2024
Notice & Proxy
Statement
2023
Annual Report
DEAR ARISTA NETWORKS STOCKHOLDERS:
As we wrapped up another fantastic year in 2023, I was so proud of the team’s execution
across multiple dimensions. Simply put, we outpaced the industry in quality, support and
innovation. We continue to set the direction for the future of networking, including the next era of
AI, working intimately with our strategic customers. I am delighted to share Arista’s 2023
milestones and innovations.
2023 MILESTONES:
• Revenue for our fiscal year 2023 was $5.86 billion, an increase of 33.8% compared to fiscal
year 2022.
• Arista announced the next generation 7130 Series for ultra-low latency switching that
accelerates 25G networking and addresses the need for 25G market data distribution and
High-Frequency Trading (HFT) environments.
• Arista announced the expansion of its Zero Trust Networking Architecture that uses the
underlying network infrastructure to break down security silos, streamline workflows and
enable an integrated zero trust program. Through Arista developed technologies and
alliances with key partners, Arista’s approach uses the network to compensate for
harder-to-implement zero trust controls across the domains of devices, workloads, identity,
and data.
• Arista and the founding members of the Ultra Ethernet Consortium have set out on a mission
to enhance the capabilities of Ethernet for AI and HPC through the arrival of Open AI
Networking.
• Arista introduced AI-Driven Network Identity, a cloud-delivered, AI-driven network identity
service for enterprise security and IT operations.
• Arista expanded its Cognitive Campus with the introduction of Arista CUE™ (Cognitive
Unified Edge) to enable commercial customers to accelerate new services and technology
innovations by consolidating multiple security and networking functions into an “edge as a
service” cloud-managed solution.
• Arista introduced the Arista WAN Routing System which combines three new networking
offerings: enterprise-class routing platforms, carrier/cloud-neutral internet transit capabilities,
and CloudVision Pathfinder Service to simplify and improve customer wide area networks.
• Arista announced its range of products and solutions, along with perspectives on petascale
era of cloud networking and the systems and optics required to meet the demands of new
AI/ML-driven network architectures.
• Arista named a leader in the Forrester Wave: Network Analysis and Visibility which noted
“Arista Networks’ deployment flexibility is second to none.”
We are pleased with Arista’s continued innovation in bringing new and differentiated products
to market, supporting our customers to meet the needs and business challenges of an
increasingly data-centric and connected world.
I thank Arista stockholders, customers, partners and our employees for your continued
support.
Jayshree Ullal
Chief Executive Officer and Chairperson
Arista Networks, Inc.
April 24, 2024
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 11:00 a.m. Pacific Time on Friday, June 7, 2024
Dear Stockholders of Arista Networks, Inc.:
The 2024 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 Friday, June 7, 2024 at 11:00 a.m. Pacific Time. The
Annual Meeting will be conducted in a virtual format to provide convenience to our stockholders and enable increased stockholder
participation. You will be able to attend the Annual Meeting online and submit your questions during the meeting at
www.virtualshareholdermeeting.com/ANET2024. 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 9, 2024 as the record date for the Annual Meeting. Only stockholders of
record on April 9, 2024 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 10 of the accompanying proxy statement.
On or about April 24, 2024, 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, Chairperson and President
Santa Clara, California
April 24, 2024
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TABLE OF CONTENTS
2024 PROXY STATEMENT SUMMARY
CORPORATE RESPONSIBILITY
QUESTIONS AND ANSWERS
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
Role of Board of Directors in Risk Oversight
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4
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27
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Auditor Independence
Audit Committee Policy on Pre-Approval of Audit and
Permissible Non-Audit Services of Independent
Registered Public Accounting Firm
Vote Required
PROPOSAL NO. 4 APPROVAL OF THE AMENDED,
RESTATED AND EXTENDED 2014 EQUITY
INCETIVE PLAN
Summary of the Restated Plan
Summary of U.S. Federal Income Tax Consequences
New Plan Benefit
Vote Required
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 2023 Summary Compensation Table
Outstanding Equity Awards at 2023 Fiscal Year-End
Executive Talent Management and Succession Planning
31
Fiscal 2023 Grants of Plan-Based Awards
Director Compensation
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Nominees
Vote Required
PROPOSAL NO. 2 ADVISORY VOTE ON
EXECUTIVE COMPENSATION
Vote Required
PROPOSAL NO. 3 RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUTING FIRM
Fees Paid to the Independent Registered Public
Accounting Firm
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35
Fiscal 2023 Option Exercises and Stock Vested
Pension Benefits
Nonqualified Deferred Compensation
Potential Payments Upon Termination or Change in
Control
Risk Assessment and Compensation Practices
Other Compensation Policies
Tax and Accounting Considerations
CEO Pay Ratio
Pay Versus Performance
Equity Compensation Plan Information
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
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2024 PROXY STATEMENT
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RELATED PERSON TRANSACTIONS
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APPENDICES
Policies and Procedures for Related Person
Transactions
OTHER MATTERS
Householding
Stockholder Proposals
Availability of Bylaws
Fiscal Year 2023 Annual Report and SEC Filings
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Appendix A – 2014 Equity Incentive Plan
Appendix B – Reconciliation of GAAP to Non-GAAP
Financial Measures
A
B
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2024 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 2024 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”). Our principal executive offices
are located at 5453 Great America Parkway, Santa Clara, California 95054. 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
Friday, June 7, 2024 at 11:00 a.m. Pacific Time
VIRTUAL MEETING
www.virtualshareholdermeeting.com/ANET2024
RECORD DATE
April 9, 2024
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: Page 33
Elect three Class I directors to serve until the 2027 annual meeting of stockholders
Board Voting Recommendation:
FOR the election of Kelly Battles, Kenneth Duda and Jayshree Ullal
2 Proposal for your Vote: Page 34
Advisory vote to approve named executive officer compensation
Board Voting Recommendation: FOR
3 Proposal for your Vote: Page 35
Ratification of Ernst & Young LLP as our independent registered public accounting firm
Board Voting Recommendation: FOR
4 Proposal for your Vote: Page 37
Approval of the Amended, Restated and Extended 2014 Equity Incentive Plan
Board Voting Recommendation: FOR
Director Nominees
Name and Occupation
Age
Director Since
Independent
Committees
Kelly Battles, Director
Kenneth Duda, Director and
Chief Technology Officer
Jayshree Ullal, Chairperson &
Chief Executive Officer
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52
2020
2023*
63
2008
*
Joined the Board of Directors effective as of December 1, 2023
Audit
2024 PROXY STATEMENT
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2023 Business Highlights
REVENUE
$5.86B
GAAP GROSS MARGIN
61.9%
Board of Directors Snapshot
2
75%
INDEPENDENT
6
3
38%
FEMALE
5
2
25%
DIVERSE
6
4
50%
<6 YR TENURE
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6/8 of our directors are
independent
3/8 of our directors
are women
2/8 of our directors are
from underrepresented
communities
4/8 of our directors
have served for less
than 6 years
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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.
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Oversight
• Oversees the Company’s strategy, annual business plans, Enterprise Risk
Management (ERM) framework, cybersecurity and culture, values and conduct
• Regularly reviews succession plans for CEO and other key executives
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Independent
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• 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
Evaluations
• Annual board and committee self-assessments enhance performance
• Encompasses board and committee structure and composition, culture,
process and relationship with management
Shareholder
Engagement
Corporate
Governance
Policies
• Active, year-round shareholder engagement process where we meet with
our stockholders and other key stakeholders
• Host Investor Day
• Present at investor conferences
• Stock Ownership Guidelines for directors and CEO
• Clawback Policy for executive officers
• Proxy access for director nominees not exceeding the greater of 2 or
20% of directors in office
• Corporate Governance Guidelines
• Insider Trading Policy prohibits, among other things, hedging
Executive Compensation Highlights
Annual review of our executive compensation
Stock Ownership Guidelines for CEO
program
Performance-based equity for CEO and other
senior officers
Clawback Policy for executive officers
No executive-only retirement programs
Independent compensation consultant
No excise tax gross-ups
2024 PROXY STATEMENT
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OUR COMMITMENT TO CORPORATE RESPONSIBILITY
THE ARISTA WAY
1 Drive for customer success in
every aspect: support, quality,
innovation and experience
2 Do the right thing, be it for
products, quality, customers and
daily interactions
3 Challenge status quo, question
traditional habits and be cost-
effective
4 Develop alternative ways of
achieving disruptive innovation in
every function, preserving quality
5 Develop agile and mobile teams
that can respond to priorities (as
opposed to fixed or top-down
organizations)
Maintain the highest level of
integrity in conduct
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7 Discuss, debate but quickly align
to priorities
8 Treat your peers, vendors,
customers with respect and
develop a win-win partnership
9 Mentor individuals and develop
teams for overall success, not
personal, success
10 Cultivate Arista pride but never
ego or arrogance in our culture
Arista is committed to transparency, engagement and
consistent communication of our environmental, social &
governance 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
corporate responsibility and sustainability programs around
environmental, social and governance programs, including:
Environment
Social
Responsibility
Supply Chain
Governance
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Oversight
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.
Environment
Arista is dedicated to responsible environmental practices that include climate change
resilience, conservation of natural resources, pollution prevention and reduction of
waste. We foster environmental awareness in our employees and partners, engaging
them to reduce their footprint and waste, while collaborating to innovate powerfully
efficient sustainable data technology solutions.
Arista is proactively working to produce ever more efficient and sustainable products, and taking leadership on measuring,
reporting and reducing our third-party verified greenhouse gas (GHG) emissions.
Arista’s Environmental Policy, ethos, and culture of efficiency and innovation drive our pragmatic but passionate approach to
environmental sustainability. Through our Environmental Management System (EMS), Arista implements our objectives for
achieving pollution prevention, environmental protection and monitoring, and continual improvements in the environmental
performance of our operations.
Arista’s Audit Committee continues to review and discuss Arista’s policies and practices relating to environmental and social
responsibility with Arista’s senior management team, including Arista’s climate change risk management and leadership. The Audit
Committee periodically meets with management to discuss environmental and social responsibility matters. This committee in
partnership with our Sustainability Committee oversees execution of initiatives including:
• Greenhouse gas (GHG) emissions measurement, reporting and reduction through the annual externally verified GHG inventory,
energy efficiency and renewable energy initiatives, and related supplier engagement through the CDP Supply Chain program and
Responsible Business Alliance (RBA).
• Our Santa Clara global headquarters and San Francisco office are both LEED Gold certified, and our Bangalore office premises
were built to LEED Gold standards. In 2024, Arista is focused on procuring additional renewable energy to substantially
decrease its reliance on non-renewable energy.
• Each new generation of our products demonstrates improved network capacity, and energy efficiency, which reduces overall
greenhouse gas emissions (“GHG”) 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.
2024 PROXY STATEMENT
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• 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.
Arista focuses on collaboration and innovation to meet our objective of reducing costs and
improving operational sustainability and extending these benefits up and down our supply
chain. We develop and implement highly efficient and powerful new technologies, quickly
responding to changes in customer requirements, global regulations and industry demands.
We continue to look for opportunities to minimize our environmental impact through our
environmental stewardship and sustainability initiatives.
Social
Responsibility
Providing an amazing customer and product experience all starts with a
great team. We are focused on growing our team of employees and
prioritize providing resources that enrich their professional
development and personal total wellness. We believe that our ongoing
success depends upon a skilled, satisfied, and valued workforce.
As such, Arista provides opportunities for our employees to gain necessary and
desired skills and knowledge via a library of on-demand classes, webinars as
well as in-person training.
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.
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 from our team members. We 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, professional development and other areas. Beyond the
workplace, the health and wellbeing of our colleagues is our top priority and in recognition of this, Arista offers ongoing wellness
webinars and quarterly wellness weeks focused on mental, physical, financial health, social activity and professional development
that also highlight themes such as sustainability and diversity.
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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 2023, Arista
was extremely honored and humbled to receive external recognitions primarily based on
enthusiastic employee feedback. These recognitions include:
From Comparably as a Best/Top 50 Large Company for Diversity; a Best/Top 100
Company for Work Life/ Balance and Happiness as well as Engineering Team,
Compensation and for Women; a Bay Area Best Place To Work by the Silicon Valley
Business Journal/San Francisco Business Times; and as a Best Workplace in British
Columbia by Great Place To Work Canada; a Top Greenest Company by Newsweek
Magazine.
We are committed to developing a qualified and motivated workforce to power our
continued evolution. The health and safety of our employees is the highest priority. 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 provide necessary
and legally required training to employees on 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 and implement continuous improvements.
We are aware of how our presence and partnership can positively impact others. Therefore,
we are consciously and continuously working to systemically create positive social change
by partnering with impactful non-profits through fundraising and sponsorship activities as
well as volunteer events. The Arista Foundation’s giving priorities are aligned with the United
Nations SDGs and are generally focused on education, hunger, health, environmental
sustainability, and disaster relief. In 2023, Arista is proud to have:
• Hosted an on-site giving event at our headquarters that raised over $50,000 for the Heart
to Heart Foundation to provide free rural medical education/colleges in India as well as an
event with Helping Hands Silicon Valley to build hygiene kits for those with housing
insecurity.
• Partnered with LISC and JP Morgan to support their Diverse Supplier Grant Initiative, a
program aimed at providing diverse owned businesses, with an emphasis on Black,
Hispanic and Latino businesses, access to growth capital to help them more effectively
compete and earn corporate contracts.
• Provided a grant to Greater Vancouver Food Bank in Canada to help them serve their
clients in need of food.
• Continued its multi-year partnership with HelpAge India. In 2023, the Arista Foundation
enthusiastically granted the necessary funds to provide cataract surgeries free of cost to
senior citizens in India who had no significant means of support.
• Recognized as the champion company at the Children’s Health Foundation (Dublin,
Ireland) Clash of the Companies fundraiser for employee fundraising, engagement, and
volunteer activities.
• Planted trees through partnerships with a variety of non-profits.
• Provided meals to people in need 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, Greater
Vancouver Food Bank, and Foodbank Australia.
2024 PROXY STATEMENT
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Through strategic nonprofit partnerships, pro bono work, volunteerism and philanthropy, our corporate responsibility efforts are
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 having access to education, decrease the number of individuals facing economic
barriers and make our communities reflections of our commitments and values.
Supply Chain
Manufacturing our products creates environmental and social impacts that extend far beyond
the walls of Arista.
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) and CDP’s Supply Chain Program, we support
the vision and mission of both, 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.
Arista’s website contains information on our environmental and social programs. We routinely engage with our stockholders 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.
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.
Arista’s Code of Ethics and Business Conduct emphasizes the importance of honest business conduct and solid business ethics.
Our Code of Ethics and Business Conduct 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 periodic training on our Code of Ethics and Business Conduct. Our Code of
Ethics and Business Conduct addresses, among other things, conflicts of interest, business practices, compliance with laws and
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regulations, and interacting fairly and respectfully with each other, our customers, partners, suppliers and host communities. The
full text of our Code of Ethics and Business Conduct is available in the Governance section of our website at http://
investors.arista.com. Furthermore:
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• 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.
Our board of directors, consisting of 8 directors (6 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
cybersecurity programs. 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 cybersecurity risks, data privacy, supply chain, human capital, and others.
2024 PROXY STATEMENT
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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 June 6, 2024
(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 June 6, 2024 (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/ANET2024. 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/ANET2024.
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 9, 2024, the record date,
may vote at the Annual Meeting. As of the record date,
there were 313,608,626 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.
Stockholders of Record. If shares of our common stock
are registered directly in your name with our transfer agent,
you are considered the stockholder of record with respect
to those shares, and the Notice was provided to you
directly by us. As the stockholder of record, you have the
right to grant your voting proxy directly to the individuals
listed on the proxy card or to vote on your own behalf at the
Annual Meeting.
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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.
I plan to attend the Annual Meeting?
Q Do I have to do anything in advance if
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 9, 2024 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/ANET2024. 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.
Annual Meeting?
Q How do I ask questions during the
A You will be able to attend the Annual
Meeting online and submit your questions
during the meeting at
www.virtualshareholdermeeting.com/ANET2024. 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.
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.
checking in or listening to the meeting
online?
Q How can I get help if I have trouble
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,
Chantelle Breithaupt 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.
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2024 PROXY STATEMENT
11
Availability of Proxy Materials instead of
a full set of proxy materials?
Q Why did I receive a Notice of Internet
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 24,
2024 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.
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.
intermediary vote my shares if I fail to
provide timely directions?
Q How may my brokerage firm or other
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.
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.
of each proposal?
Q How many votes are needed for approval
A Proposal One: The election of directors requires
a plurality of the voting power of the shares of
our common stock present in person or
represented by proxy at the Annual Meeting and entitled to
vote thereon to be approved. “Plurality” means that the
nominees who receive the largest number of votes cast
“FOR” such nominees are elected as directors. As a result,
any shares not voted “FOR” a particular nominee, whether
as a result of stockholder abstention or a broker non-vote
(in other words, where a broker has not received voting
instructions from the beneficial owner and for which the
broker does not have discretionary power to vote on a
particular matter), 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.
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Proposal Two: The approval, on an advisory basis, of the
compensation of our named executive officers requires the
affirmative vote of a majority of the voting power of the
shares of our common stock present in person or
represented by proxy at the Annual Meeting and entitled to
vote on the subject matter to be approved. You may vote
“FOR,” “AGAINST,” or “ABSTAIN” with respect to this
proposal. Abstentions are considered shares present and
entitled to vote on the subject matter, and thus, will have
the same effect as a vote “AGAINST” this proposal. Broker
non-votes will have no effect on the outcome of this
proposal.
Proposal Three: The ratification of the appointment of Ernst
& Young LLP as our independent registered public
accounting firm for our fiscal year ending December 31,
2023 requires the affirmative vote of a majority of the
voting power of the shares of our common stock present
in person or represented by proxy at the Annual Meeting
and entitled to vote on the subject matter to be approved.
You may vote “FOR,” “AGAINST,” or “ABSTAIN” with
respect to this proposal. Abstentions are considered
shares present and entitled to vote on the subject matter,
and thus, will have the same effect as a vote “AGAINST”
this proposal. Broker non-votes will have no effect on the
outcome of this proposal.
Proposal Four: The approval an amendment, restatement
and extension of our 2014 Equity Incentive Plan requires
the affirmative vote of a majority of the voting power of the
shares of our common stock present in person or
represented by proxy at the Annual Meeting and entitled to
vote on the subject matter to be approved. You may vote
“FOR,” “AGAINST,” or “ABSTAIN” with respect to this
proposal. Abstentions are considered shares present and
entitled to vote on the subject matter, and thus, will have
the same effect as a vote “AGAINST” this proposal. Broker
non-votes will have no effect on the outcome of this
proposal.
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2024 PROXY STATEMENT
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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. The full text of our Corporate Governance Guidelines is available in the
Governance section of our website at http://investors.arista.com. 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
• Candid discussions
• Open access to management and information
• Established processes for director feedback
• Regular non-executive directors’ meetings
BOARD STRUCTURE
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Strong lead independent director
3 standing committees
GOVERNANCE PRACTICES
BOARD COMPOSITION
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Oversight of CEO/management performance
Board/management succession planning
Code of Ethics and Business Conduct for our directors and
employees
Stock ownership requirements for our directors and CEO
Clawback policy for our executives
• Corporate Governance Guidelines
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Broad range of skills and experiences
6/8 directors are independent
Our Chairperson and Chief Technology Officer are
the only non-independent directors
3/8 directors are women
2/8 directors are from underrepresented communities
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Board Composition Overview
Consistent with the Company’s Corporate Governance Guidelines, the Nominating and Corporate Governance Committee
considers, among other factors, issues of character, professional ethics and integrity, judgment, business acumen, diversity of
experience, 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.
6/8 DIRECTORS ARE INDEPENDENT
3/8 DIRECTORS ARE WOMEN
2/8 DIRECTORS ARE FROM
UNDERREPRESENTED COMMUNITIES
4/8 DIRECTORS HAVE SERVED LESS THAN 6 YEARS
The following table sets forth information as of April 9, 2024, for each of our directors with terms expiring at the Annual Meeting:
DIRECTORS WITH TERMS EXPIRING AT THE ANNUAL MEETING/DIRECTOR NOMINEES
BOARD COMMITTEES
Name
Class Age
Director
Since
Current Term
Expires
Expiration of
Term for Which
Nominated
Audit Comp. Nom. & Gov. Independent
Kelly Battles
(Director Nominee)
Kenneth Duda
(Director Nominee)
Jayshree Ullal
(Director Nominee)
I
I
I
57
2020
2024
2027
+
✓
52
2023
2024
2027
63
2008
2024
2027
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2024 PROXY STATEMENT
15
The following table sets forth information, as of April 9, 2024, for each of the continuing members of our board of directors:
CONTINUING DIRECTORS
Name
Lewis Chew
Charles Giancarlo
Daniel Scheinman
Mark B. Templeton
Yvonne Wassenaar
Board Diversity
Class Age
Director
Since
Current Term
Expires
Audit Comp. Nom. & Gov. Independent
BOARD COMMITTEES
III
II
II
III
II
61
66
61
71
55
2021
2013
2011
2017
2022
2026
2025
2025
2026
2025
CHAIR
CHAIR
+
+
CHAIR
+
+
✓
✓
✓
✓
✓
Our board of directors believes that it should be a diverse body and our Nominating and Corporate Governance Committee
considers diversity in making determinations regarding the composition and size of the Board and in overseeing the annual board
and committee evaluations.
2/8 DIRECTORS ARE FROM
UNDERREPRESENTED COMMUNITIES
3/8 DIRECTORS ARE WOMEN
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16
BOARD SKILLS 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.
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 and Experiences
Diverse backgrounds and experiences that provide
unique perspectives and enhance decision-making.
Cybersecurity/Information Security/Security
Expertise to oversee cybersecurity, privacy, and
information security management.
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
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, 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
Experience to understand the dynamics and operation
of a public company and the applicable legal and
regulatory landscape and risks.
ESG Experience
Experience addressing environmental, social and
governance issues, including climate change.
+
Battles
Chew
Duda
Giancarlo
Scheinman
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Templeton
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Wassenaar
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Ullal
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2024 PROXY STATEMENT
17
Set forth below is biographical information for the nominees and for each of the continuing members of our board of directors. This
includes information regarding each director’s experience, qualifications, attributes or skills that led our board of directors to
recommend them for board service.
NOMINEES FOR DIRECTOR
Kelly
Battles
Independent Director
Age: 57
Director Since: 2020
Committee(s):
Audit
Kenneth
Duda
Director
Age: 52
Director Since: 2023
Committee(s):
N/A
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 also 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, an email and web security company
(since acquired by Cisco Systems, Inc.), director of strategy and
corporate development group of Hewlett-Packard Company, an
information technology 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., a data
company, Genesys Cloud Services, Inc., a software company, and
Clari, Inc., a revenue platform. 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.
Experience
Mr. Duda is one of our founders and has served in various roles with
us from 2004 to present. Mr. Duda has served as a member of our
board of directors since December 2023. 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.
Qualifications
We believe Mr. Duda 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 Technology Officer and Senior Vice President, Software
Engineering.
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Jayshree
Ullal
Director
Age: 63
Director Since: 2008
Committee(s):
N/A
Other Current Public Company Boards:
Snowflake Inc.
CONTINUING DIRECTORS
Lewis
Chew
Independent Director
Age: 61
Director Since: 2021
Committee(s):
Audit (Chair)
Other Current Public Company Boards:
Cadence Design Systems, Inc.
Intuitive Surgical, Inc. (nominated)
Experience
Ms. Ullal has served as our Chief Executive Officer, President and a
member of our board of directors since October 2008 and as our
Chairperson of the Board since December 2023. 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, a computer
networking company, Advanced Micro Devices, Inc., a
semiconductor company, and Fairchild Semiconductor, a
semiconductor company. 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.
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 April 2001 to September 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 September 2009 to April 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. In 2024, Mr. Chew was
nominated to serve on the board of directors of Intuitive Surgical,
Inc., a publicly traded leading surgical robotics company. 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 officer and board
member of companies in the technology industry.
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2024 PROXY STATEMENT
19
Charles
Giancarlo
Independent Director
Age: 66
Director Since: 2013
Committee(s):
Compensation (Chair)
Other Current Public Company Boards:
Pure Storage, Inc.
Zscaler, Inc.
Daniel
Scheinman
Independent Director
Age: 61
Director Since: 2011
Committee(s):
Compensation
Nominating and Corporate Governance
(Chair)
Lead independent director
Other Current Public Company Boards:
Zoom Video Communications, Inc.
SentinelOne, Inc.
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
January 2008 to October 2015, 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 May 1993 to
December 2007, Mr. Giancarlo served in various positions with
Cisco Systems, Inc., 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.
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.
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.
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Mark B.
Templeton
Independent Director
Age: 71
Director Since: 2017
Committee(s):
Compensation
Other Current Public Company Boards:
Nutanix, Inc.
Yvonne
Wassenaar
Independent Director
Age: 55
Director Since: 2022
Committee(s):
Audit
Nominating and Corporate Governance
Other Current Public Company Boards:
Forrester Research, Inc.
JFrog, Inc.
Rubrik, Inc. (announced a potential initial
public offering)
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 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 2023, Mr. Templeton has
served on the board of directors of Nutanix, Inc., a hybrid multi-
cloud virtual software company. Mr. Templeton served on the board
of directors of Health Catalyst, Inc., a provider of data and analytics
technology and services to health care organizations, from July 2020
to March 2024. Mr. Templeton served on the board of directors of
Equifax, Inc., a consumer credit reporting agency, from February
2008 to November 2018 and Keysight Technologies, Inc., an
electronics test and measurement equipment company, 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.
Experience
Ms. Wassenaar has served as a member of our board of directors
since July 2022. From January 2019 to May 2022, Ms. Wassenaar
served as chief executive officer of Puppet, Inc., an information
technology company. From June 2017 to September 2018,
Ms. Wassenaar served as chief executive officer of Airware Inc., an
enterprise drone analytics company. From August 2014 to May 2017,
Ms. Wassenaar served as chief information officer of New Relic Inc., an
information technology company. Ms. Wassenaar has served as a
member of the board of directors and audit committee of Rubrik, Inc.
since November 2021, a member of the board of directors and audit
committee of Forrester Research, Inc., a research company, since
June 2017, and as a member of the board of directors and
compensation committee of JFrog, Inc., a software development
company, since September 2022. She previously served as a member
of the board of directors and audit committee of Anaplan, Inc., Inc., a
cloud-based business planning software company, from November
2019 to June 2022, and as a member of the board of directors and
audit committee of Mulesoft, LLC, an integration platform for SOA,
SaaS, and APIs, from December 2017 to May 2018. She also currently
serves on the board of directors of several private companies.
Ms. Wassenaar holds a B.A. degree in economics with a specialization
in computing from the University of California, Los Angeles, and an
M.B.A. from UCLA Anderson School of Business.
Qualifications
We believe Ms. Wassenaar possesses specific attributes that qualify
her to serve as a member of our board of directors, including her
extensive experience as a chief executive officer and board member
of companies in the technology industry.
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2024 PROXY STATEMENT
21
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:
• 6/8 of the directors are independent: We are 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.
• Lead independent director: Our lead 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. Our current Chairperson, Jayshree Ullal, is not independent under the listing
standards of the New York Stock Exchange (“NYSE”) as a result of her employment with us. Our board of directors believes that,
given the perspective and experience Ms. Ullal brings, Ms. Ullal’s service as our Chairperson is appropriate and is in the best
interests of our board of directors, our Company and our stockholders.
Our Chief Executive Officer is responsible for setting the strategic direction of our Company, the general management and
operation of the business and the guidance and oversight of senior management. The Chairperson 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.
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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 Chairperson 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 necessary
and appropriate;
• being available, when appropriate, for consultation and
• ensuring that the board of directors fulfills its oversight
responsibilities in Company strategy, risk oversight and
succession planning; and
direct communication with the Company’s stockholders;
• performing such other duties as the board of directors may
• building a productive relationship between the board of
directors and the CEO;
from time to time designate.
Board Evaluation Process
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
• Each Committee of the Board
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The following is an overview of the board evaluation process.
BOARD EVALUATION PROCESS
HOW RESULTS ARE USED:
1
Evaluation process discussed at Nominating and
Corporate Governance Committee meeting
2 Each board member assesses performance and
effectiveness of the board, and as applicable, the
committees
3 Board members meet one-on-one with outside
counsel to discuss their assessments and to provide
feedback
4 Outside counsel shares feedback received with the
General Counsel, Nominating and Corporate
Governance Committee and the full board
5 The full board reviews and develops plans to take
actions based on the results, as appropriate
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, 2023, 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, except Kenneth Duda, who was not yet a member of our board of
directors, attended our 2023 annual meeting.
NUMBER OF BOARD AND COMMITTEE MEETINGS HELD IN 2023
Board of Directors
5
4
Audit Committee
18
meetings
Compensation Committee 4
5
Nominating and Corporate
Governance Committee
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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
NUMBER OF MEETINGS: 4
Lewis Chew (Chair)
Kelly Battles
Yvonne Wassenaar(1)
(1) Mr. Theodosopoulos served as an Audit Committee member until the end of his term in office in June 2023. Ms. Wassenaar
began serving as an Audit Committee member in June 2023 upon the expiration of Mr. Theodosopoulos’ term in office.
KEY RESPONSIBILITIES
• Providing oversight of our accounting and financial reporting processes and the audit of our financial statements
• Assisting our 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
• 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
• Reviewing and discussing with management, including our internal audit function, if applicable, and our independent
auditor guidelines and policies to identify, monitor, and address enterprises risks, including our investment policies
• Reviewing and discussing with 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 periodic reports from management on our internal compliance policies and procedures
• Reviewing and discussing with management our policies and practices relating to environmental and social responsibility
matters
• Reviewing and discussing with management the adequacy and effectiveness of our cybersecurity and information security
policies, controls and procedures.
INDEPENDENCE/QUALIFICATIONS:
• All committee members are independent under the NYSE listing standards and the heightened independence
requirements applicable to Audit Committee members under SEC rules
• All current committee members are financially literate in accordance with NYSE listing standards and qualify as Audit
Committee financial experts under SEC rules. Ms. Wassenaar has accounting or related financial management expertise in
accordance with NYSE listing standards.
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COMPENSATION COMMITTEE
NUMBER OF MEETINGS: 4
Charles Giancarlo (Chair)
Daniel Scheinman
Mark B. Templeton
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 and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, and
other 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, at least annually, our compensation policies and practices with management to review the relationship between
risk management policies and compensation and evaluating compensation policies and practices that could mitigate any
such risk
• Monitoring compliance with our stock ownership guidelines and recommending to our board of directors any changes to
such guidelines
• Monitoring compliance with our clawback policy and approving any changes to such policy
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
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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE(1)
NUMBER OF MEETINGS: 5
Daniel Scheinman (Chair)
Yvonne Wassenaar
(1) Mr. Nikos Theodosopoulos served as a Nominating and Corporate Governance Committee member until the end of his term
in office in June 2023.
KEY RESPONSIBILITIES
• Reviewing and making recommendations regarding corporate governance
• Reviewing and making recommendations to our board of directors regarding the composition and size of our board of
directors and determining the relevant criteria (including any minimum qualifications) for board membership, including
issues of character, professional ethics and integrity, judgment, business acumen, diversity of experience, independence,
area of expertise, corporate experience, length of service, potential conflicts of interest, an understanding of the our
business, an understanding of the responsibilities that are required of a member of our board of directors, other time
commitments, diversity with respect to professional background, education, race, ethnicity, gender, age and geography,
as well as other individual qualities and attributes that contribute to the total mix of viewpoints and experience represented
on our board of directors
• Identifying, considering and recommending candidates to fill new positions or vacancies on our board of directors
• Reviewing actual and potential conflicts of interest of our board of directors and corporate officers
• Making recommendations for continuing education of our board of directors
• Leading the annual performance review of our board of directors, its committees and management
• Reviewing succession planning for our executive officers
INDEPENDENCE/QUALIFICATIONS:
• All committee members are independent under the NYSE listing standards and SEC rules
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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.
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Considerations in Evaluating Director Nominees
Our Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating potential 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, professional ethics and integrity, judgment, business acumen,
diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, an
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understanding of the Company’s business, an understanding of the responsibilities that are required of a member of the board of
directors, other time commitments, diversity with respect to professional background, education, race, ethnicity, gender, age and
geography, as well as other individual qualities and attributes that contribute to the total mix of viewpoints and experience
represented on the board of directors, and (d) other factors that the Nominating and Corporate Governance Committee may
consider appropriate. The Nominating and Corporate Governance Committee shall also consider composition requirements
imposed by applicable law. The Nominating and Corporate Governance Committee evaluates these factors, among others, and
does not assign any particular weighting or priority to any of these factors.
The Nominating and Corporate Governance Committee requires the following minimum qualifications to be satisfied by any
nominee for a position on the board of directors: (a) the highest personal and professional ethics and integrity, (b) proven
achievement and competence in the nominee’s field and the ability to exercise sound business judgment, (c) skills that are
complementary to those of the existing board of directors, (d) the ability to assist and support management and make significant
contributions to the Company’s success, and (e) an understanding of the fiduciary responsibilities that is required of a member of
the board of directors and the commitment of time and energy necessary to diligently carry out those responsibilities.
Below is a graphic summarizing the process for our board of directors to identify and review director candidates to join our board:
Input From:
Directors
Management
Stockholders
(cid:2)
Candidate Pool
(cid:2)
In-Depth Review
by Board of Directors
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)
4 New Director
Nominees In The Last
Five Years
Mr. Duda, who was appointed to the board by our other directors in December 2023, was initially suggested to the Nominating
and Corporate Governance Committee of the board for consideration as a potential director by our Chief Executive Officer.
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 2025 annual meeting of stockholders, our General Counsel
or Legal Department must receive the nomination no earlier than February 7, 2025 and no later than March 9, 2025.
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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.
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
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Quarterly earnings calls
Industry presentations and conferences
Company-hosted events and presentations
Securities analyst meetings
Communications with the Board of Directors
Stockholders and other interested parties wishing to communicate directly with our independent or non-management directors
may do so by writing 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 Chairperson of our board of directors.
Role of Board of Directors in Risk Oversight
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. Our Audit Committee receives quarterly reports from our Vice President and Chief Information Security Officer (“CISO”), in
conjunction with other senior managers, on cybersecurity risks. In addition, these managers update the Audit Committee, as
necessary, regarding any material cybersecurity incidents, as well as incidents with lesser impact potential.
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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, CISO
• Assists in the areas of internal control over financial reporting and
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
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
• 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
• Oversees management’s implementation of our cybersecurity risk
management program
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
• Manages risks associated with board organization, membership
and structure, corporate governance and succession planning
• Reviews any conflicts of interest
COMPENSATION COMMITTEE
• Assesses risks created by the incentives inherent in our
compensation policies
• Evaluates compensation policies and practices that could mitigate
risks
(cid:2)
(cid:2)
(cid:2)
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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 2023. Directors
who are also our employees do not receive additional compensation for their service as directors. In particular, Jayshree Ullal, a
named executive officer, Kenneth Duda, a named executive officer, and Andreas Bechtolsheim, a former executive officer, did not
receive additional compensation for their service as directors.
