currently lease approximately
210,000 square feet of space under a lease agreement that expires in 2023. During the year ended December 31,
2021, we purchased land and the improvements thereon in Santa Clara, California to develop space for our future
data centers. In addition, we lease office spaces for data centers, 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 and Australia. 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 forth 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.
52
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 8, 2022, there
were 57 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 Performance Graph
The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or
incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the
extent we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total return 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 30, 2016 (the
last trading day of the year) to December 31, 2021.
The graph assumes $100 was invested at the market close on December 30, 2016 in the Company’s
common stock and in each of the aforementioned indices with the re-investment of dividends, if any. The stock
price performance on the following graph is not necessarily indicative of future stock price performance.
Comparison of Cumulative Total Return
Arista Networks Inc
NYSE Composite
S&P 500
$650.00
$600.00
$550.00
$500.00
$450.00
$400.00
$350.00
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
2016
2017
2018
2019
2020
2021
53
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity 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.
Recent Sales of Unregistered Equity Securities
There were no sales of unregistered securities during fiscal year 2021.
Issuer Repurchases of Equity Securities
Under our equity incentive plans, certain participants may exercise options prior to vesting, subject to a
right of repurchase by us. During the fourth quarter of 2021, there were no repurchases of unvested shares of our
common stock made pursuant to our equity incentive plans as a result of us exercising our rights nor pursuant to
any publicly-announced plan or program.
Stock Repurchase Programs
In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the
“Repurchase Program”). This authorization allowed us to repurchase shares of our common stock over three
years and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021. In the
fourth quarter of 2021, our board of directors authorized an additional $1.0 billion stock repurchase program (the
“New Repurchase Program”). This authorization allows us to repurchase shares of our common stock and will be
funded from working capital. Repurchases may be made at management's discretion from time to time on the
open market, through privately negotiated transactions, transactions structured through investment banking
institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The New
Repurchase Program commenced in the fourth quarter of 2021, and expires on the three-year anniversary thereof.
The New Repurchase Program does not obligate us to acquire any of our common stock and may be suspended
or discontinued by the company at any time without prior notice. Our repurchases for the three months ended
December 31, 2021 are disclosed in the table below (in thousands, except per share amounts). For our repurchase
activities made during the rest of the year ended December 31, 2021, 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.
October 1, 2021 - October 31, 2021
(1)
November 1, 2021 - November 30,
2021 (1)
December 1, 2021 - December 31,
2021
Total Number
of Shares
Purchased
Average Price
Paid Per Share
Total Number
of Shares
Purchased as
Part of Public
ly Announced
Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Publicly Announced
Plans or Programs
541
$
86.36
541 $
1,056,436
651
371
1,563
129.00
122.50
651
371
1,563
972,418
927,039
(1) October and November results have been adjusted to reflect the four-for-one stock split effected in the form
of a stock dividend in November 2021. See Note 1, Organization and Summary of Accounting Policies, included
in Part II, Item 8, of this Annual Report on Form 10-K for details.
54
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations
together with the consolidated financial statements and related notes that are included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements based upon current plans,
expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth under
“Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
Arista Networks pioneered data-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. We are a leader in cloud
networking solutions delivering high performance, scalability, availability, programmability, workload
orchestration, 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, extending EOS across the enterprise data center and campus wired and wireless workspaces.
We generate revenue primarily from sales of our switching and routing platforms, which incorporate
our EOS software, and related network applications. We also generate revenue from post-contract support
("PCS"), which end customers typically purchase in conjunction with our products, and renewals of PCS. We sell
our products through both our direct sales force and our channel partners. As of December 31, 2021, we had
delivered our cloud networking solutions to over 8,000 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.
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 customers primarily due to changes in demand patterns specific 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 our customer concentration and timing of sales on a quarterly and annual basis.
For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2019 collectively represented
40% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 and 2021 amounted to
21.5% and 15.0% of our revenues, respectively, with our end customer Meta Platforms representing less than
10% of our revenues in both fiscal 2020 and 2021. While we experienced some decline in overall revenue in
2020, the decline in revenue from these large end customers in 2021 was more than offset 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. We expect
customer concentration with these large end customers to be cyclical and linked to new product introductions and
customer investment cycles.
We believe that cloud computing represents a fundamental shift from traditional legacy network
architectures. As organizations of all sizes have moved workloads to the cloud, spending on cloud and next-
generation data centers has increased rapidly, while traditional legacy IT spending has grown more slowly. Our
cloud networking platforms are well positioned to address the growing cloud networking market, and to address
55
increasing performance requirements driven by the growing number of connected devices, as well as the need for
constant connectivity and access to data and applications.
The markets for cloud networking solutions are highly competitive and characterized by rapidly
changing technology, changing end-customer needs, evolving industry standards, frequent introductions of new
products and services, and industry consolidation. We expect competition to intensify in the future as the market
for cloud networking expands and existing competitors and new market entrants introduce new products 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 features 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 partners in order to reach
new end customers more effectively, 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 functionality
of our existing cloud networking platform, introduce new products and features, and build upon our technology
leadership. We believe one of our greatest strengths 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 software and
enhancements to EOS. We engineer our products to be agnostic with respect to the underlying merchant silicon
architecture. 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 further allowed us to integrate rapidly with a wide range of third-party
applications for virtualization, management, automation, orchestration and network services. This enables us to
focus our research and development resources on our software core competencies and to leverage the investments
made by merchant silicon vendors to achieve cost-effective solutions. We work closely with third-party contract
manufacturers to manufacture our products. Our contract manufacturers deliver our products to our third-party
direct fulfillment facilities. We and our fulfillment partners then perform labeling, final configuration, quality
assurance testing and shipment to our customers.
COVID-19 Update
The global coronavirus (“COVID-19”) pandemic continues to disrupt and have unpredictable impacts
to our global society, economies, financial markets and business activities. We are actively monitoring and
evaluating developments as the situation evolves and will continue to take further actions in our approach to
address COVID-19. We have prioritized the protection of our employees during this pandemic and, as a result,
our offices across the globe have remained closed, limiting access to facilities-based employees and a limited
number of employees on a voluntary basis, and continue to impose some travel restrictions. In addition, our
manufacturing and supply chain operations have experienced significant constraints, with component shortages,
increased supply chain costs and delays broadly impacting the industry as a whole. We continue to work closely
with our contract manufacturers and supply chain partners who have experienced delays in component sourcing,
workforce disruptions and governmental restrictions on the production and export of their products. Although we
have worked diligently to drive improvements in these areas, including funding additional working capital and
incremental purchase commitments, these delays have negatively impacted our ability to supply products to our
customers on a timely basis. We have increased our purchase commitments and expect to continue to invest in
working capital to address delays in component sourcing and the risk of future COVID-19 related supply chain
disruptions, but we cannot be certain that such delays or disruptions will not occur.
56
The extent of the impact of COVID-19 on our operational and financial performance, including our
ability to execute our business strategies and initiatives in the expected time frame, will depend on future
developments, including the duration of the pandemic, the breadth and duration of governmental containment
measures such as workplace, travel and social distancing restrictions, 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, employees, contract manufacturers and supply chain, all
of which are uncertain and cannot be predicted. However, any continued or renewed disruption in manufacturing
and supply resulting from the COVID-19 pandemic or related containment measures could negatively impact our
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 may not be indicative of future operating results and trends.
Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenue, Cost of Revenue and Gross Margin (in thousands, except percentages)
Year Ended December 31,
2021
2020
$
% of
Revenue
$
% of
Revenue
Change in
$
%
$ 2,377,727
570,310
2,948,037
80.7 % $ 1,830,842
486,670
19.3
2,317,512
100.0
79.0 % $ 546,885
83,640
21.0
630,525
100.0
29.9 %
17.2
27.2
958,363
108,895
1,067,258
$ 1,880,779
749,962
32.5
85,664
3.7
835,626
36.2
63.8 % $ 1,481,886
208,401
32.4
23,231
3.7
231,632
36.1
63.9 % $ 398,893
27.8
27.1
27.7
26.9 %
63.8 %
63.9 %
Revenue
Product
Service
Total revenue
Cost of revenue
Product
Service
Total cost of revenue
Gross profit
Gross margin
Revenue by Geography (in thousands, except percentages)
Year Ended December 31,
Americas
Europe, Middle East and Africa
Asia-Pacific
Total revenue
Revenue
2020
2021
$ 2,156,183
486,836
305,018
$ 2,948,037 100.0 % $ 2,317,512 100.0 %
% of
Total
73.2 % $ 1,771,992
326,729
16.5
218,791
10.3
% of
Total
76.5 %
14.1
9.4
Product revenue primarily consists of sales of our switching and routing products, and software licenses.
Service revenue is primarily derived from sales of PCS contracts, 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.
57
Product revenue increased by $546.9 million, or 29.9%, in the year ended December 31, 2021 compared
to 2020, which reflected stronger demand for our products from new and existing customers, and broader market
acceptance of our enterprise and campus products. Service revenue increased by $83.6 million, or 17.2%, in the
year ended December 31, 2021 compared to 2020, as a result of continued growth in initial and renewal PCS
contracts as our customer installed base continued to expand. International revenues increased from 23.5% in
2020 to 26.8% in 2021, which was mostly driven by increased shipments to our large end customers in the EMEA
region.
Cost of Revenue and Gross Margin
Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract
manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, and other costs
associated with manufacturing our products and managing our inventory. Cost of service revenue primarily
consists of personnel and other costs associated with our global customer support and services organizations.
Cost of revenue increased by $231.6 million or 27.7% for the year ended December 31, 2021 compared
to 2020. These increases were primarily driven by a corresponding increase in product and service revenues,
coupled with an increase in supply chain costs due to increased production capacity and higher volumes.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a
variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to
large end customers who generally receive lower pricing, manufacturing-related costs, including costs associated
with supply chain sourcing activities, merchant silicon costs, the mix of products sold, and excess/obsolete
inventory write-downs, including charges for excess/obsolete component inventory held by our contract
manufacturers. We expect our gross margins to fluctuate over time, depending on the factors described above.
Gross margin slightly decreased from 63.9% for the year ended December 31, 2020 to 63.8% for the
year ended December 31, 2021. The change in gross margin was unfavorably impacted by higher supply chain
costs, as well as increased service costs to support our growing installed base. These unfavorable impacts were
mostly offset by improved product margins due to a reduced proportion of our sales to larger end customers who
generally receive larger discounts.
Operating Expenses (in thousands, except percentages)
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 expenses, sales commissions.
Personnel costs also include stock-based compensation and travel expenses.
Year Ended December 31,
2021
$
% of
Revenue
$
2020
% of
Revenue
Change in
$
%
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
$ 586,752
286,171
83,117
$ 956,040
19.9 % $ 486,594
229,366
9.7
66,242
2.8
32.4 % $ 782,202
20.9 % $ 100,158
56,805
9.9
16,875
2.9
33.7 % $ 173,838
20.6 %
24.8
25.5
22.2 %
58
Research and development.
Research and development expenses consist primarily of personnel costs, prototype expenses, third-party
engineering costs, and an allocated portion of facility and IT costs. Our research and development efforts are
focused on new product development and maintaining and developing additional functionality for our existing
products, including new releases and upgrades to our EOS software 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 platform, introduce new products and features, and continue
to invest in our technology.
Research and development expenses increased by $100.2 million, or 20.6%, for the year ended
December 31, 2021 compared to 2020. The increase was primarily due to a $67.0 million increase in personnel
costs driven by an increase in headcount, and a $32.3 million increase in new product introduction costs, including
third-party engineering and other product development costs.
Sales and marketing.
Sales and marketing expenses consist primarily of personnel costs, marketing, trade shows, and other
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 expand our sales and marketing efforts worldwide.
Sales and marketing expenses increased by $56.8 million, or 24.8%, for the year ended December 31,
2021 compared to 2020. The increase was primarily driven by increased headcount and higher sales volume
resulting in increased compensation costs, including salaries, sales incentive compensation and stock-based
compensation.
General and administrative.
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 by $16.9 million, or 25.5%, for the year ended
December 31, 2021 compared to 2020. The increase was driven by a $17.7 million increase in personnel costs,
primarily stock-based compensation, which was partially offset by a decrease in non-recurring acquisition-related
expenses of $4.2 million resulting from the acquisitions of Big Switch and Awake Security in 2020.
Other Income, Net (in thousands, except percentages)
Other income, net consists primarily of interest income from our cash, cash equivalents and marketable
securities, gains and losses on our investments in privately-held companies and marketable securities, 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 company equity investments upon the occurrence of either observable price
changes or impairments, changes in interest rates or returns on our cash and cash equivalents and marketable
securities, and foreign currency exchange rate fluctuations.
