Investor Presentation - Investors Relations

The Age of Cloud Computing
June 2015
1
Safe Harbor
This presentation and the accompanying oral presentation contain forward-looking statements that are based on our management’s beliefs
and assumptions and on information currently available to management. Forward-looking statements include all statements other than
statements of historical fact contained in this presentation, including information concerning our business plans and objectives, total
addressable market, potential growth opportunities, market potential by speed, trends relating to increase in storage, competitive position,
benefits of Arista platform, industry environment and potential market opportunities.
Forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause actual
results, performance or achievements to differ materially from those anticipated in or implied by the forward looking statements including:
Arista Network’s limited operating history; risks associated with Arista Networks’ rapid growth; Arista Networks’ customer concentration;
requests for more favorable terms and conditions from our large end customers; declines in the sales prices of our products and services;
changes in customer order patterns or customer mix; increased competition in our products and service markets, including the data center
market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market
change; the dispute with Cisco Systems, Inc. and OptumSoft, Inc., the evolution of the cloud networking market and the adoption by end
customers of Arista Networks’ cloud networking solutions; and general market, political, economic and business conditions. Additional
risks and uncertainties that could affect Arista Networks can be found in Arista’s Quarterly Report on Form 10-Q for the period ended
March 31, 2015 filed with the SEC on May 14, 2015, Arista’s Annual Report on Form 10-K for the period ended December 31, 2014 filed
with the SEC on March 12, 2015, and other filings that the company makes to the SEC from time to time. You can locate these reports
through our website at http://investors.arista.com and on the SEC’s website at www.sec.gov. You should not rely upon forward-looking statements as predictions of future events. Although our management believes that the
expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity,
performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we,
nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. This presentation is being provided as of June 1, 2015 and the forward looking statements and any other statements contained herein
speak only as of the date of this presentation, and we undertake no obligation to publicly update any forward-looking statements or any
other statements in this presentation for any reason after the date of this presentation to conform these statements to actual results or to
changes in our expectations, except as required by law. In addition to GAAP financial information, this presentation includes certain non-GAAP financial measures. The non-GAAP measures have
limitations, and you should not consider them in isolation or as a substitute for our GAAP financial information. There are limitations to the
use of non-GAAP measures. Non-GAAP gross margins, non-GAAP operating income and adjusted EBITDA exclude the impact of stockbased compensation expense, which is a recurring expense for us. See the Appendix for a reconciliation of all non-GAAP financial
measures to their nearest GAAP equivalent.
2
Arista Networks Mission
Deliver the best cloud networking solutions to
address the needs of large-scale Internet / Web
and next-generation enterprise data centers
3