Director
Kelly Battles
Lewis Chew
Charles Giancarlo
Daniel Scheinman
Mark B. Templeton
Nikos Theodosopoulos(3)
Yvonne Wassenaar
Fees Earned
or Paid in
Cash ($)(1)
Stock
Awards ($)(2)
Option
Awards ($) Total ($)
85,000
251,929
100,000
251,929
87,000
251,929
142,000
251,929
85,000
251,929
48,982
—
90,000
251,929
—
—
—
—
—
—
—
336,929
351,929
338,929
393,929
336,929
48,982
341,929
(1) The amounts reported represent the fees earned for service on our board of directors and committees of our board of
directors for 2023.
(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 2023, 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. Each of Mses. Battles and Wassenaar and Messrs. Chew,
Giancarlo, Scheinman and Templeton received an award of 1,490 restricted stock units on June 14, 2023.
(3) Board retainer and committee fees for Mr. Theodosopoulos are prorated as he ceased to be a director effective June 14,
2023.
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The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2023.
Director
Kelly Battles
Lewis Chew
Charles Giancarlo
Daniel Scheinman
Mark B. Templeton
Yvonne Wassenaar
Stock
Awards (#)(1)
Option
Awards (#)
745
745
745
745
745
745
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(1) Represents the number of restricted stock units unvested as of December 31, 2023.
With respect to 2023 board service, consistent with 2022 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;
In April 2024, 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 $250,000 (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.
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.
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32
PROPOSAL NO. 1
ELECTION OF DIRECTORS
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Our board of directors is currently composed of eight members. In accordance with our amended and restated certificate of
incorporation, our board of directors is divided into three staggered classes of directors. At the Annual Meeting, three Class I
directors will be elected for a three-year term to succeed the same class whose term is then expiring.
Each director’s term continues until the election and qualification of his or her successor, or such director’s earlier death,
resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the
effect of delaying or preventing changes in control of our Company.
Nominees
Our Nominating and Corporate Governance Committee has recommended, and our board of directors has approved, Kelly
Battles, Kenneth Duda and Jayshree Ullal, as nominees for election as Class I directors at the Annual Meeting. If elected, each of
Kelly Battles, Kenneth Duda and Jayshree Ullal will serve as Class I directors until the 2027 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:
• Kelly Battles
• Kenneth Duda
• Jayshree Ullal
Kelly Battles, Kenneth Duda and Jayshree Ullal have each consented to being a
nominee and to serving as a director, if elected; however, in the event that a director
nominee is unable to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by our board of directors to fill
such vacancy. If you are a street name stockholder and you do not give voting
instructions to your broker or nominee, your broker will leave your shares unvoted on
this matter.
Vote Required
The election of directors is by a plurality of the voting power of the shares of our common stock present in person or represented
by proxy at the Annual Meeting and entitled to vote on the election of directors. Abstentions and broker non-votes will have no
effect on the outcome of the 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.
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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 51 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 voting power of the shares of our
common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter.
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.
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34
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
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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, 2024. During our fiscal years ended December 31,
2023, and December 31, 2022, 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, 2024. 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, 2022 and 2023.
Audit Fees(1)
Audit-Related Fees(2)
Tax Compliance Fees(3)
Tax Advice and Planning Fees(4)
All Other Fees(5)
Total Fees
2022
2023
(in thousands)
$3,076 $3,130
—
—
$ 875 $1,178
$ 488 $ 268
—
—
$4,439 $4,576
(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.
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Auditor Independence
In our fiscal year ended December 31, 2023, 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.
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, 2022 and 2023 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 voting power of the shares of our
common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter.
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.
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PROPOSAL NO. 4
APPROVE THE AMENDED,
RESTATED AND EXTENDED 2014
EQUITY INCENTIVE PLAN
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We are asking stockholders to approve an amendment, restatement and extension of our 2014 Equity Incentive Plan (the “2014
Plan”). Our board of directors has adopted the amended and restated 2014 Plan (the “Restated Plan”), based on the
Compensation Committee’s recommendation and subject to the approval of our stockholders at the Annual Meeting.
The current version of our 2014 Plan (the “Existing Plan”) was extinguished on April 17, 2024, and, if the Restated Plan is not
approved by our stockholders, then we will be unable to continue providing equity awards as part of our compensation program
and may be compelled to significantly increase the cash component of employee compensation in order to achieve our future
incentive, recruiting and retention objectives. Consequently, without stockholder approval of our Restated Plan, we believe our
operating cash flow and/or our ability to attract and retain the individuals necessary to drive our performance and increase long-
term stockholder value will be impaired. Additionally, any awards granted on or after the Restated Plan Effective Date (as defined
below) will be forfeited. We therefore believe that the stockholder approval of our Restated Plan is important to our continued
success.
If stockholders approve the Restated Plan, then the Restated Plan will become effective as of April 17, 2024 (the “Restated Plan
Effective Date”) and will have the following material differences from the Existing Plan:
• The pool of shares reserved for issuance under the Existing Plan is extinguished. As of the Restated Plan Effective Date, the
entirety of the Existing Plan’s available pool was cancelled. The only pool available will be a new pool under the Restated Plan
as described below.
• Under the Restated Plan, the number of shares available for issuance as of the Restated Plan Effective Date will be
(i) 13,200,000 shares, plus (ii) shares subject to awards under the Existing Plan that, on or after the Restated Plan Effective
Date, expire or otherwise terminate without having been exercised in full, or that are forfeited to or repurchased by us,
including net settlement of shares subject to restricted stock units (the most shares that can roll into the Restated Plan as a
result of forfeitures is 10,039,657 shares).
• The annual automatic share increase provision in the Existing Plan (the “Evergreen Provision”) will be eliminated;
• We will not be able to, without stockholder approval, implement an exchange program to (i) exchange outstanding awards for
new awards or cash, (ii) allow participants to transfer awards to financial institutions, or (iii) reduce the exercise price of an
outstanding award;
• No dividends or other distributions will be paid with respect to shares underlying any unvested portion of an award;
•
It is clarified that Awards granted under the Restated Plan will be expressly subject to our Compensation Recovery Policy and
any clawback policy that we are required to implement under the listing standards of any national securities exchange or
association on which our securities are listed or under applicable law; and
• The Restated Plan will have a new 10-year term (from the date our board of directors approved the Restated Plan).
The Restated Plan is consistent with what we believe are best corporate governance practices:
• Non-Employee Director Limits. Under the Restated Plan, in any fiscal year no non-employee member of our board of directors
may be granted, for his or her services on our board of directors, cash-settled equity awards with an aggregate grant date fair
value and any other compensation (including any cash retainers or fees) that in the aggregate exceed $1,500,000, with such
amount increased to $3,000,000 in the fiscal year of his or her initial service as a non-employee member of our board of
directors, or stock-settled equity awards with an aggregate grant date fair value and any other compensation (including any
cash retainers or fees) that in the aggregate exceed $1,500,000, with such amount increased to $3,000,000 in the fiscal year
of his or her initial service as a non-employee member of our board of directors.
• Limited Dividend Rights. Under the Restated Plan and except for adjustments due to certain corporate transactions specified
in the Restated Plan, no dividends or other distributions shall be paid with respect to any shares underlying any unvested
portion of an award granted under the Restated Plan.
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• Clawback Policy. The Restated Plan provides that awards granted under the Restated Plan will be subject to our Clawback
Policy as may be established and/or amended from time to time to comply with the listing standards of any national securities
exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act or other applicable laws. The administrator of the Restated Plan also may
impose forfeiture, return or reimbursement of awards granted under the Restated Plan pursuant to such terms specified by
the administrator in an award agreement. We maintain a Clawback Policy, as discussed further in the section of this Proxy
Statement entitled “Compensation Discussion and Analysis.”
• No Tax Gross-Up for Golden Parachute Payments. The Rested Plan does not provide for, and the Company has no
obligations to provide, any gross-up for excise taxes that may be imposed on a participant in connection with the golden
parachute payment provisions of Internal Revenue Code Section 280G.
In determining and recommending the increase to the share reserve under the Restated Plan, our board of directors considered
the effect of the elimination of the Evergreen Provision and the following factors.
Historical Grant Practices. Our board of directors considered the historical numbers of time-based stock options, time-based
restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”) that we have granted in the past three
years. The annual share usage, or burn rate, under our equity compensation program for the last three years was as follows:
Annual Share Usage(1)
RSUs Granted
PSUs Granted
Fiscal
Year 2021
Fiscal
Year 2022
Fiscal
Year 2023
Three-Year
Average
3,181,428
3,205,837
2,448,310
2,945,192
305,240
462,272
215,975
327,829
Total Equity Awards Granted
3,486,668
3,668,109
2,664,285
3,273,021
Basic Weighted Average Shares of Common
Stock Outstanding
306,512,000 306,473,000 309,354,000 307,446,333
Annual Share Usage
1.14%
1.20%
0.86%
1.06%
(1) No stock option awards or other appreciation awards were granted in the last three years.
Our three-year burn rate, which we define as the number of shares subject to equity awards granted in a year divided by the
weighted average shares of common stock outstanding for that fiscal year, is 1.06%. Our senior management, compensation
committee, and AON, the independent consultants to our compensation committee, reviewed our burn rate as compared to our
industry peer companies.
Forecasted Grant Practices. We used our forecasted grant practices to determine the number of shares of our common stock that
should be added to the Restated Plan so as to set appropriate limits on the awards to be granted under the Restated Plan. We
currently forecast granting equity awards covering approximately 6,500,000 shares over the next two-year period, which is equal
to 2.1% of the fully diluted number of shares of our common stock outstanding as of April 17, 2024. We also estimate cancellation
or forfeiture of equity awards covering approximately 1,115,000 shares over this period, based on our historic rates. If our
expectation for cancellations is accurate, our net grants (grants less cancellations) over the next two-year period would cover
approximately 5,400,000 shares, or approximately 1.7% of the fully diluted number of shares our common stock outstanding as of
April 17, 2024. In light of this forecast and the elimination of the Evergreen Provision, we believe, and our board of directors
considered, that the number of shares that will be added to the share reserve under Restated Plan will provide a sufficient number
of shares to allow us to grant equity awards for the purpose of our expected new hires, focal awards, any special retention needs
and employee growth through any opportunistic acquisitions or hiring for the next two years. However, circumstances could alter
this projection, such as a change in business conditions, our stock price, competitive pressures for attracting and retaining
employees, or our company strategy.
Awards Outstanding Under Existing Grants and Dilutive Impact. We have outstanding, as of the Restated Plan Effective Date, time-
based stock options covering approximately 1,715,498 shares with a weighted average price and term of $21.36 and 1.8 years,
respectively, 8,834,685 unvested RSUs and PRSUs (at target achievement without respect to PSUs subject to outstanding
performance vesting conditions). Any additional grants from the Restated Plan Effective Date until the Annual Meeting will reduce the
available 13,200,000 share pool under the Restated Plan and will be subject to stockholder approval of the Restated Plan.
Accordingly, the 10,550,183 shares subject to outstanding equity awards as of the Restated Plan Effective Date (commonly referred
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to as the “overhang”) represent approximately 3.3% of the fully diluted number of shares of our common stock and the dilutive
impact of the additional 13,200,000 shares that would be available for issuance under the Restated Plan would increase the
overhang percentage by an additional 4.0% to approximately 7.1%, each based on 313,368,752 shares of our common stock
outstanding as of the Restated Plan Effective Date.
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SUMMARY OF THE RESTATED PLAN
Our Restated Plan was approved by our board of directors effective as of April 17, 2024, subject to stockholder approval. The
following general description of material features of the Restated Plan is qualified in its entirety by reference to the provisions of the
Restated Plan set forth in Appendix A of this proxy statement.
Eligibility. Our Restated Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”), to our employees and any parent and subsidiary corporations’ employees, and
for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units
and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and
consultants. As of December 31, 2023, we had 6 non-employee directors and approximately 4,023 employees (including our
employee directors). Any additional grants from Restated Plan Effective Date until the Annual Meeting will reduce the available
13,200,000 share pool under the Restated Plan and will be subject to stockholder approval of the Restated Plan.
Share Reserve. If approved by our stockholders, the total number of shares of our common stock reserved for issuance under our
Restated Plan from the Restated Plan Effective Date will be (i) 13,200,000 shares, plus (ii) any shares subject to awards under the
Existing Plan that, on or after the Restated Plan Effective Date, expire or otherwise terminate without having been exercised in full,
or that are forfeited to or repurchased by us, including net settlement of shares subject to restricted stock units, with the maximum
number of shares to be added to the Restated Plan as a result of clause (ii) equal to 10,039,657. The shares may be authorized,
but unissued, or reacquired common stock.
For the avoidance of doubt, the available share reserve under the Existing Plan will no longer be available for grant and the only
shares available for grant on the Restated Plan Effective Date shall be the pool set forth above.
Generally, if an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an
exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is
forfeited to or repurchased by us due to failure to vest, the unpurchased shares (or for awards other than options or stock
appreciation rights, the forfeited or repurchased shares) that were subject to such awards will become available for future grant or
sale under the Restated Plan (unless it has terminated). With respect to stock appreciation rights, only shares actually issued (i.e.,
the net shares issued) will cease to be available; all remaining shares under stock appreciation rights will remain available for future
grant or sale under the Restated Plan (unless the Restated Plan has been terminated). Shares used to pay the exercise price of an
award or to satisfy the tax withholding obligations related to an award will become available for future grant or sale. To the extent
an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance.
As of Restated Plan Effective Date, options to purchase 1,715,498 shares of our common stock and 8,834,685 restricted stock
units and PSUs were outstanding under the Existing Plan. As of April 17, 2024, no awards were outstanding under the Restated
Plan, but we may make certain grants prior to the date of the Annual Meeting, provided that any additional grants will reduce the
available 13,200,000 share pool under the Restated Plan and that, if stockholder approval of the Restated Plan is not obtained at
the Annual Meeting, then any award granted under our Restated Plan will be forfeited. As of April 17, 2024, the closing price of a
share of our common stock as reported on The New York Stock Exchange was $260.13.
Administration. Our board of directors or a committee appointed by our board of directors administers our Restated Plan.
Currently, our compensation committee administers our Restated Plan. Different committees may administer our Restated Plan
with respect to different groups of service providers. To make grants to certain officers and key employees, the members of the
committee must qualify as “non-employee directors” under Rule 16b-3 of the Exchange Act.
Subject to the provisions of our Restated Plan, the administrator generally has the power to make all determinations deemed
necessary or advisable for administering the Restated Plan. The administrator has the power to select the eligible employees,
consultants, and directors to whom awards may be granted and to determine the terms of awards, including the exercise price (if
any), the number of shares subject to each such award, the time when awards may vest or be exercised (including the ability to
accelerate the vesting and exercisability of awards), and the form of consideration payable upon exercise, if applicable. The
administrator also has the power to determine the fair market value of our common stock; approve forms of award agreements for
use under the Restated Plan; to construe and interpret the terms of the Restated Plan and awards granted under the Restated
Plan; prescribe, amend, and rescind rules and regulations relating to the Restated Plan; and modify or amend each award, subject
to the provisions of our Restated Plan. The administrator may not institute an exchange program under which (i) outstanding
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awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices
and different terms), awards of a different type, and/or cash, (ii) participants have the opportunity to transfer any outstanding
awards to a financial institution or other person or entity selected by the administrator, (iii) and/or the exercise price of an
outstanding award is increased or reduced. No dividends or other distributions shall be paid with respect to any shares underlying
any unvested portion of an award. The administrator’s decisions, determinations, and interpretations are final and binding on all
participants and any other holders of awards.
Stock Options. Options may be granted under our Restated Plan. Subject to the provisions of our Restated Plan, the administrator
determines the terms and conditions of options, including when such options vest and become exercisable (and the administrator
has the discretion to accelerate the time at which such options will vest or become exercisable). The per share exercise price of
any option generally must be at least 100% of the fair market value of a share of our common stock on the date of grant, and the
term of an incentive stock option may not be more than 10 years. However, with respect to any incentive stock option granted to
an individual who owns 10% of the voting power of all classes of stock of our company or any of its parent or subsidiary
corporations, the term of such option must not exceed 5 years, and the per share exercise price of such incentive stock option
must be at least 110% of the fair market value of a share of our common stock on the grant date. After a participant’s service
terminates, he or she generally may exercise the vested portion of his or her option for the period of time stated in his or her option
agreement. Generally, our option agreements provide that (i) if termination is due to death or disability, the option will remain
exercisable for 12 months, and (ii) in all other cases, the option will remain exercisable for 3 months following the termination of
service. However, in no event may an option be exercised later than the expiration of its term.
Stock Appreciation Rights. Stock appreciation rights may be granted under our Restated Plan. Stock appreciation rights allow the
recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant.
Subject to the provisions of our Restated Plan, the administrator determines the terms and conditions of stock appreciation rights,
including when such rights vest and become exercisable (and the administrator has the discretion to accelerate the time at which
such rights will vest or become exercisable) and whether to pay any increased appreciation in cash, shares of our common stock,
or a combination of both. The per share exercise price of a stock appreciation right must be at least 100% of the fair market value
per share on the date of grant. After a participant’s service terminates, he or she generally may exercise the vested portion of his or
her stock appreciation right for the period of time stated in his or her option agreement. However, in no event may a stock
appreciation right be exercised later than the expiration of its term.
Restricted Stock. Restricted stock may be granted under our Restated Plan. Restricted stock awards are grants of shares of our
common stock that vest in accordance with terms and conditions established by the administrator. The administrator will
determine the number of shares of restricted stock granted to any employee, director or consultant. The administrator may impose
whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the
achievement of specific performance goals or continued service to us), and the administrator has the discretion to accelerate the
time at which any restrictions will lapse or be removed. Shares of restricted stock that do not vest are subject to our right of
repurchase or forfeiture.
Restricted Stock Units. Restricted stock units may be granted under our Restated Plan. Restricted stock units are bookkeeping
entries representing an amount equal to the fair market value of one share of our common stock. The administrator determines the
terms and conditions of restricted stock units including the vesting criteria (which may include accomplishing specified
performance criteria or continued service to us) and the form and timing of payment. The administrator has the discretion to
accelerate the time at which any restrictions will lapse or be removed.
Performance Units and Shares. Performance units and performance shares may be granted under our Restated Plan.
Performance units and performance shares are awards that will result in a payment to a participant only if performance objectives
established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or
individual performance objectives in its discretion, which, depending on the extent to which they are met, will determine the
number and/or the value of performance units and performance shares to be paid out to participants. The administrator has the
discretion to reduce or waive any performance objectives or other vesting provisions for performance units or performance shares.
Performance units will have an initial dollar value established by the administrator on or before to the grant date. Performance
shares will have an initial value equal to the fair market value of our common stock on the grant date. The administrator has the
discretion to pay earned performance units or performance shares in the form of cash, shares, or in some combination of both.
Transferability of Awards. Unless the administrator provides otherwise, our Restated Plan generally does not allow for the transfer
of awards and only the recipient of an award may exercise an award during his or her lifetime.
Outside Directors. Our Restated Plan provides that any outside (non-employee) director, in any fiscal year, may not be granted
(i) cash-settled awards with an aggregate value (determined in accordance with GAAP) of more than $1,500,000, except that this
limit will be increased to $3,000,000 in our fiscal year of an individual’s initial service as an outside director, and (ii) stock-settled
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awards with a grant date fair value (determined in accordance with GAAP) of more than $1,500,000, except that this limit will be
increased to $3,000,000 in our fiscal year of an individual’s initial service as an outside director. This limit does not reflect the
intended size of any potential compensation or equity awards to our outside (non-employee) directors.
Certain Adjustments. If there are certain changes in our capitalization, the administrator will adjust the number and class of shares
that may be delivered under the Restated Plan; the number, class, and price of shares covered by each outstanding award; and
the numerical share limits contained in the Restated Plan.
Dissolution or Liquidation. If there is a proposed liquidation or dissolution of our company, the administrator will notify participants
as soon as practicable before the effective date of such event and all awards, to the extent that they have not been previously
exercised, will terminate immediately before the consummation of such event.
Merger or Change in Control. Our Restated Plan provides that if there is a merger of the company with or into another company or
entity or a change in control of our company, each outstanding award will be treated as the administrator determines. The
administrator is not required to treat all awards similarly. If the successor corporation does not assume or substitute an equivalent
award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or
other vesting criteria applicable to such award will be deemed achieved at 100% of target levels, and the administrator will notify
the participant that such award will become fully exercisable, if applicable, for a specified period before the transaction. The award
will then terminate upon the expiration of the specified period of time.
With respect to awards held by a non-employee director that are assumed or substituted for, if such non-employee director’s
service as a director of ours or a successor corporation is terminated on or after the date of such merger or change in control
(except for a voluntary resignation that is not at the request of the acquirer), then the non-employee director will fully vest in and
have the right to exercise his or her options and/or stock appreciation rights, all restrictions on his or her restricted stock and
restricted stock units will lapse, and, with respect to awards with performance-based vesting, all performance goals or other
vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met in the event.
Forfeiture Events. Awards granted under the Restated Plan will be subject to recoupment under our current clawback policy and
any clawback policy that we are required to adopt under the listing standards of any national securities exchange or association on
which our securities are listed or under applicable laws. In addition, the administrator may impose such other clawback, recovery
or recoupment provisions in an award agreement as the administrator determines necessary or appropriate. The administrator may
specify in an award agreement that the participant’s rights, payments and benefits with respect to an award will be subject to
reduction, cancellation, forfeiture, recoupment, reimbursement, or reacquisition upon the occurrence of certain specified events in
addition to any otherwise applicable vesting or performance conditions.
Plan Amendments and Termination. Our Restated Plan will automatically terminate in 2034, unless we terminate it sooner. In
addition, our board of directors has the authority to amend, suspend, or terminate the Restated Plan, but such action will not
impair the rights of any participant without his or her written consent.
Stockholder Approval. Our Restated Plan is subject to approval by our stockholders of at the Annual Meeting. If stockholder
approval of the Restated Plan is not obtained at the Annual Meeting, then any Award granted on or following the Restated Plan
Effective Date will be forfeited. In accordance with New York Stock Exchange Listing Rule 303A.08, no shares underlying awards
granted on or after the Restated Plan Effective Date will be issued until stockholder approval is obtained to the degree required
under applicable laws.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in
the Restated Plan. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws
and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax
consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or non-U.S. country in
which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual
circumstances.
Incentive Stock Options
An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock
option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date
the option was granted nor within one year following the exercise of the option normally will recognize a capital gain or loss equal
to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods
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upon a sale of the shares, we will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of
shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the
difference between the fair market value of the shares on the exercise date and the option exercise price (not to exceed the gain
realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed
as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there
will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by us for federal income tax purposes, except to the extent
such deduction is limited by applicable provisions of the Code.
The difference between the option exercise price and the fair market value of the shares on the exercise date is treated as an
adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax
which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of
the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable
income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the
alternative minimum tax.
Nonstatutory Stock Options
Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special U.S. tax status.
An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory
stock option, the optionee normally recognizes ordinary income equal to the amount that the fair market value of the shares on
such date exceeds the exercise price. If the optionee is an employee, such ordinary income generally is subject to withholding of
income and employment taxes. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss.
No tax deduction is available to us with respect to the grant of a nonstatutory stock option or the sale of the stock acquired
through such grant.
Stock Appreciation Rights
In general, no taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the
participant generally will recognize ordinary income in an amount equal to the fair market value of any shares of our common stock
received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment
taxes. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock Awards
A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the
vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment
taxes. The participant may elect, under Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of
acquisition by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon
the sale of shares acquired through a restricted stock award, any gain or loss, based on the difference between the sale price and
the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Restricted Stock Units
There generally are no immediate tax consequences of receiving an award of restricted stock units. A participant who is awarded
restricted stock units generally will be required to recognize ordinary income in an amount equal to the fair market value of shares
issued to such participant at the end of the applicable vesting period or, if later, the settlement date elected by the administrator or
a participant. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment
taxes. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss.
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Performance Units and Performance Shares
A participant generally will recognize no income upon the grant of a performance share or a performance unit award. Upon the
settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the
cash received and the fair market value of any cash or nonrestricted shares received. If the participant is an employee, such
ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any
gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event
occurs, will be taxed as capital gain or loss.
Section 409A
Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to an
individual’s deferral and distribution elections and permissible distribution events. Awards granted under the Restated Plan with a
deferral feature will be subject to the requirements of Section 409A of the Code. If an award is subject to and fails to satisfy the
requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred
under the award, to the extent vested, which may be before the compensation is actually or constructively received. Also, if an
award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20%
federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. Certain
states have enacted laws similar to Section 409A which impose additional taxes, interest and penalties on non-qualified deferred
compensation arrangements. We will also have withholding and reporting requirements with respect to such amounts.
Medicare Surtax
A participant’s annual “net investment income,” as defined in Section 1411 of the Internal Revenue Code, may be subject to a
3.8% federal surtax (generally referred to as the “Medicare Surtax”). Net investment income may include capital gain and/or loss
arising from the disposition of shares subject to a participant’s awards under the Restated Plan. Whether a participant’s net
investment income will be subject to the Medicare Surtax will depend on the participant’s level of annual income and other factors.
Tax Effect for the Company
We generally will be entitled to a tax deduction in connection with an award under the Restated Plan in an amount equal to the
ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a
nonstatutory stock option). Special rules limit the deductibility of compensation paid to our chief executive officer and other
“covered employees” as determined under Section 162(m) and applicable guidance. Under Section 162(m), the annual
compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000.
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2024 PROXY STATEMENT
43
NEW PLAN BENEFITS
The number of awards that an employee, director, or consultant may receive under the Restated Plan is in the discretion of the
administrator and therefore cannot be determined in advance. For (i) each of our named executive officers, (ii) our executive
officers, as a group, (iii) our directors who are not executive officers, as a group, and (iv) all of our employees who are not executive
officers, as a group, the following table sets forth the following information: (A) the aggregate number of shares subject to stock
options (including performance-based stock options at target levels) granted under the Existing Plan during fiscal year 2023, (B) the
average per share exercise price of such options, (C) the aggregate number of restricted stock units (including RSUs and PRSUs
at target levels) granted under the Existing Plan during fiscal year 2023, and (E) the dollar value of such RSUs and PRSUs.
Number of
Shares
Subject to
Options
Average
Per Share
Exercise
Price of
Options
Number of
RSUs and
PRSUs
Dollar
Value of
RSUs and
PRSUs (1)
Jayshree Ullal Chairperson and Chief Executive
Officer
Ita Brennan Former Chief Financial Officer
Kenneth Duda Chief Technology Officer and Director
Anshul Sadana Chief Operating Officer
Marc Taxay Senior Vice President, General Counsel
All executive officers, as a group
All directors who are not executive officers, as a group
All employees who are not executive officers, as a
group
—
—
—
—
—
—
—
—
$—
$—
$—
$—
$—
$—
$—
95,390 $ 15,051,588
27,297 $ 3,900,407
27,297 $ 3,900,407
47,766 $ 6,825,182
20,484 $ 2,926,896
218,234 $ 32,604,480
8,940 $ 1,511,575
$—
2,437,111 $386,676,589
(1) Reflects the aggregate grant date fair value of the equity awards computed in accordance with ASC 718.
Vote Required
The affirmative vote of the holders of a majority of the voting power of the shares of our common stock present in person or
represented by proxy represented and voting at the Annual Meeting (and entitled to vote on the subject matter to be approved
provided that that vote also constitutes the affirmative vote of a majority of the required quorum) will be required for approval of the
Restated Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE APPROVAL OF THE RESTATED PLAN.
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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 NYSE
listing standards 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
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
received the written disclosures and the letter from EY
required by applicable requirements of the Public
Company Accounting Oversight Board regarding the
independent accountant’s communications with the
Audit Committee concerning independence, and has
discussed with EY its independence.
Based on the Audit Committee’s review and discussions with management and EY, the Audit Committee recommended to the
board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2023 for filing with the SEC.
Respectfully submitted by the members of the Audit Committee of the board of directors:
Lewis Chew (Chair)
Kelly Battles
Yvonne Wassenaar
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.
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2024 PROXY STATEMENT
45
EXECUTIVE OFFICERS
The following table identifies certain information about our executive officers as of April 9, 2024. 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
Age
Position
Jayshree Ullal
63 Chief Executive Officer, President and Chairperson
Chantelle Breithaupt
52 Senior Vice President, Chief Financial Officer
Kenneth Duda
52
Founder, Chief Technology Officer and Senior Vice President, Software
Engineering and Director
John McCool
64 Chief Platform Officer, Senior Vice President of Engineering and
Operations
Anshul Sadana
47 Chief Operating Officer
Marc Taxay
55 Senior Vice President, General Counsel
Ms. Brennan served as our Chief Financial Officer during 2023 and for a portion of fiscal 2024, until February 12, 2024, at which
time Ms. Breithaupt assumed that role. On that same date, Ms. Brennan transitioned to a part-time advisor role through March 1,
2024 to enable a smooth transition. Given her service as our Chief Financial Officer for fiscal 2023, Ms. Brennan is included as a
NEO for the purposes of this Proxy Statement in compliance with applicable disclosure requirements; however, any references to
“NEOs” that relate to events, actions, decisions, or other matters that occurred after Ms. Brennan’s service as our Chief Financial
Officer ceased should be read to exclude Ms. Brennan unless specifically noted.
For biographical information about Ms. Ullal and Mr. Duda, please see “Board of Directors and Corporate Governance- Nominees
for Director.”
Chantelle
Breithaupt
Senior Vice President, Chief Financial
Officer
Ms. Breithaupt joined Arista Networks, Inc. in January 2024 and was
appointed as the Company’s Senior Vice President, Chief Financial
Officer effective as of February 12, 2024. Ms. Breithaupt served as
Senior Vice President and Chief Financial Officer of Aspen
Technology from March 2021 to December 2023. Prior to Aspen
Technology, Ms. Breithaupt spent seven years with Cisco Systems
Inc. She held multiple leadership positions at Cisco, most recently as
Senior Vice President, Finance from January 2021 to March 2021,
Vice President of Finance – Customer Experience/Services from
August 2018 to January 2021, Vice President – Finance, Americas
from October 2017 to August 2018 and Senior Director –
Operational Finance from April 2014 to August 2015. Before Cisco,
Ms. Breithaupt worked with GE for 15 years, where she held
progressive, executive global finance roles. Ms. Breithaupt holds an
Honors Business Administration degree from Wilfrid Laurier
University (Canada).
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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.
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. As previously announced, Mr. Sadana is currently on a
leave of absence for personal reasons and has notified us of his
intention to resign effective May 21, 2024.
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, a law firm. Mr. Taxay holds a B.A. degree in Political
Science and a J.D. from The University of Michigan.
John
McCool
Chief Platform Officer, Senior Vice President
of Engineering and Operations
Anshul
Sadana
Chief Operating Officer
Marc
Taxay
Senior Vice President, General Counsel
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2024 PROXY STATEMENT
47
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,
2023 (our “Named Executive Officers”) is set forth in detail in the Fiscal 2023 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 2023:
• Jayshree Ullal, our Chief Executive Officer and President;
• Anshul Sadana, our Chief Operating Officer; and
• Ita Brennan, our former Senior Vice President, Chief
• Marc Taxay, our Senior Vice President, General Counsel
Financial Officer;
• 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, incentive compensation programs, and 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. We perform annual reviews of our
No Executive-Only Retirement Programs.
executive compensation program.
Performance-Based Equity. In 2023, we
continued to use performance-based equity as a
significant part of our compensation program for our
Named Executive Officers.
Independence. Our Compensation Committee is
made up solely of independent directors and makes
all executive compensation decisions.
Compensation Consultant. Our Compensation
Committee engages its own independent
compensation consultant to assist with its
compensation reviews.
Stock Ownership Guidelines. To align our Chief
Executive Officer’s long-term interests with those of
our stockholders, our Chief Executive Officer is
required to own specified minimum levels of Company
stock.
Clawback Policy. We may seek the recovery of
cash incentive compensation and performance-
based equity compensation paid to our executive
officers.
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.
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Overview
FISCAL 2023 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 2023, including:
Revenue
$5.86B
FY2023 REVENUE
Operating Income
$2.3B
FY2023 GAAP
OPERATING INCOME
$2.6B
FY2023 NON-GAAP
OPERATING INCOME
44%
OF REVENUE
Revenue for our fiscal 2023 was $5.86 billion, representing an increase of 33.8%
compared to fiscal 2022. Product revenue increased by $1.3 billion, or 35.3%, for the
year ended December 31, 2023 compared to 2022. These increases reflect increased
shipments of our switching and routing products across our customer base, including
improved supply availability for our enterprise customers. In addition, service revenue
increased by $165.4 million, or 24.9%, in the year ended December 31, 2023
compared to 2022, as a result of continued growth in initial and renewal support
contracts as our customer installed base has continued to expand. International
revenues as a percentage of our total revenues decreased from 21.0% in 2022 to
20.6% in 2023, which was primarily driven by changes in the geographic mix of sales to
our large global customers.
Our GAAP operating income for fiscal 2023 was $2.3 billion or 38.5% of revenue,
representing a 47.8% increase compared to fiscal 2022.
Our non-GAAP operating income for fiscal 2023 was $2.6 billion or 44.4% of revenue,
representing a 44.9% increase compared to fiscal 2022 and 5% 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 2023 Bonus Plan (as defined
below).
See Appendix B for reconciliation of GAAP to non-GAAP financial measures.
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2024 PROXY STATEMENT
49
Product Innovations
The Arrival of Open AI Networking: Arista and the founding members of the Ultra
Ethernet Consortium (UEC) have set out on the mission to enhance the capabilities of
Ethernet for AI and HPC.
Arista Networks Introduces AI-Driven Network Identity: Arista introduced a cloud-
delivered, AI-driven network identity service for enterprise security and IT operations.
In the first half of 2023, Arista surpassed 75 million cloud network ports shipped
cumulatively.
Arista Named a Leader in The Forrester Wave™: Network Analysis and Visibility, Q2
2023 which notes that “Arista Networks’ deployment flexibility is second to none.”
Arista Modernizes Routing in the Wide Area Network: Arista introduced the Arista WAN
Routing System, which combines three new networking offerings: enterprise-class
routing platforms, carrier/cloud-neutral internet transit capabilities, and
the CloudVision®Pathfinder Service to simplify and improve customer wide area
networks.
Arista Showcases Next Generation Systems and Optics for Cloud, Internet Service
Provider, and Enterprise Networks: Arista announced its range of products and
solutions, along with perspectives on the petascale era of cloud networking and the
systems and optics required to meet the demands of new AI/ML-driven network
architectures.
FISCAL 2023 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 2023 Business Highlights” section above, our fiscal 2023 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 2023 advanced these objectives:
•
Limited Base Salary Increases-We provided limited base
salary increases of less than 1% to two of our Named
Executive Officers.
• Annual Bonuses Reflecting Pay for Performance-As noted
above, in fiscal 2023, we achieved revenue of
approximately $5.86 billion representing an increase of
33.8% compared to fiscal 2022, combined with
Operating Income of $2.6 billion an increase of 44.9%
from 2022 and 5% 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 2023 Bonus Plan.
•
•
Equity Awards Promoting Our Stockholders’ Interests-Long-
term equity incentives constitute a significant majority of
compensation paid to Named Executive Officers in 2023.