59
Other income, net:
Interest income
Gain on sale of marketable
securities
Gain on investments in
privately-held companies
Other income (expense)
Total other income, net
$
Year Ended December 31,
2021
$
% of
Revenue
$
2020
% of
Revenue
Change in
$
%
$
7,215
0.2 % $
27,139
1.2 % $ (19,924)
(73.4) %
—
—
(1,075)
6,140
—
—
—
0.2 % $
9,432
0.4
(9,432) (100.0)
4,164
(1,556)
39,179
0.2
(0.1)
481
1.7 % $ (33,039)
(4,164) (100.0)
(30.9)
(84.3) %
The unfavorable change in other income, net, during the year ended December 31, 2021 as compared to
2020 was driven by a $19.9 million decrease in interest income, which was primarily caused by significant
declines in the yields of government and corporate bonds in our investment portfolio. In addition, we recorded a
gain on sale of marketable securities and a gain on investments in privately-held companies in 2020, which did
not recur in 2021.
Provision for Income Taxes (in thousands, except percentages)
We operate in a number of tax jurisdictions and are subject 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
Effective tax rate
Year Ended December 31,
2021
2020
Change in
$
% of
Revenue
$
% of
Revenue
$
$ 90,025
3.1 % $ 104,306
4.5 % $ (14,281)
%
(13.7) %
9.7 %
14.1 %
Despite an increase in pre-tax income in 2021 as compared to 2020, our provision for income taxes and
effective tax rate decreased in 2021 as compared to 2020. The decrease in our income taxes and effective tax rate
was largely attributable to increased tax benefits from stock-based compensation, combined with a favorable
change in jurisdictional mix of earnings. These two factors are variable in nature and past results may not be
indicative of future results. For further information regarding income taxes and the impact on our results of
operations and financial 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.
60
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenue, Cost of Revenue and Gross Margin (in thousands, except percentages)
Revenue
Product
Service
Total revenue
Cost of revenue
Product
Service
Total cost of revenue
Gross profit
Gross margin
Year Ended December 31,
2020
2019
$
% of
Revenue
$
% of
Revenue
Change in
$
%
$ 1,830,842
486,670
2,317,512
79.0 % $ 2,021,150
21.0
100.0
389,556
2,410,706
83.8 % $ (190,308)
97,114
16.2
(93,194)
100.0
(9.4) %
24.9
(3.9)
749,962
85,664
835,626
$ 1,481,886
63.9 %
792,382
73,986
866,368
32.4
3.7
36.1
63.9 % $ 1,544,338
64.1 %
(42,420)
32.9
11,678
3.0
(30,742)
35.9
64.1 % $ (62,452)
(5.4)
15.8
(3.5)
(4.0) %
Revenue by Geography (in thousands, except percentages)
Year Ended December 31,
Americas
Europe, Middle East and Africa
Asia-Pacific
Total revenue
Revenue
2019
2020
$ 1,771,992
326,729
218,791
$ 2,317,512 100.0 % $ 2,410,706 100.0 %
% of
Total
76.5 % $ 1,833,163
381,651
14.1
195,892
9.4
% of
Total
76.1 %
15.8
8.1
Product revenue decreased by $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 by $97.1 million, or 24.9% in the year ended
December 31, 2020 compared to 2019 as a result of continued growth in initial and renewal support contracts as
our customer installed base continued to expand. International revenues remained relatively constant at 23.5% of
total revenues in the year ended December 31, 2020, compared to 23.9% in 2019, with a slight decrease in growth
in the EMEA region, mostly offset by an increase in growth in our Asia-Pacific region. International revenue
generally fluctuates based on the timing of deployments by certain of our large end customers.
Cost of Revenue and Gross Margin
Cost of revenue decreased by $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 product revenues, and
was partially offset by incremental COVID-19 related supply chain costs and increased product transition costs.
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
product transition costs, combined with the impact of fixed overhead costs on a lower revenue base. These
61
negative impacts were partially offset 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.
Operating Expenses (in thousands, except percentages)
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
9.9
61,898
2.9
33.7 % $ 738,564
19.2 % $ 23,835
15,459
8.9
4,344
2.6
30.7 % $ 43,638
5.2 %
7.2
7.0
5.9 %
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Research and development
Research and development expenses increased by $23.8 million, or 5.2%, for 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 fiscal 2020, 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,
partially offset by an $11.4 million decrease in new product introduction costs, including third-party engineering
and other product development costs.
Sales and marketing
Sales and marketing expenses increased by $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 offset by a decrease in travel and other sales and
marketing activities due to COVID-19.
General and administrative
General and administrative expenses increased by $4.3 million, or 7.0%, for the year ended December
31, 2020 compared to 2019. The increase was primarily driven by acquisition-related costs from our acquisitions
of Big Switch and Awake Security in fiscal year 2020.
Other Income, Net (in thousands, except percentages)
Other income, net:
Interest income
Gain on sale of marketable
securities
Gain on investments in
privately-held companies
Other income (expense)
Total other income, net
$
Year Ended December 31,
2020
$
% of
Revenue
$
2019
% of
Revenue
Change in
$
%
$
27,139
1.2 % $ 51,144
2.2 % $ (24,005)
(46.9) %
9,432
0.4
—
4,164
(1,556)
39,179
5,427
0.2
(75)
(0.1)
1.7 % $ 56,496
62
—
0.2
9,432
100.0
(23.3)
(1,263)
(1,481) 1,974.7
(30.7) %
—
2.4 % $ (17,317)
The unfavorable change in other 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 offset 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 Taxes (in thousands, except percentages)
Year Ended December 31,
2020
2019
$
% of
Revenue
$
% of
Revenue
Change in
$
%
Provision for income taxes
$ 104,306
4.5 % $ 2,403
0.1 % $ 101,903 4,240.7 %
Effective tax rate
14.1 %
0.3 %
For the years ended December 31, 2020 and 2019, we recorded an expense of $104.3 million and $2.4
million for income taxes, respectively, and our effective tax rate increased from 0.3% in 2019 to 14.1% in 2020.
The change in our income taxes was largely attributable to a net tax benefit of $86 million in 2019 resulting from
an intra-entity transaction to sell our non-Americas economic and beneficial intellectual property rights. Further,
while we experienced a decrease in worldwide profit before tax in 2020 compared to 2019, the tax benefits
attributable to stock-based compensation also decreased, along with an increase in foreign earnings taxed in non-
zero rate jurisdictions, resulting in overall higher tax expense. For further information regarding income taxes and
the impact on our results of operations and financial 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.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated
from operations. As of December 31, 2021, our total balance of cash, cash equivalents and marketable securities
was $3.4 billion, of which approximately $576.0 million was held outside the U.S. in our foreign subsidiaries.
Our cash, cash equivalents and marketable securities are held for general business purposes, including
the funding of working capital. Our marketable securities investment portfolio is primarily invested in highly-
rated securities, with the primary objective 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 sufficient to meet our working capital
requirements and our growth strategies for at least the next 12 months. Our future capital requirements will depend
on many factors, including our growth rate, the timing and extent of our spending to support research and
development activities, the timing and cost of establishing additional sales and marketing capabilities, the
introduction of new and enhanced product and service offerings, our costs associated with supply chain activities,
including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or
strategic businesses and technologies, the continued market acceptance of our products, and stock repurchases. If
we require or elect to seek additional capital 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, our business, operating results and financial condition may be adversely affected.
63
Cash Flows
Cash provided by operating activities
Cash (used in) investing activities
Cash (used in) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash, cash equivalents and
restricted cash
Cash Flows from Operating Activities
Year Ended December 31,
2020
2021
2019
(in thousands)
$
1,015,856 $
(925,562)
(360,882)
(1,816)
735,114 $
(608,802)
(346,339)
1,966
963,034
(284,072)
(217,964)
353
$
(272,404) $
(218,061) $
461,351
Our operating activities consist of net income, adjusted for certain non-cash items, and changes in assets
and liabilities.
During the year ended December 31, 2021, cash provided by operating activities was $1.0 billion,
primarily from net income of $840.9 million and net non-cash adjustments to net income of $181.9 million,
partially offset by a net increase of $6.9 million in working capital requirements. The net non-cash adjustments
primarily consist of $186.9 million of stock-based compensation expenses, $50.3 million of depreciation and
amortization expenses and $26.8 million of amortization of investment premiums (discounts), all of which were
offset by the deferred income tax adjustment of $99.3 million. The increase in working capital primarily consisted
of a $170.5 million increase in inventory to help mitigate the impact of COVID-19 related supply chain
disruptions, a $134.8 million increase in prepaid and other current assets primarily driven by an increase in
deferred cost of sales associated with higher product revenue deferrals, increased inventory deposits to our
contract manufacturers, and higher prepaid taxes and other assets. In addition, we had an increase of $127.0
million in accounts receivables due to increased product and service billings. These cash outflows were largely
offset by a $278.5 million increase in deferred revenue reflecting ongoing growth in PCS contracts and increased
product deferred revenue related to contracts with acceptance terms. In addition, we had a $66.7 million increase
in accounts payable related to the volume and timing of production receipts, and an $83.5 million increase in
accrued expenses primarily driven by increased supply chain and development costs, as well as accrued
compensation-related costs.
During the year ended December 31, 2020, cash provided by operating activities was $735.1 million,
primarily from net income of $634.6 million and net non-cash adjustments to net income of $186.2 million,
partially offset by a net increase of $85.7 million in working capital requirements. The net non-cash adjustments
primarily consisted 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 offset by a $50.4
million increase in deferred revenue, a $41.1 million increase in accounts payable related to the timing of
production receipts, and a $17.1 million increase in other liabilities primarily due to an increase in customer
contract liabilities.
Cash Flows from Investing Activities
Our investing activities consist of our marketable securities investments, business combinations,
investments in privately-held companies, and capital expenditures.
64
During the year ended December 31, 2021, cash used in investing activities was $925.6 million,
primarily consisting of purchases of available-for-sale securities of $2.3 billion, investments and notes receivable
in private companies of $19.9 million, and purchases of property, equipment and intangible assets of $64.7
million, partially offset by proceeds of $1.5 billion from maturities of marketable securities, proceeds from the
sale of marketable securities of $19.6 million, and the receipt of escrow payments of $1.3 million.
During the year ended December 31, 2020, cash used in investing activities was $608.8 million,
primarily consisting of purchases of available-for-sale securities of $2.7 billion, $227.4 million for the
acquisitions of Big Switch and Awake Security, and purchases of property, equipment and intangible assets of
$15.4 million, partially offset 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.
Cash Flows from Financing Activities
Our financing activities consist of proceeds from the issuance of our common stock under employee
equity incentive plans, offset by repurchases of our common stock.
During the year ended December 31, 2021, cash used in financing activities was $360.9 million,
consisting primarily of payments for repurchases of our common stock of $411.6 million and taxes paid of $16.5
million upon vesting of restricted stock units, offset partially by proceeds from the issuance of common stock
under employee equity incentive plans of $67.2 million.
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.
Stock Repurchase Programs
In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the
“Repurchase Program”). This authorization allowed us to repurchase shares of our common stock over three
years, and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021. Also
in the fourth quarter of 2021, our board of directors authorized an additional $1.0 billion stock repurchase program
(the "New Repurchase Program"). This authorization allows us to repurchase shares of our common stock and
will be funded from working capital. The New Repurchase Program commenced in the fourth quarter of 2021
and expires on the three-year anniversary thereof. The New Repurchase Program does not obligate us to acquire
any of our common stock and may be suspended or discontinued by the company at any time without prior notice.
As of December 31, 2021, the remaining authorized amount for repurchases under the New Repurchase Program
was $927.0 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.
65
Material cash requirements
Our material cash requirements will have an impact on our future liquidity. Our material cash
requirements represent material expected or contractually committed future payment obligations. We believe that
we will be able to fund these obligations through cash generated from operations and from our existing balances
of cash, cash equivalents and marketable securities.
Our material cash requirements include the following contractual and other obligations:
Leases
We have operating lease arrangements for office space, data center, equipment and other corporate assets.
As of December 31, 2021, we had lease payment obligations, net of immaterial sublease income, of $87.0 million,
with $23.5 million payable within 12 months.
Purchase Obligations
Purchase obligations represent an estimate of all open purchase orders and contractual obligations, made
either directly by Arista or by our contract manufacturers on our behalf, in the ordinary course of business for
which we have not received the goods or services. As of December 31, 2021, we had $2.5 billion of such purchase
obligations, with $2.3 billion payable within 12 months. These open purchase orders are considered enforceable
and legally binding, and while we may have some limited ability to reschedule and adjust our requirements based
on our business needs prior to the delivery of goods or performance of services, this can only occur with the
agreement of the related supplier.
In addition to the purchase obligations outlined above, we also entered into an agreement covering an
additional $275 million of extended lead-time component purchase commitments in support of 2023 forecasted
demand, for which purchase orders had not been issued as of December 31, 2021.