The Move to the Cloud
Cloud
Virtualization
Internet
Environment
Client Server
Architecture
Database Server
Rise of the PC
Server
Client
Client
Client
Client
100,000s of Servers
1,000,000s of VMs
Client
Mainframe
10,000s
1,000s
100s
10s
1970
1980
1990
2000
2010
2020
4
The Consumer is Already There
Over 2 Billion Smartphones and 1 Billion Tablets
5
Enterprise Transition to Cloud
Enterprise Applications => Cloud Services
6
ICD Cloud Services Forecast
Source: IDC Research November 2014
7
Enterprise Cloud Adoption Status
Source: Morgan Stanley CIO Survey April 2015
8
Rise of Mega Cloud Datacenters
Facebook Altoona Iowa Datacenter
9
Inside a Mega Cloud Datacenter
The Aerial View
Power and Operational Efficiency
Dramatic Increases in Cloud CAPEX
12
6
2
9
4.5
1.5
6
3
1
3
1.5
0.5
0
0
0
2012
2013
Source: Company filings
2014
2012
2013
2014
2012
2013
2014
Cloud/Web CAPEX for 2015(E)
Cloud/Web Portal
2015E CAPEX Spend
GOOG
$11-12B
AMZN
$5-6B
MSFT
$4-5B
FB
$2-3B
EBAY
$1B
YHOO
$0.4B
TOTAL TOP 6
$25-25B
Source: Deutsche Bank Data Networking Research Report 5/18/2015
14
Brian&Marshall&&
[email protected]/|/(415)/80080184/
NA Cloud vs NA Carrier CAPEX
Top&N.A.&Carrier&CapEx&vs.&the&“Big&6”&Web&2.0&($mil)&
$90,000/
$80,000/
$70,000/
$60,000/
ISI&estimates the&"Big&6"&Web&2.0&aggregate&Capex&will&be
greater&than&the&Top&N/A&carrier&budgets&within&~5&years&
(assuming/continued/~20%/y/y/and/flattish/growth)
$50,000/
$40,000/
$30,000/
While&top&N/A&carriers&(T&&&VZ)&CapEx growth&is&limited,&it&is&still
3x+&in&absolute&$&terms&vs.&the&"Big&6"&Web&2.0&budgets&today
(e.g.,/~$36.4bil/vs./$11.8bil/ in/2011,/ respectively)
$20,000/
$10,000/
$0/
CY09
CY10
CY11
Source:(company(filings,(ISI(Group(
CY12E
Top/N/A/Carriers
Source:
Pacific Crest Research Note 2014
Source:(company(filings,(Bloomberg(and(ISI(Group(
CY13E
CY14E
The/"Big/6"/Web/2.0/Players
CY15E
CY16E
CY17E
Cloud Server Shipments
100%
Enterprise/
On-Premise
Percent of Units (%)
75%
50%
25%
Cloud
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
20
08
0%
Source: Dell'Oro Group Server Forecast, January 2015
16
Datacenter Switch Revenue
$16
Data Center Ethernet Switch Revenue
Data Center Ethernet Switch Revenue
Revenue in $ Billions
Top 7 Cloud Providers
Rest of Cloud and Telco SPs
Enterprise and SMB
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
20
10
$0
Source: Dell'Oro Group Ethernet Switch Forecast, January 2015
17
The Cloud Networking Opportunity
Server Shipments
Data Center Ethernet Switch Revenue
100%
$16
75%
Revenue in $ Billions
50%
25%
Rest of Cloud and Telco
SPs
Enterprise and SMB
Cloud
19
20
18
20
17
20
16
20
15
20
14
13
20
12
20
11
20
20
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
Source: Dell'Oro Group Server Forecast, January 2015
10
$0
0%
20
Percent of Units (%)
Top 7 Cloud Providers
Enterprise/
Premises
Source: Dell'Oro Group Ethernet Switch Forecast, January 2015
18
Datacenter Switch Revenue by Speed
Notes:
Source: Dell’Oro, Ethernet Switch Deployment Location April 2015
1.Dell’Oro recognizes that servers with 25/50 Gbps ports will connect to 100 Gbps switch ports with a splitter cable. Our 25/50 Gbps port shipments are only native 25/50 Gbps. We count all ports at the highest speed they can support and not what they can be split to and do not double count ports in our segmentation.
19
Arista Market Share vs Cisco
High Speed Data Center Switching Market Share in Ports (10/40/100GbE)
Arista
Cisco
Source: Crehan Research Datacenter Switch Market Share Report Q4’2014
20
Gartner Magic Quadrant 2015
Data Center Networking
CHALLENGERS
LEADERS
"We see Arista, in essence,
being very open and
agnostic and almost acting
as an arms dealer in the
SDN race," Lerner said.