Long-term equity incentives align the interests of
executives with those of our stockholders. For fiscal
2023, we continued to provide long-term equity
compensation to our Chief Executive Officer in
performance equity awards only, and a mix of PRSUs
and RSUs to our Named Executive Officers other than
our Chief Executive Officer.
Equity Awards Subject to Achievement-Performance-based
equity was continued as an important portion of our
executive compensation program for our Named
Executive Officers.
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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 2023 annual meeting of stockholders, approximately 94% of the votes cast approved the
compensation program for our Named Executive Officers as described in our 2023 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. Our Compensation Committee continues to evaluate the executive compensation program
and policies to determine the most appropriate ways of effecting our executive compensation philosophy and objectives. Our
Compensation Committee currently intends to continue to consider the results of the annual advisory vote on executive
compensation and stockholder feedback as data points in making executive compensation decisions.
Executive Compensation Philosophy and Objectives
We operate in a highly competitive business environment, which is characterized by frequent technological advances. To
successfully grow our business in this dynamic environment, we must continually develop and refine our products and services to
stay ahead of our competitors. To achieve these objectives, we need a highly talented and seasoned team of technical, sales,
marketing, operations, and other business professionals. We compete with other companies in our industry and other technology
companies in the Silicon Valley to attract and retain a skilled management team. To attract and retain qualified executive
candidates, our Compensation Committee recognizes that it needs to develop competitive compensation packages. At the same
time, our Compensation Committee is sensitive to the need to integrate new Named Executive Officers into our executive
compensation structure that we were seeking to develop, balancing both competitive and internal equity considerations. To meet
this challenge, we have embraced a compensation philosophy of offering our Named Executive Officers a competitive total
compensation program, which we view as the sum of base salary, cash performance-based incentives, equity compensation and
employee benefits, each of which recognizes and rewards individual performance and contributions to our success, allowing us to
attract, retain, and motivate talented executives with the skills and abilities needed to drive our desired business results.
The specific objectives of our executive compensation program are to:
•
reward the successful achievement of our financial
growth objectives;
• drive the development of a successful and profitable
business;
• attract, motivate, reward, and retain highly qualified
executives who are important to our success;
COMPENSATION PROGRAM DESIGN
•
recognize strong performers by offering cash
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.
Our executive compensation program for fiscal 2023 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 performance-based restricted stock units (“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 2023, 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.
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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 2023, our Compensation
Committee determines the applicable goals for each corporate performance objective used for the applicable year.
Our Compensation Committee reviews our executive compensation program from time to time, including any incentive
compensation plans, to determine whether they are appropriate, properly coordinated, and achieve their intended purposes, and
to make any modifications to existing plans and arrangements or to adopt new plans or arrangements.
Role of Management
In carrying out its responsibilities, our Compensation Committee works with members of our management team, including our
Chief Executive Officer and our Vice President, Global Human Resources. Typically, our management team (together with our
compensation consultant) assists our Compensation Committee in the execution of its responsibilities by providing information on
corporate and individual performance, market data, and management’s perspective and recommendations on compensation
matters.
Typically, except with respect to her own compensation, our Chief Executive Officer will make recommendations to our
Compensation Committee regarding compensation matters, including the compensation of our executive officers. Our Chief
Executive Officer also participates in meetings of our Compensation Committee, except with respect to discussions involving her
own compensation in which case she leaves the meeting.
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 2023, 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 2023. Our Compensation Committee provided AON with instructions regarding the goals of our executive
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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 2023 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 NYSE listing standards, 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 2023, our Compensation Committee continued to compare and analyze our executive compensation program with that of
a formal compensation peer group of companies.
In fiscal 2023, our Compensation Committee reviewed our executive compensation 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 $1.5 billion to $8.0 billion
(approximately 0.5x to 2.5x of our then-current trailing 12-month revenue); (iii) companies with market capitalization generally
between $10 and $60 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 2023 compensatory decisions for fiscal year 2023:
Executive Compensation Peer Group for Fiscal 2023
Akamai Technologies
Autodesk
Ciena
Dropbox
F5
Fortinet
Juniper Networks
NetApp
Nutanix
Palo Alto Networks
ServiceNow
Splunk
Twitter
Workday
Zscaler
With respect to fiscal 2024 executive compensation decisions 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 $2.5 billion to
$12.5 billion (approximately 0.5x to 2.5x of our then-current trailing 12-month revenue); (iii) companies with market capitalization
generally between $14.0 and $100.0 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 2024 compensatory decisions for fiscal 2024:
Executive Compensation Peer Group for Fiscal 2024
Akamai Technologies
Autodesk
F5
Fortinet
Cadence Design Systems*
Juniper Networks
Ciena
NetApp
Palo Alto Networks
ServiceNow
Splunk
Synopsys
Workday
Zscaler
* Company added to peer group for fiscal 2024.
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As a result of changes in our compensation peer group, we positioned at the 49th percentile in terms of revenue and the 58th
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 fiscal 2023, 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 fiscal 2023 and the grant-date
fair values of the equity awards granted to our Named Executive Officers in fiscal 2023, with each such value calculated in the
same manner as set forth in our Fiscal 2023 Summary Compensation Table below) represented by each material component of
our executive compensation program was as follows:
Base Salary
(4.4%)
Annual Cash
Incentive
Compensation
(3%)
Equity
Compensation
(92.6%)
Base Salary
Annual Cash Incentive Compensation
Equity 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 2023.
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 2023, our Compensation Committee determined to implement minor increases of less than 1% to the base salaries of
Ms. Brennan and Mr. Taxay, but determined not to make any changes to the base salaries of our other Named Executive Officers
(which were generally around or below the market 25th percentile in our compensation peer group) as it thought the base salary
levels continued to be appropriate.
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Our Named Executive Officers’ base salaries for fiscal 2023 were as follows:
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Base Salary
through 2023
$300,000
$315,000
$300,000
$300,000
$315,000
Annual Cash Incentive Compensation; 2023 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 2023, our Compensation Committee set the terms and conditions of the Employee Incentive Plan for fiscal 2023 (the
“2023 Bonus Plan”). The 2023 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 2023 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 2023 Bonus Plan provided for a single annual
payout to each participant following the end of fiscal 2023 after our Compensation Committee evaluated corporate and individual
performance as outlined above.
For purposes of our 2023 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 Appendix B.
Our Compensation Committee approved the following preliminary targets for the 2023 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 the market 25th percentile in our compensation peer group). Consistent with fiscal 2022, 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 2023 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 2023, we achieved revenue of approximately $5.86 billion (an increase of 33.8% from 2022, and below our plan target by
0.7%). In addition, we achieved non-GAAP operating income of approximately $2.6 billion (an increase of 44.9% from 2022, and
above our plan target by 5%). Our Compensation Committee considered our overall achievement against these key metrics and
determined it was appropriate to fund the 2023 Bonus Plan at a level of 73.4%, the accrual of which is included in the above
financial results.
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Following the funding of the 2023 Bonus Plan based on the financial metrics outlined above, our Compensation Committee looked
at performance with respect to the other key metrics including gross margin, operating margin, growth in non-cloud revenue,
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 2023.
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 2023 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
$200,000
$205,000
$205,000
$250,000
$200,000
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.
For fiscal 2023, our Compensation Committee continued to provide equity compensation to our Chief Executive Officer in PRSUs
only, and a mix of PRSUs and RSUs to our Named Executive Officers other than our Chief Executive Officer.
1. For our Chief Executive Officer, our Compensation Committee granted two PRSU awards, one subject to performance against
revenue and operating income goals that would be measured in fiscal 2023 (the “AOP PRSUs”), and one subject to
performance against a non-GAAP gross margin goal for the period of fiscal 2023 through fiscal 2024 (the “Gross Margin
PRSUs”). 80% of the PRSUs granted in fiscal 2023 were AOP PRSUs, and 20% of the PRSUs granted in fiscal 2023 were
Gross Margin PRSUs.
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2. For our Named Executive Officers other than our Chief Executive Officer, our Compensation Committee granted PRSU awards
intended to cover fiscal 2023, 2024, and 2025. One-third would be eligible to be earned each fiscal year, with the performance
conditions for each fiscal year determined as soon as practicable during the applicable fiscal year. The mix between PRSUs
and RSUs was approximately 50% PRSUs and 50% RSUs. 100% of the PRSUs granted to our Named Executive Officers
other than our Chief Executive Officer that were eligible to be earned in fiscal 2023 were AOP PRSUs.
Our Compensation Committee determined that the mix of performance goals for our Chief Executive Officer and the proportion of
performance-and service-based awards for our other Named Executive Officer provided appropriate incentives to retain and
motivate our Named Executive Officers and help to achieve success in our business, and that this mix 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.
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.
Additionally, in 2022, our Compensation Committee granted PRSU awards to our Chief Executive Officer that are subject to
performance against a 2-year compound annual growth rate goal end on December 31, 2024 (“CAGR PRSUs”). For our Named
Executive Officers other than our Chief Executive Officer, in 2022, our Compensation Committee granted PRSU awards intended
to cover fiscal 2022, 2023, and 2024. One-third of those PRSU awards were eligible to be earned in fiscal year 2023. 100% of the
PRSUs granted to our Named Executive Officers other than our Chief Executive Officer that were eligible to be earned in fiscal
2023 were AOP PRSUs.
2023 Performance-Based Awards Grant and Achievement
In February 2023, 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. 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
95,390(1)
16,590(2)
16,590(2)
29,030(2)
12,450(2)
$12,500,000
$ 2,000,000
$ 2,000,000
$ 3,500,000
$ 1,500,000
(1) As discussed above, 76,310 fiscal 2023 PRSUs were AOP PRSUs and 19,080 were Gross Margin PRSUs.
(2) As discussed above, one-third of the total award amount was eligible to be earned with respect to performance in fiscal 2023,
and one-third of the total award amount will be eligible to be earned with respect to performance in each of fiscal 2024 and
2025. The performance conditions for each fiscal 2024 and 2025 will determined as soon as practicable during the applicable
fiscal year. These awards are in addition to awards granted in 2022, one-third of the total of which was eligible to be earned
with respect to performance in fiscal 2023.
The metrics and targets for Chief Executive Officer’s fiscal 2023 Gross Margin PRSUs are shown in the following table:
Performance Period: January 1, 2023 – December 31, 2024
Metrics
Weight
Performance Range Payout
Minimum: 62.5%
50%
Non-GAAP Gross Margin
100%
Target:
63.2%
100%
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Maximum: 64.0%
200%
2024 PROXY STATEMENT
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The number of Gross Margin PRSUs determined based on actual achievement as described above will become eligible to vest
upon determination of achievement. 50% of Gross Margin PRSUs that become eligible to vest will vest on the first quarterly vesting
date after the date the level of achievement of the performance goal is determined, which is expected to be February 20, 2025,
and 50% will vest on February 20, 2026, subject to our Chief Executive Officer’s continued service through those dates.
The metrics, targets, and actual performance and resulting payout for our Named Executive Officers’ fiscal 2023 AOP PRSUs
(including AOP PRSUs granted in 2022 granted to our Named Executive Officers other than our CEO) are shown in the following
table:
Performance Period: January 1, 2023 – December 31, 2023
Metrics
Revenue
Weight
Performance Range
Payout
Results
Minimum:
$ 5.7 billion
50%
50%
Target:
$ 5.9 billion
100% $ 5.86 billion
Maximum:
$ 6.0 billion
200%
Minimum:
$ 2.4 million
50%
Non-GAAP Operating Income
50%
Target:
$2.479 billion
100% $2.603 billion
Maximum:
$ 2.6 billion
200%
The number of AOP PRSUs determined based on actual achievement as described above became eligible to vest upon
determination of achievement. The number of AOP PRSUs that were earned for performance between performance range levels
would be determined by linear interpolation, rounded up to the nearest whole share. In the case of our Chief Executive Officer,
25% of AOP 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 became eligible to vest will vest in equal quarterly
installments over an additional 3 years. In the case of our other Named Executive Officers, 100% of the AOP 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.
For fiscal 2023, our revenue was $5.86 billion, slightly below the target goal and below the maximum goal. Our non-GAAP
operating income was $2.603 billion, above the maximum goal. As a result of this achievement, AOP PRSUs became eligible to
vest as set forth in the table below. As noted above, our Chief Executive Officer remains eligible to earn additional PRSUs that were
granted in 2022 and 2023 in accordance with the terms of the CAGR PRSUs Gross margin PRSUs (based on performance
measured as of the end of 2024), and our other named executive officers remain eligible to earn two-thirds of their PRSUs granted
in 2023 (based on performance in fiscal years 2024 and 2025).
Number of PRSUs Eligible to Vest(1)
Named Executive Officer
Revenue PRSUs
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
8,583
4,817
4,817
8,431
3,614
Non-GAAP
Operating
Income
PRSUs
19,078
10,707
10,707
18,736
8,034
(1) Includes PRSU Awards granted in 2022 and earned and eligible to vest pursuant to performance in fiscal 2023.
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2023 Time-Based Awards Grant
In February 2023, 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 from the date of grant, with the
first vesting day occurring February 2024.
The numbers of shares of our common stock covered by each RSU award granted to our Named Executive Officers in 2023 were
as set forth in the chart below. The intended value was converted into RSUs using a 30-day average trading price in accordance
with our standard practices.
Named Executive Officer
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
RSUs
16,590
16,590
29,030
12,450
Intended Value
$2,000,000
$2,000,000
$3,500,000
$1,500,000
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 2023, 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.
Named Executive Officer Employment Arrangements
JAYSHREE ULLAL OFFER LETTER
We have entered into an offer letter with Jayshree Ullal, our Chief Executive Officer and President, 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
We have entered into an offer letter with Ms. Brennan, our Chief Financial Officer, that provides that she is an at-will employee.
Ms. Brennan currently receives a base salary of $315,000 per year, and her annual bonus is targeted at $189,000. 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. The severance agreement provided that if Ms. Brennan’s
employment was involuntarily terminated other than for “cause” (as generally defined below) or if Ms. Brennan resigned for “good
reason” (as generally defined below) then, subject to her execution of a release of claims, Ms. Brennan would 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
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2024 PROXY STATEMENT
59
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).
In order to receive the benefits described above, Ms. Brennan was required to 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.
Ms. Brennan voluntarily resigned her employment with the Company, effective in 2024, and is no longer eligible to receive
severance benefits under her severance agreement. Ms. Brennan served as an advisor to the Company through March 1, 2024.
CHANTELLE BREITHAUPT OFFER LETTER & SEVERANCE AGREEMENT
We have entered into an offer letter with Chantelle Breithaupt, our Senior Vice President, Chief Financial Officer, pursuant to which
Ms. Breithaupt is an at-will employee. Ms. Breithaupt’s current annual base salary is $315,000. Ms. Breithaupt 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. Breithaupt. The severance agreement provides that if
Ms. Breithaupt’s employment is involuntarily terminated other than for “cause” (as generally defined below) or if Ms. Breithaupt
resigns for “good reason” (as generally defined below) then, subject to her execution of a release of claims, Ms. Breithaupt 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. Breithaupt remained employment 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, if greater than the acceleration benefit
described in the previous sentence.
For purposes of the severance agreement with Ms. Breithaupt, “cause” and “good reason” have the same general meanings as set
forth in Ms. Brennan’s severance agreement.
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ANSHUL SADANA OFFER LETTER
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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.
60
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 $315,000 per year and he is eligible for an annual bonus targeted at
$189,000. Mr. Taxay is also eligible to participate in all of our standard health, vacation and other benefits offered to our
employees.
In addition, we entered into a severance agreement with Mr. Taxay. The severance agreement provides that if Mr. Taxay’s
employment is involuntarily terminated other than for “cause” (as generally defined below) or if Mr. Taxay resigns for “good reason”
(as generally defined below) then, subject to his execution of a release of claims, Mr. Taxay will receive continuing payments of his
base salary for 12 months and accelerated vesting of time-based equity awards that would have vested had Mr. Taxay remained
employed with us for 12 months following his termination of employment date. If the qualified termination of employment occurred
during the period beginning on, and for 12 months following a change in control, then the equity acceleration benefit would be
50% of the then-unvested equity awards, if greater than the acceleration benefit described in the previous sentence.
For purposes of the severance agreement with Mr. Taxay, “cause” and “good reason” have the same general meanings as set
forth in Ms. Brennan’s severance agreement.
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2024 PROXY STATEMENT
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Fiscal 2023 Summary Compensation Table
The following table provides information regarding the total compensation for services rendered in all capacities that was earned by
our Named Executive Officers.
Name and
Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
Jayshree Ullal
Chief Executive
Officer
Ita Brennan
Chief Financial
Officer
Kenneth Duda
Chief Technology
Officer
Anshul Sadana
Chief Operating
Officer
2023 300,000
— 15,051,588
200,000
10,399(2)
15,561,987
2022 300,000
— 10,165,988
255,000
14,899
10,735,887
2021 300,000
— 15,384,500
300,000
9,132
15,993,632
2023 315,000
2022 308,077
2021 300,000
2023 300,000
—
—
—
—
3,900,407
205,000
10,826(2)
4,431,233
2,420,074
225,000
3,379,242
250,000
13,895
9,132
2,967,046
3,938,374
3,900,407
205,000
10,399(2)
4,415,806
2022 300,000 3,430
2,420,074
202,500
2,550,710
225,000
14,899
9,132
2,940,903
3,084,842
6,825,182
250,000
10,399(2)
7,385,581
2021 300,000
2023 300,000
2022 300,000
—
—
—
2021 300,000
600
5,976,105
400,000
4,235,641
360,000
14,899
9,132
4,910,540
6,685,837
Marc Taxay
Senior Vice President,
General Counsel
2023 315,000
2022 308,077
2021 300,000
—
—
—
2,926,896
200,000
378(2)
3,442,274
1,815,462
200,000
360
2,323,899
2,392,288
220,000
6,905
2,919,193
(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 13, 2024. 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. In the case of Ms. Brenna and Messrs. Duda, Sadana and
Taxay, the amount disclosed includes a portion of performance-based restricted stock units granted in 2022 and a portion of
performance-based restricted stock units granted in 2023, with respect to each of which performance conditions were set in
2023. Performance conditions have not been established with respect to portions of such awards, and as a result those
portions of the performance-based restricted stock units do not have a grant-date fair value and are not included above. If
maximum performance were deemed achieved for the performance-based restricted stock unit awards for which the
performance conditions were established during 2023, the grant-date fair value of such awards would be $30,103,176 for
Ms. Ullal, $3,378,915 for Ms. Brennan, $3,378,915 for Mr. Duda, $5,912,707 for Mr. Sadana, and $2,535,370 for Mr. Taxay.
Based on actual achievement for fiscal 2023, 145% of the performance-based restricted stock units awards granted in 2022
that were eligible to be earned in fiscal 2023 became eligible to vest, and 145% of the performance-based restricted stock
units awards granted in 2023 that were eligible to be earned in fiscal 2023 became eligible to vest.
(2) The amounts reported for fiscal 2023 include, in the case of all Named Executive Officers other than Mr. Taxay, matching
contributions from the Company for the contributions made to the 401(k) plan by the Named Executive Officer and, in the case
of all Named Executive Officers, a life insurance premium paid on the Named Executive Officer’s behalf.
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Outstanding Equity Awards at 2023 Fiscal Year-End
The following table sets forth information regarding outstanding stock options and stock awards held by our Named Executive
Officers as of December 31, 2023.
Name
Grant
Date
Jayshree Ullal
4/13/2018(3)
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(1)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)(2)
2/8/2019(4)
2/14/2020(5)
2/12/2021(6)
2/11/2022(7)
2/11/2022(8)
2/10/2023(9)
2/10/2023(10)
668
832
—
—
—
—
—
—
3,332
61.05 4/12/2028
9,168
56.585
2/7/2029
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,044
245,872
—
118,245
27,847,880
—
—
—
—
46,337
10,912,827
19,410
4,571,249
76,310
17,971,768
19,080
4,493,531
Ita Brennan
4/13/2018(3)
7,283
2,084
61.05 4/12/2028
11/9/2018(4)
2,708
2,292
61.1075 11/8/2028
—
—
—
—
11/9/2018(11)
—
—
—
—
2,624
617,978
2/8/2019(4)
1,664
4,584
56.585
2/7/2029
—
—
5/10/2019(11)
5/8/2020(12)
2/12/2021(13)
2/12/2021(14)
2/11/2022(15)
2/11/2022(16)
2/10/2023(17)
2/10/2023(18)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,688
1,104,071
18,176
4,280,630
14,680
3,457,287
2,059
484,915
11,647
2,742,985
10,354
2,438,471
16,590
3,907,111
16,590
3,907,111
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2024 PROXY STATEMENT
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Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(1)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)(2)
Name
Grant
Date
Kenneth Duda
12/16/2014(19) 200,000
9/11/2015(19)
80,000
2/12/2016(19) 100,000
—
—
—
17.085 12/15/2024
16.115 9/10/2025
14.06 2/11/2026
4/13/2018(3)
28,668
3,332
61.05 4/12/2028
11/9/2018(4)
9,252
2,748
61.1075 11/8/2028
—
—
—
—
—
—
—
—
11/9/2018(11)
—
—
—
—
3,748
882,691
2/8/2019(4)
30,832
9,168
56.585
2/7/2029
—
—
5/10/2019(11)
5/8/2020(12)
2/12/2021(13)
2/12/2021(14)
2/11/2022(15)
2/11/2022(16)
2/10/2023(17)
2/10/2023(18)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Anshul Sadana
4/13/2018(3)
6,000
3,332
61.05 4/12/2028
11/9/2018(4)
3,000
3,668
61.1075 11/8/2028
5,248
1,235,956
13,324
3,137,935
11,420
2,689,524
1,438
338,663
11,647
2,724,985
10,354
2,438,471
16,590
3,907,111
16,590
3,907,111
—
—
—
—
11/9/2018(11)
—
—
—
—
4,500
1,059,795
2/8/2019(4)
10,500
12,832
56.585
2/7/2029
5/10/2019(20)
332
5/10/2019(21)
5/10/2019(11)
5/8/2020(12)
2/12/2021(13)
2/12/2021(14)
2/11/2022(15)
2/11/2022(16)
2/10/2023(17)
2/10/2023(18)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
66.055
5/9/2029
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,400
565,224
6,000
1,413,060
30,288
7,133,127
26,100
6,146,811
3,603
848,543
20,385
4,800,871
18,120
4,267,441
29,030
6,836,855
29,030
6,836,855
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Name
Grant
Date
Marc Taxay
4/13/2018(3)
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(1)
Market
Value
of Shares or
Units of
Stock
That Have
Not Vested
($)(2)
11/9/2018(4)
11/9/2018(11)
2/8/2019(4)
5/10/2019(11)
5/8/2020(12)
2/12/2021(13)
2/12/2021(14)
2/11/2022(15)
2/11/2022(16)
2/10/2023(17)
2/10/2023(18)
—
—
—
—
—
—
—
—
—
—
—
—
2,084
61.05 4/12/2028
2,292
61.107 11/8/2028
—
—
—
—
—
—
—
2,624
617,978
4,584
56.585
2/7/2029
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,688
1,104,071
12,724
2,996,629
10,440
2,458,724
1,438
8,737
7,767
338,663
2,057,651
1,829,206
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12,450
2,932,100
12,450
2,932,100
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(1) Represents awards of restricted stock units that remained unvested as of December 31, 2023. 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 awards of restricted stock units as
of December 31, 2023, based on the closing price of our common stock, as reported on NYSE, of $235.51 per share on
December 29, 2023, the last trading day of our fiscal 2023.
(3) This option vests with respect to 1/48th of the shares each month from June 1, 2020.
(4) This option vests with respect to 1/48th of the shares each month from December 1, 2020.
(5) 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.
(6) This performance stock award was granted in February 2021 and was earned based on attainment of certain performance
conditions. The shares earned vested 25% on February 20, 2022, and will continue to vest at a rate of 6.25% quarterly thereafter.
(7) This performance stock award was granted in February 2022 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 with respect to fiscal year 2022 vested 25% on February 20, 2023, and will continue to vest at a rate of 6.25%
quarterly thereafter.
(8) This performance stock award was granted in February 2022 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%. To the
extent earned, the award will vest 50% on February 20, 2025, and 50% on February 20, 2026.
(9) This performance stock award was granted in February 2023 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%. To the
extent earned, the award will vest 25% on February 20, 2024, and will continue to vest at a rate of 6.25% quarterly thereafter.
(10) This performance stock award was granted in February 2023 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%. To the
extent earned, the award will vest 50% on February 20, 2025, and 50% on February 20, 2026.
(11) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from November 20, 2020
(12) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from May 20, 2021.
(13) This award of restricted stock units vests with respect to 1/16th of the shares each quarter from February 20, 2022.
2024 PROXY STATEMENT
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(14) This performance stock award was granted in February 2021 and was earned based on attainment of certain performance
conditions. 33% of the shares earned became vested on February 20, 2022, and the shares earned will continue to vest at a
rate of 8.33% quarterly thereafter.
(15) This performance stock award was granted in February 2022 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%. One-
third of the total award is eligible to be earned with respect to each of fiscal year 2022, 2023, and 2024. Shares earned with
respect to fiscal year 2023 vested 100% on February 20, 2024. The performance conditions with respect to fiscal year 2024
will be established in the future.
(16) This award of restricted stock vests with respect to 1/16 of the shares each quarter from February 20, 2023.
(17) This award of restricted stock vests with respect to 1/16 of the shares each quarter from February 20, 2024.
(18) This performance stock award was granted in February 2023 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%. One-
third of the total award is eligible to be earned with respect to each of fiscal year 2023, 2024, and 2025. Shares earned with
respect to fiscal year 2023 vested 100% on February 20, 2024. The performance conditions with respect to fiscal year 2024
and 2025 will be established in the future.
(19) This option is fully vested.
(20) This option vests with respect to 1/48th of the shares each month from June 10, 2019.
(21) This award of restricted stock units vests with respect to 1/20th of the shares each quarter from May 20, 2019.
Fiscal 2023 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, 2023. No option awards were granted to our Named Executive Officers during our
fiscal year ended December 31, 2023.
Named Executive
Officer
Committee
Grant
Date
Grant
Date
Estimated
Payouts
Under
Non-Equity
Incentive
Plan Awards
(Target)($)(1)
Estimated Future Payouts Under
Equity Incentive Plan Awards
(Target)($)(2)
Threshold Target Maximum
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)(2)
Grant
Date Fair
Value of
Stock
Awards
($)(3)
Jayshree Ullal
—
—
300,000
—
—
—
—
—
2/10/2023 6/16/2023
—
57,234
95,390 190,780
— 15,051,588
Ita Brennan
—
—
189,000
—
—
—
—
—
2/11/2022 6/16/2023
3,106
5,177
10,354
816,879
2/10/2023 6/16/2023
—
3,318
5,530
11,060
16,590
3,083,528
Kenneth Duda
—
—
180,000
—
—
—
—
2/11/2022 6/16/2023
2/10/2023 6/16/2023
—
—
3,106
5,177
10,354
816,879
3,318
5,530
11,060
16,590
3,083,528
Anshul Sadana
—
—
180,000
—
—
—
—
—
2/11/2022 6/16/2023
2/10/2023 6/16/2023
—
—
5,436
9,060
18,120
1,429,577
5,806
9,676
19,352
29,030
5,395,604
Marc Taxay
—
—
189,000
—
—
—
—
—
2/11/2022 6/16/2023
2/10/2023 6/16/2023
—
—
2,330
3,884
7,768
612,856
2,490
4,150
8,300
12,450
2,314,040
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66
(1) Our 2023 Bonus Plan does not have thresholds or maximums. However, bonuses would not be paid under our 2023 Bonus
Plan if achievement of the revenue metric was below 85% of target. The amounts set forth above represent the target annual
bonus for each Named Executive Officer. 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 2023 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 Plan.
(3) Represents the grant date fair value of each equity award granted in fiscal 2023, 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. In the case of Ms. Brennan and Messrs. Duda, Sadana
and Taxay, the amount disclosed includes a portion of performance-based restricted stock units granted in 2022 and a portion
of performance-based restricted stock units granted in 2023, with respect to each of which performance conditions were set
in 2023. Performance conditions have not been established with respect to portions of such awards, and as a result those
portions of the performance-based restricted stock units do not have a grant-date fair value and are not included above. If
maximum performance were deemed achieved for the performance-based restricted stock unit awards with respect to which
performance conditions were established during 2023, the grant-date fair value of such awards would be $30,103,176 for
Ms. Ullal, $3,378,915 for Ms. Brennan, $3,378,915 for Mr. Duda, $5,912,707 for Mr. Sadana, and $2,535,370 for Mr. Taxay.
Fiscal 2023 Option Exercises and Stock Vested
The following table presents information regarding the exercise of stock options and the vesting of stock awards by our Named
Executive Officers during our fiscal year ended December 31, 2023.
Named Executive Officer
Jayshree Ullal
Ita Brennan
Kenneth Duda
Anshul Sadana
Marc Taxay
Number of
Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)(1)
Number of
Shares
Acquired on
Vesting
(#)
Value
Realized
on Vesting
($)(2)
22,500
3,444,988
139,814
23,040,837
25,000
3,035,936
50,516
8,347,695
240,000
38,984,200
45,024
7,405,956
98,840
13,718,913
93,441
15,480,371
12,500
1,386,665
39,210
6,474,947
(1) Based on the market price of our common stock on the date of exercise less the option exercise price paid for those shares,
multiplied by the number of shares for which the option was exercised.
(2) Based on the market price of our common stock on the vesting date or last trading date, multiplied by the number of shares
vested.
Pension Benefits
We did not sponsor any defined benefit pension or other actuarial plan for our Named Executive Officers during fiscal 2023.
Nonqualified Deferred Compensation
We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for our Named
Executive Officers during fiscal 2023.
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2024 PROXY STATEMENT
67
Potential Payments Upon Termination or Change in Control
The tables below provide an estimate of the value of the compensation and benefits due to each of our Named Executive Officers
for our fiscal year ended December 31, 2023, in the events described below, assuming that the termination of employment and
change in control was effective on December 31, 2023, under the applicable employment agreements described above. The
actual amounts to be paid can only be determined at the time of the termination of employment.
TERMINATION OF EMPLOYMENT UNRELATED TO A CHANGE IN CONTROL
Named Executive Officer
Ita Brennan
Marc Taxay
Value of Accelerated Equity
Awards ($)(1)
Salary
Continuation
($)
Restricted
Stock Units
Options
Total ($)
315,000
12,907,125
1,583,497 14,490,622
315,000
9,849,734
1,583,497 11,433,231
(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, 2023, that would become vested by (ii) the difference
between $235.51 (the closing market price of our common stock on NYSE on December 29, 2023) 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, 2023, that would become vested by (ii) $235.51 (the closing market price of our common stock on
NYSE on December 29, 2023).
TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
Named Executive Officer
Ita Brennan
Marc Taxay
Value of Accelerated Equity
Awards ($)(1)
Salary
Continuation
($)
Restricted
Stock Units
Options
Total ($)
315,000
14,406,264
1,583,497 15,989,761
315,000
10,974,648
1,583,497 12,558,145
(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, 2023, that would become vested by (ii) the difference
between $235.51 (the closing market price of our common stock on NYSE on December 29, 2023) 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, 2023, that would
become vested by (ii) $235.51 (the closing market price of our common stock on NYSE on December 29, 2023).
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Risk Assessment and Compensation Practices
Our management assesses and discusses with our Compensation Committee at least annually our compensation policies and
practices for our employees as they relate to our risk management, and based upon this assessment, we believe that, for the
following reasons, any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on
us in the future:
• Our annual bonus plan considers a multiple of
• Our equity awards include multi-year vesting schedules
performance factors and allows our Compensation
Committee to review performance on a holistic basis
minimizing risk related to our short-term variable
compensation; and
requiring a long-term employee commitment.
Compensation Policies and Hedging/Pledging Policies
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. The following types of holdings are included for our stock ownership guidelines: shares of our
common stock, vested and exercisable “in-the-money” stock options, and any other shares of our common stock in which our
Chief Executive Officer holds a beneficial interest. Our Chief Executive Officer is on track to meet these guidelines based on their
current rate of stock accumulations in the time frames set out in the guidelines.
Clawback Policy. In July 2023, we adopted a new Clawback Policy in accordance with the SEC and Nasdaq requirements under
the Dodd-Frank Wall Street Reform and Consumer Protection Act. This policy provides for the non-discretionary recovery of
excess incentive-based compensation from current and former executive officers in the event of an accounting restatement,
whether or not the executive officer was at fault for the restatement, in accordance with the SEC and Nasdaq requirements.
Hedging or Pledging Policies. Our insider trading policy prohibits our directors, officers, employees, consultants, contractors and
advisors 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 insider trading 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
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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 2023, our last completed fiscal year:
1. the median of the annual total compensation of all
employees of our Company (other than our Chief
Executive Officer), was $189,124; and
2. the annual total compensation of our Chief Executive
Officer, as reported in the Fiscal 2023 Summary
Compensation Table presented elsewhere in this proxy
statement, was $15,561,987.
Based on this information, for 2023, 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 82 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 2022 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:
1. We selected October 31, 2023 as the date upon which
we would identify the median employee.
2. To identify the “median employee” from our employee
population we used payroll and equity plan records.
(a) 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
2023 as of the determination date, and grant date fair
value of equity awards granted in 2023.
(b) We did not apply any de minimis exclusions to remove
certain employees in non-U.S. jurisdictions allowed by
Item 402(u).
3. Amounts paid in foreign currency were converted into
United States dollars using 2023 average exchange rates.
4. The calculation was performed for all employees,
excluding Ms. Ullal, whether employed on a full-time, part-
time, or seasonal basis.
With respect to the annual total compensation of the “median employee,” we identified and calculated the elements of such
employee’s compensation for 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual
total compensation of $189,124.
With respect to the annual total compensation for our Chief Executive Officer, we used the amount reported in the “Total” column
of our Fiscal 2023 Summary Compensation Table.
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Pay Versus Performance
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation
S-K, we are providing the following information about the relationship between executive compensation actually paid (“CAP”) and
certain measures of the financial performance of the Company. For further information concerning the Company’s variable pay-for-
performance philosophy and how the Company aligns executive compensation with corporate performance, please refer to the
Compensation Discussion and Analysis.
The following table reports the compensation of our Principal Executive Officer (PEO) and the average compensation of the other
Named Executive Officers (non-PEO NEOs) as reported in the Summary Compensation Table for the past four fiscal years, as well
as their “Compensation Actually Paid” as calculated pursuant to recently adopted SEC rules and certain performance measures
required by the rules.
Value of Initial Fixed $100
Investment Based On:
Summary
Compensation
Table Total
PEO
(b)
Compensation
Actually Paid
PEO
(c)
Fiscal
Year
(a)
Average
Summary
Compensation
Table Total
non-PEO NEOs
(d)
Avg.
Compensation
Actually
Paid
non-PEO
NEOs
(e)
Company
Total
Shareholder
Return
(f)
Peer Group
Total
Shareholder
Return
(g)
Net
Income Revenue
(h)
(i)
2023
$15,561,987
$63,914,394
$4,918,724
$20,487,088
$463
$133
$2,087
$5,860
2022
$10,735,887
$ 3,171,085
$3,285,597
($785,576)
$239
$117
$1,352
$4,381
2021
$15,993,632
$65,318,255
$4,157,062
$25,133,973
$283
$129
$ 841
$2,948
2020
$ 6,342,972
$ 8,680,019
$3,699,258
$11,419,845
$143
$107
$ 635
$2,318
Column (b)
Represents the total compensation reported for our CEO, Jayshree Ullal, in the Summary Compensation Table for each listed year.