Long Term Accrued Income Taxes
In connection with the Tax Cuts and Jobs Act of 2017, we recorded a federal income tax payable for
transition tax on the mandatory deemed repatriation of foreign earnings that will be payable over an eight-year
period. As of December 31, 2021, $6.3 million of long-term transition tax payable represents the remaining
federal income tax payable due between one and three years. In addition to the long-term transition tax payable,
as of December 31, 2021 we have recorded long-term tax liabilities of $63.6 million related to uncertain tax
positions; however, we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of
these future payments.
Off-balance sheet arrangements
As of December 31, 2021, we did not have any relationships with any unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities, that would have
been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
Critical Accounting Estimates
We have prepared our consolidated financial statements in accordance with 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
66
financial statements and the reported amounts of revenue and expenses during the applicable periods. Note 1,
“Organization and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in
the preparation of the Company’s consolidated financial statements. We base our estimates, assumptions and
judgments on historical experience and on various other factors that we believe to be reasonable under the
circumstances. Different assumptions and judgments would change the estimates used in the preparation of our
consolidated financial 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 differ from these estimates. To the
extent that there are material differences between these estimates and our actual results, our future financial
statements will be affected.
Revenue Recognition
We generate revenue from sales of our products, which incorporate our EOS software and accessories
such as cables and optics, to direct customers and channel partners together with PCS. We typically sell products
and PCS in a single contract. We recognize revenue upon transfer of control 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. Most of our contracts with customers, other than renewals of PCS, contain multiple
performance obligations with a combination of products and PCS. Products and PCS generally qualify as distinct
performance obligations. Our hardware includes EOS software, which together deliver 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 required to determine
the SSP for each distinct performance obligation. We use a range of amounts 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 observable SSP, such as when we do not sell a product 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 products 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 revenue recognition for contracts containing forms of variable consideration,
such as future performance 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.
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. Specific customer returns and allowances are considered
when determining our sales return reserve estimate.
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 differ materially from applying the
guidance to the individual contracts (or performance obligations) within that portfolio. Consequently, we have
chosen to apply the portfolio approach when possible, which we do not believe will happen frequently.
67
Additionally, we will evaluate a portfolio of data, when possible, in various situations, including accounting for
commissions, rights of return and transactions with variable consideration.
Inventory Valuation and Contract Manufacturer/Supplier Liabilities
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. We record a
provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjust inventory to
its estimated realizable value.
Our contract manufacturers procure components and assemble products 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 that
are considered obsolete due to manufacturing and engineering change orders resulting from design changes.
We use significant judgment in establishing our forecasts of future demand and obsolete material
exposures. These estimates depend on our assessment of current and expected orders from our customers, product
development plans and current sales levels. In addition, current industry-wide supply chain shortages have
resulted in extended lead times for components and have required us to extend the time horizon of our demand
forecasts. There is however no guarantee that all suppliers will meet their commitments in the time frame
committed or that actual customer demand will directly match our demand forecasts. If actual market demand
conditions or supplier execution on commitments are less favorable than those projected by management, which
may be caused by factors within and/or outside of our control, we may be required to increase our inventory write-
downs and liabilities to our contract manufacturers and suppliers, which could have an adverse impact on our
gross margins and profitability. We regularly evaluate our exposure for inventory write-downs and adequacy of
our contract manufacturer and supplier liabilities.
Income Taxes
Significant management judgment is required in developing our provision for or benefit from income
taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might
be required against the deferred tax assets. In assessing the need for a valuation allowance, we consider all
available evidence, including past operating results and estimates of our ability to generate sufficient future
taxable income in certain foreign and state tax jurisdictions, future reversals of taxable temporary differences, and
potential tax planning strategies. An adjustment to the valuation allowance will either increase or decrease our
provision for or benefit from income taxes in the period such determination is made.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions, which involves significant
judgment in the interpretation of complex domestic and international tax laws and may give rise to uncertain tax
positions. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions
based on our estimate of whether it is more likely than not that additional taxes, interest, and penalties will be
due. Although management believes our unrecognized tax benefits are reasonable, no assurance can be given that
the final tax outcome of these matters will not be different from that which is reflected in our unrecognized tax
benefits. Our unrecognized tax benefits are adjusted considering changing facts and circumstances, such as the
closing of a tax examination or the refinement of an estimate. Resolution of these uncertainties in a manner
inconsistent with management’s expectations could have a material impact on our financial condition and
operating results.
68
Recent Accounting Pronouncements
Refer to “Recent Accounting Pronouncements” in Note 1. Organization and Summary of Significant
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
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 market
risk exposure is primarily a result of fluctuations in foreign currency exchange rates, interest rates and investments
in privately-held companies. The ongoing COVID-19 pandemic has increased the volatility of global financial
markets, which may increase our 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 Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency
exchange rates. Substantially all of our revenue is denominated in U.S. dollars, and therefore, our revenue is not
directly subject to foreign currency risk. However, we are indirectly exposed to foreign currency risk. A stronger
U.S. dollar could make our products and services more expensive in foreign countries and therefore reduce
demand. A weaker U.S. dollar could have the opposite effect. Such economic exposure to currency fluctuations
is difficult to measure or predict because our sales are also influenced by many other 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,
therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected
in the future due to changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange
rates on our 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 fluctuations 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 purposes, we may in the future hedge
selected significant transactions denominated in currencies other than the U.S. dollar.
Interest Rate Sensitivity
As of December 31, 2021, and 2020, we had cash, cash equivalents and available-for-sale marketable
securities totaling $3.4 billion and $2.9 billion, respectively. Cash equivalents and marketable securities were
invested primarily in money market funds, corporate bonds, U.S. agency mortgage-backed securities, U.S.
treasury securities and commercial paper. Our primary investment objectives are to preserve capital and maintain
liquidity requirements. In addition, our policy limits the amount of credit exposure to any single issuer. We do
not enter into investments for trading or speculative purposes and have not used any derivative financial
instruments to manage our interest rate risk exposure. Our primary exposure to market risk is interest income
sensitivity, which is affected 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 years
ended December 31, 2021, 2020 and 2019, the effect of an immediate 10% change in interest rates would not
have been material to our operating results and the total value of the portfolio assuming consistent investment
levels.
69
On the other hand, the fair market value of our investments in fixed income securities may be adversely
impacted. 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. In the unlikely event we are forced to sell our marketable
securities prior to maturity, we may incur realized losses in such investments. However, because of the
conservative and short-term nature of the investments in our portfolio, a change in interest rates is not expected
to have a material impact on our consolidated financial statements.
Investments in Privately-Held Companies
Our non-marketable equity investments in privately-held companies are recorded in “Investments” in
our consolidated balance sheets. As of December 31, 2021 and 2020, the total carrying amount of our investments
in privately-held companies was $20.2 million and $8.3 million. During fiscal 2021, we did not record any
adjustments to our investments. 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
investments are inherently risky because the markets for the technologies or products these companies are
developing are typically in the early stages and may never materialize. We could lose our 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 other factors, the nature of their technologies and potential for financial
return.
70
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Page
72
76
78
79
80
81
83
71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Arista Networks, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Arista Networks, Inc. (the Company) as of
December 31, 2021 and 2020, 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, 2021, 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,
2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2021, 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, 2021, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 14, 2022 expressed
an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. 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.
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 financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing 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 our audits provide a reasonable 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 communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication 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.
72
Description of the
Matter
How We Addressed
the Matter in Our
Audit
Inventory Valuation & Contract Manufacturer/Supplier Liabilities
As discussed in Note 1 of the consolidated financial statements, 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 inventory balance totaled $650 million on
December 31, 2021. 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 manufacturer/supplier liability and a
corresponding charge for non-cancellable, non-returnable purchase commitments with
contract manufacturers or suppliers for quantities in excess of the Company’s demand
forecasts, or that are considered obsolete.
Auditing management’s assessment of net realizable value for inventory and contract
manufacturer/supplier liabilities was complex and highly judgmental due to the
assessment of management’s estimates of forecasted product demand, which can be
impacted by changes in overall customer demand, changes in the timing of the
We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s determination of the net realizable value of inventory and
the contract manufacturer/supplier liability. This included controls over the preparation
of the demand and production forecasts, and the evaluation of the accuracy and
completeness of the inventory provision and contract manufacturer/supplier liability.
To test the inventory provision and contract manufacturer/supplier liability, we performed
audit procedures that included, among others, assessing the Company’s methodology
over the computation of the provision and liability, testing the significant 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,
product roadmap and other relevant factors.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2008.
San Jose, California
February 14, 2022
73
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
We have audited Arista Networks, Inc.’s internal control over financial reporting as of December 31, 2021, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Arista
Networks, Inc. (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2021, 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, 2021 and 2020, 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, 2021, and the related notes of the Company and our report dated February 14, 2022 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness 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 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.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective 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
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures 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 company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
74
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness 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, California
February 14, 2022
75
ARISTA 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 $5,088 and $4,497,
respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Acquisition-related intangible assets, net
Goodwill
Investments
Operating lease right-of-use 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-current
Other long-term liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued
and outstanding as of December 31, 2021 and 2020
Common stock, $0.0001 par value—1,000,000 shares authorized as of December 31,
2021 and 2020; 307,681 and 304,696 shares issued and outstanding as of December
31 2021 and 2020 (1)
Additional paid-in capital (1)
Retained earnings
Accumulated other comprehensive income
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
76
December 31,
2021
2020
$
620,813 $
2,787,502
516,509
650,117
237,735
4,812,676
78,634
93,555
188,397
20,247
65,182
442,295
33,443
5,734,429 $
202,636 $
226,643
593,578
86,972
1,109,829
69,916
56,527
335,734
129,074
54,749
1,755,829
$
$
893,219
1,979,649
389,540
479,668
94,922
3,836,998
32,231
122,790
189,696
8,314
77,288
441,531
30,071
4,738,919
134,235
143,357
396,259
94,392
768,243
53,053
72,397
254,568
227,936
42,431
1,418,628
—
—
31
1,530,046
2,456,823
(8,300)
3,978,600
5,734,429 $
30
1,292,409
2,027,614
238
3,320,291
4,738,919
$
ARISTA NETWORKS, INC.
Consolidated Balance Sheets
(In thousands, except par value)
(1) Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in
November 2021. See Note 1, Organization and Summary of Accounting Policies, for details.
The accompanying notes are an integral part of these consolidated financial statements.
77
ARISTA 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 profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Income from operations
Other income, net
Income before income taxes
Provision for income taxes
Net income
Net income attributable to common stockholders:
Basic
Diluted
Net income per share attributable to common stockholders (1):
Basic
Diluted
Weighted-average shares used in computing net income per share
attributable to common stockholders (1):
Basic
Diluted
Year Ended December 31,
2020
2021
2019
$
2,377,727 $
570,310
2,948,037
1,830,842 $
486,670
2,317,512
2,021,150
389,556
2,410,706
958,363
108,895
1,067,258
1,880,779
749,962
85,664
835,626
1,481,886
792,382
73,986
866,368
1,544,338
586,752
286,171
83,117
956,040
924,739
6,140
930,879
90,025
840,854 $
486,594
229,366
66,242
782,202
699,684
39,179
738,863
104,306
634,557 $
462,759
213,907
61,898
738,564
805,774
56,496
862,270
2,403
859,867
840,854 $
840,854 $
634,557 $
634,557 $
859,444
859,468
2.74 $
2.63 $
2.09 $
2.00 $
2.82
2.66
306,512
319,238
303,936
317,860
305,248
323,516
$
$
$
$
$
(1) Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in
November 2021. See Note 1, Organization and Summary of Accounting Policies, for details.
The accompanying notes are an integral part of these consolidated financial statements.
78
ARISTA NETWORKS, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Available-for-sale investments:
Changes in net unrealized gains (losses) on available-for-sale
securities
Less: reclassification adjustment for net (gains) included in net
income
Net change
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2020
634,557 $
2021
840,854 $
$
2019
859,867
(1,381)
1,514
(686)
(7,157)
8,013
4,823
—
(7,157)
(8,538)
832,316 $
(9,432)
(1,419)
95
634,652 $
—
4,823
4,137
864,004
$
The accompanying notes are an integral part of these consolidated financial statements.