Andrew Lerner, Gartner May 2015
NICHE PLAYERS
Source: Gartner May 2015
VISIONARIES
21
Arista 7300 Family
Arista 7500 Family
Arista 7050 Family
Arista 7150/7280 Family
Leaf
Spline TM / Spine
Arista Switching Portfolio
Volume
Value
Single-Image Arista EOS across all platforms
EOS: the Industry’s Most Advanced
Network Operating System
CLI
SNMP
VXLAN
VM
Tracer
SDN
APIs
BGP
SysDB
ASIC
Driver
LAG
STP
Unmodified Linux
Cloud Scale
Architecture
Shared State
Availability
OSPF
Modular / Resilient
Visibility
Merchant Silicon
Open and
Programmable
Automation
Accelerates Time to Service and Reduces TCO
Arista’s EOS Software Architecture
Legacy – Spaghetti Code
OTV
MSDP
PIM
Arista Programmable EOS
Notify
IGMP
PIM
BGP
SNMP
ACL
LC
FIB
IPQOS
IGMP
Snoop
Publish
STP
U4RIB
U6RIB
SysDB
Driver
CoPP
STP
BGP
RIP
OSPF
EIGRP
IGMP
ISIS
eAPI
MLAG
Susceptible to Process Failure
Processes are Self-Healing
Custom Linux
Open Linux
Custom ASICs
Merchant Silicon
Proprietary vs Arista Open Cloud
Legacy Fabric Architecture
Proprietary
Interface
Arista - Open Cloud Architecture
Open
Standard
Proprietary Leaf-Spine Lock-in
Standards Based Interfaces
Forklift Hardware Upgrade
Forwards and Backwards Compatible
Arista’s Ecosystem: Open + Programmable
Hypervisor/Virtualization Management, Automation, Orchestration
Network Services
EOS Application Programming Interfaces (APIs)
JSON | XMPP | CLI | Python | CloudVision
EOS Extensible Operating System
Scalability
|
Availability | Programmability | Automation | Visibility
Arista Key Software Differentiators
Feature
Programmable
& Open
Velocity
Sel
Re f hea
sili
encling
e
A
v
a
i
EOS
lab
i
l
i
t
y
ta
-Da
Big alysis
An
nd le
a
b
n
a
e
Op ramm
g
o
r
P
Cl
d
n
Ar ou
n
ioa
k o
t
r
d
o
o izal
c
i
w
k
t
l
h
t ar
a
ite Sc
tu
Ne iro
al
m
V
c
W
o
e
t
t
u
re
Au
27
Broad Customer Adoption
End Customers (Cumulative)
4000
3000+
3000
2300+
2000
1600+
1000+
1000
500+
0
FY10
FY11
FY12
FY13
FY14
28
Pace of Cloud Networking Adoption
Large
Financial Services
Web1
Cloud Spend
550+ Customers
Service Provider /
Cloud / Hosting
Government
160+
Business
Services
225+
Manufacturing
35+
Media &
Entertainment
195+
Oil & Gas
30+
Retail
45+
115+ Customers
High Tech
380+ Customers
340+ Customers
Education
220+
Healthcare
95+
Research
Labs
75+
Moderate
Follower
Pace of Adoption
< 10% of Sales
1 Includes
Cloud Titans. Note: By Billings. Only selected verticals shown.
> 10% of Sales
Early Adopter
Illustrative Customer Purchase Pattern
$ Value of Purchase
Continue to address incremental spend –
build-out or replacement
Thereafter
"
Billings Begin
Deployment into
critical path – data center / core
12-24 Months
Proof of Concept –
likely 1-2 applications
7-12 Months
Sales Cycle
0-6 Months
Time
30
Proven Land-and-Expand Model
Initial Sale
Additional Purchases
Did Not Purchase
31
Arista Revenue Growth
Quarterly Revenue
Annual Revenue
$MM
$MM
$584
$173
$179
$155
$361
$138
$117
$193
$140
$72
FY10
FY11
FY12
FY13
FY14
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Notes
1.Quarterly numbers may not add up to Annual numbers due to rounding
32
Experienced Leadership Team
Executive Team
Andy Bechtolsheim
Jayshree Ullal President
and CEO
Ita Brennan
Chief Financial Officer
Founder, Chief Development Officer
and Chairman
Mark Foss
SVP, International
Field Operations
Anshul Sadana
SVP
Customer Engineering
Kenneth Duda
Founder, Chief Technology
Officer and SVP, Software
Engineering
Mark Smith
SVP, Worldwide Sales
Operations
Vice Presidents
Isabelle Bertin-Bailly
Ed Chapman
Jeffrey Hirschman
Hugh Holbrook
VP, Global
Human Resources
VP, Business Development and