Mr. Ullal served as our CEO (PEO) for each year presented.
Column (c)
Represents the amount of Compensation Actually Paid (“CAP”) for a particular year, as computed in accordance with SEC rules.
The dollar amounts do not reflect the actual amounts of compensation paid to our CEO during the applicable year.
To calculate CAP, the following amounts were deducted from and added to the “Total” compensation amount for the CEO
reflected in each year’s Summary Compensation Table as follows:
Summary Compensation Table Total
Subtract Grant Date Fair Value of Option Awards and Stock Awards Granted in Fiscal Year
Add Fair Value at Fiscal Year-End of Outstanding and Unvested Option Awards and Stock Awards Granted
in Fiscal Year
Add Change in Fair Value of Outstanding and Unvested Option Awards and Stock Awards Granted in Prior
Fiscal Years
Add Fair Value at Vesting of Option Awards and Stock Awards Granted in Fiscal Year That Vested During
Fiscal Year
Add Change in Fair Value as of Vesting Date of Option Awards and Stock Awards Granted in Prior Fiscal
Years for Which Applicable Vesting Conditions Were Satisfied During Fiscal Year
Subtract Fair Value as of Prior Fiscal Year-End of Option Awards and Stock Awards Granted in Prior Fiscal
Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year
Add Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair
Value or Total Compensation
2023
$ 15,561,987
($15,051,588)
$ 29,429,212
$ 27,056,544
$
0
$ 6,918,239
$
$
0
0
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Compensation Actually Paid $ 63,914,394
2024 PROXY STATEMENT
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Note that we have not reported any amounts in our Summary Compensation Table with respect to “Change in Pension and
Nonqualified Deferred Compensation” and, accordingly, the adjustments with respect to such items prescribed by the pay-versus-
performance rules are not relevant to our analysis and no adjustments have been made.
For purposes of calculating CAP, the fair value of equity awards is calculated in accordance with Financial Accounting Standards
Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718) using consistent assumption methodologies used to
calculate the grant date fair value of awards, and for awards subject to performance-based vesting conditions, based on the
probable outcome of such performance-based vesting conditions as of the last day of the fiscal year.
Column (d)
Represents the average of the total compensation reported for our non-PEO Named Executive Officers (“non-PEO NEOs”) in the
Summary Compensation Table for each listed year. The non-PEO NEOs in each year were as follows:
2023: Ita Brennan; Kenneth Duda; Anshul Sadana; Marc Taxay
2022: Ita Brennan; Kenneth Duda; Anshul Sadana; Marc Taxay
2021: Ita Brennan; Kenneth Duda; Anshul Sadana; Marc Taxay
2020: Ita Brennan; Kenneth Duda; Anshul Sadana; Marc Taxay
Column (e)
Represents the average amount of Compensation Actually Paid (“CAP”) for a particular Covered Year, as computed in accordance
with SEC rules, to our non-PEO NEOs. The dollar amounts do not reflect the actual amounts of compensation paid to our non-
PEO NEOs during the applicable year.
To calculate the average CAP payable to our non-PEO NEOs, the following amounts were deducted from and added to the “Total”
compensation amount for such non-PEO NEOs reflected in each year’s Summary Compensation Table as follows:
Summary Compensation Table Total
Subtract Grant Date Fair Value of Option Awards and Stock Awards Granted in Fiscal Year
Add Fair Value at Fiscal Year-End of Outstanding and Unvested Option Awards and Stock Awards Granted
in Fiscal Year
Add Change in Fair Value of Outstanding and Unvested Option Awards and Stock Awards Granted in Prior
Fiscal Years
Add Fair Value at Vesting of Option Awards and Stock Awards Granted in Fiscal Year That Vested During
Fiscal Year
Add Change in Fair Value as of Vesting Date of Option Awards and Stock Awards Granted in Prior Fiscal
Years for Which Applicable Vesting Conditions Were Satisfied During Fiscal Year
Subtract Fair Value as of Prior Fiscal Year-End of Option Awards and Stock Awards Granted in Prior Fiscal
Years That Failed to Meet Applicable Vesting Conditions During Fiscal Year
Add Value of Dividends or other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair
Value or Total Compensation
2023
$ 4,918,724
($ 4,388,223)
$ 8,509,377
$ 8,137,724
$
0
$ 3,309,486
$
$
0
0
Compensation Actually Paid $ 20,487,088
The assumptions used for determining the fair values shown in this table are materially consistent with those described in the note
regarding Column (c).
Column (f)
Total shareholder return (“TSR”) is calculated by assuming that a $100 investment was made on the day prior to the first fiscal year
reported below and reinvesting all dividends until the last day of each reported fiscal year.
Because listed fiscal years are presented in the table in reverse chronological order (from top to bottom), the table should be read
from bottom to top for purposes of understanding cumulative returns over time.
Column (g)
The peer group utilized in the table above is the NYSE Composite Index, as used in the company’s performance graph in our
annual report. For each listed fiscal year, the peer group cumulative TSR was calculated based on a deemed fixed investment of
$100 in the index made on the day prior to the first fiscal year reported below and reinvesting all dividends until the last day of each
reported fiscal year.
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Column (h)
The dollar amounts reported are the Company’s net income reflected in the Company’s audited financial statements.
Column (i)
In the Company’s assessment, revenue is the financial performance measure that is the most important financial performance
measure (other than total shareholder return and net income) used by the company in 2023 to link compensation actually paid to
performance. The dollar amounts reported are the Company’s gross revenues (in millions) as reflected in the Company’s audited
financial statements.
Tabular List of Performance Measures
The following table identifies the most important financial performance measures used by our Compensation Committee to link the
“compensation actually paid” to our CEO and other NEOs in 2023, calculated in accordance with SEC regulations, to company
performance. The role of each of these performance measures on our NEOs’ compensation is discussed in the CD&A.
Most Important Performance Measures
Revenue
Non-GAAP Operating Income
Non-GAAP Gross Margin
Compound Annual Growth Rate of Revenue
Description of Relationships Between Compensation Actually Paid and Performance
As discussed further in our CD&A, our compensation structure 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, while creating long-term value for our stockholders.
The graphs below describe, in a manner compliant with the relevant SEC rules, the relationship between Compensation Actually
Paid and the specific performance measures shown.
Compensation Actually Paid Versus TSR
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Compensa(cid:2)on Actually Paid vs. Company TSR
$463
$283
$239
$143
FY 2020
FY 2021
FY 2022
FY 2023
PEO CAP ($M)
Average Non-PEO NEO CAP ($M)
Company TSR
$500
$450
$400
$350
$300
$250
$200
$150
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$50
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2024 PROXY STATEMENT
73
Company TSR vs. Peer Group TSR
Company TSR vs. Peer Group TSR
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$283
$239
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$107
$129
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FY 2020
FY 2021
FY 2022
FY 2023
Company TSR
NYSE Composite TSR
Compensation Actually Paid Versus Net Income
Compensa(cid:2)on Actually Paid vs. Net Income
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FY 2021
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PEO CAP($M)
Average Non-PEO NEO CAP ($M)
Net Income ($M)
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Compensation Actually Paid Versus Revenue
Compensa(cid:2)on Actually Paid vs. Revenue
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FY 2021
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PEO CAP ($M)
Average Non-PEO NEO CAP ($M)
Revenue($M)
Compensation Committee Report
The Compensation Committee has reviewed and discussed the section titled “Compensation Discussion and Analysis” with
management. Based on such review and discussion, the Compensation Committee has recommended to the board of directors
that the section titled “Compensation Discussion and Analysis” 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 B. Templeton
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2024 PROXY STATEMENT
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Equity Compensation Plan Information
The following table summarizes our equity compensation plan information as of December 31, 2023. Information is included for
equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders. We
will not grant equity awards in the future under any of the equity compensation plans not approved by our stockholders included in
the table below.
(a) Number of
Securities to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(b) Weighted
Average
Exercise Price of
Outstanding Options,
Warrants and
Rights
(c) Number of
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflecting in Column
(a))
10,356,945(1)
$19.83(2)
118,667,614(3)
—
10,356,945
—
$19.83
—
118,667,614
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by stockholders
Total
(1) Includes 2,457,059 shares underlying stock options and 7,899,886 shares of restricted stock units.
(2) The weighted average exercise price is calculated based solely on outstanding stock options.
(3) Includes the following plans: The 2014 Plan and Arista Networks, Inc. 2014 Employee Stock Purchase Plan (“ESPP”). 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, 2024, the number of shares available for issuance under our ESPP increased by
3,122,747 shares pursuant to these provisions. These increases are not reflected in the table above.
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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 9, 2024
for:
• each of our directors and nominees for director;
• each person or group, who beneficially owned more than
• each of our Named Executive Officers;
• all of our current directors and executive officers as a
group; and
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 313,608,626 shares of our common stock
outstanding as of April 9, 2024. We have deemed shares of our common stock subject to stock options that are currently
exercisable or exercisable within 60 days of April 9, 2024 and RSUs that vest within 60 days of April 9, 2024, 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.
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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)
Lewis Chew(10)
Charles Giancarlo(11)
Daniel Scheinman(12)
Mark B. Templeton(13)
Yvonne Wassenaar(14)
Number of
Shares
Beneficially
Owned
Percentage of
Shares
Beneficially
Owned
45,807,012
14.61%
29,493,855
18,421,152
9.40%
5.87%
9,755,731
3.11%
35,204
1,090,326
71,300
0
2,926
5,620
112,638
38,360
31,080
2,827
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All current executive officers and directors as a group (10 persons)(15)
11,110,808
3.54%
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Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.
(1)
Includes 45,807,012 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 13, 2024 by The Vanguard Group (“Vanguard”) reporting
beneficial ownership as of December 29, 2023. Vanguard reported sole voting power with respect to 0 shares and shared
voting power with respect to 342,289 shares. Vanguard reported sole dispositive power with respect to 28,400,649 shares
and shared dispositive power with respect to 1,093,206 shares. The address for Vanguard is 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.
(3) Based solely upon a Schedule 13G/A filed with the SEC on January 29, 2024 by BlackRock, Inc. (“BlackRock”) reporting
beneficial ownership as of December 31, 2023 BlackRock reported sole voting power with respect to 16,535,374 shares and
sole dispositive power with respect to 18,421,152 shares. The address for BlackRock is 50 Hudson Yards, New York, NY
10001.
(4)
Includes 6,456,986 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 3,281,064 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 17,861 shares held directly by Ms. Ullal. Includes 41,054 shares issuable within 60 days of April 9, 2024 upon vesting
of restricted stock units or the exercise of outstanding exercisable options held by Ms. Ullal.
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(5) Ms. Brennan retired from her position as Chief Financial Officer in January 2024.
(6)
(7)
(8)
Includes 268,098 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 180,558 shares held in grantor retained annuity trusts of
which Mr. Duda is Trustee; 180,558 shares held in grantor retained annuity trusts of which Mr. Duda’s spouse is Trustee;
259,268 shares held in trusts for Mr. Duda’s children for which trusts Mr. Duda serves as Trustee; 198,600 shares held in a
501(c) foundation for which Mr. Duda and his spouse serve as co-trustees and 3,244 shares held directly by Mr. Duda.
Includes 407,688 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units or the exercise of
outstanding exercisable options held by Mr. Duda.
Includes 26,996 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units or the exercise of
outstanding exercisable options held by Mr. Sadana.
Includes 9,458 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units or the exercise of
outstanding exercisable options held by Mr. Taxay.
(9)
Includes 372 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units held by Ms. Battles.
(10) Includes 372 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock held by Mr. Chew.
(11) Includes 58,946 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
53,692 shares held directly by Mr. Giancarlo. Also includes 372 shares issuable within 60 days of April 9, 2024 upon vesting
of restricted stock units held by Mr. Giancarlo.
(12) Includes 372 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock held by Mr. Scheinman.
(13) Includes 18,800 shares held in a trust of which Mr. Templeton’s spouse serves as Trustee; 12,280 shares held directly by
Mr. Templeton and 372 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units held by
Mr. Templeton.
(14) Includes 372 shares issuable within 60 days of April 9, 2024 upon vesting of restricted stock units held by Ms. Wassenaar.
(15) Includes 487,428 shares issuable within 60 days of April 9, 2024 upon vesting of options and restricted stock units or the
early exercise of outstanding options.
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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:
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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.
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 2023 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, 2023, 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 Person 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 immediate family member or
person sharing the household 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 the terms that could have been reached with an unrelated third party, 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 director or beneficial owner of less than 10% of that company’s shares (subject to a one-time initial
approval by the Audit Committee), 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.
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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 2025 annual meeting of stockholders, our Secretary must receive the
written proposal at our principal executive offices no later than December 24, 2024. 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 2025 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 7, 2025; and
• not later than the close of business on March 9, 2025.
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2024 PROXY STATEMENT
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NOMINATION OF DIRECTOR CANDIDATES
Stockholders may recommend director candidates for consideration by our Nominating and Corporate Governance Committee.
Any such recommendations should include the nominee’s name and qualifications for membership on our board of directors and
should be directed to our Secretary at the address set forth above. For additional information regarding stockholder
recommendations for director candidates, see “Board of Directors and Corporate Governance—Stockholder Recommendations
for Nominations to the Board of Directors.”
In addition, our amended and restated bylaws permit stockholders to nominate directors for election at an annual meeting of
stockholders. To nominate a director, the stockholder must provide the information required by our amended and restated bylaws.
In addition, the stockholder must give timely notice to our Secretary in accordance with our amended and restated bylaws, which,
in general, require that the notice be received by our Secretary within the time period described above under “Stockholder
Proposals” for stockholder proposals that are not intended to be included in a proxy statement.
Stockholders who intend to solicit proxies in support of director nominees other than our nominees must also provide notice that
sets forth the information required by Rule 14a-19 of the Exchange Act. Please note that the notice requirement under Rule 14a-19
is in addition to the applicable notice requirements under the advance notice provisions of our amended and restated bylaws
described above.
Availability of Bylaws
A copy of our bylaws may be obtained by accessing our filings on the SEC’s website at www.sec.gov. You may also 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 2023 Annual Report and SEC Filings
Our financial statements for our fiscal year ended December 31, 2023 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 24, 2024
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APPENDIX A
ARISTA NETWORKS, INC.
2014 EQUITY INCENTIVE PLAN
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(as amended, restated and extended effective as of April 17, 2024, subject to stockholder approval at the 2024 Annual
General Meeting)
1. Purposes of the Plan. The purposes of this Plan are:
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•
•
to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants, and
to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock
Units, Stock Appreciation Rights, Performance Units and Performance Shares.
2. Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with
Section 4 of the Plan.
(b) “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state
corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common
Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under
the Plan.
(c) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Units or Performance Shares.
(d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to
each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(e) “Board” means the Board of Directors of the Company.
(f) “Change in Control” means the occurrence of any of the following events:
(i) A change in the ownership of the Company which occurs on the date that any one person, or more than one
person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such
Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that
for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty
percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the
Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of
the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is
considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will
not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any
Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of
the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided,
however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion
of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer,
or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in
exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of
which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of
the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total
value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of
this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such assets.
2024 PROXY STATEMENT
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A-1
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that
enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a
change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any
proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated
thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to
change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(g) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or
regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(h) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the
Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
(i) “Common Stock” means the common stock of the Company.
(j) “Company” means Arista Networks, Inc., a Delaware corporation, or any successor thereto.
(k) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render
services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital raising
transaction, and (ii) do not directly promote or maintain a market for the Company’s securities.
(l) “Director” means a member of the Board.
(m) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case
of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total
disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(n) “Effective Date” means April 17, 2024.
(o) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or
Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to
constitute “employment” by the Company.
(p) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(q) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange
for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/
or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or
entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced. The
Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(r) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without
limitation the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital
Market of The NASDAQ Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the
Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of
determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were
reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good
faith by the Administrator.
(s) “Fiscal Year” means the fiscal year of the Company.
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(t) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.
(u) “Inside Director” means a Director who is an Employee.
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(v) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an
Incentive Stock Option.
(w) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(x) “Option” means a stock option granted pursuant to the Plan.
(y) “Outside Director” means a Director who is not an Employee.
(z) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(aa) “Participant” means the holder of an outstanding Award.
(bb) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon
attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.
(cc) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals
or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a
combination of the foregoing pursuant to Section 10.
(dd) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to
restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage
of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(ee) “Plan” means this 2014 Equity Incentive Plan, as amended and restated.
(ff) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued
pursuant to the early exercise of an Option.
(gg) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one
Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the
Company.
(hh) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is
being exercised with respect to the Plan.
(ii) “Section 16(b)” means Section 16(b) of the Exchange Act.
(jj) “Service Provider” means an Employee, Director or Consultant.
(kk) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
(ll) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 9
is designated as a Stock Appreciation Right.
(mm) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. Stock Subject to the Plan.
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(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, as of the Effective Date, the maximum
aggregate number of Shares that may be issued under the new amended, restated and extended Plan is (i) 13,200,000 shares,
plus (ii) any Shares subject to Awards under the previous version of the Plan that had been in place prior to the Effective Date (the
“Existing Plan”) that, on or after the Effective Date, expire or otherwise terminate without having been exercised in full, or that are
forfeited to or repurchased by the Company, including net settlement of Shares subject to Restricted Stock Units, with the
maximum number of Shares to be added to the Plan as a result of clause (ii) equal to 10,039,657. The Shares may be authorized,
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but unissued, or reacquired Common Stock. For the avoidance of doubt, the available Share reserve under the Existing Plan will no
longer be available for grant and the only shares available for grant on the Effective Date shall be the number set forth in clause
(i) above.
(b) [REDACTED].
(c) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, is surrendered
pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or
Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards
other than Options or Stock Appreciation Rights the forfeited or repurchased Shares), which were subject thereto will become
available for future grant or sale under the Plan (unless the Plan has terminated). With respect to Stock Appreciation Rights, only
Shares actually issued (i.e., the net Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan;
all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale under the Plan (unless the Plan
has terminated). Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not
become available for future distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted
Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the
Company, such Shares will become available for future grant under the Plan. Shares used to pay the exercise price of an Award or
to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. To the
extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of
Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 14,
the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share
number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations
promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Sections 3(b) and 3(c).
(d) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of
Shares as will be sufficient to satisfy the requirements of the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may
administer the Plan.
(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted
hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered
by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the
transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a
Committee, which committee will be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the
specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted
hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be
exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator
will determine;
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(vi) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating
to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under
applicable foreign laws;
(viii) to modify or amend each Award (subject to Section 19 of the Plan), including but not limited to the discretionary
authority to extend the post-termination exercisability period of Awards and to extend the maximum term of an Option (subject to
Section 6(b) of the Plan regarding Incentive Stock Options);
(ix) to allow Participants to satisfy withholding tax obligations in such manner as prescribed in Section 15 of the Plan;
(x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an
Award previously granted by the Administrator;
(xi) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise
be due to such Participant under an Award; and
(xii) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and
binding on all Participants and any other holders of Awards.
5. Eligibility & Limitations.
(a) Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Limitations.
(i) No Exchange Program. The Administrator may not implement an Exchange Program. Accordingly, there is no
ability to perform an Award repricing or exchange or transfer Awards to a third-party financial institution.
(ii) Dividends and Other Distributions. No dividends or other distributions shall be paid with respect to any Shares
underlying any unvested portion of an Award.
6. Stock Options.
(a) Limitations. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options
will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account
in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with
respect to such Shares is granted.
(b) Term of Option. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock
Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement.
Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term
as may be provided in the Award Agreement.
(c) Option Exercise Price and Consideration.
(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be
determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
a) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.
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Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
b) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per
percent (100%) of the Fair Market Value per Share on the date of grant.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a
manner consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within
which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an
Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable
form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to
the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that
accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines
in its sole discretion; (5) consideration received by the Company under a broker-assisted (or other) cashless exercise program
(whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise; (7) such
other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any
combination of the foregoing methods of payment.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to
the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award
Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) a notice of exercise (in such form as the
Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any
consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan.
Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the
name of the Participant and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with
respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be
issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon
the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option
within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a
specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s
termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the
Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the
Shares covered by such Option will revert to the Plan.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability,
the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the
Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the
Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve
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(12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination
the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to
the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will
terminate, and the Shares covered by such Option will revert to the Plan.
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(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the
Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the
date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the
Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to
Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then
such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is
transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a
specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death.
Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
7. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from
time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion,
will determine.
(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will
specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its
sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of
Restricted Stock until the restrictions on such Shares have lapsed.
(c) Transferability. Except as provided in this Section 7 or the Award Agreement, Shares of Restricted Stock may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of
Restricted Stock as it may deem advisable or appropriate.
(e) Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of
Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time
at which any restrictions will lapse or be removed.
(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted
hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g) Dividends and Other Distributions. Subject to Section 5(b)(ii), during the Period of Restriction, Service Providers
holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares,
unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to
the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which
restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
8. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator.
After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award
Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the
extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The
Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals
(including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis
determined by the Administrator in its discretion.
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(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a
payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units,
the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the
date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may only
settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the
Company.
9. Stock Appreciation Rights.
(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may
be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of Stock Appreciation
Rights granted to any Service Provider.
(c) Exercise Price and Other Terms. The per share exercise price for the Shares to be issued pursuant to exercise of a
Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have complete
discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d) Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement
that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and
conditions as the Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date
determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the
rules of Section 6(b) relating to the maximum term and Section 6(d) relating to exercise also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be
entitled to receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of
equivalent value, or in some combination thereof.
10. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers
at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have
complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the
Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a
Share on the date of grant.
(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting
provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to
which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers.
The time period during which the performance objectives or other vesting provisions must be met will be called the “Performance
Period.” Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance
Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set
performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but
not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the
Administrator in its discretion.
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(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance
Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other
vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may
reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
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(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be
made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion,
may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested
Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
11. Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of Awards granted
hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its
Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless
reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave any
Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option.
12. Outside Director Limitations.
(a) Cash-Settled Awards. No Outside Director may be granted, in any fiscal year of the Company, cash-settled Awards
with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than
$1,500,000, increased to $3,000,000 in connection with his or her initial service.
(b) Stock-Settled Awards. No Outside Director may be granted, in any fiscal year of the Company, stock-settled Awards
with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than
$1,500,000, increased to $3,000,000 in connection with his or her initial service.
13. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable,
such Award will contain such additional terms and conditions as the Administrator deems appropriate.
14. Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities,
or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of
the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered
under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits
in Section 3 of the Plan.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will
notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not
been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c) Change in Control. In the event of a merger of the Company with or into another corporation or other entity or a
Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each
Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. The Administrator will not be required to treat all Awards similarly in the transaction.
In the event that the successor corporation does not assume or substitute for the Award, the Participant will fully vest in
and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which
2024 PROXY STATEMENT
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such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will
lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed
achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock
Appreciation Right is not assumed or substituted in the event of a Change in Control, the Administrator will notify the Participant in
writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the
Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the
Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control,
the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common
Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration
received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or
Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share
subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the Change in Control.
Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned or paid-out upon the
satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of
such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to
reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid
Award assumption.
(d) Outside Director Awards. With respect to Awards granted to an Outside Director that are assumed or substituted for,
if on the date of or following such assumption or substitution the Participant’s status as a Director or a director of the successor
corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant (unless such resignation is at
the request of the acquirer), then the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation
Rights as to all of the Shares underlying such Award, including those Shares which would not otherwise be vested or exercisable,
all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based
vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and
all other terms and conditions met.
15. Tax.
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or
such earlier time as any tax withholding obligations are due, the Company will have the power and the right to deduct or withhold,
or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes
(including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify
from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation)
(a) paying cash, (b) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal
to the minimum statutory amount required to be withheld, or (c) delivering to the Company already-owned Shares having a Fair
Market Value equal to the minimum statutory amount required to be withheld. The Fair Market Value of the Shares to be withheld
or delivered will be determined as of the date that the taxes are required to be withheld.
(c) Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either
exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement
or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined
in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the
requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise
determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral
thereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the
requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or
interest applicable under Code Section 409A.
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16. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect
to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the
Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted
by Applicable Laws.
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17. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the
determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will
be provided to each Participant within a reasonable time after the date of such grant.
18. Term of Plan. Subject to Section 22 of the Plan, the Plan, as amended and restated, will become effective upon the
Effective Date, subject to stockholder approval at the 2024 Annual General Meeting. It will continue in effect for a term of ten
(10) years from the date adopted by the Board, unless terminated earlier under Section 19 of the Plan.
19. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary
and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the
rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must
be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to
exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
20. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award
and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person
exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
21. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or
to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or
foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of
the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule
compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder,
will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority,
registration, qualification or rule compliance will not have been obtained.
22. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company at the 2024 Annual
Meeting of Stockholders. If stockholder approval of the Plan is not obtained at the 2024 Annual Meeting of Stockholders, then any
Award granted on or following the Effective Date will be forfeited. In accordance with New York Stock Exchange Listing Rule
303A.08, no Shares underlying Awards granted on or after the Effective Date shall be issued until stockholder approval is obtained.
Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
23. Forfeiture Events.
(a) All Awards under the Plan will be subject to recoupment under the Company’s current Compensation Recovery Policy
and any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities
exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act or other Applicable Laws. In addition, the Administrator may impose such other clawback,
recovery or recoupment provisions in an Award Agreement as the Administrator determines necessary or appropriate, including
but not limited to a reacquisition right regarding previously acquired Shares or other cash or property. Unless this Section 23(a) is
specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation under a clawback
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A-11
policy or otherwise will be an event that triggers or contributes to any right of a Participant to resign for “good reason” or
“constructive termination” (or similar term) under any agreement with the Company or a Subsidiary, or Parent of the Company.
(b) The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with
respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in
addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but will not be
limited to, termination of such Participant’s status as Service Provider for cause or any specified action or inaction by a Participant,
whether before or after such termination of service, that would constitute cause for termination of such Participant’s status as a
Service Provider.
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RECONCILIATION OF SELECTED GAAP TO NON-GAAP FINANCIAL MEASURES
APPENDIX B
The following table reconciles our financial results reported in accordance with accounting principles generally accepted in the
United States (“GAAP”) to non-GAAP financial results.
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GAAP gross profit
GAAP gross margin
Stock-based compensation expense
Intangible asset amortization
Non-GAAP gross profit
Non-GAAP gross margin
GAAP income from operations
GAAP operating margin
Stock-based compensation expense
Intangible asset amortization
Acquisition-related costs(1)
Legal settlement(2)
Non-GAAP income from operations
Non-GAAP operating margin
Twelve Months Ended
December 31,
2023
2022
$3,630,281
$2,675,696
61.9%
12,789
23,457
61.1%
9,688
25,374
$3,666,527
$2,710,758
62.6%
61.9%
$2,257,249
$1,527,106
38.5%
34.9%
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230,934
33,437
33,650
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4,691
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$2,603,442
$1,796,381
44.4%
41.0%
(1) Represents costs associated with business combinations, which primarily include retention bonuses, and professional and
consulting fees.
(2) In the quarter ended December 31, 2023, we agreed to pay $16 million to settle an intellectual property dispute and we
recorded this amount to general and administrative expenses.
NON-GAAP EXECUTIVE INCENTIVE PLAN (“INCENTIVE PLAN”) PERFORMANCE METRICS IN
COMPENSATION DISCUSSION AND ANALYSIS
We use certain non-GAAP financial performance metrics in our Incentive Plan, as described on page 55.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-K
__________________________________________________
(Mark One)
(cid:4339)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
(cid:4337)
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)
20-1751121
(I.R.S. Employer
Identification Number)
5453 Great America Parkway
Santa Clara, California 95054
(Address of principal executive offices)
(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
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
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 No
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 No
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 No
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
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $40.8 billion as of June 30,
2023 (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 7, 2024, 312,633,612 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days
after the registrant’s fiscal year end of December 31, 2023 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 1C. Cybersecurity
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
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors,” 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, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements involve substantial risks and uncertainties. The words “believe,” “may,” “will,” “potentially,”
"likely" “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” "should", “project,” “plan,” “predict,” “expect”, the
negative of any of these words 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:
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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;
our business plan and our ability to effectively manage our growth;
our ability to expand our leadership position in the networking industry and to develop new products and expand our
business into new markets such as the AI Ethernet switching, 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, including the impact of artificial intelligence, innovate new products, rapidly develop new features and
applications, and bring them to market in a timely manner;
our ability to fulfill our customers’ orders despite supply chain delays, access to key commodities or technologies or
geopolitical events that impact our manufacturers or their suppliers such as the recent U.S. trade wars, the Russia-
Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea or the impact of global
pandemics such as the global coronavirus ("COVID-19") pandemic;
our ability to identify, complete and realize the benefits of recent and future acquisitions of, or investments in,
complementary companies, products, services or technologies;
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 customers, including large customers;
our ability to expand our business domestically and internationally;
the effects of increased competition in our market and our ability to compete effectively;
the budgeting cycles and purchasing practices of customers, including large 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 customers and resulting volatility in our customer concentration in which
large bulk purchases may or may not occur in certain quarters or may be deferred into future quarters or cancelled due
to adjustments in their capital expenditure forecasts;
the deferral or cancellation of orders by 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 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 ability to scale our operational and manufacturing capacity;
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 detect breaches of our cybersecurity systems or other security breaches;
the effects of seasonal and cyclical trends on our results of operations;
our relationships with and expectations concerning third parties, including, but not limited to our large customers,
suppliers, distributors, systems integrators, channel partners and value-added resellers;
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;
the impact of global economic and political conditions that introduce instability into the U.S. and other economies;
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the impact of climate change and natural disasters;
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; and
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.
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 is an industry leader in data-driven, client to cloud networking for large data center, campus and
routing environments. Arista’s platforms deliver availability, agility, automation, analytics and security through an advanced
network operating stack. Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and
programmability with a focus on differentiating in three ways: uncompromising quality, advanced open and standards-based
technology and a robust quality assurance capability built on a suite of automated diagnostics.
At the core of Arista’s platform is Arista’s Extensible Operating System (EOS®), a modernized publish-subscribe
state-sharing networking operating system. Arista EOS, combined with a set of network applications and our Ethernet switching
and routing platforms using best of breed merchant silicon, provides customers with a highly competitive and diversified
portfolio of products with improved price/performance and time to market.
Our current portfolio of offerings are categorized in the following three product categories:
Core: high-speed Data Center and Cloud Networking systems including newer artificial intelligence ("AI") Ethernet
switching platforms.
Cognitive Adjacencies: campus wired and wireless products and advanced routing systems addressing Core Routing,
Edge Routing, Data Center Interconnect (DCI), Multi-cloud and Wide Area Networking (WAN) use cases.
Network Software and Services: a suite of value-add software solutions that leverage Arista’s EOS to provide
advanced end-to-end orchestration, automation, analytics, network monitoring and security.
Since we began shipping our products in 2008, we have experienced rapid growth, and, according to market research
in 2023, we have achieved the leadership position in high-speed Ethernet port shipments of 100G and above and the second
largest market share in overall data center Ethernet switch ports and revenue. We have been profitable and cash flow positive
since 2010.
Our Market Opportunity
We sell our products through both a direct sales force and channel partners, competing primarily in the high-speed data
center Ethernet switching markets for 10 Gigabit Ethernet ("GbE") and above, including the AI Ethernet switching market, the
cloud-grade and enterprise routing markets, and the campus wired and wireless markets. In recent years, we have also entered
into the Network Monitoring and Network Detection and Response (NDR) security markets through both acquisition and
organic development.
Our Customers
Our customers span a range of industries and geographies, including large cloud customers or hyperscalers, other
internet providers, service providers, financial services organizations, government agencies and a cross section of enterprise
customers. Over the past five years, we have diversified the types of enterprise customers we sell to and have continued to
expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil and gas, education,
manufacturing, industrial, and more. Meta Platforms and Microsoft, two of our cloud end customers, each accounted for more
than 10% of our total revenue for the years ended December 31, 2023, and December 31, 2022.
Market Drivers
Digital Transformation
Digital transformation is fundamentally changing the way technology is integrated into business operations and as a
result how IT infrastructure is built, and applications are delivered across cloud and end-customer environments. The expanded
dependency of business operations on the network has increased the complexity of the network and heightened the importance
of network availability, predictable performance, open programmability and operational simplicity.
The public cloud leaders pioneered the development of large-scale cloud data centers to meet these growing demands
from their users, including business customers. Enterprises now have the option to move applications to the cloud as cloud
services are generally easier and more cost effective to deploy, scale and operate than traditional applications. These cloud
metrics have become the baseline for performance, cost and efficiency of IT infrastructure investments. Enterprises and service
1
providers around the world are also now adopting cloud computing technologies and principles to their own non-cloud or
hybrid operations in order to achieve similar performance, operational efficiencies and cost reductions.
Arista addresses our customers' requirements through our approach to network architecture, our platforms and our
software. Our comprehensive R-series and X-series switching and routing portfolios running the highly programmable EOS,
transform networks with simplified and scalable architectures across multiple use-cases.
Artificial Intelligence (AI)
The expansion of generative AI computing and distributed applications is further pushing the boundary of predictable
scale and performance in the network. A common characteristic of these AI workloads is that they are both data and compute
intensive. A typical AI workload involves large sparse matrix computations, distributed across hundreds or thousands of
processors (CPU, GPU, TPU, etc.) with intense computations for a period of time and requires a high-bandwidth, scalable,
lossless network in order to service these workloads.
Arista's AI strategy is based on achieving two key objectives. Arista first offers to customers the Arista Autonomous
Virtual Assist ((AVATM)) using natural processing language to provide AI assisted outcomes for security and observability.
Arista also provides network switching products intended to provide a robust interconnect that seamlessly links GPUs, compute
and storage to deliver fast job completion time for training and generative AI workloads.
An overview of our AI enabled solutions is shown below:
AI Spine
AI Leaf
AIOps
Observability
AVA
Security
Predictive Analytics
AI-enabling Platforms
AI-driven Outcomes
a proud fouff
As a proud founding member, Arista is committed to leading the Ultra Ethernet Consortium (UEC) to achieve scalable
and efficient remote memory access, implemented with enhanced packet spraying, flexible ordering, and modern congestion
control algorithms.
ed to leading the Ultra Ethernerr
nding member Arista is
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Hybrid Work
In the post-pandemic world, the traditional “campus” has been redefined and the boundaries between the office, home,
teleworker and user have converged. At the same time, the proliferation and sophistication of devices that connect the campus,
such as smart devices, security cameras and Internet of Things ("IoT"), has grown dramatically. The challenge lies in
successfully transitioning the existing siloed campus into a data-driven, distributed campus model with a common experience,
while addressing the growing security and availability needs.