79
ARISTA NETWORKS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balance — December 31, 2018
302,672 $
30 $ 956,550 $ 1,190,803 $
(3,994) $ 2,143,389
Common Stock
Shares (2)
Amount
(2)
Additional
Paid-
In Capital (2)
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Cumulative-effect adjustment to beginning
balance (1)
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
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
Balance — December 31, 2020
—
—
—
—
7,804
(4,756)
(164)
—
305,556
—
—
—
7,336
(8,048)
—
—
—
—
—
—
—
—
—
101,280
3,702
859,867
—
—
57,377
—
—
(266,142)
—
(9,200)
—
—
—
276
30 1,106,283 1,788,230
634,557
—
—
—
—
—
—
137,128
—
—
—
57,556
—
—
(395,173)
—
—
4,137
—
3,702
859,867
4,137
101,280
—
—
57,377
(266,142)
(9,200)
—
—
276
143 2,894,686
634,557
—
95
95
137,128
—
—
—
57,556
(395,173)
(148)
—
304,696
—
—
—
—
(8,722)
—
—
164
—
30 1,292,409 2,027,614
840,854
—
—
—
—
—
—
186,875
—
(8,722)
—
164
—
238 3,320,291
840,854
—
(8,538)
(8,538)
186,875
—
Net income
Other comprehensive loss, 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
Balance — December 31, 2021
_________________________________________
(1) On January 1, 2019, we adopted ASC 842 - Leases, which resulted in a cumulative-effect adjustment to the beginning balance of
Retained Earnings for 2019.
—
—
31 $ 1,530,046 $ 2,456,823 $
(16,482)
(8,300) $ 3,978,600
—
(411,645)
(171)
307,681 $
7,693
(4,537)
67,244
—
67,245
(411,645)
1
—
—
—
(16,482)
—
(2) Prior period results have been adjusted to reflect the four-for-one stock split effected in the form of a stock dividend in November
2021. See Note 1, Organization and Summary of Accounting Policies, for details.
The accompanying notes are an integral part of these consolidated financial statements.
80
ARISTA NETWORKS, INC.
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and other
Noncash lease expense
Stock-based compensation
Deferred income taxes
(Gain) loss on investments in privately-held companies, net
(Gain) loss 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 current 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 marketable securities
Business combinations, net of cash acquired
Purchases of property, equipment and intangible assets
Escrow receipts from past business acquisitions
Investments and notes receivable in privately-held companies
Proceeds from sale of marketable securities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity plans
Tax withholding paid on behalf of employees for net share settlement
Repurchase of common stock
Net cash used in financing activities
Effect of exchange rate changes
NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning
of period
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of
period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
81
Year Ended December 31,
2020
2021
2019
$
840,854 $
634,557 $
859,867
50,334
17,112
186,875
(99,290)
—
—
26,847
(126,969)
(170,449)
(134,814)
(4,220)
66,681
83,524
278,485
6,223
(5,337)
1,015,856
1,455,465
(2,317,264)
—
(64,736)
1,299
(19,933)
19,607
(925,562)
67,245
(16,482)
(411,645)
(360,882)
(1,816)
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
1,545,689
(2,688,064)
(227,420)
(15,384)
—
3,399
772,978
(608,802)
57,556
(8,722)
(395,173)
(346,339)
1,966
(272,404)
(218,061)
897,454
1,115,515
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
1,208,717
(1,503,893)
(1,365)
(15,751)
—
28,220
—
(284,072)
57,378
(9,200)
(266,142)
(217,964)
353
461,351
654,164
$
625,050 $
897,454 $
1,115,515
ARISTA NETWORKS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash paid for income taxes, net of refunds
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
Property and equipment included in accounts payable and accrued liabilities
Vesting of early exercised stock options and restricted stock awards
$
$
Year Ended December 31,
2020
2021
2019
189,774 $
82,601 $
32,832
— $
— $
5,005
3,497
—
6,627
1,565
164
93,207
10,948
2,120
276
The accompanying notes are an integral part of these consolidated financial statements.
82
ARISTA NETWORKS, INC.
Notes to Consolidated Financial Statements
1.
Organization and Summary of Significant Accounting Policies
Organization
Arista Networks, Inc. (together with our subsidiaries, “we,” “our,” "Arista," "Company" or “us”) is a
supplier of cloud networking solutions that use software innovations to address the needs of large-scale internet
companies, cloud service providers and next-generation enterprises. Our cloud networking solutions consist of
our EOS, a set of network applications and our Gigabit Ethernet switching and routing platforms. We are
incorporated in the state of Delaware. Our corporate headquarters are located in Santa Clara, California, and we
have wholly-owned subsidiaries throughout the world, including North America, Europe, Asia and Australia.
Basis of Presentation and Principles of Consolidation
The accompanying 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 intercompany accounts and transactions have been eliminated.
On November 1, 2021, we announced a four-for-one split of the Company’s common stock effected in
the form of a stock dividend (the “Stock Split”). Each stockholder of record on November 11, 2021 received three
additional shares of common stock for each then-held share, and such shares were distributed after close of trading
on November 17, 2021. All share and per share amounts presented herein have been retroactively adjusted to
reflect the impact of the Stock Split.
Certain reclassifications of prior period amounts were made in the current year to conform to the current
period presentation.
Risk and Uncertainties
The global coronavirus ("COVID-19") pandemic and resulting mitigation efforts by governments around
the world to contain or slow its spread have negatively impacted the global economy and disrupted business
activities.
Our contract manufacturers and suppliers have experienced workforce disruptions, delays in component
sourcing, production, and export of their products, which have disrupted our supply chain and have impacted and
likely will continue to impact our ability to supply products to our customers on a timely basis. While we have
experienced improvements in overall demand from customers during 2021, we believe ongoing COVID-19
related disruptions, combined with other supply-chain related constraints, could impact our ability to fulfill this
increased demand, and as a result could negatively impact our business in future periods. However, the extent of
the impact of COVID-19 on our operational and financial performance, including our ability to execute our
business strategies and initiatives in the expected time frame and the impact of any initiatives and programs we
may undertake to address financial and operational challenges, will depend on future developments, including the
duration and spread of the pandemic and related mitigation efforts, the impact to our customers, partners, contract
manufacturers and supply chain, as well as restrictions on travel and transport, all of which continue to evolve
and are unpredictable. Management continues to actively monitor the impact of the pandemic on the Company's
financial condition, liquidity, operations, suppliers, industry, and workforce. As of the date of issuance of these
consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the
Company's financial condition, liquidity, or results of operations is uncertain.
83
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated
financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to,
valuation of inventory and contract manufacturer/supplier liabilities, accounting for income taxes, including the
recognition of deferred tax assets and liabilities, valuation allowance on deferred tax assets and reserves for
uncertain tax positions, revenue recognition and deferred revenue, allowance for doubtful accounts, sales rebates
and return reserves, valuation of goodwill and acquisition-related intangible assets, estimate of useful lives of
long-lived assets including intangible assets, and the recognition and measurement of contingent liabilities. We
evaluate our estimates and assumptions based on historical experience and other factors and adjust these estimates
and assumptions when facts and circumstances dictate. Actual results could differ materially from these estimates.
Concentrations of Business and Credit Risk
We work closely with third-party contract manufacturers to manufacture our products. As of
December 31, 2021, we had two primary contract manufacturing partners, who provided the vast majority of our
electronic manufacturing services. Our contract manufacturing partners deliver our products to our third-party
direct fulfillment facilities. We and our fulfillment partners then perform labeling, final configuration, quality
assurance testing and shipment to our customers. Our products rely on key components, including certain
integrated circuit components and power supplies, some of which our contract manufacturing partners purchase
on our behalf from a limited number of suppliers, including certain sole-source providers. We generally do not
have guaranteed supply contracts with our component suppliers, and our manufacturing partners could delay
shipments or cease manufacturing such products or selling them to us at any time. If we are unable to obtain a
sufficient 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 products could be delayed or halted entirely,
or we may be required to redesign our products. Quality or performance failures of our products or changes in
our contractors’ or vendors’ financial or business condition could disrupt our ability to supply quality products 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.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash,
cash equivalents, marketable securities, restricted cash, and accounts receivable. Our cash equivalents, restricted
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 receivable are unsecured and represent amounts due to us based on contractual obligations
of our customers. We mitigate credit risk with respect to accounts receivable by performing 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 affect a customer’s ability to
pay. In situations where a customer may be thinly capitalized 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 not require our
customers to provide collateral to support accounts receivable. We have recorded an allowance for doubtful
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 probability of
collecting all amounts due to us under the existing contractual terms.
84
We market and sell our products through both our direct sales force and our channel partners, including
distributors, value-added resellers, system integrators and OEM partners, and in conjunction with various
technology partners. 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, 2021, we
had three customers who represented 37%, 13% and 12% of total accounts receivable. As of December 31,
2020, we had two customers who represented 31% and 15% of total accounts receivable. For the years ended
December 31, 2021 and 2020, there was one customer who represented 15% and 22% 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.
Cash and Cash Equivalents
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 with various
financial institutions and highly liquid investments in money market funds. Interest is accrued as earned. As
of December 31, 2021 and 2020, 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 classified as other assets in the accompanying consolidated balance sheets.
Marketable Securities
We classify all highly liquid investments 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 our marketable
securities as available-for-sale. We determine the appropriate classification of these investments at 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 months until maturity. After consideration of our risk versus reward objectives,
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 marketable securities in the accompanying consolidated balance sheets. We carry
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 an average cost basis at the
individual security level, and record the interest income in other income, net in the accompanying consolidated
statements of operations. We determine any realized gains or losses on the sale of marketable securities using the
specific identification method, and record such gains and losses in other income, net in the accompanying
consolidated statements of operations.
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 current 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 investment before recovery of its amortized cost basis.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts, sales
rebates and returns reserves. We estimate our allowance for doubtful accounts based upon the collectability of the
receivables in light of historical trends, reasonable and supportable information of our customers' economic
conditions that may affect 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 and related estimated required
allowance. Revisions to the allowance are recorded as an adjustment to bad debt expense. After appropriate
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collection efforts are exhausted, specific accounts receivable deemed to be uncollectible are charged against the
allowance in the period they are deemed uncollectible. Recoveries of accounts receivable previously written-off
are recorded as credits to bad debt expense. We primarily estimate our sales rebates and returns reserves based on
historical rates applied against current period billings. Specific customer returns, rebates and allowances are
considered when determining our estimates. Revisions to sales rebate and return reserves are recorded as
adjustments to revenue.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or an exit price that would
be paid to transfer 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, marketable securities, accounts receivable, accounts
payable, and accrued liabilities. Cash equivalents, accounts receivable, accounts payable and accrued liabilities
are stated at carrying values in our consolidated financial statements, which approximate their fair value due to
the short-term nature of these instruments.
Assets and liabilities recorded at fair value on a recurring basis in the accompanying consolidated
balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their
fair value. We use a fair value hierarchy to measure fair value, maximizing the use of observable inputs and
minimizing the use of unobservable inputs. The three-tiers of the fair value hierarchy are as follows:
Level I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date;
Level II—Inputs are observable, unadjusted quoted prices in active markets for similar assets or
liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the related assets or liabilities; and
Level III—Unobservable inputs that are supported by little or no market data for the related assets or
liabilities and typically reflect management’s estimate of assumptions that market participants would use in
pricing the asset or liability.
Foreign Currency
The functional currency of our foreign subsidiaries is either the U.S. dollar or their local currency
depending on the nature of the subsidiaries’ activities.
Transaction re-measurement - Assets and liabilities denominated in a currency other than a subsidiary’s
functional currency are re-measured into the subsidiary's functional currency using exchange rates in effect 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.
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 functional currencies are
translated using average exchange rates that approximate those in effect during the period. Translation
adjustments are recorded within accumulated other comprehensive income, a separate component of total
stockholders’ equity.
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Inventory Valuation and Contract Manufacturer/Supplier Liabilities
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. We record a
provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjust inventory to
its estimated realizable value. For the years ended December 31, 2021, 2020 and 2019, we recorded charges of
$61.8 million, $50.5 million and $41.2 million, respectively, within cost of product revenue for inventory write-
downs.
Our contract manufacturers procure components and assemble products 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 that
are considered obsolete due to manufacturing and engineering change orders resulting from design changes. For
the years ended December 31, 2020 and 2019, we recorded charges of $14.9 million and $11.7 million,
respectively, within cost of product revenue for such liabilities with our contract manufacturers and suppliers. For
the year ended December 31, 2021, we did not incur any additional losses on such liabilities.
We use significant judgment in establishing our forecasts of future demand and obsolete material
exposures. These estimates depend on our assessment of current and expected orders from our customers, product
development plans and current sales levels. In addition, due to current industry-wide supply shortages, we have
had to extend our demand planning horizon and increase our purchase commitments for long lead time
components. If actual market conditions are less favorable than those projected by management, which may be
caused by factors within and/or outside of our control, we may be required to increase our inventory write-downs
and liabilities to our contract manufacturers and suppliers, which could have an adverse impact on our gross
margins and profitability. We regularly evaluate our exposure for inventory write-downs and adequacy of our
contract manufacturer and supplier liabilities.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation, except for land which is not
depreciated. We capitalize any additions and improvements and expense maintenance and repairs as incurred.
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.
Leases
We lease office space, data centers, and equipment under non-cancellable 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 finance leases in any of the periods presented.