Alliances
VP, Hardware
Engineering
VP, Software
Engineering
Cristophe Metivier
Jeff Raymond
VP, Manufacturing and
Platform Engineering
VP, EOS Software & Services
Adam Sweeney
VP, Software
Engineering
Marc Taxay
VP and General
Counsel
33
Arista Networks Summary
•
•
•
•
•
•
•
Strong revenue and market share growth
Visibility from deep customer engagement
3000+ customers across key verticals
Proven “land and expand” model
Sustainable technology differentiation
High feature velocity with EOS software
Experienced management team
34
Q1’15 Non-GAAP Income Statement ($M)
Q1’14
Q1’15
YoY Change %
$117.2
$179.0
53%
Product
$106.5
$160.1
50%
Service
$10.7
$18.9
76%
Gross Margin
69.6%
66.1%
-
Operating Income
$26.8
$51.3
92%
22.8%
28.6%
-
Net Income
$16.4
$35.5
117%
EPS (Diluted)
$0.25
$0.50
100%
Revenue
Operating Income (%)
35
Q1’15 Key Financial Measures ($M)
Q1’14
Q2’14
Q3’14
Q4’14
Q1’15
Cash & Equivalents
$129.5
$397.2
$408.6
$240.0
$275.2
Marketable Securities
$0.0
$0.0
$0.0
$209.4
$209.2
Operating Cash Flow
$17.7
$46.3
$34.8
$33.2
$20.8
Accounts Receivables
$63.0
$67.9
$84.1
$97.0
$113.1
Days Sales Outstanding
48
45
50
51
57
Inventories
$79.0
$71.1
$62.6
$80.5
$91.2
Turns
1.92x
2.38x
3.17x
2.87x
2.54x
Deferred Revenue
$56.1
$61.7
$77.7
$106.5
$132.8
36
Appendix: GAAP to Non-GAAP Reconciliation
In 000's except per share data
Q2’13
GAAP gross profit
GAAP gross margin
Stock compensation
Non-GAAP gross profit
Non-GAAP gross margin
$
GAAP income from operations
Stock compensation
Litgation expense (1)
Non-GAAP income from operations
Non-GAAP operating margin
$
GAAP net income to common stockholders, diluted
Net income attributable to participating securities
Stock compensation
Gain on note receivable
Litigation expense (1)
Tax effect of non-GAAP exclusions
Non-GAAP net income
$
$
$
$
GAAP weighted diluted Shares
Additional dilutive shares (2)
Non-GAAP weighted diluted shares
GAAP diluted income per share to common stockholders
Net income per share attributable to participating securities
Non-GAAP adjustments to net income per share
Non-GAAP adjustments to diluted shares
Non-GAAP diluted income per share
Q3’13
$
Q1’14
Q2’14
Q3’14
Q4’14
Q1’15
53,901 $
64.6%
83
53,984 $
64.7%
65,036 $
64.0%
107
65,143 $
64.1%
77,473 $
67.5%
151
77,624 $
67.6%
81,314 $
69.4%
211
81,525 $
69.6%
93,380 $ 100,957 $ 116,440 $
67.7%
64.9%
67.1%
301
480
543
93,681 $ 101,437 $ 116,983 $
67.9%
65.2%
67.4%
16,264 $
2,073
18,337 $
22.0%
18,636 $
2,584
21,220 $
20.9%
22,505 $
3,760
26,265 $
22.9%
21,982 $
4,782
26,764 $
22.8%
30,655 $
6,705
37,360 $
27.1%
33,874 $
8,082
41,956 $
27.0%
39,002 $
8,050
47,052 $
27.1%
35,755
8,839
6,670
51,264
28.6%
5,159
5,092
2,073
12,324
6,128
5,728
2,584
14,440
7,415
6,327
3,760
17,502
6,816 $
5,513
4,782
(705)
16,406 $
14,851 $
6,767
6,705
(4,000)
(600)
23,723 $
21,255 $
611
8,082
(1,876)
28,072 $
30,328 $
709
8,050
(1,750)
37,337 $
24,071
421
8,839
6,670
(4,469)
35,532
33,816
32,282
66,098
44,057
23,413
67,470
69,737
69,737
70,219
70,219
70,722
70,722
$
$
29,252
32,282
61,534
$
Q4’13
0.18 $
0.17
0.07
(0.22)
0.20 $
$
$
30,412
32,282
62,694
0.20 $
0.19
0.08
(0.24)
0.23 $
(1) Includes legal expenses associated with our Optumsoft and Cisco litigation.
(2) Includes weighted shares from the issuance of shares upon our IPO and the assumed
conversion of preferred stock and notes payable at the beginning of each quarter.
$
$
32,470
32,282
64,752
0.23 $
0.19
0.12
(0.27)
0.27 $
0.20 $
0.16
0.12
(0.23)
0.25 $
0.34 $
0.15
0.05
(0.19)
0.35 $
0.30
0.01
0.09
0.40
$
$
0.43
0.01
0.09
0.53
$
$
117,754
65.8%
636
118,390
66.1%
0.34
0.16
0.50
37