Arista’s campus portfolio was driven by customers desiring the same quality and operational efficiency available from
EOS and CloudVision® throughout their entire enterprise network. We entered the campus market with a diverse portfolio of
modular and fixed form factor Campus spine switches, Power-over-Ethernet (PoE) switches, and WiFi access points based on
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EOS and managed through CloudVision. We continue to expand our campus portfolio to offer the advantages of EOS across the
entire enterprise network. Most recently, we have added incremental Enterprise WAN products as well as embedded NDR
security sensors into our campus switches to address more of the security challenges that face campus administrators.
Zero Trust Networking Security
Today, a zero trust networking approach to security is paramount for organizations looking to build a robust
cybersecurity program. Irrespective of which device, application, or user is accessing an enterprise resource, zero trust focuses
on complete visibility and control over all activity on the network.
Arista’s zero trust networking principles, based on NIST 800-207, help customers address this challenge with three
cornerstones: visibility, continuous diagnostics, and enforcement. The Arista NDR platform delivers continuous diagnostics for
the entire enterprise threat landscape, processes countless points of data, senses abnormalities or threats, and reacts if/when
warranted.
Limitations of Traditional Enterprise Data Center and Campus Networks
The introduction of large scale, highly complex, public cloud environments and the digital transformation of end
customer business models meant that the traditional ways of building networks were no longer adequate to meet the needs of
customers for the deployment and provision of cloud applications and more recently generative AI applications, and new
innovations were needed to push network performance forward.
Historically, most common network designs were rigidly hierarchical, based on a 3-tiered model developed in the early
days of the internet for sparse north/south traffic patterns. This model was limited in the number of devices that could be
connected to a network and introduced many points of congestion as customers tried to scale the solution. As more applications
move to the cloud, network connections must scale, and the increased east/west traffic must be managed without congestion.
In addition, the switches and routers used to build these tiered networks were based on proprietary, application-specific
integrated circuits ("ASICs") that historically underperformed when measured against Moore’s Law and operating systems that
lacked the openness and programmability necessary to automate and effectively manage these networks. As demand for scale
and performance increased, the end-user experience was degraded, operational costs increased, and the host cost-per-connection
increased.
Similarly, traditional enterprise networks have been mired in complexity, proprietary features and architectures,
custom ASICs, siloed designs, and fragile software offerings built up over the previous three decades. Because of this,
operating a legacy network is riddled with challenges; critical outages that cause risk-averse behaviors, labor-intensive rollouts
that impede business initiatives, limited visibility that prevent problem detection and isolation, and overall lack of automation
and uniformity that results in inefficiency. In addition, there had historically been little or no attempt to address the needs of
building and operating a network infrastructure at massive, cloud scale. As a result, as enterprises moved applications to the
cloud and implemented hybrid and multi-cloud strategies, there have been insufficient solutions that could configure, deploy,
automate, and manage these scaled and dispersed resources.
In the post-pandemic world, enterprise campus wired and wireless networks must cope with an ever increasing number
of endpoint IoT devices and remote work locations that require users to be connected from virtually 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 remote workloads, the operational costs of managing these complexities have become
prohibitive.
Visibility is a critical component to a more efficient cloud-like network. Being able to capture what a network is
‘thinking’ or ‘doing’ is the basis for true network automation and analytics. Legacy networking has long suffered from
limitations in network visibility largely due to inefficient polling mechanisms that only provide a limited subset of data. As a
result, the operators of legacy networks have been essentially blinded when it comes to true network insight.
Our Data-Driven Cloud Networking Solutions
Our cloud networking innovations started with pioneering a modern software platform, Arista EOS, which provides
switching, routing, state-streaming and telemetry functions across all Arista platforms. EOS established a new standard in
networking for large-scale cloud operators, opened the door to the widespread adoption of merchant silicon hardware in
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networks, and provided dramatic decreases in deployment and operating costs while delivering high reliability for cloud
customers, service providers, enterprises, and more.
The Arista EOS network stack architecture provides a foundation for consolidation of streamed device state, telemetry,
packet, flow, alert, sensor and third-party data into an aggregated Network Data Lake (Arista EOS NetDL(cid:140)). Arista EOS
NetDL consolidates diverse datasets required for effectively applying AI/Machine Learning (ML) methods in Network
Operations (NetOps) and Security Operations (SecOps) environments, and it presents a single application programming
interface ("API") surface for access to network and network-related data for enhancing Arista and third-party applications.
An overview of our cloud networking solutions is shown below:
The key benefits of our cloud networking solutions are as follows:
Capacity, Performance and Scale
Our data-driven cloud networking platforms enable 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, non-blocking switch architectures and EOS to meet the scale requirements of cloud computing. We architect active-
active Layer 2 and Layer 3 network topologies to enable customers to build extremely large and resilient networks.
Emerging capabilities including recent developments related to AI will continue to place increased demands on
networking infrastructure. Arista’s strategic commitment to using merchant silicon is also a key competitive differentiator for
Arista in addressing these capacity demands. Merchant silicon not only provides the best price/performance available but
allows Arista to bring next generation platforms to market early allowing customers to benefit from Moore’s Law.
Availability
Networks are only useful when they are available. Arista’s modular EOS architecture and software testing innovations
provide features and network designs that keep the network available even during maintenance and upgrades. EOS publish-
subscribe architecture provides self-healing resiliency through live patching, upgrades, fault isolation and containment and
graceful process restart to reduce maintenance windows and allow for intelligent insertion and removal of network elements.
Openness and Programmability
Customers demand open, standards-based networking that avoids vendor lock-in and enables third-party integration to
support best in-class technology ecosystems. Arista EOS, built on Linux, features open standard protocols, such as Border
Gateway Protocol ("BGP") and Ethernet VPN ("EVPN"), offering interoperable solutions. Our well-structured set of APIs and
EOS Software Development Kit ("SDK") as well as multiple DevOps integrations, enable enterprises to automate networking
provisioning without manual intervention. EOS also natively supports Ansible, CFEngine, Chef, Puppet, virtual network
orchestration applications and third party management tools.
Visibility
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Monitoring network performance in real time is a core need for current and next-generation architectures to run
dependably. Arista EOS and CloudVision bring a modern approach to network telemetry and a replacement for legacy polling
mechanisms. CloudVision Analytics engines and CloudVision Telemetry Apps leverage the state streaming infrastructure of
EOS and NetDL to give Arista customers an unprecedented level of visibility into their network operations.
Arista EOS also supports multiple telemetry tracers that bring deeper workload-level visibility by integrating with
distributed applications like big data, cloud, container and virtualized environments.
Security
Arista focuses on building security into the networking layers through features native to EOS, such as segmentation
and encryption, as well as NDR powered by AI. Arista’s zero trust networking principles, based on NIST 800-207, help
customers address security challenges with three cornerstones: visibility, continuous diagnostics, and enforcement. The Arista
NDR platform delivers continuous diagnostics for the entire enterprise threat landscape, processes countless points of data,
senses abnormalities or threats, and reacts if necessary.
Operational Efficiency
Automation is critical to delivering operational efficiency and Arista has taken the lessons learned from building large
public clouds and engineered network automation into our CloudVision management platform. CloudVision eliminates
burdensome manual tasks so organizations can become more agile in making changes to network infrastructure. Fewer manual
configurations enable faster time to service and improved availability for our customers. Our open APIs enable standards-based
integration with third-party tools as well, supporting additional automation capabilities.
Total Cost of Ownership
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 tools provide visibility into complex network environments without the need for additional data collection
equipment.
Cognitive Campus Workspace
Arista’s Cognitive campus is based on a data driven architecture and offers consistent, unified management across the
campus edge for wired and wireless networks as well as integrated security & proactive network assurance. Our Cognitive
Campus Networking solutions are based on three capabilities:
Universal Cloud Network (UCN) - Offered as an alternative to brittle, proprietary solutions from legacy vendors,
Arista UCN is an open, standards-based design focusing on data-driven control principles. Arista’s SplineTM architecture, 7300
Series spine switches, 720/750 Series POE leaf switches, and Wi-Fi platforms consolidate campus layers into simpler
topologies that reduce costs and improve reliability.
Cognitive Operations - The Cognitive management features built into the Arista CloudVision rely on NetDL to collect
real time streaming telemetry from across the campus network and automates many critical IT functions. These features provide
real time visibility into the state of the network including traffic flows. CloudVision’s AI-enabled AVA leverages data from
NetDL for AI/ML-driven outcomes, helping to detect anomalies in the network, identify root causes and offer recommendations
for mitigation. The Wi-Fi access points in conjunction with CloudVision also provide proactive network assurance to monitor
end user experience without the need for an overlay network.
Zero-trust Network Security - Securing the Campus requires a built-in approach to network segmentation, encryption,
device compliance and auditing, as well as service integration with Arista’s security partners. Arista delivers these capabilities
through EOS and CloudVision AVA. Arista campus leaf switches have an integrated AVA sensor that enables the access layer to
provide Arista NDR capability without the complexity and cost of additional network monitoring devices. Arista’s Macro
Segmentation Service Group (MSS-G) provides a simpler, standards-based approach to segmenting traffic in the campus that is
more flexible than other proprietary solutions. We believe Arista’s Wireless Intrusion Prevention Service (WIPS) provides
strong security while eliminating false positives.
Our Competitive Strengths
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We believe the following strengths will allow us to maintain and extend our technology leadership position in data-
driven cloud networking and next-generation data center and campus workspace Ethernet products:
Purpose-Built Cloud Networking Platform - We have developed a highly scalable cloud networking platform that
uses software to address the needs of large-scale cloud companies, cloud service providers, and large enterprises, including AI,
virtualization, big data and low-latency applications. As a result, our cloud networking platform does not have the inherent
limitations of legacy network architectures.
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.
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).
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 and campus networking continue to
evolve rapidly.
Deep Understanding of Customer Requirements - We have developed close working partnerships with many of our
largest customers that provide us with insights into their needs and future requirements. This has allowed us to develop and
deliver products to the market that meet customer demands and expectations as well as to rapidly grow sales to existing
customers.
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 networking expertise. Our Chief
Executive Officer and Chairperson, Jayshree Ullal, has over 40 years of networking expertise from silicon to systems
companies, and Kenneth Duda, our Founder, Chief Technology Officer and Director, leads our software development team
including EOS. Our technical team also includes highly experienced leaders such as Hugh Holbrook, our Chief Development
Officer, who leads our platform driven software engineering, and Andy Bechtolsheim, our Founder and Chief Architect, who
was previously a founder and chief system architect at Sun Microsystems.
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 Core Data Center/Cloud/AI Switching Products, Adjacent
Campus and Routing Products and Network Software and Services.
Extensible Operating System (EOS)
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.
We have continued to evolve the EOS software stack transforming the centralized EOS network database into a multi-
modal, multi-tenant, capable data lake. The EOS NetDLTM unifies the multiple data types gathered in a network and allows for
external data ingestion and enrichment. NetDLTM aggregates data from systems, platforms, and services enabling smoother
operations between NetOps, CloudOps, and DevOps operators.
EOS is packaged as a perpetual license on Arista hardware platforms, virtualized EOS (vEOS) for production or
simulations use cases or containerized EOS (cEOS) for flexible platform support including third-party hardware.
Core Datacenter/Cloud/AI
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Arista offers one of the broadest product portfolios of data-driven, high-speed, cloud and datacenter Ethernet switches.
Built on top of the superior quality and openness of Arista EOS, we deliver high performance, industry-leading capacity, ultra-
low latency, feature rich, and powerful efficient solutions for customers building and operating cloud networks. Our core
switching portfolio contains both fixed and modular form factors, varying port configurations and densities, and options in
power delivery all driven by customer requirements.
Arista also provides solutions for compute, GPU and storage interconnects in driving AI/ML workloads, leveraging its
IP/Ethernet switches to deliver unparalleled performance and scalability. With the exponential growth of AI applications, the
need for standardized transport like Ethernet becomes paramount, enabling a power-efficient interconnect while overcoming the
complexities of traditional approaches. The 7800R AI spine and 7060X AI leaf switches, coupled with Arista's EOS innovations
such as AI Analyzer along with optimal load balancing solutions offer compelling solutions for contemporary AI applications
and deployment.
We continue to innovate with every generation of switching platforms. Most recently, Arista has brought to market
the Arista 7800R AI Spine and the 7060 AI Leaf to address the demanding scale and performance requirements driven by large-
scale AI networks. We also continue to be innovative in areas concerning deep packet buffer architectures, virtual output
queuing, non-disruptive upgrades, embedded optics and next-generation optics, reversible cooling and overall system power
efficiency.
Cognitive Adjacencies
Cognitive Campus Switching
Arista’s Cognitive Campus switching products, powered by EOS, offer consistent, unified management across the
campus edge for wired and wireless networks as well as integrated security & proactive network assurance. Our campus
products include the Arista 7300 Series spine/SplineTM, 720/750 Series POE switches, and a broad range of indoor and
outdoor Cognitive Wi-Fi Access Points.
Cloud-Grade Routing
Arista’s Cloud-Grade Routing platforms, powered by EOS, combine high performance routing, high port density, deep
buffers, integrated DWDM and wirespeed encryption. Our 7280R3 Universal Leaf and 7500R3 and 7800R3 Universal Spine
platforms serve a variety of use cases including high speed multi-cloud connect, Data Center Interconnect (DCI), controller-
based traffic engineering, peering, business VPNs, core routing and Secure Enterprise edge routing.
WAN Routing System
Arista’s new 5000 Series of WAN Routing System, powered by EOS, offers high performance and scale to meet
enterprise modern WAN edge and aggregation requirements. The 5000 Series supports 1/10/100GbE interfaces and flexible
network modules while delivering from 5Gb to over 50Gb of bidirectional encrypted traffic with high VRF and tunnel scale.
Networking Software and Services
CloudVision
CloudVision is Arista’s modern, multi-domain management platform that leverages cloud networking principles to
deliver a simplified end-to-end network operations experience for our Enterprise market. Unlike traditional domain-specific
management solutions, CloudVision enables consistent zero touch network operations across data center, campus wired and
wireless, routing interconnect and multi-cloud networks helping to break down the complexity of siloed management
approaches.
CloudVision is built on Arista’s NetDL architecture and leverages real-time network state to provide an abstraction of
the physical network to a broader, network-wide perspective allowing for a more efficient approach for several operational and
network telemetry capabilities.
CloudVision’s cloud-native architecture gives customers a choice to consume CloudVision as a subscription service or
an on-premise licensed appliance.
Arista A-Care Services
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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 always available 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
our service options include unlimited access to bug-fixes, new-feature-releases, online case management and our community
forums.
DANZ Monitoring Fabric (DMF)
DANZ Monitoring Fabric (DMF) is a next-generation network packet broker (NPB) architected for pervasive,
organization-wide visibility and security, delivering multi-tenant monitoring-as-a-service. Leveraging Arista's high-performance
and versatile 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. Deep hop-
by-hop visibility, predictive analytics, contextual insights and scale-out packet capture, integrated through a single dashboard,
enables simplified network performance monitoring (NPM) and SecMon workflows for real-time and historical context across
production data centers, enterprise campus/branch and 4G/5G mobile networks. DMF switch licenses are sold as subscription
licenses.
Arista Guardian Network Identity (AGNI)
To overcome the new security challenges and the explosion of clients in today’s perimeter-less enterprise networks,
Arista delivers a novel AI-driven network Identity service, Arista Guardian for Network Identity (AGNI) to connect the
network, users, and devices across remote and geographically dispersed locations. Based on Arista’s flagship CloudVision, the
new AGNI platform brings scale, simplicity, and security across users, their associated endpoints, and IoT devices. AGNI
integrates with Arista NDR and other third-party XDR and EDR solutions for post-admission control functionality. AGNI is
sold as subscription licenses.
Arista's AI-driven Network Detection and Response (NDR)
An AI-driven Security Platform, powered by AVATM, Arista NDR analyzes billions of network communications to
autonomously discover, profile and classify every device, user, and application across perimeter, core, IoT, and cloud networks.
Based on this deep understanding of the attack surface, the platform then detects threats to and from these entities, while
providing the context necessary to respond rapidly.
The analysis begins with AVA Sensors that span the network and perform deep packet inspection. These sensors are
available in a variety of form factors: physical hardware, virtual, cloud-based, and now also incorporated into Arista campus
switches. Arista NDR licenses are sold as a subscription license.
CloudEOS(cid:140)
CloudEOS is Arista’s multi-cloud and cloud-native networking solution supporting autonomic operation to deliver an
enterprise-class, highly secure, and reliable networking experience for any cloud. As part of the Arista EOS and CloudVision
product family, it delivers consistent segmentation, automation, telemetry, provisioning and troubleshooting for the enterprise
edge, WAN, campus, data center and multiple public and private clouds. To provide a scalable and automated network
experience, CloudEOS integrates with Arista CloudVision to simplify the operator's experience of interconnecting and
managing multi-cloud, cloud-native and on-premises enterprise networks.
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.
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.
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
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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 customers, systems integrators, OEMs, and channel partners. In general, the
personnel in our sales organization are formed into teams, and each 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. A pool
of shared channel sales and marketing representatives also supports these teams.
Our marketing activities consist primarily of technology conferences, webinars, 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
We operate on a December 31st year end and typically have lower sequential quarter over quarter revenue growth in
the first quarter of each fiscal year, often followed by stronger sequential revenue growth in the ensuring quarters. We believe
that this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of
our customers. The effects of recent supply chain disruptions and our rapid growth may have reduced the impact of seasonal or
cyclical factors that might otherwise have influenced our business and broader industry performance. If our growth rates 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, any supply chain shortages and manufacturing
disruptions that result in extended lead times may impact our ability to manufacture and ship products to our customers in a
timely manner, which may disrupt typical seasonal trends.
Research and Development
Our success relies on the timely enhancement of existing products and the development of new solutions and features
to address changing customer needs and technological advancements. Our in-house engineering personnel are responsible for
the development, testing, documentation, support and release of our products. We have a highly skilled team of software and
hardware engineers with extensive experience in wired and wireless networking technologies, network protocols, network
security, operating systems, programming languages, compilers, databases, hardware system design, Field-Programmable Gate
Array programming, high-speed signal integrity, and other related technologies.
Our research and development strategy focuses on advancing our core products and expanding into new markets while
maintaining high product quality. We are focusing research and development efforts in (1) adapting EOS for new silicon
architectures, especially to support the unique requirements of AI workloads; (2) adding or enhancing EOS control plane and
management plane functionality; (3) expanding our CloudVision management stack with enhanced automation, provisioning,
monitoring, and security capabilities; (4) building related services, such as NDR and Network Access Control (NAC); (5)
infrastructure and software supply chain; and (6)
improving the security and scalability of our software development
maintaining high product quality throughout. We have dedicated significant time and resources in test automation, ensuring
high test pass rates, and working with our support group whenever customers experience technical defects in our products.
Collaboration with customers and other industry leaders is integral to our approach, though uncertainties persist regarding the
successful development and market acceptance of emerging technologies. Looking ahead, we plan to continue to invest in
resources to conduct our research and development efforts to evolving and extending our portfolio's capabilities, ensuring our
products continue to address dynamic market needs and solidify our industry leadership.
Manufacturing
We subcontract the manufacturing of all our products to various contract manufacturers. Our primary manufacturing
partners are Jabil Inc., Sanmina Corporation, Flex Ltd. and Foxconn Hon Hai. 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 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 our contract
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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 the 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, when
industry-wide supply chain shortages resulted in extended lead times for components, we were required to extend the time
horizon of our demand forecasts and increase our purchase commitments for long lead time components.
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 may also 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, the Houthi attacks on
marine vessels in the Red Sea, and the impact of public health epidemics like COVID-19.
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 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 customers. After the products are shipped to our customers, our
products are installed by the 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 and AI 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 Nvidia, 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 has acquired VMWare and Hewlett Packard Enterprises has
entered into an agreement to acquire Juniper Networks.
With the emergence of AI networking, new competitive technologies may enter the market to address the requirements
of AI clusters. Ethernet, today, faces competition from both InfiniBand (IB) and NV Link interconnects for back-end AI
networking clusters. IB has traditionally been used in supercomputer clusters due to its high reliability, low latency and high
bandwidth. Both IB and NV Link are often sold as part of a vertical solution along with the GPUs from Nvidia.
We also face competition from other companies and new market entrants, current technology partners and 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 a customer’s network strategy seeks to
emphasize deployment of such product offerings or adopt a disaggregated approach to the procurement of hardware and
software. 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
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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. In the network packet broker (NPB) market, Arista DANZ Monitoring Fabric (DMF) competes with
Gigamon, Keysight, Cisco, Netscout, AVIZ networks 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;
product availability and shipment lead times; 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 1/2.5/5/10/25/40/50/100/200/400/800 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 customer bases, greater 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.
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, 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 upon 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, and Arista,
EOS, and CloudVision are among our core trademarks.
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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, 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 our 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, 2023, we employed approximately 4,023 full-time employees worldwide. 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 were also recognized by Comparably
in 2023 amongst the Top 50 best large companies for diversity and Top 100 best large companies for happiness, work-life
balances as well as compensation. 50% of our board of directors are women or underrepresented minorities. We are also
continuing to make progress towards building diversity in the workspace. In 2023, the percentage of our employee population
that were women or underrepresented minorities increased compared to 2022. We offer mentorship opportunities to our
employees facilitated by our Women@Arista employee resource group. In addition, we support under-represented employee
affinity organizations and actively recruit
from historically black colleges and universities, women’s colleges and
Hispanic/Latinx and African-American professional societies and job fairs.
We affirm 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. We work to provide safe working environments in our operations.
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Compensation and Benefits
We provide competitive and comprehensive benefit packages that are designed to help and empower employees to
make the best decisions for themselves, their family and their lifestyle. Arista offers a broad variety of physical and mental
wellness offerings to our global employees in a virtual as well as on-demand format, including fitness classes, webinars on
practical wellness takeaways, strategies for stress reduction, financial planning and education, career development and a variety
of other topics. In addition, in the United States, we offer our employees an employee stock purchase plan, healthcare and
retirement benefits, paid time off and family leave, flexible time away, family planning benefits, backup resources for childcare
and elder care, and other employee assistance programs 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 Arista’s strategic plan and both short- and long-term
operating objectives. Our compensation committee provides oversight of our compensation policies, plans, benefit programs
and overall compensation philosophy.
Along with our traditional healthcare benefits, we have created a detailed injury and illness prevention program to
better protect employees from occupational risks of injury or illness. We periodically host wellness weeks, 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 employee engagement program, which
provides opportunities for our employees to engage in volunteering and community service.
Training and Development
Our employees receive periodic training on various topics, including our Code of Ethics and Business Conduct,
information security, data privacy, intellectual property, anticorruption, and other topics. In addition, Arista provides extensive
training and accreditation opportunities to employees in Sales, Customer Engineering and Software Research and Development
roles including our Arista Certified Engineering (ACE) certification program as well as mentorship programs facilitated by our
Women@Arista employee resource group. Additional career development content including management training is available
through our E-Learning portal to facilitate a culture of lifelong learning. Our engineering teams have the opportunity to further
develop their technical skills through our internal Arista PREP Training Program, technical summits, and participation in
industry conferences or associations.
We also offer a variety of webinars on physical and mental health, career development and financial wellness topics,
fitness classes, and social engagement activities. We also partner with non-profit organizations across the globe to provide
volunteer opportunities to our employees.
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 (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 may also materially affect our business, financial condition, results of operations and
prospects.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties. These risks include, but are not limited to, the following:
Risks Related to Our Business and Industry
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large purchases by a limited number of customers represent a substantial portion of our revenue;
adverse economic conditions, continuing uncertain economic conditions or reduced information technology and
network infrastructure spending may adversely affect our business;
some key components in our products come from sole or limited sources of supply and increases the risk of supply
shortages, extended lead times or supply changes;
our revenue and revenue growth rates are volatile and may decline or not meet our or our investor's expectations;
our results of operations may vary significantly from period to period and can be unpredictable;
the networking market is rapidly evolving;
failure to successfully carry out new products and service offerings and expand into adjacent markets could adversely
impact our business;
we expect our gross margins to vary over time and may be adversely affected by numerous factors;
we face intense competition and industry consolidation;
we are subject to risks associated with the expansion of our international sales and operations;
we face risks associated with the investments in and acquisitions of complementary companies, products or
technologies;
seasonality and industry cyclicality may cause fluctuations in our revenue;
fluctuations in currency exchange rates could adversely affect our business;
failure to raise additional capital on favorable terms could harm our business.
Risks Related to Customers and Sales
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inability to attract new large customers or sell additional products and services to our existing customers could
adversely affect our revenue growth;
sales of our switches generate most of our product revenue;
large customers require more favorable terms;
inability to increase market awareness or acceptance of our new products and services may adversely affect our
revenue;
sales prices of our products and services may decrease;
sales cycles 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 our standard sales contracts could expose us to losses;
we rely on distributors, systems integrators and value-added resellers to sell our products;
sales to government entities are subject to a number of challenges and risks;
we are exposed to the credit risk of our channel partners and some of our end customers.
Risks Related to Products and Services
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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 applications and hardware that is developed by others.
Risks Related to Supply Chain and Manufacturing
• managing the supply of our products and product components is complex;
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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
commitments;
shipment interruptions or delays could cause our revenue to fall.
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Risks Related to Intellectual Property and Other Proprietary Rights
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assertions by third parties of intellectual property rights infringement, misappropriation or other violation could harm
our business;
failure to protect or assert 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 licenses to software and other technology 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
our software and selected source code to certain partners.
Risks Related to Litigation
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we may become involved in litigation that may materially adversely affect us.
Risks Related to Cybersecurity and Data Privacy
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defects, errors or vulnerabilities in our products, failure of our products to detect security breaches or incidents, misuse
of our products or risks of product liability could harm our business;
breaches of our cybersecurity systems or other security breaches could degrade our ability to conduct our business
operations and deliver products and services to our customers, cause vulnerabilities in our products and services or
subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or
partners.
Risks Related to Accounting, Compliance, Regulation and Tax
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failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of
our financial reporting;
if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst
and investor expectations and result in a decline in the market price of our common stock;
enhanced U.S. tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may negatively affect
our business;
changes in our income taxes, effective tax rate or new tax laws could adversely affect our results;
failure to comply with government laws and regulations could harm our business;
issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may
result in reputational harm, liability, or other adverse consequences to our business operations;
we are subject to governmental export and import controls that could impair our ability to compete in international
markets or subject us to liability for violations.
failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could
subject us to penalties and other adverse consequences.
Risks Related to Ownership of Our Common Stock
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the trading price of our common stock has been and may continue to be volatile and the value of your investment
could decline;
any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase
programs could cause the market price of our common stock to decline;
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
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inability to hire, retain, train and motivate qualified personnel and senior management could cause our business to
suffer;
earthquakes, fire, power outages, floods, health epidemics and other catastrophic events could harm our business;
we have not paid dividends in the past and do not intend to pay dividends for the foreseeable future.
Risks Related to Our Business and Industry
We expect large purchases by a limited number of 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 customers have accounted for a significant portion of
our revenue. We have experienced unpredictability in the timing of orders from these large customers primarily due to the time
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it takes these customers to evaluate, test, qualify and accept our products, the overall complexity of these large orders and
changes in demand patterns specific to these customers, including reductions in or changes in mix of capital expenditures by
these customers and the impact of cost reduction and other efficiency efforts by these customers. For example, sales to our end
customers Microsoft and Meta Platforms in fiscal 2023 and 2022 collectively represented 39% and 42% of our total revenue,
respectively, whereas sales to Microsoft in fiscal 2021 amounted to 15% of our revenue and sales to Meta Platforms in fiscal
2021 represented less than 10% of our revenue. This variability in customer concentration has been linked to the timing of new
product deployments, and spending cycles with these customers, and we expect continued variability in our customer
concentration and timing of sales on a quarterly and annual basis. In addition, we typically provide pricing discounts to large
customers, which reduces gross 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 have fluctuated 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 large
customers, capital resources and expenditures or purchasing behavior and deceleration in spending of these customers could
significantly decrease our sales to such customers or could lead to delays, reductions or cancellations of planned purchases of
In addition, an increased focus on the deployment of AI enabled solutions by these customers has
our products or services.
accelerated the need for advanced technology offerings including some offerings from potential new market entrants. This
prioritization of AI related infrastructure investment has come in conjunction with the announcement of various cost reduction
measures by such customers, including optimization and increased efficiency in non-AI related capital expenditures. In some
instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced
our visibility to customer demand, increased our risk of excess and obsolescence charges on existing products, and may result
in reductions in future demand and negatively impact our revenue, financial condition, business or prospects.
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 manufacturing and supply
chain disruptions resulting in increased lead times, customers had placed orders based on longer planning horizons. These
customers may decide to delay or cancel such orders for any reason, including changes in their IT investment priorities, if
economic conditions worsen or their financial performance, condition or prospects deteriorate. This limited visibility regarding
our customers’ product needs or changes in those 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 combined with extended supplier lead times on some newer technologies, 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. Further, if we are unable to reduce our lead times, customers may also cancel
existing orders or reduce future orders. In the event of any cancellations or reductions of orders, or any reductions in future
demand, 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-related charges, all of which could materially affect our
operating results.
We may be unable to sustain or increase our revenue from our large customers, grow revenue with new or other
existing customers at the rate we anticipate or at all, or offset a decline or discontinuation of concentrated purchases by our
larger customers with purchases by new or existing customers. These customers could reduce their spending levels or otherwise
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, or require us to provide enhanced services that increase our costs. Moreover, the AI market is new and customers
continue to evaluate their opportunity in this market, and the potential demand for AI Ethernet switches may not develop as
anticipated or at all. If these factors drive 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 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 the loss of customers. The loss of such 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.
Adverse economic conditions, continuing uncertain economic conditions or reduced information technology and
network infrastructure spending may adversely affect our business, financial condition, results of operations and
prospects.
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Our business depends on the overall demand for information technology, network connectivity and access to data and
applications. Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such
conditions, a recession, international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in
information technology and network infrastructure spending or a deterioration of the financial performance, condition or
prospects of our customers 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, reduced demand or lower prices for our
products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth. While all our
markets may be adversely affected by negative macroeconomic conditions, the impact may be particularly significant in our
enterprise market where we are seeking to increase our penetration into this market. In addition, the global macroeconomic
environment has been negatively affected by, among other things, the uncertainty in the global banking and financial services
markets, epidemics, instability in global economic markets, increased U.S. trade tariffs and trade disputes between the U.S.,
China and other countries, inflationary pressures, higher interest rates, instability in the global credit markets, the impact and
uncertainty regarding global central bank monetary policy, instability in the geopolitical environment, the Russia-Ukraine and
Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea, political tensions between Taiwan and China,
political demonstrations, and foreign governmental debt concerns which have caused, and are likely to continue to cause,
uncertainty and instability in local economies and in global financial markets. A government shutdown or a default by the U.S.
government on its debt obligations, or related credit-rating downgrades could also have adverse effects on the broader global
economy and contribute to, or worsen, an economic recession. We believe that any extended or renewed economic disruptions
or deterioration in the global economy could have an adverse impact to our liquidity or to our current and projected business
operations, financial condition or results of operations. For example, if banks or other financial institutions with whom we have
banking relationships or whose corporate bonds are held in our marketable securities investment portfolio, enter receivership or
become insolvent in the future, we may be unable to access, and we may lose some of our existing cash, cash equivalents and
investments to the extent those funds are not insured or otherwise protected by the FDIC. In addition, in such circumstances we
might not be able to timely pay key vendors and others. We regularly maintain cash balances that are not insured or are in
excess of the FDIC’s insurance limit. Any delay in our ability to access our cash, cash equivalents and investments (or the loss
of such funds) or to timely pay key vendors and others could have a material adverse effect on our operations and cause us to
need to seek additional capital sooner than planned.
In addition, business disruptions and supply chain and manufacturing disruptions may result in customers delaying or
canceling or reprioritizing capital expenditures on information technology and network infrastructure, which may affect the
overall demand for our products. Customers may also be placing orders based on longer planning horizons to ensure supply. We
also believe that our customers continue to assess the impact of these macroeconomic factors on their businesses and future
investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders. Continuing or
worsening economic instability or the deterioration of the financial performance, condition or prospects of our customers could
result in a cancellation of, or defaults in the payments for, such orders or otherwise adversely affect spending for IT, network
infrastructure, systems and tools, and limit our ability to forecast future demand for our products, which could reduce expected
revenue or result in a write-down of excess or obsolete inventory. A downturn or a recession may also significantly affect
financing markets, the availability of capital and the terms and conditions of any financing arrangements, including the overall
cost of financing as well as the financial health or creditworthiness of our 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.
Because some of the key components in our products come from sole or limited sources of supply, we have entered into
significant 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 customers and may result in the loss of sales and
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 have suffered and could continue to suffer shortages, require
longer lead times, delay shipments, prioritize shipments to other vendors, decommit orders, increase prices, impose expedite
fees or cease manufacturing such products or selling them to us at any time. Supply of these components worldwide was and
could continue to be adversely affected by supply constraints, as well as industry consolidation and geopolitical conditions such
as international trade wars like the U.S. trade war with China, the Russia-Ukraine conflict, Israel-Hamas conflict, the Houthi
attacks on marine vessels in the Red Sea, and increased political tensions in Russia, Europe or Asia. Such shortages, increased
component lead times, reduced allocations of components and decommitments of orders have resulted in and may continue to
result in increased component prices, fewer sourcing options, unpredictability of supply, prolonged manufacturing disruptions
and increased product lead times, which has impacted and may continue to adversely impact our revenue and gross margins.
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Although we have entered into significant purchase commitments to support long-term customer demand, if we are
unable to obtain sufficient quantities of any 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 the cancellation of orders, lost sales,
reduced gross margins or damage to our customer relationships, which would adversely impact our business, financial
condition, results of operations and prospects. Additionally, if our suppliers do not meet their commitments, customers cancel
orders or actual demand is less than 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 and operating
income. Our operating cash flows have also been and may continue to be negatively impacted by significant component
inventories on hand or at our contract manufacturers.
Our reliance on component suppliers also yields the potential for the infringement, misappropriation or other violation
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, misappropriation or other violation 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.
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 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, or charge additional fees to expedite orders, 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 customers or maintain stable pricing, our gross
margins could be adversely affected and our business, financial condition, results of operations and prospects could suffer.
Our revenue and our revenue growth rates are volatile and may decline or not meet our or our investors' expectations.