ROU assets and lease liabilities are recognized at the commencement date based on the present value of
remaining lease payments over the lease term. The interest rate implicit in our operating leases is not readily
available, and therefore, 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
87
have the right to use the leased property. Our lease terms may include options to extend or terminate the lease
when it is reasonably 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-use asset and reduce 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
exemption in which ROU assets and lease liabilities are not recognized for leases with terms of 12 months or less.
Business Combinations
We use the acquisition method to account for our business combinations in accordance with Accounting
Standards Codification ("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 restructuring
costs are expensed as incurred.
During the measurement period, which is not to exceed one year from the acquisition date, we may
record adjustments to the acquired assets and liabilities assumed, with a corresponding offset to goodwill or the
preliminary purchase price, to reflect new information obtained about facts and circumstances that existed as of
the acquisition date. Upon the conclusion of the measurement period, any subsequent adjustments are recorded
to earnings.
Goodwill 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 perform a qualitative
assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its
carrying amount. If the reporting unit does not pass the qualitative assessment, a quantitative test is performed by
comparing the fair value of our reporting unit with its carrying amount. We would recognize an impairment loss
for the amount by which the carrying amount exceeds the fair value. There were no impairment charges in any of
the periods presented in the consolidated financial statements. See Note 6. Goodwill and Acquisition-Related
Intangible Assets for additional information.
Acquired intangible assets are carried at cost less accumulated amortization. All acquired intangible
assets have been determined to have definite lives and are amortized on a straight-line basis over their estimated
useful 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 the
consolidated financial statements. See Note 6. Goodwill and Acquisition-Related Intangible Assets for additional
information.
Investments in Privately-Held Companies
Our equity investments in privately-held companies without readily determinable fair values are
measured using the measurement alternative, defined by ASC 321 - Investments-Equity Securities as cost, less
impairments, and remeasured based on observable price changes from orderly transactions of identical or similar
securities of the same issuer. Any adjustments 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
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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 investments in
privately-held companies whose fair value was readily determinable as of December 31, 2021 and 2020.
Impairment of Long-Lived Assets and Investments in Privately-Held Companies
The carrying amounts of our long-lived assets, including property and equipment, intangible assets, ROU
assets and investments in privately-held companies, are periodically reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value of these assets may not be recoverable. 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. If the asset is considered to be impaired, the amount
of any impairment is measured as the difference between the carrying value and the fair value of the impaired
asset. No impairment of any other long-lived assets was identified for any of the periods presented in the
consolidated financial statements.
Loss Contingencies
In the ordinary course of business, we are a party to claims and legal proceedings including matters
relating to commercial, employee relations, business practices and intellectual property. In assessing loss
contingencies, we use significant judgments 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 amount of loss. We record a
provision for contingent losses when it is both probable that an asset has been impaired or a liability has been
incurred and the amount of the loss can be reasonably estimated. We 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 reasonably
estimated. We regularly evaluate current information available to us to determine whether such accruals should
be adjusted and whether new accruals are required.
Revenue Recognition
We generate revenue from sales of our products, which incorporate our EOS software and accessories
such as cables and optics, to direct customers and channel partners together with post-contract customer support
(“PCS”). We typically sell products and PCS in a single contract. We recognize revenue upon transfer of control
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:
•
•
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
• Determination of the transaction price
• Allocation of the transaction price to the performance obligations in the contract
• Recognition of revenue when (or as) we satisfy the performance obligation
Post-Contract Customer Support ("PCS")
PCS, which includes technical support, hardware repair and replacement parts beyond standard warranty,
bug fixes, patches and unspecified upgrades on a when-and-if-available basis, is offered under 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 unspecified upgrades on a set
schedule and address customer requests for technical support if and when they arise, with the related expenses
89
recognized as incurred. PCS contracts generally have a term of one to three years. We include billed but unearned
PCS revenue in deferred revenue.
Contracts with Multiple Performance Obligations
Most of our contracts with customers, other than renewals of PCS, contain multiple performance
obligations with a combination of products and PCS. Products and PCS generally qualify as distinct performance
obligations. Our hardware includes EOS software, which together deliver 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 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 observable SSP, such as when we do not sell a product 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 products 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 revenue recognition for contracts containing forms of variable consideration,
such as future performance 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.
Most of our contracts with customers have payment terms of 30 days with some large high-volume
customers having terms of up to 90 days. We have determined our contracts generally do not include a significant
financing component because the Company and the customer have specific business reasons other than financing
for entering into such contracts. Specifically, both we and our customers seek to ensure the customer has a
simplified way of purchasing Arista products and services.
We account for multiple contracts with a single partner as one arrangement if the contractual terms and/or
substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single
contract.
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. Specific 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 differ materially from applying the guidance to the individual contracts (or
performance obligations) within that portfolio. Consequently, we have chosen to apply the portfolio approach
when possible, which we do not believe will happen frequently. Additionally, we will evaluate a portfolio of data,
when possible, in various situations, including accounting for commissions, rights of return and transactions with
variable consideration.
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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.
Contract Balances
A contract asset is recognized when we have a contractual right to consideration for both completed and
partially completed performance obligations that have not yet been invoiced. Contract assets are included in other
current assets in the accompanying consolidated balance sheets.
A contract liability is recognized when we have received customer payments in advance of our
satisfaction of a performance obligation under a contract that is cancellable. Contract liabilities are included in
other current liabilities and other long-term liabilities in the accompanying consolidated balance sheets.
Assets Recognized from Costs to Obtain a Contract with a Customer
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 capitalization. These costs are deferred and then amortized over a period
of benefit that we have determined to be five years. Total capitalized costs to obtain a contract are included in
other current and long-term assets on our consolidated balance sheets. As of December 31, 2021 and 2020, total
capitalized costs to obtain contracts were $11.5 million and $10.1 million, respectively.
Research and Development Expenses
Costs related to the research, design and development of our products are charged to research and
development expenses as incurred. Software development costs are capitalized 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 after technological feasibility has been established. As a
result, costs incurred subsequent to achieving technological feasibility have not been significant and accordingly,
all software development costs have been expensed as incurred.
Warranty
We generally offer a one-year warranty on all of our hardware products and a 90-day warranty against
defects in the software embedded in the products. We use judgment and estimates when determining warranty
costs based on historical costs to replace product returns within the warranty period at the time we recognize
revenue. We accrue 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 specifically identified products if
and when we determine we have a systemic product failure. Although we engage in extensive product quality
programs, if actual product failure rates or use of materials differ from estimates, additional warranty costs may
be incurred, which could reduce our gross margin. The accrued warranty liability is recorded in accrued liabilities
in the accompanying consolidated balance sheets.
Segment Reporting
We develop, market and sell cloud networking solutions, which primarily consist of our switching and
routing platforms and related network applications, and there are no segment managers who are held accountable
for operations or operating results below the Company level. Our chief operating decision maker is our Chief
Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating
resources and evaluating financial performance. Accordingly, we have determined that we operate as one
reportable segment.
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Stock-Based Compensation
Stock-based compensation cost for equity awards is measured at the grant-date fair value using
appropriate valuation techniques and recognized as expense over the requisite service or performance period. We
account for forfeitures when they occur.
Stock-based compensation costs 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
granted RSUs that vest upon the satisfaction of both service-based and performance-based conditions. The
service-based condition for these awards is generally satisfied over four years. The performance-based conditions
are satisfied upon achieving specified performance targets, such as financial or operating metrics. We record
stock-based compensation expense for performance-based equity awards on an accelerated attribution method
over the requisite service period, and only if performance-based conditions are considered probable to be satisfied.
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 Taxes
Income tax expense is an estimate of current income taxes payable in the current fiscal year based on
reported income before income taxes. Deferred income taxes reflect the effect of temporary differences and
carryforwards that we recognize for financial reporting and income tax purposes.
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 differences and carryforwards.
Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable
income in effect 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 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 different. To the extent that the final
tax outcome of these matters is different than the amounts recorded, such differences will affect 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 effects of any reserves that we
believe are appropriate, as well as the related net interest and penalties.
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 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 (the
“period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the
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“deferred method”). We selected the deferred method of accounting and recorded the associated basis differences
anticipated to influence prospective GILTI calculations.
Net Income per Share Attributable to Common Stockholders
Basic and diluted net income per share attributable to common stockholders are calculated in conformity
with the two-class method required for participating securities. Our shares of common stock subject to repurchase
are considered participating securities. Under the two-class method, net income attributable to common
stockholders is calculated as net income less earnings attributable to participating securities. In computing diluted
net income attributable to common stockholders, undistributed earnings 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 during the
period. Diluted net income per share attributable to common stockholders is computed by dividing the net income
attributable to common stockholders by the weighted-average number of common shares outstanding, including
potentially dilutive common shares assuming the dilutive effect of outstanding stock options, restricted stock
units, and employee stock purchase plan using the treasury stock method. Potentially dilutive shares whose effect
would have been antidilutive are excluded from the computation of diluted net income per share.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions
to the general principles in Topic 740 and amending existing guidance to improve consistent application. This
new standard is effective for our interim and annual periods beginning January 1, 2021 with earlier adoption
permitted. Most amendments within this standard are required to be applied on a prospective basis, while certain
amendments must be applied on a retrospective or modified retrospective basis. We adopted this new standard on
January 1, 2021, with no material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Effective
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and
contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the
acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had
originated the contracts. This approach differs from the current requirement to measure contract assets and
contract liabilities acquired in a business combination at fair value. This new standard is effective for our interim
and annual periods beginning January 1, 2023, with early adoption permitted. We are currently evaluating the
adoption impacts on our consolidated financial statements.
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,
California. With the acquisition of Big Switch, we expect to expand our data center networking solutions and
further strengthen our network monitoring and observability suite delivered through Arista’s software platform
CloudVision and DANZ (DataANalyZer) capabilities.
We paid an aggregate of $73.3 million in cash for the acquisition of Big Switch, of which $5.3 million
was severance and other costs accounted for as a post-combination expense and excluded from the purchase
consideration. We also incurred certain acquisition-related expenses and restructuring costs of $6.6 million, which
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primarily consisted of retention bonuses to continuing employees, professional and consulting fees, and facilities
restructuring costs.
On October 7, 2020, the Company completed its acquisition of Awake Security, Inc. (“Awake Security”),
a network detection and response (“NDR”) platform provider headquartered in Santa Clara, California. With the
acquisition of Awake Security, we added an NDR platform to our product portfolio that combines artificial
intelligence (AI) with human expertise to autonomously hunt for and respond to insider and external security
threats.
The Company acquired all outstanding shares of Awake Security for a total purchase consideration of
$180.5 million with cash. The acquisition-related costs were immaterial.
Certain unvested stock options held by Awake Security employees were assumed by the Company in
connection with the acquisition. The portion of the fair value of the assumed stock options associated with pre-
acquisition services of Awake employees was immaterial. The fair value of $21.3 million of the unvested
replacement options was excluded from the purchase 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.
Both acquisitions were accounted for as a business combination with the aggregate purchase price
allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition
date. The following table summarizes the final purchase price allocation for the two acquisitions (in thousands):
Cash and cash equivalents
Other tangible assets
Liabilities
Intangible assets
Goodwill
Net assets acquired
Amount
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
Weighted
Average
Estimated Useful
Life
7 years
7 years
5 years
2 years
Acquisition Date Fair
Value
$
$
72,220
18,840
6,520
4,060
101,640
The goodwill of $134.8 million is primarily attributable to the expected synergies created by
incorporating the solutions of the acquired businesses into our technology platform, and the value of the
assembled workforce. The goodwill is not deductible for income taxes purposes. The Company’s consolidated
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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 acquisitions were not material to the
Company’s consolidated financial statements.
3.
Fair Value Measurements
We measure and report our cash equivalents, restricted cash, and available-for-sale marketable securities
at fair value on a recurring basis. The following tables summarize the amortized costs, unrealized gains and losses,
and fair values of these financial assets by significant investment category and their levels within the fair value
hierarchy (in thousands):
December 31, 2021
Amortized
Cost
Unrealized
Gains
Unrealize
d Losses Fair Value
Level I
Level II
Level III
Financial Assets:
Cash Equivalents:
Money market
funds
Marketable
Securities:
Commercial paper
Certificates of
deposits (1)
U.S. government
notes
Corporate bonds
Agency securities
$ 221,382 $
— $
— $ 221,382 $ 221,382 $
— $ —
141,274
44,931
1,060,716
1,255,149
291,558
2,793,628
—
—
3
105
36
144
— 141,274
— 141,274
—
44,931
—
44,931
(2,909) 1,057,810 1,057,810
(3,028) 1,252,226
(333) 291,261
—
— 1,252,226
— 291,261
(6,270) 2,787,502 1,057,810 1,729,692
—
—
—
—
—
—
Other Assets:
Money market
funds - restricted
Total Financial
Assets
____________________
4,237
—
—
4,237
4,237
—
—
$ 3,019,247 $
144 $ (6,270) $ 3,013,121 $ 1,283,429 $ 1,729,692 $ —
(1) As of December 31, 2021, all of our certificates of deposits were domestic deposits.
95
December 31, 2020
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value Level I
Level II
Level III
Financial Assets:
Cash Equivalents:
Money market
funds
Marketable
Securities:
Commercial paper
Certificates of
deposits (1)
U.S. government
notes
Corporate bonds
Agency securities
$ 438,854 $
51,211
50,136
523,320
878,484
475,132
1,978,283
— $
— $ 438,854 $ 438,854 $
— $ —
—
3
187
1,167
343
1,700
—
51,211
—
51,211
—
50,139
—
50,139
(1) 523,506 523,506
—
— 879,321
— 475,472
(334) 1,979,649 523,506 1,456,143
(330) 879,321
(3) 475,472
—
—
—
—
—
—
Other Assets:
Money market
funds - restricted
Total Financial
Assets
____________________
(1) As of December 31, 2020, all of our certificates of deposits were domestic deposits.
$ 2,421,372 $
1,700 $
4,235
4,235
—
—
4,235
—
—
(334) $ 2,422,738 $ 966,595 $ 1,456,143 $ —
As of December 31, 2021 and 2020, total unrealized losses of our marketable securities were $6.3 million
and $0.3 million, respectively, none of which have been in a continuous unrealized loss position for more than 12
months. 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 major rating agencies. The longer the duration of
these marketable securities, the more susceptible they are to changes in market interest rates and bond yields. We
expect to realize the full value of these investments upon maturity or sale and therefore, we do not consider any
of our marketable securities to be impaired as of December 31, 2021 and December 31, 2020. We did not
recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable
securities for the years ended December 31, 2021, 2020, and 2019.
As of December 31, 2021, the contractual maturities of our 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
December 31,
2021
1,691,472
1,096,030
2,787,502
$
$
The weighted-average remaining duration of our current marketable securities is approximately 0.8 years
as of December 31, 2021.
96
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
Restricted cash included in other assets
Total cash, cash equivalents and restricted cash
Accounts Receivable, net
December 31,
2021
2020
$
$
620,813 $
4,237
625,050 $
893,219
4,235
897,454
Accounts receivable, net consists of the following (in thousands):
Accounts receivable
Allowance for doubtful accounts
Product sales rebate and returns reserve
Accounts receivable, net
Allowance for Doubtful Accounts
December 31,
2021
2020
521,597 $
(132)
(4,956)
516,509 $
394,037
(659)
(3,838)
389,540
$
$
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-offs
Balance at the end of year
Product Sales Rebate and Returns Reserve
Year Ended December 31,
2020
2021
2019
$
$
659 $
(154)
(373)
132 $
638 $
397
(376)
659 $
507
221
(90)
638
Activities in the product sales rebate and returns 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,
2020
2021
2019
$
$
3,838 $
7,104
(5,986)
4,956 $
5,522 $
9,454
(11,138)
3,838 $
8,613
2,032
(5,123)
5,522
97
Inventories
Inventories consist of the following (in thousands):
Raw materials
Finished goods
Total inventories
December 31,
2021
2020
$
$
316,737 $
333,380
650,117 $
219,218
260,450
479,668
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Inventory deposits
Prepaid income taxes
Other current assets
Other prepaid expenses and deposits
Total prepaid expenses and other current assets
Property and Equipment, net
December 31,
2021
2020
$
$
46,311 $
8,977
163,916
18,531
237,735 $
18,783
267
60,556
15,316
94,922
Property and equipment, net consists of the following (in thousands):
Land
Equipment and machinery
Computer hardware and software
Furniture and fixtures
Leasehold improvements
Construction-in-process
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
December 31,
2021
2020
$
$
40,145 $
90,915
44,083
3,634
30,502
2,378
211,657
(133,023)
78,634 $
—
70,655
40,081
3,787
31,448
1,441
147,412
(115,181)
32,231
Depreciation expense was $19.5 million, $20.1 million and $19.0 million for the years ended
December 31, 2021, 2020 and 2019, respectively.
98
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Accrued payroll related costs
Accrued manufacturing costs
Accrued product development costs
Accrued warranty costs
Other
Total accrued liabilities
Warranty Accrual
December 31,
2021
2020
99,571 $
80,213
22,188
10,414
14,257
226,643 $
73,634
43,181
6,733
9,314
10,495
143,357
$
$
The following table summarizes the activity related to our accrued liability for estimated future warranty
costs (in thousands):
Warranty accrual, beginning of year
Liabilities accrued for warranties issued during the year
Warranty costs incurred during the year
Warranty accrual, end of year
Contract Assets
Year Ended December 31,
2020
2021
$
$
9,314 $
12,659
(11,559)
10,414 $
6,742
9,737
(7,165)
9,314
The following table summarizes the beginning and ending balances of our contract assets (in thousands):
Contract assets, beginning balance
Contract assets, ending balance
Contract Liabilities
Year Ended December 31,
2020
2021
$
16,380 $
24,388
25,565
16,380
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 revenue
Add: Contract liabilities recognized
Contract liabilities, ending balance
Year Ended December 31,
2020
2021
$
$
85,957 $
(34,177)
(1,945)
43,547
93,382 $
61,050
(23,394)
(1,638)
49,939
85,957
As of December 31, 2021 and 2020, $38.7 million and $34.5 million, respectively, of our contract
liabilities were recorded within other current liabilities with the remaining balance recorded within other long-
term liabilities in the accompanying consolidated balance sheets.
99
Deferred Revenue
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: Deferral of revenue in current period, excluding amounts recognized during the
period
Deferred revenue, ending balance
Other Performance Obligations
Year Ended
December 31,
2021
$
$
650,827
(373,881)
652,366
929,312
Other performance obligations include unbilled contract revenue for services and products that will be
recognized in future periods. As of December 30, 2021, other performance obligations of $187.0 million were
comprised of unbilled multi-year PCS contract amounts.
Revenue from Total Remaining Performance Obligations
Revenue from total remaining performance obligations represents contract liabilities, deferred revenue
and other performance obligations. As of December 31, 2021, approximately $1,209.7 million of revenue is
expected to be recognized from remaining performance obligations. We expect to recognize revenue on
approximately 82% of these remaining performance obligations over the next 2 years and 18% during years 3 to
5.
Other Income, Net
Other income, net consists of the following (in thousands):
Year Ended December 31,
2020
2019
2021
Other income, net:
Interest income
Gain on sale of marketable securities
Gain on investments in privately-held companies
Other expense
Total other income, net
$
$
7,215 $
—
—
(1,075)
6,140 $
27,139 $
9,432
4,164
(1,556)
39,179 $
51,144
—
5,427
(75)
56,496
100
5.
Investments
Investments in Privately-Held Companies
Our investments in privately-held companies do not have readily determinable fair values. Their initial
cost is subsequently adjusted 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 classified
within Level III of the fair value hierarchy as we estimate the value based on valuation methods using the
observable transaction price at the transaction date and other significant unobservable inputs, such as 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 our
investments in privately-held companies held as of December 31, 2021 and 2020 (in thousands):
Cost of investments
Cumulative impairment
Cumulative upward adjustments
Carrying amount of investments
December 31,
2021
December 31,
2020
$
$
14,933 $
—
5,314
20,247 $
3,000
—
5,314
8,314
During the year ended December 31, 2019, we recorded a realized gain of $4.3 million upon the sale of
one of our investments. In the year ended December 31, 2021, we did not record any adjustments to our
investments, and in the years ended December 31, 2020 and 2019, we recorded $4.2 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. The aforementioned realized and unrealized gains were
recorded within other 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 December 31, 2021 and 2020 are as
follows (in thousands):
Balance at December 31, 2019
Additions related to acquisitions (See Note 2 for additional information)
Balance at December 31, 2020
Escrow receipts from past acquisitions
Balance at December 31, 2021
Amount
54,855
134,841
189,696
(1,299)
188,397
$
$
The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years
ended December 31, 2021 and 2020 and determined that goodwill was not impaired.
101
Acquisition-Related Intangible Assets
The following table presents details of our acquisition-related intangible assets as of December 31, 2021
and 2020 (in thousands, except for years):
Developed technology
Customer relationships
Trade name
Others
Total
Developed technology
Customer relationships
Trade name
Others
Total
December 31, 2021
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
124,730
25,920
8,990
5,720
165,360
$
$
(53,663)
(7,899)
(4,693)
(5,550)
(71,805)
$
$
71,067
18,021
4,297
170
93,555
December 31, 2020
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
124,730
25,920
8,990
5,720
165,360
$
$
(31,805)
(4,298)
(2,946)
(3,521)
(42,570)
$
$
92,925
21,622
6,044
2,199
122,790
Weighted Average
Remaining Useful
Life
(In Years)
4.5
5.2
3.8
0.1
4.6
Weighted Average
Remaining Useful
Life
(In Years)
5.2
6.2
4.3
1.1
5.3
Amortization expense related to acquisition-related intangible assets was $29.2 million, $24.1 million
and $13.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2021, future estimated amortization expense related to the acquired-related
intangible assets is as follows (in thousands):
Years Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
Future
Amortization
Expense
$
$
26,774
22,781
16,103
9,750
7,737
10,410
93,555
7.
Commitments and Contingencies
Operating Leases
We lease various offices and data centers in North America, Europe, Asia and Australia under non-
cancellable operating lease arrangements that expire on various dates through 2028. Some of our leases include
102
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, 2021, 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):
December 31,
2021
December 31,
2020
Right-of-use assets:
Operating lease right-of-use assets
Lease liabilities:
Operating lease liabilities, current (included in other current liabilities)
Operating lease liabilities, non-current
Total operating lease liabilities
$
$
65,182 $
77,288
20,298
56,527
76,825 $
17,773
72,397
90,170
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,
2020
2021
$
$
23,230 $
7,781
31,011 $
23,392
7,459
30,851
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-line basis. Variable lease costs primarily include maintenance, utilities and operating expenses 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, 2021 and 2020, cash paid for amounts associated with our
operating lease liabilities were approximately $22.3 million and $20.2 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, 2021 are presented in the table below (in
thousands):
Years ending December 31,
2022
2023
2024
2025
2026
2027 and thereafter
Total undiscounted operating lease payments (excluding non-lease components)
Less: imputed interest
Present value of operating lease payments as of December 31, 2021
103
Amount
23,527
21,132
12,796
9,564
7,730
12,254
87,003
(10,178)
76,825
$
$
Weighted-average remaining lease term — operating leases
Weighted-average discount rate — operating leases
Purchase Commitments
December 31,
2021
4.6 years
5.0%
December 31,
2020
5.4 years
5.0%
We outsource most of our manufacturing and supply chain management operations to third-party contract
manufacturers, who procure components and assemble products on our behalf. In addition, we purchase strategic
component inventory from certain suppliers under non-cancellable purchase commitments, including integrated
circuits, which are consigned to our contract manufacturers. As of December 31, 2021, we had non-cancellable
purchase commitments of $2,540.1 million, with $2,318.6 million payable within 12 months and the majority of
the remaining $221.5 million payable within 2023. These open purchase orders are considered enforceable and
legally binding, and while we may have some limited ability to reschedule, and adjust our requirements based on
our business needs prior to the delivery of goods or performance of services, this can only occur with the
agreement of the related supplier.
In addition to the purchase obligations outlined above, we also entered into an agreement covering an
additional $275 million of extended lead time component purchase commitments in support of 2023 forecasted
demand, for which purchase orders had not been issued as of December 31, 2021.
We also had deposits to our contract manufacturers to secure our purchase commitments in the amount
of $49.1 million and $21.5 million as of December 31, 2021 and 2020, respectively, which were recorded within
prepaid expenses and other current assets, as well as other assets in the accompanying consolidated balance sheets.
In January 2022, we paid an additional cash deposit of $50.0 million to one of our contract manufacturers to
secure our purchase commitments.
Guarantees
We have entered into agreements with some of our direct customers and channel partners that contain
indemnification provisions relating to potential situations where claims could be alleged that our products infringe
the intellectual property rights of a third-party. We have at our option and expense the ability to repair any
infringement, replace product with a non-infringing equivalent-in-function product or refund our customers all or
a portion of the value of the product. Other guarantees or indemnification agreements include guarantees of
product and service performance and standby letters of credit for leased facilities and corporate credit cards. We
have not recorded a liability related to these indemnification and guarantee provisions, and our guarantee and
indemnification arrangements have not had any material impact on our consolidated financial statements to date.