Our revenue growth rates in previous periods may not be indicative of our future performance. We have experienced
annual revenue growth rates of 33.8%, 48.6%, 27.2%, and -3.9% in 2023, 2022, 2021 and 2020, respectively. In the future, our
revenue growth rates will continue to be volatile due to cyclical trends in our business, and as we become more penetrated in
our existing customer base and product markets and look to enter and expand into new markets. In addition, we have
experienced supply constraints that have resulted in manufacturing and shipment delays, which have negatively affected the
timing of revenue recognition. If these manufacturing and supply chain disruptions recur and/or if we are unable to reduce our
lead times it could also result in the cancellation of orders by customers, reduce demand from existing customers in future
periods, and increase difficulty in adding 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 customers, the deterioration of the
financial performance, condition or prospects of our large customers, changes in capital spending by our large 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, the Russia-Ukraine and Israel-
Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea, a potential global economic downturn or recession that
would particularly impact our enterprise customers, uncertainty in the global banking and financial service markets and other
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general economic and international trade conditions such as political tensions between Taiwan and China and international trade
wars involving the U.S. and China and other countries, and our ability to be successful in the AI market and adjacent markets,
such as campus switching, WiFi networking markets and network security markets. We have experienced volatility in demand
from certain of our large customers, and some of our large customers have announced various cost reduction measures or are
considering changing technology roadmaps and priorities including the need for the rapid deployment of AI and related
technologies, which have had and could continue to have, an impact on certain current or future projects and have reduced our
visibility to demand for these customers, which may result in reductions in overall demand from these customers in future
periods and negatively impact our revenue, financial condition, business or prospects. 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 have varied significantly from period to period and are 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 have been and could continue to 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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general economic conditions, both domestically and in foreign markets, and disruptions in our business and the
markets due to, among other things, recessionary risks and a global economic downturn, higher interest rates,
monetary policy shifts, inflationary pressures, supply chain and labor shortages, the recent banking crisis, potential
disruptions from the Russia-Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea,
political tensions between Taiwan and China and international trade wars involving the U.S. and China and other
countries;
our inability to fulfill our customers’ orders, the cancellation of orders, the reduction in future demand for our products
by our customers or increased difficulty in adding new 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 customers due to long lead times, announcements by us or other
competitors of new products or product enhancements, warranty returns, general economic conditions or other factors;
our ability to increase sales to existing customers and attract new customers, including large customers;
the budgeting, sales, implementation and refresh cycles, purchasing practices, technology roadmaps and priorities and
buying patterns of customers, including large customers who generally 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 or who may be placing orders based on
longer planning horizons to ensure supply;
changes in the growth rate of existing or new customers or the deterioration of the financial performance, condition or
prospects of existing or new customers, including large 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 component, production and logistics costs resulting from factors such as
global inflationary pressures, shortages in supply for semiconductors, and China's controls on the use of certain
products and on the export of metals used in semiconductor manufacturing, 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;
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 of our
business;
difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective
customers;
excess or obsolete inventory resulting in write-downs and charges related to supplier liabilities;
the inclusion of any acceptance provisions in our customer contracts or any delays in acceptance of those products;
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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
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 customers to purchase our networking solutions from larger, more established vendors, white
box vendors or their primary network equipment vendors;
disruptions caused by pandemics, such as the COVID-19 pandemic, and the government restrictions in response to the
pandemic;
insolvency or credit difficulties confronting our 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;
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;
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.
The networking market is rapidly evolving. If this market does not evolve as we anticipate or our target 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,
including the evolution of the market for AI networks and the future deployment of Ethernet networking solutions in these AI
networks. The market demand for networking solutions has increased in recent years as 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 customers’ products and
services, the expansion, evolution and build out of our 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 customers, including any changing technology priorities such as the rapid
deployment of AI and related technologies, the development of network switches and cloud service solutions by our large
customers for internal use, the financial performance and prospects of our customers, the availability of capital resources to our
customers, changes in government regulation that could impact networking business models including those regulations related
to AI, cybersecurity, privacy, data protection and net neutrality, our ability to provide networking solutions that address the
needs of our customers more effectively and economically than those of other competitors or existing technologies and general
economic conditions.
In particular, the market for AI applications is new and our customers are continuing to evaluate their opportunity in
this market. If the AI market does not develop as anticipated or at all, then the potential demand for AI Ethernet switches may
not be realized. Moreover, even if the market for AI applications does develop, the successful adoption of AI Ethernet products
will be dependent upon their ability to compete against more established InfiniBand products to address AI networking clusters.
If the networking solutions market including the AI Ethernet 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
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.
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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 internal 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 or if we fail to introduce products and services that meet market demand, 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, with our most recently introduced 800 GbE and AI focused Ethernet
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, our customers' acceptance of these products and the growth of the markets that these
products serve. In addition, the evaluation, testing and qualification of our new products by our customers may be lengthy and
may require 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 and WiFi networking,
cloud and enterprise routing markets, network security markets and SD-WAN 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 customers or to sell additional products and services to our existing 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.
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 pricing pressure on
our products and services due to competition, the ability of more fully integrated competitors to bundle their networking
products with other products, or utilize proprietary silicon in their products, the mix of sales to large customers who generally
receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply chain
sourcing activities, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete
component inventory held by our contract manufacturers. In addition, other factors that may impact our gross margins over
time include the introduction of new products and new business models including the sale and delivery of more software and
subscription solutions, 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 rights infringement,
misappropriation or other violation claims and the potential outcomes of such disputes, 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 may continue to increase costs for certain materials, components,
supplies and services. As a result of cost inflation in our supply chain, we have implemented targeted price increases from time
to time. However, these price increases could result in a decrease in demand for our products which would decrease revenue. In
addition, business were subject to 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 revenue 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.
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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 visibility
and security, are intensely competitive, and we expect competition to increase in the future from established competitors,
industry consolidation and new market entrants. This competition has resulted in increased pricing pressure, which could result
in reduced profit margins, increased sales and marketing expenses and the loss of market share, any of which would likely 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, Nvidia, Juniper Networks and white box networking vendors. 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 and VMware, Dell acquired Force10 Networks, Hewlett
Packard Enterprise recently announced the acquisition of Juniper Networks. This industry consolidation may lead to increased
competition and may harm our business. Large system vendors are increasingly seeking to deliver vertically integrated cloud
networking solutions to customers that combine cloud-focused hardware and software solutions as 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 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 a customer’s network strategy seeks to emphasize deployment of such product offerings or adopt a
disaggregated approach to the procurement of hardware and software. 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. As new markets emerge like AI, we expect the field to remain intensely competitive. In
addition, we have not established broad market awareness or acceptance of our AI Ethernet products that will compete against
more established InfiniBand products. Furthermore, 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 or to reduce the price of
products and services that compete with ours in order to promote the sale of other products or 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 rights 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 customers
that provide them with an advantage in competing for business with those customers. For example, certain large competitors
encourage 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
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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 and
compliance and regulatory requirements. Our international sales and operations are subject to a number of risks, including the
following:
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trade restrictions,
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 management complexity involved in, and 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;
global macroeconomic conditions, including recessionary cycles;
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 government
prohibitions on the exportation, re-exportation, sale, shipment or other transfer of programming,
components, and/or services to foreign persons;
changes in trade controls, economic sanctions, or other international trade regulations, which have in general recently
trended toward increasing breadth and complexity of controls, and which may affect our ability to import or export our
products to and from various countries;
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, the United Kingdom and the EU as well as the
Israel-Hamas conflict and Houthi attacks on marine vessels in the Red Sea, which could have a material adverse effect
on our sales and operations as well as our supply chain in these countries;
possible deterioration in relations between Taiwan and China, and other factors affecting military, political, or
economic conditions in Taiwan or elsewhere in Asia;
issues related to cloud-specific regulatory requirements in certain countries, including the UK, EU and Asia-Pacific
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.
including those which may impose restrictions,
including
technology,
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 Untangle Holdings and Pluribus Networks in
2022, which required management to focus efforts on integrating these acquisitions with the company. In addition, 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
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never materialize, and we could lose our entire investment in these companies. 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 customers, investors and securities
analysts. Through acquisitions, we continue to expand into new markets and we may experience challenges in entering into new
markets for which we have not previously manufactured and sold products, including facing exposure to new market risks,
difficulty achieving expected business results 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 and industry cyclicality may cause fluctuations in our revenue and results of operations.
We operate on a December 31st year end and typically have lower sequential quarter over quarter revenue growth in
the first quarter of each fiscal year, often followed by stronger sequential revenue growth in subsequent quarters. We believe
that this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of
our customers. The effects of recent supply chain disruptions and our rapid growth may have reduced the impact of seasonal or
cyclical factors that might otherwise have influenced our business and broader industry performance. If our growth rates 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, any supply chain shortages and manufacturing
disruptions that result in extended lead times may impact our ability to manufacture and ship products to our customers in a
timely manner, which 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, as a result of the strengthening U.S. dollar, there has been an increase in the cost of
our products to our 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 customers or to sell additional products and services to our existing customers, our
revenue growth will be adversely affected and our revenue could decrease.
To increase our revenue, we must add new customers, especially large customers, and sell additional products and
services to existing customers. For example, one of our sales strategies is to target specific projects at our current 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 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 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 customers. Some factors that may limit our ability to attract new
large 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 customers, including enterprise and campus customers, or fail to reduce the sales cycle and sell
additional products to our existing customers, our business, financial condition, results of operations and prospects will be
harmed.
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 switching and routing
platforms, and we expect to continue to do so for the foreseeable future. We have experienced declines in sales for some of our
products over time as they mature and are superseded by products with improved performance and functionality. 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 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.
Our large customers generally require more favorable terms and conditions from their vendors and may request price
concessions. As we seek to sell more products to these 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 customers have significant purchasing power and, as a result, generally receive more favorable terms and
conditions than we typically provide to other 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 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.
If we are unable to increase market awareness or acceptance of our new products and services, our revenue may not
continue to grow or may decline.
We have not yet established broad market awareness or acceptance of products and services that we have introduced in
the AI Ethernet, 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
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or in gaining access to new customer markets, or if these new products and services are not accepted by customers, then our
business, financial condition, results of operations and prospects will be adversely affected, and we will not be able to achieve
sustained growth.
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, or broader macroeconomic factors. In
addition, we have provided, and plan to continue to in the future provide, pricing discounts to large 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 customers.
We have historically experienced declines in sales prices for some of our products and services and could continue to
experience such declines. Competition continues to increase in the markets 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 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 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 customers generally consider a number of factors over an extended period of time before
committing to purchase the products and solutions we sell. Customers, especially our large 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 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 customers and certain markets including the enterprise and campus markets. 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 a 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 a customer’s internal procurement processes, particularly for some of
our larger customers for which our products represent a very small percentage of their total procurement activity. In addition,
due to macroeconomic uncertainties, the sales cycle may be extended and there may be delays and reductions of expenditures
and cancellations by customers. There are many other factors specific to 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 a customer,
budgetary constraints and changes in their personnel.
Even after a 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 enhancements, and the
introduction of new products by our competitors, may also affect 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 if we are
unable to offer high-quality support and services this could adversely effect on our business, financial condition, results
of operations and prospects.
Once our products are deployed within our customers’ networks, our 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
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marketing and sale of our products. If we or our channel partners do not assist our customers in deploying our products
effectively, do not succeed in helping our 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 customers and could harm our reputation with potential customers. In addition, as we continue to 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 customers renewing their maintenance and support contracts. Declines in maintenance
renewals by customers 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 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 customers, especially our large 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 customers against third-
party claims, including against infringement, misappropriation or other violation 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 customers and channel
partners against third-party claims asserting infringement, misappropriation or other violation 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 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 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
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 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
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of our products or services to customers, fail to comply with their contractual obligations or violate laws such as the U.S.
Foreign Corrupt Practices Act or other applicable anti-corruption 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 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.
Selling to government entities requires us to comply with various regulations that are not applicable to sales to non-government
entities, including regulations that may relate to pricing, prohibitions against use of certain foreign components in our products
and services, anti-corruption and other matters. The U.S. government may require certain products that it purchases to be
manufactured in, or may require that products it purchases contain a certain threshold of “domestic origin” components from,
the U.S. and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet
these requirements.
Complying with these regulations may also require us to put in place controls and procedures to monitor compliance
with applicable regulations that may be costly or not possible. Governments also routinely investigate and audit government
contractors’ administrative processes and contract compliance. Failure to comply with the terms of our government contracts or
applicable regulations, or an unfavorable audit, could result in the government ceasing to buy our products and services, a
reduction of revenue, fines or civil or criminal liability, all of which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
We are exposed to the credit risk of our channel partners and some of our customers, which could result in material
losses.
Most of our contracts with customers are on an open credit basis, with standard payment terms payment terms of 30
days and the remainder generally between 30 to 90 days. We monitor individual end-customer payment capability in granting
such open credit arrangements, seek to limit such open credit to amounts we believe the 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 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 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
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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 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.
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 customers, and our
business, financial condition, results of operations and prospects could be materially adversely affected if such technologies are
widely adopted. For example, 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, 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 AI Ethernet, 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 revenue 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 customers and potential 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.
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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 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 customers.
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 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 manufacturing capacity and 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 has also and could continue to be adversely affected
by other factors including geopolitical conditions such as the Russia-Ukraine conflict and related economic sanctions against
Russia, the Israel-Hamas conflict, the Houthi attacks on marine vessels in the Red Sea, the U.S. trade war with China and
political tensions between China and Taiwan. Global geopolitical and macroeconomic uncertainties have resulted in prolonged
manufacturing and supply chain disruptions, including temporary closures of certain contract manufacturer and supplier
facilities particularly within China and controls on certain supplies including China's restrictions in the use of Micron products
and its controls on metals used in semiconductor manufacturing such as gallium and germanium which, in turn, have caused
and may continue to cause shortages of, and extended lead times for, components used to manufacture our products, increases
in the prices for such components, a reduction, unpredictability or interruption of supply, prioritization of component shipments
to other vendors and decommitments of orders. Insufficient component supply, and increases in the time required to
manufacture our products, may lead to prolonged inventory shortages, manufacturing disruptions and increased customer lead
times for our products that could result in increased cancellation of orders or loss of future sales opportunities altogether as
potential 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 5. Commitments and Contingencies of the Notes to Consolidated
Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. Industry wide supply chain shortages
resulted in extended lead time for components, which required us to extend the lead time horizon of our demand forecast for
such components and increased our purchase commitments for long lead time components. Although our purchase
commitments for components and products have recently declined, they remain at elevated levels, and may continue to remain
elevated in the near term, and there is no guarantee that suppliers will meet their commitments or that actual customer demand
will not be lower than our demand forecasts. As customer lead times improve more broadly, we have seen and expect to
continue to see a commensurate reduction in visibility to customer demand and a gradual return to a somewhat shorter demand-
planning horizon. Additionally, certain customers have and may continue to engage in cost reduction measures including
reductions in capital expenditures and other efficiency efforts which may result in a cancellation of orders or reduce demand for
our products. 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
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demand forecasts. The larger magnitude of these balances, combined with a reduction in customer demand-planning horizons
and shifting product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn
has resulted, and may in the future result, in additional excess and obsolete inventory-related charges. Our non-cancellable
commitments and the cash deposits to secure our purchases with our contract manufacturers are disclosed in Note 5.
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 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 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
timing, which exposes us to operational risks including their ability to obtain in a timely manner sufficient components for our
products and to ramp manufacturing sufficiently to meet our customer demand. Our reliance on contract manufacturers also
yields the potential for their infringement, misappropriation or other violation of third-party intellectual property rights in the
manufacturing of our products or their infringement, misappropriation or other violation 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 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. For example, due to the COVID-19 pandemic,
some of our contract manufacturers experienced temporary closures and labor shortages as a result of shelter in place orders
issued in their local jurisdictions. Shelter in place orders, factory closures or reductions in staffing at our 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 and has sufficient
manufacturing capacity to manufacture our products to our standards and industry requirements could take significant effort and
be time consuming and expensive, and any delays or failures to adequately ramp production to meet our customer demand
could negatively impact our business, financial condition, results of operations and prospects. 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 customers, which could damage our customer relationships
and cause the loss of sales to existing or potential 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 risk of excess and obsolete charges that could have a negative impact on our operating results.
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Any production interruptions, labor shortages or disruptions for any reason, including those noted above, as well as a
natural disaster, epidemic, war, 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 or
change, 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. In order to address supply chain
shortages and extended lead times, we have entered into significant purchase commitments with our contract manufacturers and
suppliers, and we have issued non-cancellable purchase orders for such commitments. Although we have seen a recent decline
in our purchase commitments, we have also experienced increased inventory levels. There is no guarantee that suppliers will
meet their commitments or that actual customer demand will directly match our demand forecasts. If our forecasts are
materially inaccurate or change, customers' orders are cancelled or if we otherwise do not need such inventory, we may under-
or over-procure inventory, which could materially adversely affect our business, financial condition and results of operations.
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. Consequently, this has hindered and may continue to hinder our ability to forecast component supply,
manufacturing capacity and timing of inventory receipts. A significant interruption in these critical functions has resulted and
could continue to result in delayed order fulfillment or cancellation of orders, which may negatively impact our relationships
with our customers, reduce future sales or otherwise adversely affect our business, financial condition, results of operations and
prospects and result in a decline in the market price of our common stock.
Risks Related to Intellectual Property and Other Proprietary Rights
Assertions by third parties of infringement, misappropriation 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, trade secrets and other intellectual property rights,
which they may use to assert claims of 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 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 Investments LLC (“WSOU”), which is described in the “Legal Proceedings”
subheading in Note 5. 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 or practice 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,
misappropriating or otherwise violating any third-party intellectual property rights.
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The third-party asserters of intellectual property rights infringement 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, misappropriate or violate the intellectual property rights 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 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 rights infringement 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, misappropriate or violate any third-party intellectual property rights, we
could be enjoined, or subject to other remedial orders that would prohibit us, from making, licensing, using or importing into
the U.S. or elsewhere 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 that no longer infringe,
misappropriate or violate the third-party intellectual property right. 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” or other unsigned 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
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claim, could divert management attention from our business and could require us to cease use or practice of such intellectual
property in certain geographic markets.
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 or any other violation 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 or misappropriating our intellectual property rights, 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 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 intellectual property rights
infringement, misappropriation or violation 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 our customers or the public more generally.
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 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
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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 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.
including patent, copyright, commercial, product
From time to time, we are involved in legal proceedings relating to matters incidental to the ordinary course of our
business,
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 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. On March
30, 2022, WSOU dismissed one of the patents with prejudice, removing Arista wireless products from those accused of
infringement. On July 1, 2022, the court stayed the case pending the resolution of an inter partes review of one of the patents-
in-suit. On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review
unpatentable. The district court case remains pending appeal and/or final resolution of the PTAB ruling. 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 5. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Part II,
Item 8, of this Annual Report on Form 10-K.
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 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.
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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, cause vulnerabilities in our products and services, and subject us to regulatory enforcement
actions and or fines or liabilities for damages incurred by our customers or partners, 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. In addition, geopolitical tensions, such as the Russia-Ukraine
conflict, the Israel-Hamas hostilities and deteriorating relations with China, may create a greater risk of cyberattacks against our
company and our manufacturers, suppliers, logistics providers, banks and other business partners. 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 develop or procure from third parties may contain vulnerabilities or defects in design
or manufacture, including “bugs,” viruses, ransomware and other malware, 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 comply with the security measures we have instituted to
prevent exposure of our networks and systems to security breaches and incidents, the unauthorized access to our products 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 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, the corruption, loss, or mishandling or other unauthorized processing of data by unauthorized persons, 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;
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•
•
•
•
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, corrupted or made unavailable, 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, 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
inventory valuation and contract
include those related to revenue recognition,
consolidated financial
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statements
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 or regulatory 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. The U.S. government has and
continues to make significant additional changes in U.S. trade policy and has taken certain actions that could negatively impact
U.S. trade.
For example, in 2018, the Office of the U.S. Trade Representative enacted various tariffs of 7.5%, 10%, 15% and 25%
on imports into the U.S. from China, including communications equipment products and components manufactured and
imported from China. Since then, China has retaliated through various trade related measures including imposing tariffs on
imports into China from the United States.
The U.S. government continues to add additional entities, in China and elsewhere, to restricted party lists impacting
the ability of U.S. companies to provide products, and in certain cases services, to these entities and, in some cases, receive
products or services from these entities. Additionally, the U.S. government continues to expand controls enacted in October
2022 restricting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing,
and supercomputing to China without an export license. In 2023, the U.S. government expanded the list of advanced integrated
circuits subject to heightened export controls, including certain hardware containing these specified integrated circuits,
expanded the list of destinations requiring export authorization for such items, and added new restrictions based on the
headquarters location of the parties involved. The U.S. government also has expanded the scope of restrictions on the
development or production of advanced integrated circuits and certain semiconductor manufacturing equipment, and the
restrictions on supercomputing, in China and other countries. Other foreign governments may in turn impose similar or more
restrictive controls. These controls or any additional restrictions may impact our ability to export certain products to China or
other countries, prohibit us from selling our products to certain of our customers, restrict our ability to use certain Integrated
Circuits (“ICs”) in our products, or impact our suppliers who may utilize facilities or equipment described in these controls.
It also is possible that the Chinese government will retaliate in ways that could impact our business. For example,
China has announced controls on both the use of Micron products and export license requirements on certain materials used,
among other things,
in the production of semiconductors, optical components, and other electronic devices including
germanium and gallium. Additionally, these restrictions could disrupt the ability of China to produce semiconductors and other
electronics and impact our ability to source components from China. These restrictions could impact the cost of components or
inputs used to produce our products.
Should the relationship between China and Taiwan deteriorate, it is possible that the U.S. government could impose
new controls on China, specific parties, or specific kinds of transactions in the region that could impact our business including
our ability to source components from China and sell to certain of our customers. These restrictions could impact the cost of
components or inputs used to produce our products. Additionally, these controls or any additional restrictions may impact our
ability to export certain products to China and/or prohibit us from selling our products to certain of our customers.
We cannot predict what actions may ultimately be taken with respect to trade relations between the United States and
China or other countries, what products may be subject to such actions or what actions may be taken by the other countries in
retaliation. If we are unable to obtain or use components for inclusion in our products, if component prices increase
significantly or if we are unable to export or sell our products to any of our customers, our business, liquidity, financial
condition, and/or results of operations would be materially and adversely affected.
As well, due to concerns with products and services from certain semiconductor, 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 some cases, 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 and any impact on the supply chain of
components sourced in China, but our efforts may not be successful, there can be no assurance that we will not experience a
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disruption in our business related to these or other changes in trade practices and the process of changing suppliers in order to
mitigate any such tariff costs could be complicated, time-consuming, and costly.
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.
In June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act ("UFLPA") became
effective. The UFLPA creates a rebuttable presumption that any goods mined, produced or manufactured, wholly or in part in
the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or produced by a listed entity, were made with forced labor and
would therefore not be entitled to entry at any U.S. port. Importers are required to present clear and convincing evidence that
such goods are not made with forced labor. While we do not source items from the XUAR or from listed parties, and we have
increased our supply chain diligence, there is risk that our ability to import components and products may be adversely affected
by the UFLPA.
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.
In addition to laws aimed directly at trade, failure of our products to comply with a broader set of evolving industry
standards and government regulations may adversely impact our business and in particular our ability to market in particular
countries. Our products must comply with various U.S. federal government regulations and standards defined by agencies such
as the Federal Communications Commission, standards established by governmental authorities in various foreign countries
and recommendations of the International Telecommunication Union. In some circumstances, we must obtain regulatory
approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to certain
customers. In recent years, certain jurisdictions have tied these approvals to concerns about international relationships,
including, e.g., concerns about entities with components sourced from China. Complying with new regulations or obtaining
certifications, especially as standards evolve, may be costly and disruptive to our business and also may affect our ability to sell
our products where these standards or regulations apply, which in turn may prevent us from sustaining our net revenues or
achieving profitability.
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.
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 and rates in various jurisdictions, may be subject to significant change.
For example, in 2022, the United States passed the Inflation Reduction Act, which made a number of changes to the Internal
Revenue Code of 1986, as amended ("IRC"), including a 15% corporate minimum tax on adjusted financial statement income
of certain large companies. The impact of these provisions on our effective tax rate will depend on additional guidance to be
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issued by the Treasury Secretary. We are currently evaluating the impact of these provisions on our effective tax rate. While we
do not anticipate any materially adverse impacts to our effective tax rate, we cannot provide any assurances that these
provisions will not have a materially adverse impact on our effective tax rate. Further, beginning in 2022, the Tax Cuts and Jobs
Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures currently and requires taxpayers
to capitalize and amortize them over five years for U.S.
incurred
expenditures, pursuant to IRC Section 174. However, recently proposed tax legislation, if enacted, would restore the ability to
deduct currently domestic research and development expenditures through 2025 and would retroactively restore this benefit for
2022 and 2023. Finally, several countries, including the United States and other members of the Organization for Economic
Cooperation and Development (“OECD”) have reached agreement on a global minimum tax initiative (“Pillar Two”). Other
OECD countries are also actively considering changes to existing tax laws or have proposed new laws to align with the
recommendations and guidelines proposed by the OECD, including Pillar Two. Enactment of such tax laws could increase our
tax obligations in countries where we do business or cause us to change the way we operate our business. We have assessed the
impacts of these new laws in countries that we operate in and do not currently anticipate any material impacts to our effective
tax rate. However, we cannot provide any assurance that there will not be a material impact to our effective tax rate in the future
as a result of these developments.
incurred expenditures or fifteen years for non-U.S.
Finally, we are subject to 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 audits 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 tax examinations to determine the adequacy of our provision for 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 such
as the U.S. Foreign Corrupt Practices Act, import/export controls and sanctions, conflict minerals, federal securities laws and
tax laws and regulations. In addition, emerging tools and technologies we utilize in providing our products, like AI and machine
learning, may also become subject to regulation under new laws or new applications of existing laws. Violations of these laws
and regulations could result in fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on
the conduct of our business, and damage to our reputation.
In addition, 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 (cid:188)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 ("SCCs"), to legitimize these transfers. In July 2020, the Court of Justice of the E.U. ("CJEU")
issued a decision invalidating the E.U.-U.S. Privacy Shield and imposing additional obligations in connection with the use of
the SCCs. The European Commission subsequently issued new SCCs that address certain of the CJEU’s concerns and which
are required to be implemented. 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
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mirrors the GDPR, and 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. The UK has issued new standard contractual clauses that, like the SCCs, are
required to be implemented.
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 modified the CCPA
significantly, creating obligations relating to consumer data that commenced on January 1, 2022 and went into effect on July 1,
2023. The CPRA 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/CPRA, numerous other states have enacted or are considering similar laws that will require
ongoing compliance efforts and investment. For example, Connecticut, Virginia, Colorado and Utah have enacted legislation
similar to the CCPA and CPRA that took effect in 2023; Florida, Montana, and Texas have enacted similar legislation that
becomes effective in 2024; Delaware, Tennessee and Iowa have enacted similar legislation that will take effect in 2025; and
Indiana has enacted similar legislation that will become effective in 2026.
Among other emerging laws relating to privacy and data protection globally, India has released its Digital Personal
Data Protection Act 2023, although the full scope of the implementation remains uncertain. We maintain an employee and
operational presence in India, and this act may require us to modify our policies and practices and incur increased costs in our
efforts to comply.
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.
Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may
result in reputational harm, liability, or other adverse consequences to our business operations.
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We use machine learning and AI technologies in our offerings and business, including in our Arista Guardian for
Network Identity offering, and we are making investments in expanding our AI capabilities in our products, services, and tools,
including ongoing deployment and improvement of existing machine learning and AI technologies, as well as developing new
product features using AI technologies. AI technologies are complex and rapidly evolving, and we face significant competition
from other companies as well as evolving legal and regulatory landscapes. Laws and regulations applicable to AI continue to
develop and may be inconsistent from jurisdiction to jurisdiction. For example, the European Union has reached political
agreement on an Artificial Intelligence Act that, when finalized, would prohibit certain AI applications and systems and impose
additional requirements on the use of certain applications or systems. The use of AI technologies in new or existing products
may result in new or enhanced governmental or regulatory scrutiny, new or modified laws or regulations, claims, demands, and
litigation, confidentiality, privacy, data protection, or security risks, ethical concerns, or other complications that could
adversely affect our business, financial condition, results of operations and prospects.
Uncertainty around new and emerging AI technologies may require additional investment in the development and
maintenance of proprietary datasets and machine learning models, development of new approaches and processes to provide
attribution or remuneration to creators of training data, and development of appropriate protections, safeguards, and policies for
handling the processing of data with AI technologies, which may be costly and could impact our expenses. AI technologies also
present emerging ethical and social issues, including with respect to potential or actual bias reflected in, or flawed outputs of,
models. AI technologies that we make use of may produce or create outputs that appear correct but are factually inaccurate or
otherwise flawed, which may expose us to brand or reputational harm, competitive harm, regulatory scrutiny, and/or legal
liability.
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 are 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. For
example, in addition to the controls imposed on China, following Russia’s invasion of Ukraine, the United States and other
countries imposed restrictions on the import to the US of raw materials and goods from Russia and certain economic sanctions
and severe export control restrictions against Russia, Belarus and regions of Ukraine as well as certain Russian nationals and
entities which required us, in many cases, to terminate business relationships in those countries. These sanctions and restrictions
have continued to increase as the conflict has further escalated, and the United States and other countries could impose wider
sanctions and export restrictions as well as prohibitions on the import into the United States of additional raw materials from
Russia and take other actions in the future that could further impact our business. Any deterioration in relations between Taiwan
and China could lead to additional sanctions or export controls on China, on specific individuals or entities, or otherwise in the
region which could impact our ability to sell to certain of our customers, source components from China, or otherwise
negatively impact our business. 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. In addition, economic sanctions that are
vague and not subject to guidance by regulators lead to heightened compliance risk.
Although we have developed procedures and controls to comply with export control and other applicable laws,
historically, we have had some instances where we, or a business that we acquired, inadvertently did not fully comply with
certain trade laws, but we made relevant disclosures 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
customers’ ability to implement our products in those countries. Any change in export or import regulations, economic
in the enforcement or scope of existing regulations or change in the countries,
sanctions or related legislation, shift
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 customers with international operations or create delays
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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.
Failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could
subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the U.S. domestic bribery statute
contained in 18 U.S.C. § 201, the United Kingdom Bribery Act 2010, and possibly other anti-bribery and anti-corruption laws
and anti-money laundering laws in countries outside of the United States where we conduct our activities. Anti-corruption and
anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies,
their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or
providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
We sometimes leverage third parties to sell our products and conduct our business abroad. We, our employees, agents,
representatives, business partners and third-party intermediaries may have direct or indirect interactions with officials and
employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal
activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly
authorize such activities. We cannot assure you that all of our employees, agents, representatives, business partners or third-
party intermediaries will not take actions in violation of applicable law for which we may be ultimately held responsible. As we
increase our international sales and business, our risks under these laws may increase.
These laws also require that we keep accurate books and records and maintain internal controls and compliance
procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such
laws, we cannot assure you that none of our employees, agents, representatives, business partners or third-party intermediaries
will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.
Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws and anti-money
laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines,
damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or
debarment from government contracts, all of which may have an adverse effect on our reputation, business, results of
operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of
management’s attention and resources and significant defense costs and other professional fees.
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, the financial results or financial projections of our large
customers, major catastrophic events, macroeconomic factors including inflation and interest rate fluctuations and other 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, or where actual financial results do not meet the expectations set by industry analysts or other market
participants. 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.
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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 stock repurchase programs could cause the
market price of our common stock to decline.
Although our board of directors has authorized stock repurchase programs, any determination to execute 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 program does not obligate us to acquire any common stock. If we fail to meet
any expectations related to stock repurchases, the market price of our common stock could decline, and could have a material
adverse impact on investor confidence. Additionally, price volatility of our common stock over a given period may cause the
average price at which we repurchase our common stock to exceed the stock’s market price at a given point in time.
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 program could cause the
market price of our common stock to decline. Moreover, in the event repurchases of our common stock are reduced or
discontinued, our failure or inability to resume repurchasing common stock at historical levels could result in a lower market
valuation of our common stock.
Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur,
could reduce the market price that our common stock might otherwise attain and 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.
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 18.4% of the outstanding shares of our
common stock, based on shares outstanding as of December 31, 2023. 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:
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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 an unfilled seat on our board of directors 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;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or
special meeting of our stockholders;
the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors,
our chief executive officer, our president (in the absence of our chief executive officer) 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 structure of our board of directors, the management of our business,
and certain rights of our stockholders (including the right to take action by written consent) or for our stockholders to
amend 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, we are expanding internationally and into adjacent markets including the
enterprise market, which 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
customers, increase sales to our existing 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 including as a result of climate change and to interruption by man-made problems such as terrorism and war.
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. In addition, climate change may result in greater frequency and
severity of natural disasters. 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 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
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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 and war could cause disruptions in our business or the
business of our manufacturers, logistics providers, partners or 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
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.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality,
integrity, and availability of our critical systems and information. In addition, our Legal and Information Technology
(IT)/Information Security (IS) teams work together to oversee our 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.
Our cybersecurity risk management program is aligned with our overall enterprise risk management programs and
shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management
programs to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
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an information security management systems policy, including a business continuity policy, acceptable use and
physical security policies, and an incident response policy and plan for responding to cybersecurity incidents, among
others;
risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products,
services, and our broader enterprise IT environment;
a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security
controls, and (3) our response to cybersecurity incidents;
the use of internal audit teams and external service providers, where appropriate, to assess, test or otherwise assist with
aspects of our security controls;
cybersecurity awareness, data protection, and privacy training of our employees, incident response personnel, and
senior management; and
a vetting and management process for third party service providers, suppliers, and vendors
Through this program, our IT/IS team identifies and executes improvements based upon its own assessments, public
cybersecurity events and the identification of new risks by third parties, including our external cybersecurity consultants. As
part of these continuous improvement efforts, there may be times when the IT/IS team prioritizes certain cybersecurity fixes or
program improvements over other measures, which could lead to new known or unknown risks being identified on an ongoing
basis. Cybersecurity threat actors are often highly sophisticated and nimble in their attacks. Despite these efforts, we cannot
guarantee that our priorities and efforts will prevent any cybersecurity incident from happening.
We also engage in periodic testing programs, using both internal assets and external consultants, including penetration
testing, and incorporate multiple layers of physical, logical and written controls into our cybersecurity risk management
program. Our IT/IS team leverages centralized identity management, encryption configurations and technologies on the
systems, devices, and third-party connections used in our operations.
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We also maintain cyber liability insurance coverage. While we currently hold such coverage, we cannot be certain that
our insurance coverage will be adequate for 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.
As of the date of this report, we have not identified any risks from cybersecurity threats, including as a result of any
previous cybersecurity incidents, that we believe have, or are likely to, materially affect us, our business strategy, results of
operations, or financial condition. For additional information concerning risks from cybersecurity threats, please refer to Item
1A, “Risk Factors,” in this annual report on Form 10-K, including the risk factors in the category entitled, “Risks Related to
Cybersecurity and Data Privacy”.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee
(Committee) oversight of cybersecurity and other information technology risks. The Committee oversees management’s
implementation of our cybersecurity risk management program. The Committee receives quarterly reports from our Vice
President and Chief Information Security Officer (CISO), in conjunction with other senior managers, on cybersecurity risks. In
addition, these managers update the Committee, as necessary, regarding any material cybersecurity incidents, as well as
incidents with lesser impact potential. The Committee reports to the full Board on cybersecurity no less frequently than once
annually. The full Board also receives briefings from management on our cyber risk management program on a periodic basis.
Our cybersecurity program includes an annual funding and forecast process, and we have further established processes
to secure additional funding in response to emerging risks, threats and identified improvement opportunities. Our IS team, led
by one of our Vice Presidents who also serves as our CISO, is responsible for assessing and managing risks from cybersecurity
threats. The IS team has primary responsibility for our overall cybersecurity risk management program and supervises both our
internal cybersecurity personnel and our external cybersecurity consultants.
Our CISO has over 20 years of experience in the cybersecurity industry and has been instrumental in building several
key security technologies, viz. Network Intrusion Prevention Systems (NIPS), Host Intrusion Prevention Systems (HIPS), Web
Application Firewalls (WAF), Whitelisting, Endpoint/Server Host Monitoring (EDR) and Virtualization Based Security (VBS).