Legal Proceedings
WSOU Investments, LLC
On November 25, 2020, WSOU Investments LLC ("WSOU") filed a lawsuit against us in the Western
District of Texas asserting that certain of our products infringe three WSOU patents. WSOU's allegations are
directed to certain features of our wireless and switching products. WSOU seeks remedies including monetary
damages, attorney's fees and costs. On February 4, 2021, we filed an answer denying WSOU's allegations. On
November 5, 2021, the case was transferred to the Northern District of California; trial has been set for October
23, 2023.
We intend to vigorously defend against the claims brought against us by WSOU. However, we cannot
be certain that any of WSOU's claims will be resolved in our favor, regardless of the merits of those claims. Any
adverse litigation ruling could result in a significant damages award against us and injunctive relief.
104
With respect to the legal proceedings described above, it is our belief that while a loss is not probable, it
may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be
estimated. However, the outcome of litigation is inherently uncertain. Therefore, if this legal matter were resolved
against us in a reporting period for a material amount, our consolidated financial statements for that reporting
period could be materially adversely affected.
Other matters
In the ordinary course of business, we are a party to claims and legal proceedings including matters
relating to commercial, employee relations, business practices and intellectual property.
We record a provision for contingent losses when it is both probable that a liability has been incurred
and the amount of the loss can be reasonably estimated. Based on currently available information, management
does not believe that any liabilities relating to other unresolved matters are probable or that the amount of any
resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to
have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is
subject to inherent uncertainties and our view of these matters may change in the future. If an unfavorable outcome
were 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 unfavorable outcome occurs, and potentially in future periods.
8.
Stockholders' Equity and Stock-Based Compensation
Stock Repurchase Programs
In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the
"Repurchase Program"). This authorization allowed us to repurchase shares of our common stock over three
years, and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021. In the
fourth quarter of 2021, our board of directors authorized an additional $1.0 billion stock repurchase program (the
“New Repurchase Program”), which allows us to repurchase shares of our common stock to be funded from
working capital. Repurchases may be made at management’s discretion from time to time on the open market,
through privately negotiated transactions, transactions structured through investment banking institutions, block
purchases, trading plans under Rule 10b5-1 of the Exchange Act, or a combination of the foregoing. The New
Repurchase Program commenced in November 2021 and expires on the three year anniversary thereof. The New
Repurchase Program 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, 2021, the remaining authorized amount
for stock repurchases under the New Repurchase Program was approximately $927.0 million.
A summary of the stock repurchase activity under the Repurchase Programs is as follows, as adjusted to
give effect to the Stock Split (in thousands, except per share amounts):
Aggregate purchase price
Shares repurchased
Average price paid per share
Year Ended December 31,
2020
395,173
8,048
49.11
2021
411,645 $
4,537
90.73 $
$
$
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 Programs have been retired.
2014 Equity Incentive Plan
In April 2014, the board of directors and stockholders approved the 2014 Equity Incentive Plan (the
“2014 Plan”), effective on the first day that our common stock was publicly traded, and simultaneously terminated
105
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.
Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”),
Nonstatutory Stock Options (“NSOs”), Restricted 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 January 1 of each year commencing with 2016 by the number of shares equal to 3%
of the outstanding shares of our common stock on the immediately preceding December 31, but not to exceed
50,000,000 shares (the “2014 Plan Evergreen Increase”), unless the board of directors, in its discretion, determines
to make a smaller increase. Effective January 1, 2021, our board of directors authorized an increase of 9,140,912
shares to the shares available for issuance under the 2014 Plan, as adjusted to give effect to the Stock Split. In
fiscal 2020, in connection with our acquisition of Awake Security, we assumed the stock options outstanding
under the Awake Security 2014 Equity Incentive Plan and registered an additional 461,352 shares to be available
for future issuance, as adjusted to give effect to the Stock Split. As of December 31, 2021, there remained
approximately 88.0 million shares available for issuance under the 2014 Plan. In February, 2022, our board of
directors authorized an increase of 9,230,434 shares to shares available for future issuance under the 2014 Plan
effective January 1, 2022.
2014 Employee Stock Purchase Plan
In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan
(the “ESPP”). The ESPP became effective on the first day that our common stock was publicly traded. The
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
10,000,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase. Effective
January 1, 2021, our board of directors authorized an increase of 3,046,968 shares as adjusted to give effect to the
Stock Split to shares available for issuance under the ESPP. As of December 31, 2021, there remained 18.0 million
shares available for issuance under the ESPP. In February, 2022, our board of directors authorized an increase of
3,076,811 shares to shares available for issuance under the ESPP effective January 1, 2022.
Under our ESPP, eligible employees are permitted to acquire shares of our common stock at 85% of the
lower of the fair market value of our common stock on the first trading day of each offering period or on the
exercise date. Each offering period lasts approximately two years starting on the first trading date after
February 15 and August 15 of each year. Participants may purchase shares of common stock through payroll
deductions up to 10% of their eligible compensation, subject to Internal Revenue Service mandated purchase
limits.
During the year ended December 31, 2021, we issued 458,284 shares at an average purchase price of
$46.50 under our ESPP, as adjusted to give effect to the Stock Split.
106
Stock Option Activities
The following table summarizes the option activities and related information, as adjusted to give effect
to the Stock Split (in thousands, except years and per share amounts):
Number of
Shares
Underlying
Outstanding
Options
Weighted-
Average
Exercise
Price per
Share
Weighted-
Average
Remaining
Contractual
Term (In Years)
Aggregate
Intrinsic
Value
841,659
3.6 $
Balance—December 31, 2020
Options granted
Options exercised
Options canceled
Balance—December 31, 2021
Vested and exercisable—December 31, 2021
13,719 $
—
(4,941)
(93)
8,685 $
6,650 $
11.29
—
9.30
9.55
12.45
9.70
2.8 $ 1,140,369
891,466
2.4 $
We did not grant any stock options in the year ended December 31, 2021. The weighted-average grant-
date fair value of options granted during the years ended December 31, 2020 and 2019 was $46.24 and $26.86
per share, respectively, as adjusted to give effect to the Stock Split. The aggregate intrinsic value of options
exercised during the years ended December 31, 2021, 2020 and 2019 was $410.9 million, $245.9 million and
$323.1 million, respectively. The total fair value of options vested for the years ended December 31, 2021, 2020
and 2019 was approximately $25.3 million, $20.0 million and $23.0 million, respectively.
Restricted Stock Unit (RSU) Activities
The following table summarizes the RSU activities and related information, as adjusted to give effect
to the Stock Split (in thousands, except per share amounts):
Unvested balance—December 31, 2020
RSUs granted (1)
RSUs vested
RSUs forfeited/canceled
Unvested balance—December 31, 2021
Number of
Shares
Weighted-
Average Grant
Date Fair Value
Per Share
7,263 $
3,487
(2,265)
(664)
7,821 $
53.92
93.18
53.15
61.74
70.98
(1) Included in this amount are 268,000 performance-based RSUs (“PRSUs”, as adjusted to give effect to the Stock Split) to
our CEO and other executive officers that include both service and performance-based conditions. These PRSUs will vest
over three to four years, and the ultimate number of shares eligible to vest will vary between 0% and 200% of the amount
granted based on the achievement of certain performance metrics over the performance period and each holder’s continued
employment with Arista. As of December 31, 2021 we expect the achievement level of such awards to be at the higher end of
the performance range.
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2021,
2020 and 2019 was $93.18, $54.11 and $60.53 per share, respectively, as adjusted to give effect to the Stock Split.
The total fair value of RSUs vested for the years ended December 31, 2021, 2020 and 2019 was approximately
$120.4 million, $85.4 million, and $65.7 million, respectively.
107
Stock-Based Compensation Expense
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
Total stock-based compensation
Determination of Fair Value
2021
Year Ended December 31,
2020
2019
7,444 $
99,770
46,521
33,140
186,875 $
6,272 $
79,913
34,944
15,913
137,042 $
4,637
53,068
29,168
14,407
101,280
$
$
We record stock-based compensation awards based on fair value as of the grant date. We value RSUs at
the market close price of our common stock on the grant date. For option awards and ESPP offerings, we use 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 Options
We did not grant any stock options in the year ended December 31, 2021. For the years ended December
31, 2020 and 2019, 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-free interest rate
Expected volatility
Dividend rate
ESPP
Year Ended December 31
2019
2020
5.0
0.4 %
43.5 %
— %
6.9
2.5 %
42.8 %
— %
The following table summarizes the assumptions relating to our ESPP:
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend rate
2021
Year Ended December 31,
2020
2019
1.2
0.1 %
40.2 %
— %
1.6
0.4 %
45.1 %
— %
1.1
1.8 %
42.5 %
— %
As of December 31, 2021, there were $519.7 million of unrecognized compensation costs related to all
unvested awards. The unamortized compensation costs are expected to be recognized over a weighted-average
period of approximately 3.3 years.
108
9.
Net Income Per Share
The following table sets forth the computation of our basic and diluted net income per share attributable
to common stockholders, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):
2021
Year Ended December 31,
2020
2019
Numerator:
Basic:
Net income
Less: undistributed earnings allocated to participating
securities
Net income attributable to common stockholders,
basic
$
840,854 $
634,557 $
859,867
—
—
(423)
$
840,854 $
634,557 $
859,444
Diluted:
Net income attributable to common stockholders, basic
Add: undistributed earnings allocated to participating
securities
Net income attributable to common stockholders,
diluted
$
840,854 $
634,557 $
859,444
—
—
24
$
840,854 $
634,557 $
859,468
Denominator:
Basic:
Weighted-average shares used in computing net income
per share attributable to common stockholders, basic
306,512
303,936
305,248
Diluted:
Weighted-average shares used in computing net income
per share attributable to common stockholders, basic
Add weighted-average effects 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
306,512
303,936
305,248
12,464
262
13,848
76
18,260
8
319,238
317,860
323,516
$
$
2.74 $
2.63 $
2.09 $
2.00 $
2.82
2.66
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 effects would
have been anti-dilutive for the periods presented, as adjusted to give effect to the Stock Split (in thousands):
Stock options and RSUs
Employee stock purchase plan
Total
2021
Year Ended December 31,
2020
2019
298
37
335
1,380
332
1,712
1,272
328
1,600
109
10.
Income Taxes
The components of income before provision for income taxes are as follows (in thousands):
Domestic
Foreign
Income before income taxes
2021
737,620 $
193,259
930,879 $
Year Ended December 31,
2020
621,838 $
117,025
738,863 $
$
$
2019
727,632
134,638
862,270
The components of the provision for income taxes are as follows (in thousands):
Current provision for income taxes:
Federal
State
Foreign
Total current
Deferred tax expense (benefit):
Federal
State
Foreign
Total deferred tax expense (benefit)
Total provision for income taxes
2021
Year Ended December 31,
2020
2019
$
$
137,203 $
38,478
13,391
189,072
78,843 $
21,135
12,891
112,869
58,187
19,067
928
78,182
(98,534)
(16,289)
15,776
(99,047)
90,025 $
(17,592)
(849)
9,878
(8,563)
104,306 $
362,056
(4,511)
(433,324)
(75,779)
2,403
The reconciliation of the statutory federal income tax rate and our effective income tax rate is as
follows (in percentages):
U.S. federal statutory income tax rate
State tax, net of federal benefit
Taxes on foreign earnings differential
Tax credits
Change in valuation allowance
Intra-Entity Sale
Stock-based compensation
Acquisition and integration costs
Other, net
Effective tax rate
2021
21.00 %
1.89
(2.13)
(2.70)
0.01
—
(8.32)
0.03
(0.11)
9.67 %
Year Ended December 31,
2020
21.00 %
2.23
(0.92)
(2.64)
(0.18)
—
(5.65)
0.27
0.01
14.12 %
2019
21.00 %
1.30
(2.59)
(3.10)
(0.10)
(9.95)
(6.56)
0.04
0.24
0.28 %
The change in our income taxes was largely attributable to increased tax benefits from stock-based
compensation, combined with a favorable change in jurisdictional mix of earnings. Excess tax benefits resulting
from stock awards were $105.8 million, $58.7 million and $77.9 million for the years ended December 31, 2021,
2020 and 2019, respectively.
110
The tax effects of temporary differences that give rise to significant portions of deferred tax assets
(liabilities) are as follows (in thousands):
Deferred tax assets:
Intangible assets
Reserves and accruals not currently deductible
Deferred revenue
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 earnings
Right of use asset
Other
Total deferred tax liabilities
Net deferred tax assets
$
December 31,
2021
2020
385,291 $
34,648
146,745
85,390
17,845
28,012
19,760
21,284
3,430
742,405
(109,985)
632,420
392,053
32,866
47,740
68,592
22,080
28,009
18,548
23,998
204
634,090
(82,638)
551,452
(302,746)
(14,892)
(1,561)
(319,199)
313,221 $
(317,970)
(18,764)
(1,123)
(337,857)
213,595
$
The following table presents the breakdown between non-current deferred tax assets and liabilities (in
thousands):
Deferred tax assets, non-current
Deferred tax liabilities, non-current
Total net deferred tax assets
December 31,
2021
442,295 $
(129,074)
313,221 $
2020
441,531
(227,936)
213,595
$
$
Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not.