Previously, our CISO served in senior executive and technical leadership roles in several security companies. In addition, our
CISO has experience as a pen-tester and has in-depth knowledge of operating system, networking and security products. Our
CISO holds a bachelor’s degree in computer science and a master’s degree in software systems. In addition, our IS team
includes over 20 members each with experience in network security related roles, with the two IS leads reporting to our CISO
each having more than 20 years of security experience.
Our management team, including our CISO in consultation with our Chief Technology Officer and Chief Financial
Officer, supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents, which may include:
briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or
private sources, including external cybersecurity consultants; and alerts and reports produced by security tools deployed in our
IT environment. However, as indicated above, we cannot guarantee that our efforts will prevent any cybersecurity incident from
occurring.
As part of our IT security program, our Cybersecurity Executive Committee and Information Security Steering
Committee meet throughout the year to monitor and assess information security risks. In addition, we perform an enterprise risk
assessment that is reviewed by the Committee and our Board of Directors on an annual basis and monitored on a quarterly basis
by the Committee. The enterprise risk assessment is an assessment of key risks, including information security risks, data
privacy, supply chain, human capital, and other risks.
Item 2. Properties
Our corporate headquarters are located in Santa Clara, California where we lease approximately 180,000 square feet of
space under a lease agreement that expires in September 2026. During the year ended December 31, 2021, we purchased land
and the improvements thereon in Santa Clara, California to construct a building for office and lab space. 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.
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Item 3. Legal Proceedings
The information set forth under the “Legal Proceedings” in Note 5. 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.
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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 7, 2024, there were 52 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.
Dividend Policy
We have never declared nor paid any dividends on our common stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
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 31, 2018 (the last trading day of the
year) to December 31, 2023.
The graph assumes $100 was invested at the market close on December 31, 2018 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.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plans is provided in Note 6.
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.
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Recent Sales of Unregistered Equity Securities
There were no sales of unregistered securities during fiscal year 2023.
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 2023, 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 Program
In October 2021, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase
Program”). This authorization allows us to repurchase shares of our common stock funded from working capital. The
Repurchase Program expires in the fourth quarter of 2024. 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 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.
We did not repurchase any shares during the three months ended December 31, 2023. For our repurchase activities
made during the year ended December 31, 2023, please refer to Note 6. 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.
Item 6. [Reserved]
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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 is an industry leader in data-driven, client to cloud networking for large data center, campus and
routing environments. Arista's platforms deliver availability, agility, automation, analytics and security through an advanced
network operating stack. Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and
programmability with a focus on differentiating in three ways: uncompromising quality, advanced open and standards-based
technology and a robust quality assurance capability built on a suite of automated diagnostics. At the core of Arista’s platform is
Arista’s EOS, a modernized publish-subscribe state-sharing networking operating system. Arista EOS, combined with a set of
network applications and our Ethernet switching and routing platforms using best of breed merchant silicon, provides customers
with a highly competitive and diversified portfolio of products with improved price/performance and time to market.
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 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. Our customers span a range of industries and geographies including large cloud customers or
hyperscalers, other internet providers, service providers, financial services organizations, government agencies and a cross
section of enterprise customers. Over the past five years, we have diversified the types of enterprise customers we sell to and
have continued to expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil
and gas, education, manufacturing, industrial, and more.
Historically, large purchases by a relatively limited number of customers have accounted for a significant portion of
our revenue. We have experienced unpredictability in the timing of orders from these large customers primarily due to the time
it takes these customers to evaluate, test, qualify and accept our newer products, the overall complexity of these large orders
and changes in demand patterns specific to these customers, including reductions in capital expenditures by these customers
and the impact of cost reduction and other efficiency efforts by these customers. For example, sales to our end customers
Microsoft and Meta Platforms represented 18% and 21% of our total revenue, respectively, in fiscal 2023, 16% and 26% of our
total revenue, respectively, in fiscal 2022 and, 15% and less than 10% of our total revenue, respectively in fiscal 2021. This
variability in customer concentration has been linked to the timing of new product deployments and spending cycles with these
customers, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual
basis. In addition, an increased focus on the deployment of AI enabled solutions by these customers has accelerated the need for
advanced technology offerings including some offerings from potential new market entrants. This prioritization of AI related
infrastructure investment has come in conjunction with the announcement of various cost reduction measures, including
optimization and increased efficiency in non-AI related capital expenditures. In some instances, such measures have had, and
may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand,
increased our risk of excess and obsolescence charges on existing products, and may result in reductions in future demand and
negatively impact our revenue, financial condition, business or prospects. Furthermore, we typically provide pricing discounts
to large customers, which reduces gross margins for the period in which such sales occur.
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 at a slower rate. Our cloud networking platforms are well positioned to
address the growing cloud networking market, and to address 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
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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 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 the underlying merchant silicon architecture. The
to EOS. We engineer our products to be agnostic with respect
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.
Macroeconomic Update
Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation,
monetary policy shifts, recession risks, and potential supply chain and other disruptions such as the Russia-Ukraine and Israel-
Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea, and the U.S. trade war with China.
As we exit 2023,
the business is emerging from a period of unprecedented global supply chain disruptions.
Throughout this period, we made significant supply chain investments, including funding additional working capital and
incremental purchase commitments in response to extended visibility to deployment plans from our customers. We have
worked closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed
component sourcing and workforce disruptions. This increased capacity has allowed us to ship products against previously
committed demand/deployment plans and accelerate some deployments where needed, while trying to limit building customer
inventory, and to some extent balancing customer lead times with those currently experienced from our key suppliers. As a
result, some shipments against these previously committed demand/deployment plans have extended into 2024.
As the global supply chain has experienced some improvements and as customer lead times have been reduced from
their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual
return to shorter demand-planning horizons resulting in lower demand levels. Given these shipment and order patterns, near
term revenue trends may not be solely reflective of current demand levels, but as discussed above will benefit from
demand/deployment plans that had been previously committed. While inventory and working capital levels may remain
elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten. The
larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer
product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted,
and may in the future result, in additional excess and obsolete inventory and supplier liability charges.
In addition, inflation pressure in our supply chain, scarcity of some materials needed to build our products and
disruptions to our manufacturing process have increased our cost of revenue and have impacted, and may continue to negatively
impact our gross margin. Our operating cash-flows have also been and may continue to be negatively impacted by significant
component inventories on hand or at our contract manufacturers. While we have seen improvements in our supply chain and
manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact
our business in future periods. In addition, although our business has experienced limited disruption as a result of the recent
Russia-Ukraine conflict, continued escalation of this conflict as well as the Israeli-Hamas conflict and Houthi movement in the
Red Sea may negatively impact the global economy and our future operating results and financial condition.
Management continues to actively monitor the impact of macroeconomic factors on the Company's financial
condition, liquidity, operations, suppliers, industry, and workforce. The extent of the impact of these factors 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, the impact on our customers, partners, employees, contract manufacturers and supply
52
chain, all of which continue to evolve and are unpredictable. In addition, any continued or renewed disruption in manufacturing
and supply resulting from these factors could negatively impact our business. We also believe that some of our customers,
following a year of elevated purchases, must now consider changing technology roadmaps and priorities, including the need for
the rapid deployment of AI and related technologies, resulting in some uncertainty as to future investment plans and a more
constrained approach to some forecasts and orders in the near term. In addition, any prolonged economic disruptions or further
deterioration in the global economy could have a negative impact on demand from our customers in future periods, particularly
in the enterprise market where we are continuing to expand our penetration. Accordingly, current results and financial
conditions discussed herein may not be indicative of future operating results and trends.
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
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,
2023
2022
Change in
$
% of
Revenue
$
% of
Revenue
$
%
$5,029,493
830,675
5,860,168
2,061,167
168,720
2,229,887
$3,630,281
85.8 % $3,716,079
665,231
14.2
4,381,310
100.0
84.8 % $1,313,414
165,444
15.2
1,478,858
100.0
1,573,629
35.2
131,985
2.9
1,705,614
38.1
61.9 % $2,675,696
487,538
35.9
36,735
3.0
524,273
38.9
61.1 % $ 954,585
35.3 %
24.9
33.8
31.0
27.8
30.7
35.7 %
61.9 %
61.1 %
Revenue by Geography (in thousands, except percentages)
Americas
Europe, Middle East and Africa
Asia-Pacific
Total revenue
Revenue
Year Ended December 31,
2023
$4,651,193
670,960
538,015
2022
% of
Total
79.4 % $3,462,621
529,800
11.4
388,889
9.2
% of
Total
79.0 %
12.1
8.9
$5,860,168
100.0 % $4,381,310
100.0 %
Product revenue primarily consists of sales of our switching and routing products, and related network applications.
Service revenue is primarily derived from sales of PCS contracts, which are 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 customers.
Product revenue increased by $1.3 billion, or 35.3%, for the year ended December 31, 2023 compared to 2022. These
increases reflect increased shipments of our switching and routing products across our customer base, including improved
supply availability for our enterprise customers. In addition, service revenue increased by $165.4 million, or 24.9%, in the year
ended December 31, 2023 compared to 2022, as a result of continued growth in initial and renewal support contracts as our
customer installed base has continued to expand. International revenues as a percentage of our total revenues decreased from
21.0% in 2022 to 20.6% in 2023, which was primarily driven by changes in the geographic mix of sales to our large global
customers.
53
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, including freight, and other costs associated with
manufacturing our products and managing our inventory and supply chain. 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 $524.3 million, or 30.7% for the year ended December 31, 2023 compared to 2022.
These increases were primarily driven by a corresponding increase in product and service revenues, combined with an increase
in provisions for excess/obsolete inventory and supplier liability charges.
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 customers who
generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply
chain sourcing activities, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete
component inventory held by our contract manufacturers and suppliers. We expect our gross margin to fluctuate over time,
depending on the factors described above.
Gross margin increased from 61.1% for the year ended December 31, 2022 to 61.9% for the year ended December 31,
2023. These changes reflect an improvement in product margins driven by a lower mix of revenue from our larger customers,
partly offset by an increase in excess/obsolete inventory-related charges. In addition, our gross margin benefited in 2023 from
the leverage of relatively fixed overhead costs on a higher revenue base.
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-related expenses.
Year Ended December 31,
2023
2022
Change in
$
% of
Revenue
$
% of
Revenue
$
%
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Research and development.
$
854,918
399,034
119,080
$ 1,373,032
14.6 % $
728,394
326,955
93,241
23.4 % $ 1,148,590
6.8
2.0
16.6 % $ 126,524
72,079
25,839
26.2 % $ 224,442
7.5
2.1
17.4 %
22.0
27.7
19.5 %
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 $126.5 million, or 17.4%, for the year ended December 31, 2023
compared to 2022. The increase was primarily due to a $84.1 million increase in personnel costs driven by an increase in
headcount, and a $40.7 million increase in new product introduction costs, including non-recurring engineering costs and
prototype expenses as we expand our product portfolio.
54
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 $72.1 million, or 22.0%, for the year ended December 31, 2023 compared
to 2022. The increase was primarily caused by increased personnel costs driven by headcount growth, in addition to increased
sales and marketing events and field demonstration costs.
General and administrative.
General and administrative expenses consist primarily of personnel costs and professional services costs for our
finance, human resources, legal and certain executive functions. Our professional services costs are primarily related to external
legal, accounting, and tax services.
General and administrative expenses increased by $25.8 million, or 27.7%, for the year ended December 31, 2023
compared to 2022. The increase was primarily caused by an increase in personnel costs driven by increased stock-based
compensation, and increased legal and professional fees.
Other Income, Net (in thousands, except percentages)
Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable
securities, gains and losses on our marketable securities and strategic investments, and foreign currency transaction gains and
losses. We expect other income (expense), net may fluctuate in the future as a result of the re-measurement of our 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.
Other income (expense), net:
Interest income
Gain (loss) on strategic investments
Other income (expense), net
Total other income, net
Year Ended December 31,
2023
2022
Change in
$
% of
Revenue
$
% of
Revenue
$
%
$
$
152,421
18,699
(6,343)
164,777
2.6 % $
0.3
(0.1)
2.8 % $
27,556
27,479
(345)
54,690
453.1 %
0.6 % $ 124,865
(8,780)
0.6
(32.0)
—
(5,998) 1,738.6
1.2 % $ 110,087
201.3 %
The favorable movement in other income (expense), net, during the year ended December 31, 2023 as compared to
2022 was driven by an increase in interest income of $124.9 million due to an increase in our cash and investments balances
and higher interest rates.
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,
2023
2022
Change in
$
$ 334,705
13.8 %
% of
Revenue
$
% of
Revenue
$
5.7 % $ 229,350
5.2 % $105,355
%
45.9 %
14.5 %
Our provision for income taxes increased in 2023, as compared to 2022, and our effective tax rate decreased in 2023,
as compared to 2022. The increase in our income taxes was largely due to an increase in pre-tax income, partly offset by an
increase in tax benefits attributable to stock-based compensation. The decrease in our effective tax rate was primarily due to a
reduction of unrecognized tax benefits on uncertain tax positions due to the expiration of the statute of limitations. For further
55
information regarding income taxes and the impact on our results of operations and financial position, refer to Note 8. Income
Taxes of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
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,
2022
2021
Change in
$
% of
Revenue
$
% of
Revenue
$
%
$3,716,079
665,231
4,381,310
1,573,629
131,985
1,705,614
$2,675,696
84.8 % $2,377,727
570,310
15.2
2,948,037
100.0
80.7 % $1,338,352
94,921
19.3
1,433,273
100.0
56.3 %
16.6
48.6
958,363
35.9
108,895
3.0
38.9
1,067,258
61.1 % $1,880,779
615,266
32.5
23,090
3.7
36.2
638,356
63.8 % $ 794,917
64.2
21.2
59.8
42.3 %
61.1 %
63.8 %
Revenue by Geography (in thousands, except percentages)
Americas
Europe, Middle East and Africa
Asia-Pacific
Total revenue
Revenue
Year Ended December 31,
2022
$3,462,621
529,800
388,889
2021
% of
Total
79.0 % $2,156,183
486,836
12.1
305,018
8.9
% of
Total
73.2 %
16.5
10.3
$4,381,310
100.0 % $2,948,037
100.0 %
Product revenue increased by $1.3 billion, or 56.3%, in the year ended December 31, 2022 compared to 2021. The
increase reflects strong demand for our switching and routing platforms from across our customer base, including healthy
contributions from our large cloud customers. Although we saw some improvement in component supply in the latter part of
fiscal 2022, supply chain and manufacturing constraints limited our revenue performance throughout the year, and while
changes in product deferred revenue impacted the timing of revenue recognition on a quarterly basis, the net change in product
deferred revenue for the full year was an immaterial contributor to revenue for the year ended December 31, 2022. In addition,
service revenue increased by $94.9 million, or 16.6%, in the year ended December 31, 2022 compared to 2021, as a result of
continued growth in initial and renewal PCS contracts as our customer installed base continued to expand. International
revenues as a percentage of our total revenues decreased from 26.8% in 2021 to 21.0% in 2022, which was primarily driven by
increased purchases from large cloud customers in our Americas region. As a result of cost inflation in our supply chain, we
implemented targeted price increases during the year, which began to benefit our revenue in late 2022. As supply chain costs
improve, we expected to return to a more competitive pricing environment for our products and services.
Cost of Revenue and Gross Margin
Cost of revenue increased by $638.4 million, or 59.8% for the year ended December 31, 2022 compared to 2021.
These increases were primarily driven by a corresponding increase in product and service revenues, combined with an increase
in material and logistics costs to mitigate supply chain constraints and to meet customer demand, as well as an increase in
provisions for excess/obsolete finished goods and component inventory.
Gross margin decreased from 63.8% for the year ended December 31, 2021 to 61.1% for the year ended December 31,
2022. The decrease was primarily driven by an increased proportion of our sales to larger customers who generally receive
56
larger discounts, increased material and logistics costs, and increased excess/obsolete finished goods and component inventory
charges, partly offset by the leverage of fixed overhead costs on a higher revenue base.
Operating Expenses (in thousands, except percentages)
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Research and development
Year Ended December 31,
2022
2021
Change in
$
% of
Revenue
$
% of
Revenue
$
%
$ 728,394
326,955
93,241
$ 1,148,590
16.6 % $ 586,752
286,171
83,117
26.2 % $ 956,040
7.5
2.1
19.9 % $ 141,642
40,784
10,124
32.4 % $ 192,550
9.7
2.8
24.1 %
14.3
12.2
20.1 %
Research and development expenses increased by $141.6 million, or 24.1%, for the year ended December 31, 2022
compared to 2021. The increase was primarily due to a $68.6 million increase in personnel costs driven by an increase in
headcount, and a $57.5 million increase in new product introduction costs, including third-party engineering and other product
development costs.
Sales and marketing
Sales and marketing expenses increased by $40.8 million, or 14.3%, for the year ended December 31, 2022 compared
to 2021. The increase was primarily caused by increased personnel costs driven by headcount growth.
General and administrative
General and administrative expenses increased by $10.1 million, or 12.2%, for the year ended December 31, 2022
compared to 2021. The increase was driven by an increase in personnel costs driven by increased headcount, and increased
legal and professional fees primarily driven by acquisitions during the first half of 2022.
Other Income, Net (in thousands, except percentages)
Other income, net:
Interest income
Gain on investments in privately-held
companies
Other income (expense), net
Total other income, net
Year Ended December 31,
2022
2021
Change in
$
% of
Revenue
$
% of
Revenue
$
%
$
27,556
0.6 % $
7,215
0.2 % $ 20,341
281.9 %
27,479
(345)
54,690
$
0.6
—
1.2 % $
—
(1,075)
6,140
27,479
—
—
730
0.2 % $ 48,550
100.0
(67.9)
790.7 %
The movement in other income (expense), net, during the year ended December 31, 2022 as compared to 2021 was
driven by an increase in interest income due to higher interest rates. In addition, we had unrealized gains of $27.5 million in the
year ended December 31, 2022 related to our equity investments.
Provision for Income Taxes (in thousands, except percentages)
Provision for income taxes
Effective tax rate
Year Ended December 31,
2022
2021
Change in
% of
Revenue
$
% of
Revenue
$
5.2 % $90,025
3.1 % $ 139,325
%
154.8 %
9.7 %
$
$ 229,350
14.5 %
57
Our provision for income taxes and effective tax rate increased in 2022 as compared to 2021. The increase in our
income taxes was due to an increase in pre-tax income. The increase in our effective tax rate was largely attributable to a
decrease in the proportion of tax benefits attributable to stock-based compensation versus total pre-tax income. For further
information regarding income taxes and the impact on our results of operations and financial position, refer to Note 8. 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, 2023, our total balance of cash, cash equivalents and marketable securities was $5.0 billion, of
which approximately $770.3 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, capital expenditures 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.
Cash Flows
Year Ended December 31,
2023
2022
2021
$
2,034,014
$
(in thousands)
492,813
$
1,015,856
(687,454)
(83,749)
216,327
(654,601)
(925,562)
(360,882)
(1,816)
(272,404)
Cash provided by operating activities
Cash provided by (used in) investing activities
Cash (used in) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash, cash equivalents and restricted cash
675
1,263,486
$
$
(3,611)
50,928
$
Cash Flows from Operating Activities
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, 2023, cash provided by operating activities was $2.0 billion, primarily from net
income of $2.1 billion, offset by net non-cash adjustments to net income of $37.4 million, and a net change of $15.9 million in
working capital requirements. Net non-cash adjustments primarily consisted of an increase in deferred income taxes of
$370.8 million primarily resulting from increased deferred tax assets associated with the capitalization of research and
development costs under IRC Section 174, which were largely offset by $296.8 million of stock-based compensation expenses
and $70.6 million of depreciation, amortization and other expenses. The change in working capital requirements primarily
consisted of a $655.5 million increase in inventory in response to a significant increase in business volume, a $101.5 million
increase in accounts receivable due to the larger business volume and timing of shipments in the fourth quarter of 2023, as well
as a $66.4 million increase in other assets primarily driven by increased deferred cost of sales associated with higher product
revenue deferrals. These cash outflows were largely offset by a $465.0 million increase in deferred revenue driven by a growth
in PCS contracts and increased product deferred revenue related to customer contracts with acceptance terms, a $322.3 million
increase in accounts payable and other liabilities related to significant business volume, timing of payments, and increased
supplier and contract manufacturer liability reserves and a $20.2 million increase in income taxes, net, due to timing of
payments.
58
During the year ended December 31, 2022, cash provided by operating activities was $492.8 million, primarily from
net income of $1.4 billion and net non-cash adjustments to net income of $53.2 million, partially offset by a net increase
of $912.8 million in working capital requirements. Net non-cash adjustments primarily consisted of $230.9 million of stock-
based compensation expenses and $62.7 million of depreciation, amortization and other expenses, which were largely offset by
an increase in deferred income taxes of $244.4 million primarily resulting from increased deferred tax assets associated with the
capitalization of research and development costs under IRC Section 174. The increase in working capital requirements
primarily consisted of a $638.9 million increase in inventory in response to a significant increase in business volume, increased
lead times and supply chain disruptions, and a $401.5 million increase in accounts receivable due to the larger business volume
and timing of shipments in the fourth quarter of 2022, as well as an $85.2 million increase in prepaid and other current assets
primarily driven by increased inventory deposits to our contract manufacturers. These cash outflows were largely offset by a
$99.0 million increase in deferred revenue driven by a growth in PCS contracts, a $98.0 million increase in accounts payable
and accrued liabilities related to significant business volume, timing of payments, and increased supplier and contract
manufacturer liability reserves and a $44 million increase in income taxes, net, due to an increase in our income tax provision
and timing of payments.
Cash Flows from Investing Activities
Our investing activities consist of our marketable securities investments, business combinations, investments in
privately-held companies, and capital expenditures.
During the year ended December 31, 2023, cash used in investing activities was $687.5 million, consisting of
purchases of available-for-sale securities of $2.6 billion, and purchases of property, equipment and intangible assets of $34.4
million, partially offset by proceeds of $1.9 billion from maturities of marketable securities, and proceeds from the sale of
marketable securities of $67.3 million,
During the year ended December 31, 2022, cash provided by investing activities was $216.3 million, consisting of
proceeds of $1.6 billion from maturities of marketable securities, proceeds from the sale of marketable securities of
$193.8 million, partially offset by purchases of available-for-sale securities of $1.4 billion, $145.1 million for business
acquisitions, purchases of property, equipment and intangible assets of $44.6 million, and investments and notes receivable in
private companies of $12.7 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, 2023, cash used in financing activities was $83.7 million, consisting primarily of
common stock repurchases of $112.3 million and taxes paid of $33.6 million upon vesting of restricted stock units, offset
partially by proceeds from the issuance of common stock under employee equity incentive plans of $62.1 million.
During the year ended December 31, 2022, cash used in financing activities was $654.6 million, consisting primarily
of common stock repurchases of $670.3 million and taxes paid of $32.7 million upon vesting of restricted stock units, offset
partially by proceeds from the issuance of common stock under employee equity incentive plans of $48.4 million.
Stock Repurchase Programs
In October 2021, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase
Program”). This authorization allows us to repurchase shares of our common stock funded from working capital and expires in
the fourth quarter of 2024. The 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. During the three months ended December 31,
2023, we did not repurchase any shares. As of December 31, 2023, the remaining authorized amount for repurchases under the
Repurchase Program was $144.5 million. Refer to Note 6. 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.
59
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:
Purchase Obligations
Purchase obligations not recorded on our balance sheet represent an estimate of all non-cancellable 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, 2023, we had $1,586.7 million of
such purchase obligations, of which $1,547.2 million are expected to be received within 12 months, and $39.5 million are
expected to be received after one year. 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.
Leases
We have operating lease arrangements for office space, data center, equipment and other corporate assets. As of
December 31, 2023, we had lease payment obligations, net of immaterial sublease income, of $72.0 million, with $24.0 million
payable within 12 months.
Property project
During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara,
California to construct a building for office and lab space. The estimated capital expenditures related to this project is expected
to be approximately $80.0 to $100.0 million for the year ending 2024, with construction expected to commence in the second
half of 2024.
Accrued Income Taxes
As of December 31, 2023, we have recorded long-term tax liabilities of $95.8 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.
In connection with the TCJA, effective from January 1st, 2022, the TCJA eliminates the option to deduct research and
development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to
IRC Section 174. As of December 31, 2023, the incremental cash tax impact resulting from the regulation was approximately
$191.7 million for the year, of which substantially all the liability has been paid. It is anticipated that IRC Section 174 will
result in cash tax outlays exceeding our income tax expense over the next three years unless the current legislation is changed.
There is no material change to our effective tax rate as a result of this regulation.
Off-balance sheet arrangements
As of December 31, 2023, 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 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
60
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 gross margin objectives, 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, product category,
actual and expected volume, discounting policies, and end customer vertical and size.
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. Additionally, we will evaluate a portfolio of data, when
including accounting for commissions, rights of return and transactions with variable
possible,
consideration.
in various situations,
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, industry-wide supply chain shortages have resulted in extended lead times for components, and we
61
were required to extend the time horizon of our demand forecasts. As customer lead times reduce more broadly, we have seen
and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter
demand-planning horizons resulting in lower demand levels. While inventory and working capital levels may remain elevated
in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten. 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.
Recent Accounting Pronouncements
Refer to the subheading titled “Recently Adopted 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.
62
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 strategic equity investments. Macroeconomic
uncertainties, including inflation, monetary policy shifts, uncertainty in the global banking and financial services markets,
recession risks, potential disruptions from the Russia-Ukraine and Israel-Hamas conflicts, the Houthi movement in the Red Sea
and the U.S. trade war with China have 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 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, 2023, and 2022, we had cash, cash equivalents and available-for-sale marketable securities
totaling $5.0 billion and $3.0 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
the years
ended December 31, 2023, 2022 and 2021, 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. Conversely, an
increase in interest rates could have a material impact to the fair market value of our investments in fixed income securities. 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.
income on our cash, cash equivalents and marketable securities. For
interest
Strategic Equity Investments
Our non-marketable equity investments in privately-held companies are recorded in “other assets” in our consolidated
balance sheets. As of December 31, 2023 and 2022, the total carrying amount of our investments in privately-held companies
was $62.3 million and $39.5 million, respectively. For the years ended December 31, 2023, 2022 and 2021, we recorded a net
gain of $13.9 million, $15.8 million and $0, respectively, with respect
to these investments. See Note 2. Fair Value
Measurements of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-
K for details.
63
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.
One of our equity investments in a privately-held company completed an initial public offering at the beginning of
2022 and subsequently our investment converted to a marketable equity security. During the year ended December 31, 2023,
the Company sold all its shares of this security for $23.9 million. The cost of this investment was $3.0 million and the
cumulative gain since inception was $20.9 million, the majority of which has been reflected in prior periods as mark-to-market
net gains in Other income, net.
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
65
68
69
70
71
72
73
64
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,
2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2023, 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, 2023, 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 12, 2024 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.
65
Inventory Valuation and Contract Manufacturer/Supplier Liabilities
Description of the
Matter
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 $1.9 billion on December 31, 2023. 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.
of
assessment
Auditing management’s
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 introduction and customer adoption of new products,
adjustments to manufacturing and engineering schedules, and overall general economic and market
conditions.
realizable
inventory
value
and
net
for
How We Addressed
the Matter in Our
Audit
the Company’s determination of
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
inventory and the contract
over
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.
the net realizable value of
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 and other relevant factors.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2008.
San Mateo, California
February 12, 2024
66
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, 2023, 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, 2023, 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 the Company as of December 31, 2023 and 2022, 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, 2023, and the related notes and our report dated February 12, 2024 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 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.
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 Mateo, California
February 12, 2024
67
ARISTA NETWORKS, INC.
Consolidated Balance Sheets
(In thousands, except par value)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Acquisition-related intangible assets, net
Goodwill
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
Deferred revenue, non-current
Other long-term liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued
and outstanding as of December 31, 2023 and 2022
Common stock, $0.0001 par value—1,000,000 shares authorized as of December 31,
2023 and 2022; 312,245 and 306,890 shares issued and outstanding as of December
31, 2023 and 2022
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS’ EQUITY
December 31,
2023
2022
$
1,938,606
$
671,707
3,069,362
1,024,569
1,945,180
412,518
8,390,235
101,580
88,768
268,531
945,792
151,900
2,352,022
923,096
1,289,706
314,217
5,550,748
95,009
122,205
265,924
574,912
166,612
$
$
9,946,806
$
6,775,410
435,059
$
407,302
915,204
152,041
232,572
292,487
637,432
131,040
1,909,606
1,293,531
95,751
591,000
131,390
89,839
403,814
102,406
2,727,747
1,889,590
—
31
2,108,331
5,114,025
(3,328)
7,219,059
—
31
1,780,714
3,138,983
(33,908)
4,885,820
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
9,946,806
$
6,775,410
The accompanying notes are an integral part of these consolidated financial statements.
68
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
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Year Ended December 31,
2023
2022
2021
$
5,029,493
$
3,716,079
$
2,377,727
830,675
5,860,168
665,231
4,381,310
570,310
2,948,037
2,061,167
168,720
2,229,887
3,630,281
854,918
399,034
119,080
1,373,032
2,257,249
164,777
2,422,026
334,705
2,087,321
6.75
6.58
$
$
$
1,573,629
131,985
1,705,614
2,675,696
728,394
326,955
93,241
1,148,590
1,527,106
54,690
1,581,796
229,350
1,352,446
4.41
4.27
$
$
$
958,363
108,895
1,067,258
1,880,779
586,752
286,171
83,117
956,040
924,739
6,140
930,879
90,025
840,854
2.74
2.63
309,354
317,135
306,473
316,459
306,512
319,238
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
69
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) losses included in
net income
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2023
2,087,321
$
2022
1,352,446
$
$
2021
840,854
825
(3,215)
(1,381)
25,939
3,816
30,580
(23,025)
632
(25,608)
(7,157)
—
(8,538)
$
2,117,901
$
1,326,838
$
832,316
The accompanying notes are an integral part of these consolidated financial statements.
70
ARISTA NETWORKS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balance — December 31, 2020
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
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
Common stock issued for business
acquisition
Balance — December 31, 2022
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
Common stock issued for business
acquisition
Common Stock
Shares
304,696
Amount
30
$
Additional
Paid-
In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
$1,292,409
$ 2,027,614
$
238
$ 3,320,291
—
—
—
7,693
(4,537)
(171)
307,681
—
—
—
5,908
(6,461)
(271)
33
306,890
—
—
—
6,480
(954)
(203)
32
—
—
—
1
—
—
31
—
—
—
—
—
186,875
67,244
—
(16,482)
1,530,046
—
—
230,934
840,854
—
—
—
(411,645)
—
2,456,823
1,352,446
—
—
1
(1)
48,410
—
—
(670,286)
(32,725)
4,049
1,780,714
—
—
296,756
62,093
—
—
—
—
—
—
(112,279)
(33,563)
2,331
—
—
—
—
31
—
—
—
—
—
—
—
31
—
(8,538)
—
—
—
—
840,854
(8,538)
186,875
67,245
(411,645)
(16,482)
(8,300)
3,978,600
—
1,352,446
(25,608)
—
—
—
—
—
(25,608)
230,934
48,411
(670,287)
(32,725)
4,049
30,580
—
—
—
—
—
30,580
296,756
62,093
(112,279)
(33,563)
2,331
3,138,983
2,087,321
(33,908)
4,885,820
—
2,087,321
Balance — December 31, 2023
312,245
$
$2,108,331
$ 5,114,025
$
(3,328) $ 7,219,059
The accompanying notes are an integral part of these consolidated financial statements.
71
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 on strategic investments
Amortization (accretion) of investment premiums (discount)
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Other assets
Accounts payable
Other liabilities
Deferred revenue
Income taxes, net
Year Ended December 31,
2022
2023
2021
$
2,087,321
$
1,352,446
$
840,854
70,630
18,236
296,756
(370,796)
(18,699)
(33,518)
(101,473)
(655,474)
(66,401)
198,612
123,694
464,958
20,168
62,700
18,648
230,934
(244,382)
(27,479)
12,767
(401,531)
(638,948)
(117,465)
31,436
70,704
98,957
44,026
50,334
17,112
186,875
(99,290)
—
26,847
(126,969)
(170,449)
(130,222)
66,681
78,187
278,485
(2,589)
Net cash provided by operating activities
2,034,014
492,813
1,015,856
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities
Proceeds from sale of marketable securities
Purchases of marketable securities
Purchases of property, equipment and intangible assets
Cash paid for business combination, net of cash acquired
Investment in notes and privately-held companies
Net cash provided by (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:
Cash paid for income taxes, net of refunds
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING INFORMATION:
Right-of-use assets obtained in exchange for new operating lease liabilities
Common stock issued for business acquisition
$
$
$
72
1,887,939
67,284
1,643,824
193,782
1,455,465
19,607
(2,606,878)
(1,418,857)
(2,317,264)
(34,434)
1,799
(3,164)
(687,454)
62,093
(33,563)
(112,279)
(83,749)
675
(44,644)
(145,087)
(12,691)
216,327
48,411
(32,725)
(670,287)
(654,601)
(3,611)
(64,736)
1,299
(19,933)
(925,562)
67,245
(16,482)
(411,645)
(360,882)
(1,816)
1,263,486
50,928
(272,404)
675,978
625,050
897,454
1,939,464
$
675,978
$
625,050
686,155
$
427,846
$
189,774
20,567
$
2,331
$
7,300
4,049
5,005
—
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 next-generation data center and campus workspace
environments. 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.
Certain reclassifications of prior period amounts were made in the current year to conform to the current period
presentation.
Risk and Uncertainties
Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation,
monetary policy shifts, recession risks, and potential supply chain and other disruptions such as the Russia-Ukraine and Israel-
Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea and the U.S. trade war with China.
As we exit 2023,
the business is emerging from a period of unprecedented global supply chain disruptions.
Throughout this period, we made significant supply chain investments, including funding additional working capital and
incremental purchase commitments in response to extended visibility to deployment plans from our customers. We have
worked closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed
component sourcing and workforce disruptions. This increased capacity has allowed us to ship products against previously
committed demand/deployment plans and accelerate some deployments where needed, while trying to limit building customer
inventory and to some extent balancing customer lead times with those currently experienced from our key suppliers. As a
result, some shipments against these previously committed demand/deployment plans have extended into 2024.
As the global supply chain has experienced some improvements and as customer lead times have been reduced from
their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual
return to shorter demand-planning horizons resulting in lower demand levels. Given these shipment and order patterns, near
term revenue trends may not be solely reflective of current demand levels, but as discussed above will benefit from
demand/deployment plans that had been previously committed. While inventory and working capital levels may remain
elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten. The
larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer
product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted,
and may in the future result, in additional excess and obsolete inventory and supplier liability charges.
In addition, inflation pressure in our supply chain, scarcity of some materials needed to build our products and
disruptions to our manufacturing process have increased our cost of revenue and have impacted, and may continue to negatively
impact our gross margin. Our operating cash-flows have also been and may continue to be negatively impacted by significant
component inventories on hand or at our contract manufacturers. While we have seen improvements in our supply chain and
manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact
our business in future periods. In addition, although our business has experienced limited disruption as a result of the Russia-
Ukraine conflict, continued escalation of this conflict as well as the Israeli-Hamas conflict and Houthi movement in the Red
Sea may negatively impact the global economy and our future operating results and financial condition.