We believe, more likely than not, that we will have sufficient taxable income after deductions related to share-
based awards to utilize our remaining deferred tax assets, with the exception of California, Canada, and U.K.
deferred tax assets. In 2021, we increased our R&D tax credit carryforwards and capitalization in California and
Canada, and increased our NOL carryforward in the U.K., which resulted in an increase of our valuation allowance
on our deferred tax assets by $27.4 million. Therefore, we recorded a valuation allowance of $110.0 million and
$82.6 million as of December 31, 2021 and 2020, 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.
As of December 31, 2021, we had $227.5 million and $94.0 million of net operating loss carryforwards
for federal and state income tax purposes, respectively, from the acquisition of Mojo Networks, Big Switch
Networks and Awake Security. These federal and state losses will begin to expire in 2028 and 2029, respectively.
111
For foreign jurisdictions, we had combined foreign net operating loss carryforwards of $14.4 million, which do
not expire.
We had a federal credit of $2.0 million from the acquisition of Awake Security, which will begin to expire
in 2038, and a California state credit of $156.2 million, which can be carried over indefinitely. For foreign
jurisdictions, we had $0.6 million of Canadian scientific research and experimental development tax credit carry-
forwards, which will begin to expire in 2034.
Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to
ownership change limitations provided in the Internal Revenue code and similar state or foreign provisions.
The Tax Cuts and Jobs Act enacted on December 22, 2017 requires a Transition Tax on previously
untaxed accumulated and current foreign earnings. Correspondingly, all undistributed 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 effect, if any, of limited outside basis differences of our foreign
subsidiaries based upon plans of future reinvestment. The determination of the future tax consequences of the
remittance of these earnings 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 that the position will be sustained. The reconciliation of the beginning and ending amount of gross
unrecognized tax benefits as of December 31, 2021, 2020 and 2019 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 with taxing authorities
Decreases related to lapse of statute of limitations
Adjustment for acquisition
Gross unrecognized tax benefits—ending balance
2021
92,500 $
2,476
21,104
(853)
—
(414)
—
Year Ended December 31,
2020
93,806 $
3,103
20,274
(18,029)
—
(6,654)
—
92,500 $
2019
74,436
11,171
22,714
(89)
(12,388)
(2,120)
82
93,806
$ 114,813 $
As of December 31, 2021, 2020 and 2019, the total amount of gross unrecognized tax benefits was
$114.8 million, $92.5 million and $93.8 million, respectively, of which $60.9 million, $44.7 million and $28.5
million would affect our effective tax rate if recognized.
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 $1.6 million and $0.1 million
in the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, we recognized
a liability for interest and penalties of $3.6 million and $2.0 million, respectively.
The statute of limitations for Federal and most states remains open for 2017 and forward. Some states
have net operating loss and tax credit carryforwards, and therefore remain open to examination. The majority 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 may 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 cannot be made.
112
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 Africa
Asia Pacific
Total revenue
2021
2,156,183 $
486,836
305,018
2,948,037 $
Year Ended December 31,
2020
1,771,992 $
326,729
218,791
2,317,512 $
$
$
2019
1,833,163
381,651
195,892
2,410,706
Long-lived assets, excluding intercompany receivables, investments in subsidiaries, investments in
privately-held companies and deferred tax assets, net by location are summarized as follows (in thousands):
United States
International
Total
December 31,
2021
2020
$
$
62,163 $
16,471
78,634 $
24,110
8,121
32,231
12.
Post-Employment Benefits
We have a 401(k) Plan that covers substantially all of our employees in the U.S. Effective January 1,
2017, we have elected to match 100% of employees' contributions up to a maximum of 3% of an employee's
annual salary. Matching contributions are immediately vested. For the years ended December 31, 2021, 2020 and
2019, we contributed approximately $9.8 million, $7.4 million and $5.1 million for the matching contributions,
respectively.
113
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial
Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.
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 procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our CEO
and CFO concluded that, as of such date, our disclosure controls and procedures are designed at a reasonable
assurance level and are effective to provide reasonable assurance that information we are required to disclose in
reports that we file 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 our CEO and CFO, as appropriate,
to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control 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 occurred during the year ended December 31, 2021 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and
procedures 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 future conditions. Over time, controls may become inadequate because of changes in
114
conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is a process designed under the supervision of our principal executive and principal financial officers 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.
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts
and expenditures 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 have a material effect on the Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness 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. Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2021, 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, 2021, its internal control
over financial reporting was effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with U.S. GAAP.
The effectiveness of our internal control over financial reporting, as of December 31, 2021, 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 unqualified opinion on the effectiveness of our internal control over financial reporting as
of December 31, 2021.
Item 9B. Other Information
Disclosure Pursuant to Section 13(r) of the Exchange Act
Under Section 13(r) of the Exchange Act, the Company is required to disclose in its periodic reports if
it or any of its affiliates knowingly conducted a transaction or dealing with entities or individuals designated
pursuant to certain Executive Orders.
On March 2, 2021, the U.S. Secretary of State designated the Russian Federal Security Service (the
“FSB”) as a blocked party under Executive Order 13382. On the same day, the U.S. Department of the Treasury’s
Office of Foreign Assets Control updated General License No. 1B to authorize transactions and activities with the
FSB that are necessary and ordinarily incident to requesting, receiving, utilizing, paying for, or dealing in certain
licenses, permits, certifications or notifications issued or registered by the FSB for the importation, distribution
or use of certain information technology products in the Russian Federation.
115
Arista Networks Limited, one of our subsidiaries, authorized certain third-party resellers in Russia to
periodically file notifications with, or apply for import licenses and permits from, the FSB on our behalf in
connection with the importation of our products into Russia, as permitted under the OFAC General License. In
the fiscal year ended December 31, 2021, resellers filed one or more notifications with and/or applied for one or
more import licenses and permits from the FSB on our behalf. There was no gross revenue or net profits of the
Company or any subsidiary directly associated with these filing activities. The Company and its subsidiaries do
not sell products or provide services to the FSB. The Company and its subsidiaries will continue to authorize our
resellers to file notifications with and apply for import licenses and permits from the FSB to qualify our products
for importation and distribution in the Russian Federation to the extent permitted by applicable law.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
116
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information required by this Item is incorporated herein by reference to our definitive proxy statement
with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation
Information required by this Item is incorporated herein by reference to our definitive proxy statement
with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information required by this Item is incorporated herein by reference to our definitive proxy statement
with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this Item is incorporated herein by reference to our definitive proxy statement
with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
Information required by this Item is incorporated herein by reference to our definitive proxy statement
with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year covered by this Annual Report on Form 10-K.
117
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
present in amounts sufficient to require submission of the schedule, or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
The exhibits listed in the following Exhibit Index are filed or incorporated by reference into this report:
118
Exhibit
Number
3.1
Description
Amended and Restated Certificate of
Incorporation of the Registrant.
Form
10-Q
File No.
001-36468
EXHIBIT INDEX
Incorporated by Reference
10-Q 001-36468
333-194899
S-1/A
Exhibit Filing Date
3.1
3.2
4.1
8/8/2014
8/8/2014
4/21/2014
Filed
Herewith
(cid:57)
3.2
4.1
4.2
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 †
10.21 †
Bylaws of the Registrant.
Form of the Registrant's common stock
certificate.
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.
2004 Equity Incentive Plan.
2011 Equity Incentive Plan.
2014 Equity Incentive Plan.
2014 Employee Stock Purchase Plan.
Offer Letter, dated October 17, 2004, by and
between the Registrant and Kenneth Duda.
Offer Letter, dated June 8, 2007, by and
between the Registrant and Anshul Sadana.
Offer Letter, dated August 1, 2008, by and
between the Registrant and Jayshree Ullal.
Offer Letter, dated March 27, 2013, by and
between the Registrant and Charles Giancarlo.
Offer Letter, dated June 3, 2013, by and
between the Registrant and Ann Mather.
Lease between Arista Networks, Inc. and The
Irvine Company LLC, dated August 10, 2012,
as amended on February 28, 2013.
Second Amendment to Lease, by and between
Arista Networks, Inc. and The Irvine Company
LLC, dated July 30, 2014.
License Agreement, dated November 30, 2004,
by and between the Registrant and OptumSoft,
Inc.
Manufacturing Services Letter Agreement,
dated February 5, 2007, between the Registrant
and Jabil Circuit, Inc.
Employee Incentive Plan.
10-Q
001-36468
10.1
11/1/2019
S-1
S-1
333-194899
333-194899
S-1/A 333-194899
10-K 001-36468
333-194899
S-1
10.2 3/31/2014
10.3 3/31/2014
10.4 5/27/2014
10.5 3/12/2015
10.6
3/31/2014
S-1
S-1
S-1
S-1
S-1
333-194899
10.7
3/31/2014
333-194899
10.8
3/31/2014
333-194899
10.9
3/31/2014
333-194899
10.10
3/31/2014
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
S-1/A 333-194899 10.21 4/21/2014
Offer Letter, dated May 18, 2015, by and
between the Registrant and Ita Brennan.
Severance Agreement, effective May 18, 2015,
by and between the Registrant and Ita Brennan.
8-K
8-K
001-36468
10.1
5/14/2015
001-36468
10.2
5/14/2015
2015 Global Sales Incentive Plan.
Offer letter, dated January 2, 2013, by and
between the Registrant and Marc Taxay.
Severance Agreement, dated March 30, 2015,
by and between the Registrant and Marc
Taxay.
Offer letter, dated February 14, 2017, by and
between the Registrant and John McCool.
10-Q 001-36468
001-36468
10-Q
10.3 5/5/2016
10.1
5/8/2017
10-Q
001-36468
10.2
5/8/2017
10-Q
001-36468
10.3
5/8/2017
119
Incorporated by Reference
Form
10-Q
File No.
001-36468
Exhibit Filing Date
10.4
5/8/2017
Filed
Herewith
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)
Exhibit
Number
10.22 †
10.23 ‡
10.24 ‡
10.25 †
21.1
23.1
31.1
31.2
32.1*
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104.0
Description
Severance Agreement, dated March 20, 2017,
by 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 Subsidiaries of the Registrant.
Consent of Independent Registered Public
Accounting Firm.
Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer
pursuant to Section 302(a) of the Sarbanes-
Oxley Act of 2002.
Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document.
XBRL Taxonomy Extension Schema
Document.
XBRL Taxonomy Extension Calculation
Linkbase Document.
XBRL Taxonomy Extension Definition
Linkbase Document.
XBRL Taxonomy Extension Label Linkbase
Document.
XBRL Taxonomy Extension Presentation
Linkbase Document.
Cover Page Interactive File (formatted as
Inline XBRL and contained in Exhibit 101)
______________________
† Indicates a management contract or compensatory plan or arrangement.
‡ Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and have been
filed separately with the Securities and Exchange Commission.
* The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are not deemed filed with the
Securities and Exchange Commission and are not to be incorporated by reference into any filing of Arista Networks, Inc.
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.
120
Item 16. Form 10-K Summary
None.
121
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 14, 2022
By:
ARISTA NETWORKS, INC.
(Registrant)
/s/ JAYSHREE ULLAL
Jayshree Ullal
President, Chief Executive Officer and Director
(Principal Executive Officer)
122
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jayshree Ullal and Ita Brennan, jointly and severally, his or her attorney-in-fact, with the
power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or
his or her substitute or substitutes, may do or cause to be done by virtue 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 capacities and on the dates indicated:
Signature
Title
Date
/s/ JAYSHREE ULLAL
Jayshree Ullal
/s/ ITA BRENNAN
Ita Brennan
President, Chief Executive Officer and
Director (Principal Executive Officer)
February 14, 2022
Chief Financial Officer (Principal
Accounting and Financial Officer)
February 14, 2022
/s/ ANDY BECHTOLSHEIM
Andy Bechtolsheim
Founder, Chief Development Officer and
Chairman of the Board of Directors
February 14, 2022
/s/ ANN MATHER
Ann Mather
Director
/s/ CHARLES GIANCARLO
Charles Giancarlo
Director
/s/ DAN SCHEINMAN
Dan Scheinman
/s/ KELLY BATTLES
Kelly Battles
/s/ LEWIS CHEW
Lewis Chew
/s/ MARK TEMPLETON
Mark Templeton
Director
Director
Director
Director
/s/ NIKOS THEODOSOPOULOS
Nikos Theodosopoulos
Director
February 14, 2022
February 14, 2022
February 14, 2022
February 14, 2022
February 14, 2022
February 14, 2022
February 14, 2022
123