Management continues to actively monitor the impact of macroeconomic factors on the Company's financial
condition, liquidity, operations, suppliers, industry, and workforce. The extent of the impact of these factors on our operational
73
and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame,
will depend on future developments, the impact on our customers, partners, employees, contract manufacturers and supply
chain, all of which continue to evolve and are unpredictable. In addition, any continued or renewed disruption in manufacturing
and supply resulting from these factors could negatively impact our business. We also believe that some of our customers,
following a year of elevated purchases, must now consider changing technology roadmaps and priorities, including the need for
the rapid deployment of AI and related technologies, resulting in some uncertainty as to future investment plans and a more
constrained approach to some forecasts and orders in the near term. In addition, any prolonged economic disruptions or further
deterioration in the global economy could have a negative impact on demand from our customers in future periods, particularly
in the enterprise market where we are continuing to expand our penetration. Accordingly, current results and financial
conditions discussed herein may not be indicative of future operating results and trends.
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, 2023, we
had four 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, and accounts receivable. Our cash equivalents 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.
74
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, 2023, we had two customers who represented 28% and 11% of total
accounts receivable. As of December 31, 2022, we had two customers who represented 28% and 16% of total accounts
receivable. For the year ended December 31, 2023, there were two end customers who represented 21% and 18% of total
revenue. For the year ended December 31, 2022, there were two end customers who represented 26% and 16% of total revenue.
For the year ended December 31, 2021, there was one end customer who represented 15% 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.
Marketable Securities
We classify all highly liquid investments in debt securities with maturities of greater than three months at the date of
purchase as marketable securities. We have classified and accounted for our marketable debt and equity 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. For marketable debt securities, we report the unrealized
gains and losses, net of taxes, as a component of stockholders’ equity. For marketable equity securities, we report the unrealized
gains and losses in other income (expense), net on the Consolidated Statements of Operations. 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, among
other factors, current market conditions, credit quality of debt issuers, any changes to the rating of the security by a rating
agency, and the extent to which fair value is less than cost. 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 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,
75
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.
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,
inventory to its estimated realizable value. For the years ended
December 31, 2023, 2022 and 2021, we recorded charges of $234.4 million, $71.4 million and $61.8 million, respectively,
within cost of product revenue for inventory write-downs.
to adjust
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, 2023 and 2022, we recorded
charges of $113.0 million and $43.7 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 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, when industry-wide supply chain shortages resulted in extended lead times for components, we were
required to extend the time horizon of our demand forecasts and increase our purchase commitments for long lead time
components. As customer lead times reduce more broadly, we have seen and expect to continue to see a commensurate
reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons resulting in lower demand
levels. While inventory and working capital levels may remain elevated in the near term, we expect that purchase commitments
will continue to decline as supplier lead times shorten. There is however no guarantee that all suppliers will meet their
76
commitments in the time frame committed or that actual customer demand will directly match our demand forecasts. 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 2029. We determine if an arrangement contains a lease at inception. Operating leases are recorded as right-of-use
(“ROU”) assets and lease liabilities, and are included in other assets and other current and non-current liabilities 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. ROU assets also include any prepaid lease payments and lease incentives.
Our operating lease agreements may contain rent concession, rent escalation, and option to renew provisions. Lease
expense is recognized on a straight-line basis over the lease term commencing on the date we have the right to use the leased
property. Our lease terms may include options to extend or terminate the lease when it is 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 have elected 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
77
were no impairment charges in any of the periods presented in the consolidated financial statements. See Note 4. Acquisition,
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 three 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 4.
Acquisition, Goodwill and Acquisition-Related Intangible Assets for additional information.
Equity 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 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,
2023 and 2022.
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
impairment whenever events or changes in
investments in privately-held companies, are periodically reviewed for
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 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
78
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 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 gross margin, 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 product category, actual and expected
volume, discounting policies, and end customer vertical and size.
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 standard payment terms of 30 days and the remainder generally between 30
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.
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.
79
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.
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.
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.
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 ("PRSUs"). 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 6. 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.
80
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 “deferred method”). We selected the deferred
method of accounting and recorded the associated basis differences anticipated to influence prospective GILTI calculations.
Recent Accounting Pronouncements Not Yet Effective
In December 2023,
the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax
Disclosures. The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as
provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain
disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted
for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet
been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. we have
not early adopted ASU 2023-09 for December 31, 2023. We are currently evaluating the impact of future adoption on our
financial disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable
Segment Disclosures. The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are
regularly provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods
presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The
amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. Early adoption is permitted. We have not early adopted ASU 2023-07
for the year ended December 31, 2023. We are currently evaluating the impact of future adoption on our financial disclosures.
2.
Fair Value Measurements
Assets measured at fair values on a recurring basis
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 fair value of these financial assets by significant investment category
and their levels within the fair value hierarchy (in thousands):
81
December 31, 2023
December 31, 2022
Level I
Level II
Level III
Total
Level I
Level II
Level III
Total
Financial Assets:
Cash Equivalents:
Money market funds
$1,015,705 $
Commercial paper
Agency securities
U.S. government notes
—
—
—
— $ — $1,015,705
1,999
—
—
—
—
—
1,999
—
—
$ 322,294
—
—
51,986
$
— $ — $ 322,294
5,422
—
17,559
—
51,986
—
5,422
17,559
—
1,015,705
1,999
— 1,017,704
374,280
22,981
—
397,261
—
—
10,492
993,955
— 1,113,134
—
—
215,380
19,061
Marketable Securities:
Certificates of deposits
(1)
—
5,000
—
5,000
—
10,492
U.S. government notes
1,044,859
—
— 1,044,859
993,955
—
Corporate bonds
Agency securities
Marketable equity
securities(2)
Other Assets:
Money market funds -
restricted
Total Financial Assets
— 1,362,124
— 657,379
—
—
—
—
— 1,362,124
657,379
— 1,113,134
—
215,380
—
19,061
—
1,044,859
2,024,503
— 3,069,362
1,013,016
1,339,006
— 2,352,022
858
—
—
858
4,271
—
—
4,271
$2,061,422 $2,026,502 $ — $4,087,924 $1,391,567 $1,361,987
$ — $2,753,554
______________________________________
(1) As of December 31, 2023 and 2022, all of our certificates of deposits were domestic deposits.
(2) During the year ended December 31, 2023, the Company sold all its shares of its marketable equity security for $23.9 million. This
publicly-traded equity investment generated an unrealized gain of $4.8 million and $10.7 million for the year ended December 31, 2023 and
2022, respectively. The initial cost of this investment was $3.0 million with no changes since our initial investment. The cumulative gain from
the initial purchase was $20.9 million, the majority of which has been reflected in prior periods as net unrealized gains. The realized and
unrealized gains/losses are included in Other income (expense), net on the unaudited Condensed Consolidated Statements of Operations.
Refer to Note 3. Financial Statements Details.
During the year ended on December 31, 2023, the Company did not make any transfers between the levels of the fair
value hierarchy.
Marketable debt securities
The following table summarizes the amortized cost, unrealized gains and losses, and fair value of our debt securities
measured at fair value on a recurring basis (in thousands):
82
December 31, 2023
December 31, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. government
Corporate bonds
Agency securities
1,043,445
1,361,132
657,118
2,874
2,810
1,143
(1,460)
1,044,859
1,007,175
3
(13,223)
993,955
(1,818)
1,362,124
1,125,920
(882)
657,379
217,893
271
83
(13,057) 1,113,134
(2,596)
215,380
Total
$3,061,695
$ 6,827
$
(4,160) $ 3,064,362
$2,350,988
$
357
$(28,876) $2,322,469
For debt securities in unrealized loss positions, it is not likely that we will be required to sell such securities before
recovery of their amortized cost basis nor do we have the intent to sell such securities before maturity; we invest in debt
securities that have maximum maturities of two years and are generally deemed to be low risk based on their credit ratings from
the major rating agencies. The longer the duration of these marketable securities, the more susceptible they are to changes in
market interest rates and bond yields. Given the short-term and conservative nature of our portfolio, the unrealized losses are
not subject to credit risk; therefore, we did not recognize any credit losses or non-credit-related impairments related to our
available-for-sale marketable debt securities for the years ended December 31, 2023, December 31, 2022 and December 31,
2021. All unrealized losses were recognized in other comprehensive income (loss). Realized losses were immaterial for the
years ended December 31, 2023, December 31, 2022 and December 31, 2021.
The following table is an analysis of our marketable debt securities in unrealized loss positions (in thousands):
December 31, 2023
Unrealized Losses within 12
months
Unrealized Losses 12 months or
greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
317,376
610,086
340,537
(1,076) $
(1,423)
(772)
108,739
141,943
20,809
$
(384) $
(395)
(110)
426,115
752,029
361,346
$
(1,460)
(1,818)
(882)
$ 1,267,999
$
(3,271) $
271,491
$
(889) $ 1,539,490
$
(4,160)
U.S. government notes
Corporate bonds
Agency securities
Total
As of December 31, 2023, we had no marketable debt securities with contractual maturities that exceed 24 months.
The fair values of marketable debt securities, by remaining contractual maturities, are as follows (in thousands):
Due in 1 year or less
Due in 1 year through 2 years
Total marketable securities
December 31, 2023
$
$
1,627,780
1,436,582
3,064,362
The weighted-average remaining duration of our marketable debt securities is approximately 0.9 years as of December
31, 2023.
Assets measured at fair value on a non-recurring basis
Non-Marketable Equity Securities
We have non-marketable equity securities in privately-held companies that do not have readily-determinable fair
values. Their initial cost is 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.
83
We did not record any realized gains for our non-marketable equity securities during the three years ended December
31, 2023, 2022 and 2021. We recorded immaterial amounts of realized and unrealized losses during the three years ended
December 31, 2023, 2022 and 2021. Unrealized gains for our non-marketable equity securities are summarized below (in
thousands):
Year Ended December 31,
2023
2022
2021
Unrealized gains on non-marketable equity securities (1)
$
13,901
$
16,731
$
—
(1) These unrealized gains were recorded on investments that were re-measured to fair value as of the date observable transactions occurred.
We evaluate our non-marketable equity securities for impairment at each reporting period via a qualitative assessment
with various potential impairment indicators, including, but not limited to, an assessment of a significant adverse change in the
economic environment, significant adverse changes in the general market condition of the geographies and industries in which
our investees operate, and other publicly-available information that may affect the value of the non-marketable equity
securities.
The following table summarizes the activity related to our non-marketable equity securities as of December 31, 2023
and December 31, 2022 (in thousands):
Cost of investments (1)
Cumulative impairment and downward adjustments
Cumulative upward adjustments
Carrying amount of investments (included in other assets)
December 31,
2023
December 31,
2022
$
$
31,656
$
—
30,632
62,288
$
23,625
(888)
16,731
39,468
(1) During the year ended December 31, 2023, we had an $8.0 million convertible note previously included in other assets, plus accrued
interest of $0.6 million, that was converted to an equity investment and included in cost of investment
84
3.
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
Accounts receivable, net consists of the following (in thousands):
Accounts receivable
Product sales rebate, returns reserve and others
Accounts receivable, net
Inventories
Inventories consist of the following (in thousands):
Raw materials
Finished goods
Total inventories
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Inventory deposits
Other prepaid expenses and deposits
Total prepaid expenses and other current assets
December 31,
2023
1,938,606
858
1,939,464
$
$
2022
671,707
4,271
675,978
December 31,
2023
1,034,480
(9,911)
1,024,569
$
$
2022
928,490
(5,394)
923,096
December 31,
2023
930,777
1,014,403
1,945,180
$
$
2022
759,519
530,187
1,289,706
December 31,
2023
2022
130,509
282,009
412,518
$
$
162,047
152,170
314,217
$
$
$
$
$
$
$
$
85
Property and Equipment, net
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,
2023
2022
$
44,645
$
144,850
57,761
3,576
34,584
4,242
289,658
(188,078)
41,500
122,407
52,148
3,575
30,102
2,124
251,856
(156,847)
$
101,580
$
95,009
Depreciation expense was $31.7 million, $25.6 million and $19.5 million for the years ended December 31, 2023,
2022 and 2021, respectively.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Accrued compensation-related costs
Supplier liability
Accrued manufacturing costs
Accrued product development costs
Other
Total accrued liabilities
December 31,
2023
2022
$
134,225
$
117,053
167,878
61,491
1,041
42,667
71,481
45,379
27,380
31,194
$
407,302
$
292,487
Contract Liabilities, Deferred Revenue and Other Performance Obligations
Contract Liabilities
A contract liability is recognized when we have received customer payments in advance of our satisfaction of a
performance obligation under a cancellable contract. The following table summarizes the activity related to our contract
liabilities (in thousands):
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,
2023
2022
$
$
$
103,448
(43,286)
(3,185)
76,262
93,382
(37,680)
(2,693)
50,439
133,239
$
103,448
As of December 31, 2023 and 2022, $59.2 million and $45.2 million, respectively, of our contract liabilities were
liabilities with the remaining balance recorded within other long-term liabilities in the
recorded within other current
accompanying consolidated balance sheets.
86
Deferred Revenue
Deferred revenue is comprised mainly of unearned service revenue related to multi-year PCS contracts, and product
deferrals related to contracts with 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,
2023
1,041,246
(615,681)
1,080,639
1,506,204
$
$
$
$
2022
929,312
(583,787)
695,721
1,041,246
Other performance obligations totaling $704.1 million as of December 31, 2023 include unbilled multi-year PCS and
service contract amounts of $336.4 million and $367.7 million of binding contractual agreements with certain customers that
are primarily related to future product shipments.
Revenue from Total Remaining Performance Obligations
Total revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized
in future periods amounts to $2.3 billion. Included in this amount is the $367.7 million of binding contractual agreements
related primarily to future product shipments that are expected to be recognized as revenue over the next eighteen months. In
addition, approximately 79% of the remaining $2.0 billion of this future revenue is expected to be recognized over the next two
years and approximately 21% is expected to be recognized during the third to the fifth year.
Other Income, Net
Other income, net consists of the following (in thousands):
Other income (expense), net:
Interest income
Gain (loss) on strategic investments
Other income (expense)
Total other income, net
Year Ended December 31,
2023
2022
2021
$
152,421
$
27,556
$
7,215
18,699
(6,343)
27,479
(345)
—
(1,075)
$
164,777
$
54,690
$
6,140
87
4.
Acquisition, Goodwill and Acquisition-Related Intangible Assets
Acquisitions
We had no material business acquisitions during the year ended December 31, 2023. During the year ended December 31,
2022, we completed two acquisitions of private companies for total consideration of $158.9 million, including $4.0 million in
common stock and the remainder in cash. The purchase prices included $62.3 million of intangible assets, $77.5 million of goodwill
and $19.1 million of net tangible assets acquired. We also incurred certain acquisition-related expenses of $4.7 million, which
primarily consisted of retention bonuses to continuing employees as well as professional and consulting fees.
The 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 sets forth the
components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands,
except years):
Developed technology
Customer relationships
Trade name
Total intangible assets acquired
Acquisition Date Fair
Value
Weighted
Average
Estimated Useful
Life (in years)
$
$
30,200
28,700
3,400
62,300
5.7
7.0
3.0
The purchase price allocation for the two acquisitions have been finalized. No changes were made to the purchase price
allocation for the year ended December 31, 2023.
Goodwill
The changes in the carrying values of goodwill for the years ended December 31, 2023 and 2022 are as follows (in
thousands):
Balance at December 31, 2021
Additions related to current year acquisitions
Measurement-period adjustments
Balance at December 31, 2022
Additions related to current year acquisition
Balance at December 31, 2023
Amount
$
188,397
85,048
(7,521)
265,924
2,607
$
268,531
The Company performed an annual qualitative test for goodwill impairment in the fourth quarter of the fiscal years ended
December 31, 2023 and 2022 and determined that goodwill was not impaired.
88
Acquisition-Related Intangible Assets
The following table presents details of our acquisition-related intangible assets as of December 31, 2023 and 2022 (in
thousands, except for years):
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
December
31, 2022
Additions
December
31, 2023
December
31, 2022
Amortizat
ion
December
31, 2023
December
31, 2022
December
31, 2023
$ 154,930
$
— $ 154,930
$ (79,036)
$ (23,457) $ (102,493) $
75,894
$ 52,437
54,620
12,390
—
—
54,620
12,390
(14,097)
(6,602)
(7,700)
(2,280)
(21,797)
40,523
(8,882)
5,788
32,823
3,508
Developed
technology
Customer
relationships
Trade name
Total
$ 221,940
$
— $ 221,940
$ (99,735)
$ (33,437) $ (133,172) $ 122,205
$ 88,768
Weighted
Average
Remaining
Useful Life (in
years)
4.0
4.7
1.6
4.2
Amortization expense related to acquisition-related intangible assets was $33.4 million, $33.7 million and $29.2 million for
the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2023, future estimated amortization expense related to the acquired-related intangible assets is as
follows (in thousands):
Years Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Future
Amortization
Expense
26,759
19,642
17,260
13,436
10,037
1,634
88,768
$
$
89
5.
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 2029. Some of our leases include options to extend the term
of such leases for a period from three months to up to 10 years and/or options to early terminate the leases. As of December 31,
2023, we did not include any such options in determining the lease terms because we were not reasonably certain that we would
exercise these options.
The following table summarizes the supplemental balance sheet information related to our operating leases (in
thousands):
Right-of-use assets:
Operating lease right-of-use assets (included in other assets)
Lease liabilities:
Operating lease liabilities, current (included in other current liabilities)
Operating lease liabilities, non-current (included in other long-term liabilities)
Total operating lease liabilities
The following table summarizes our lease costs (in thousands):
Operating lease costs:
Fixed lease costs
Variable lease costs
Total operating lease costs
December 31, 2023
December 31, 2022
$
$
$
$
55,890
$
53,390
21,106
44,413
65,519
$
19,878
43,964
63,842
Year Ended December 31,
2022
2023
23,541
9,717
33,258
$
$
24,134
8,682
32,816
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, 2023 and
2022, cash paid for amounts associated with our operating lease liabilities were approximately $22.7 million and $23.9 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, 2023 are presented in the table below (in thousands):
Years ending December 31,
Amount
2024
2025
2026
2027
2028
2029 and thereafter
Total undiscounted operating lease payments (excluding non-lease components)
Less: imputed interest
Present value of operating lease payments as of December 31, 2023
90
$
$
23,985
21,208
12,846
8,694
5,105
159
71,997
(6,478)
65,519
Other information:
Weighted-average remaining lease term — operating leases
Weighted-average discount rate — operating leases
Purchase Commitments
December 31, 2023
December 31, 2022
3.4 years
5.4%
4.2 years
5.1%
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. A significant portion of our purchase orders to
our contract manufacturers for finished products consists of non-cancellable purchase commitments. 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, 2023, we had non-cancellable purchase
commitments not recorded on our balance sheet of $1,586.7 million, of which $1,547.2 million have confirmed receipt dates
within 12 months, and $39.5 million have confirmed receipt dates greater than 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.
We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $133.3
million and $192.5 million as of December 31, 2023 and 2022, respectively, which were recorded within prepaid expenses and
other current assets, as well as other assets in the consolidated balance sheets.
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. On March 30, 2022, WSOU dismissed one of the patents with prejudice, removing Arista
wireless products from those accused of infringement. On July 1, 2022, the court stayed the case pending the resolution of an
inter partes review of one of the patents-in-suit. On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all
challenged claims in the inter partes review unpatentable. The district court case remains pending appeal and/or final resolution
of the PTAB ruling.
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.
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
91
In the ordinary course of business, we are a party to other 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. As of December 31, 2023, provisions recorded for contingent losses related to other
claims and matters have not been significant. Based on currently-available information, management does not believe that any
additional 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. Were an unfavorable outcome to occur, there exists the possibility of a material adverse
impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs,
and potentially in future periods.
6.
Stockholders' Equity and Stock-Based Compensation
Stock Repurchase Program
In October 2021, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase
Program”). This authorization allows us to repurchase shares of our common stock funded from working capital. The
Repurchase Program expires in the fourth quarter of 2024. 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, 10b5-1 trading plans, or a combination of the foregoing. The 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.
this program was
As of December 31, 2023,
approximately $144.5 million.
remaining authorized amount
stock repurchases under
the
for
A summary of the stock repurchase activities for the years ended December 31, 2023 and 2022 is as follows (in
thousands, except per share amounts):
Aggregate purchase price
Shares repurchased
Average price paid per share
Year Ended December 31,
2022
2023
$
$
112,279
954
117.70
$
$
670,287
6,461
103.74
The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained
earnings in our consolidated statements of stockholders' equity. All shares repurchased have been retired.
2014 Equity Incentive Plan
In April 2014, our 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 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 million shares (the “2014 Plan Evergreen Increase”), unless the
board of directors, in its discretion, determines to make a smaller increase. Effective January 1, 2023, our board of directors
authorized an increase of 9.2 million shares for future issuance under the 2014 Plan. As of December 31, 2023, there remained
approximately 95.3 million shares available for issuance under the 2014 Plan.
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
92
outstanding immediately preceding December 31, but not to exceed 10 million shares, unless the board of directors, in its
discretion, determines to make a smaller increase. Effective January 1, 2023, our board of directors authorized an increase
of 3.1 million shares for future issuance under the ESPP. As of December 31, 2023, there remained 23.4 million shares available
for issuance under the ESPP. Furthermore, in February, 2024, our board of directors authorized an increase of 3.1 million shares
for future issuance under the ESPP effective January 1, 2024.
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, and
includes purchase dates every six months on or 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, 2023, we issued 279,498 shares at an average purchase price of $105.69 per
share under our ESPP.
Stock Option Activities
The following table summarizes the option activities and related information (in thousands, except years and per share
amounts):
Number of
Shares
Underlying
Outstanding
Options
Weighted-
Average
Exercise
Price per
Share
Weighted-
Average
Remaining
Contractual
Term (In Years)
Aggregate
Intrinsic
Value
Balance—December 31, 2022
5,769
$
14.09
2.0 $
618,774
Options granted
Options exercised
Options canceled
Balance—December 31, 2023
Vested and exercisable—December 31, 2023
—
(3,310)
(2)
2,457
2,247
$
$
—
9.84
7.82
19.83
18.14
1.7 $
1.5 $
529,931
488,319
We did not grant any stock options during the years ended December 31, 2023, 2022 and 2021. The aggregate intrinsic
value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $525.3 million, $311.7 million and
$410.9 million, respectively. The total fair value of options vested for the years ended December 31, 2023, 2022 and 2021 was
approximately $8.7 million, $16.6 million and $25.3 million, respectively.
Restricted Stock Unit (RSU) Activities
The following table summarizes the RSU activities and related information (in thousands, except per share amounts):
Unvested balance—December 31, 2022
RSUs and PRSUs granted
RSUs and PRSUs vested
RSUs and PRSUs forfeited/canceled
Unvested balance—December 31, 2023
Number of
Shares
Weighted-
Average Grant
Date Fair Value Per
Share
$
8,360
2,664
(2,862)
(262)
7,900
$
85.83
157.94
78.81
100.46
112.76
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2023, 2022 and
2021 was $157.94, $101.35 and $93.18 per share, respectively. The total fair value of RSUs vested for the years ended
December 31, 2023, 2022 and 2021 was approximately $225.5 million, $174.0 million, and $120.4 million, respectively.
93
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
Year Ended December 31,
2023
2022
2021
$
12,789
172,177
71,074
40,716
$
9,688
130,897
57,571
32,778
7,444
99,770
46,521
33,140
296,756
$
230,934
$
186,875
$
$
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.
As of December 31, 2023, there were $733.7 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
3.4 years.
7.
Net Income Per Share
Basic net income per share is computed using the weighted-average number of shares of common stock outstanding
during the period. Diluted net income per share is computed using the weighted-average number of shares of common stock
outstanding during the period, including potential common shares assuming the dilutive effect of outstanding stock options,
restricted stock units, and the employee stock purchase plan using the treasury stock method. Potential common shares whose
effect would have been antidilutive are excluded from the computation of diluted net income per share. The following table sets
forth the computation of our basic and diluted net income per share attributable to common stockholders (in thousands, except
per share amounts):
Net income
Basic weighted-average shares outstanding
Add weighted-average effects of dilutive securities:
Stock options and RSUs
Employee stock purchase plan
Diluted weighted-average shares outstanding
Net income per share:
Basic
Diluted
Year Ended December 31,
2023
$ 2,087,321
2022
$ 1,352,446
$
309,354
306,473
7,724
57
9,876
110
317,135
316,459
2021
840,854
306,512
12,464
262
319,238
$
$
6.75
6.58
$
$
4.41
4.27
$
$
2.74
2.63
94
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 (in thousands):
Stock options and RSUs
Employee stock purchase plan
Total
8.
Income Taxes
Year Ended December 31,
2023
2022
2021
145
103
248
302
200
502
298
37
335
The components of income before provision for income taxes are as follows (in thousands):
Domestic
Foreign
Income before income taxes
Year Ended December 31,
2023
2022
$ 1,977,687
444,339
$ 1,260,614
321,182
$ 2,422,026
$ 1,581,796
$
$
2021
737,620
193,259
930,879
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
Year Ended December 31,
2023
2022
2021
$
574,449
$
359,158
$
137,203
106,866
24,186
705,501
(372,270)
(41,152)
42,626
(370,796)
334,705
$
76,321
38,250
473,729
(219,568)
(34,689)
9,878
(244,379)
229,350
$
$
38,478
13,391
189,072
(98,534)
(16,289)
15,776
(99,047)
90,025
95
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
Stock-based compensation
Acquisition and integration costs
Other, net
Effective tax rate
Year Ended December 31,
2023
21.00 %
2.13
2022
21.00 %
2.09
2021
21.00 %
1.89
(1.96)
(2.74)
—
(4.59)
0.01
(0.04)
(2.24)
(2.24)
—
(4.07)
0.05
(0.09)
(2.13)
(2.70)
0.01
(8.32)
0.03
(0.11)
13.81 %
14.50 %
9.67 %
The change in our effective tax rate was due to a change in tax benefits attributable to stock-based compensation and
the reduction of unrecognized tax benefits as a result of lapse of the applicable statute of limitation in 2023. Excess tax benefits
resulting from stock awards were $151.2 million, $93.5 million and $105.8 million for the years ended December 31, 2023,
2022 and 2021, respectively. The reduction of unrecognized tax benefits due to expiration of statute of limitations were
immaterial for the three years ended December 31, 2023, 2022 and 2021, respectively.
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
96
December 31,
2023
2022
$
322,325
$
355,521
120,973
295,268
118,123
15,485
417,095
28,079
34,274
1,328
1,352,950
(146,268)
1,206,682
(245,074)
(12,935)
(2,881)
(260,890)
63,517
182,594
100,284
15,072
228,946
25,480
29,469
8,721
1,009,604
(132,689)
876,915
(286,625)
(12,383)
(3,037)
(302,045)
$
945,792
$
574,870
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,
2023
2022
$
$
945,792
—
945,792
$
$
574,912
(42)
574,870
As of December 31, 2023, we had $246.5 million and $137.6 million of net operating loss carryforwards for federal
and state income tax purposes, respectively, from acquisitions. These federal and state losses will begin to expire in 2028 and
2029, respectively. We do not have any material foreign net operating losses.
As of December 31, 2023, our federal, state and foreign tax credit carryforwards for income tax purposes before
valuation allowances were approximately $2.8 million, $217.3 million and $1.2 million, respectively. Our federal tax credit will
begin to expire in 2038, and our foreign tax credit will begin to expire in 2034, while our state tax credits can be carried over
indefinitely. We have provided a valuation allowance of $146.3 million for deferred tax assets, primarily related to state and
foreign tax credit carryforwards that we do not believe are more likely than not to be realized.
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, 2023, 2022 and 2021 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 lapse of statute of limitations
Gross unrecognized tax benefits—ending balance
Year Ended December 31,
2023
$ 137,357
2022
$ 114,813
$
4,690
39,895
(513)
(18,163)
1,566
25,355
(3,781)
(596)
2021
92,500
2,476
21,104
(853)
(414)
$ 163,266
$ 137,357
$ 114,813
As of December 31, 2023, 2022 and 2021, the total amount of gross unrecognized tax benefits was $163.3 million,
$137.4 million and $114.8 million, respectively, of which $90.0 million, $79.3 million and $60.9 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. For the years ended December 31, 2023 and 2022, the net expense for interest and penalties and the recognized
liability for interest and penalties were not material.
The statute of limitations for Federal and most states remains open for 2017, 2020 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 gross 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, any such changes are not anticipated
to be material.
97
9.
Geographical Information
We operate as one reportable segment. The following table represents revenue based on customers' shipping addresses
(in thousands):
Americas(1)
Europe, Middle East and Africa
Asia Pacific
Year Ended December 31,
$
2023
4,651,193
670,960
538,015
$
2022
3,462,621
529,800
388,889
$
2021
2,156,183
486,836
305,018
Total revenue
2,948,037
(1) Includes $4,541.5 million, $3,424.8 million and $2,125.9 million revenue generated from the U.S. for the three years ended December 31,
2023, 2022 and 2021, respectively
5,860,168
4,381,310
$
$
$
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
10.
Post-Employment Benefits
December 31,
2023
2022
$
$
79,728
21,852
101,580
$
$
71,540
23,469
95,009
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, 2023, 2022 and 2021, we contributed approximately
$13.1 million, $12.4 million and $9.8 million for the matching contributions, respectively.
98
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, 2023. 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, 2023, 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
quarter ended December 31, 2023 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 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.
99
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, 2023, 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, 2023, 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, 2023, 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, 2023.
Item 9B. Other Information
Securities Trading Plans of Directors and Executive Officers
During our last fiscal quarter, the following directors and officer, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1
trading arrangement” as defined in Regulation S-K Item 408, as follows:
On December 5, 2023, Ita Brennan, our Senior Vice President and Chief Financial Officer, modified the Rule 10b5-1
trading arrangement previously adopted June 8, 2023 providing for the sale from time to time of an aggregate of up to 58,000
shares of our common stock to adjust scheduled sales dates as a result of her planned departure from the Company. The trading
arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until
September 8, 2024, or earlier if all transactions under the trading arrangement are completed.
On December 14, 2023, Jayshree Ullal, our Chairperson and Chief Executive Officer, adopted a Rule 10b5-1 trading
arrangement providing for the sale from time to time of an aggregate of up to 538,270 shares of our common stock. The trading
arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until
March 14, 2025, or earlier if all transactions under the trading arrangement are completed.
On December 14, 2023, Anshul Sadana, our Chief Operating Officer, adopted a Rule 10b5-1 trading arrangement
providing for the sale from time to time of an aggregate of up to 126,861 shares of our common stock. The trading arrangement
is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until March 13,
2025, or earlier if all transactions under the trading arrangement are completed.
No other officers or directors, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement”
or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the last fiscal quarter.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
100
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 2024 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 2024 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 2024 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 2024 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 2024 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.
101
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:
102
Exhibit
Number
Description
EXHIBIT INDEX
Amended and Restated Certificate of Incorporation of the
Registrant.
Amended and Restated Bylaws of Arista Networks, Inc. dated
December 18, 2023
Incorporated by Reference
Form
10-Q
File No.
001-36468
Exhibit
3.1
Filing Date
8/8/2014
Filed
Herewith
8-K
001-36468
3.1
12/20/2023
3.1
3.2
4.1
4.2
10.1
10.2 †
10.3 †
10.4 †
10.5 †
10.6 †
10.7 †
10.8 †
10.9 †
10.11
10.12
10.13
10.14‡
10.15 †
10.16 †
10.17 †
10.18 †
10.19 †
10.20 †
10.21 †
10.22 †
10.23 ‡
10.24 ‡
Form of the Registrant's common stock certificate.
S-1/A
333-194899
4.1
4/21/2014
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.
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.
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.
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.
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.
10-Q
001-36468
10.1
11/1/2019
S-1
S-1
333-194899
333-194899
S-1/A
333-194899
10-K
S-1
001-36468
333-194899
10.2
10.3
10.4
10.5
10.6
3/31/2014
3/31/2014
5/27/2014
3/12/2015
3/31/2014
S-1
333-194899
10.7
3/31/2014
S-1
333-194899
10.8
3/31/2014
S-1
333-194899
10.9
3/31/2014
S-1
333-194899
10.15
3/31/2014
10-Q
001-36468
10.1
8/8/2014
S-1
333-194899
10.16
3/31/2014
S-1
333-194899
10.17
3/31/2014
S-1/A
333-194899
10.21
4/21/2014
8-K
001-36468
10.1
5/14/2015
8-K
001-36468
10.2
5/14/2015
10-Q
10-Q
001-36468
001-36468
10.3
10.1
5/5/2016
5/8/2017
10-Q
001-36468
10.2
5/8/2017
10-Q
001-36468
10.3
5/8/2017
10-Q
001-36468
10.4
5/8/2017
10-Q
001-36468
10.1
11/5/2018
10-K
001-36468
10.24
2/15/2019
10.25 †
Awake Security, Inc. 2014 Equity Incentive Plan
S-8
333-249591
99.1
10/22/2020
103
Incorporated by Reference
Form
10-K
File No.
Exhibit
Filing Date
001-36468
10.1
2/13/2023
Filed
Herewith
8-K
001-36468
10.1
12/1/2023
Exhibit
Number
10.26
10.27
10.28
21.1
23.1
24.1
31.1
31.2
32.1*
Description
Third Amendment to Lease, by and between Arista Networks,
Inc. and The SANTA CLARA GATEWAY I LLC, dated
February 1, 2023
Letter Agreement by and between the Company and Chantelle
Breithaupt, dated October 15, 2023
Form of Severance Agreement by and between the Company
and Chantelle Breithaupt
List of Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (contained on signature page hereto)
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.
97.1
Compensation Recovery Policy
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104.0
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.
Item 16. Form 10-K Summary
None.
104
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.
SIGNATURES
Dated: February 12, 2024
By:
/s/ JAYSHREE ULLAL
ARISTA NETWORKS, INC.
(Registrant)
Jayshree Ullal
President, Chief Executive Officer and Chairperson of the Board
(Principal Executive Officer)
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
/s/ JAYSHREE ULLAL
Jayshree Ullal
/s/ ITA BRENNAN
Ita Brennan
/s/ KENNETH DUDA
Kenneth Duda
/s/ KELLY BATTLES
Kelly Battles
/s/ LEWIS CHEW
Lewis Chew
/s/ CHARLES GIANCARLO
Charles Giancarlo
/s/ DAN SCHEINMAN
Dan Scheinman
/s/ MARK TEMPLETON
Mark Templeton
/s/ YVONNE WASSENAAR
Yvonne Wassenaar
President, Chief Executive Officer and
Chairperson of the Board (Principal
Executive Officer)
Date
February 12, 2024
Chief Financial Officer (Principal
Accounting and Financial Officer)
February 12, 2024
Chief Technology Officer, Senior Vice
President, Director
February 12, 2024
February 12, 2024
February 12, 2024
February 12, 2024
February 12, 2024
February 12, 2024
February 12, 2024
Director
Director
Director
Director
Director
Director
105
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