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01/10 16:12
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates strong demand and growth in AI and cloud sectors, but concerns arise from supply constraints and variability in growth rates. The Q&A session highlights management's confidence in future growth, yet acknowledges supply chain challenges and lower margins in some segments. These mixed signals suggest a neutral sentiment, with potential for both positive and negative short-term reactions.
Total Revenue $2.3 billion, up 27.5% year-over-year. This growth was supported by strong growth across all product sectors.
International Revenue $468.3 million or 20.2% of total revenue, down from 21.8% in the prior quarter. The decline was not attributed to specific reasons in the transcript.
Gross Margin 65.2%, up from 64.6% in the prior year quarter but down from 65.6% last quarter. The year-over-year improvement was primarily driven by strength in the enterprise segment.
Operating Expenses $383.3 million or 16.6% of revenue, up from $370.6 million last quarter. The increase was driven by additional headcount, inclusive of the VeloCloud acquisition.
R&D Spending $251.4 million or 10.9% of revenue, up from $243.3 million in the last quarter. The increase was driven by additional headcount.
Sales and Marketing Expense $109.5 million or 4.7% of revenue, compared to $105.3 million last quarter. The increase was driven by additional headcount.
G&A Costs $22.4 million or 1% of revenue, up from $22 million last quarter. No specific reasons for the increase were mentioned.
Operating Income $1.12 billion, landing at 48.6% of revenue. No specific reasons for the change were mentioned.
Net Income $962.3 million or 41.7% of revenue, with diluted earnings per share of $0.75, up 25% from the prior year. No specific reasons for the increase were mentioned.
Cash, Cash Equivalents, and Investments $10.1 billion. No specific reasons for the change were mentioned.
Operating Cash Performance $1.3 billion of cash generated from operations. This reflects strong business model performance.
Deferred Revenue Balance $4.7 billion, up from $4.1 billion in Q2. The increase was due to ramping new products, winning new customers, and expanding new use cases, including AI.
Inventory $2.2 billion, up from $2.1 billion in the prior period. The increase is due to higher evaluation inventory, indicating uptake of new products and use cases.
Etherlink portfolio: Highlights an accelerated networking approach with zero-touch automation, trusted security, traffic engineering, and telemetry to improve compute and GPU utilization.
Arista AVA (Autonomous Virtual Assist): Uses AI to help customers design, build, and operate networks, drawing on internal knowledge and customer data stored in NetDL.
SWAG (Switch Aggregation Technology): Provides campus stacking features along with fault containment and in-service software upgrades for maximum uptime.
AI and cloud market expansion: Experiencing unprecedented demand and scale of AI build-outs, with a target of $1.5 billion AI aggregate for 2025 and $2.75 billion for 2026.
International revenue: Accounts for 20% of total revenue, with strong growth across all product sectors.
Revenue growth: Achieved $2.31 billion in Q3 2025, up 27.5% year-over-year, with a gross margin of 65.2%.
Deferred revenue: Increased to $4.7 billion, driven by new products and use cases, including AI.
Cash and investments: Ended Q3 with $10.1 billion in cash, cash equivalents, and investments.
Leadership changes: Promoted Ken Duda to President and CTO, and welcomed Tyson Lamoreaux as Senior VP of Cloud & AI Networking.
Partnerships: Collaborating with Oracle Acceleron and other AI companies to build modern AI stacks and scale-up networks.
Supply Chain Constraints: The company faces challenges related to supply chain constraints, which could impact manufacturing output, inventory management, and lead times.
Tariffs and Trade Restrictions: Tariffs and trade restrictions are mentioned as potential risks that could affect the company's operations and financial performance.
Inflationary Pressures: Inflationary pressures on the business are highlighted as a challenge, potentially impacting costs and margins.
Deferred Revenue Volatility: The company notes increased volatility in deferred revenue balances due to customer-specific acceptance clauses and ramping of new products.
Inventory Management: Higher evaluation inventory and increased purchase commitments indicate potential risks in inventory management and demand forecasting.
Regulatory Risks: Regulatory risks are implied through references to compliance and filings with the SEC, which could impact operations if not managed properly.
Customer Mix Impact on Margins: The company anticipates variability in gross margins due to changes in customer mix, which could affect profitability.
Economic Uncertainty: Economic uncertainty is implied as a risk factor that could influence market conditions and customer demand.
Financial Outlook for Q4 2025: Revenue of $2.3 billion to $2.4 billion with continued growth expected across cloud, AI, enterprise, and providers markets. Gross margin in the range of 62% to 63%, inclusive of possible known tariff scenarios. Operating margin of approximately 47% to 48%. Effective tax rate expected to be approximately 21.5% with approximately 1.281 billion diluted shares.
Full Year FY 2025 Guidance: Full year revenue growth of approximately 26% to 27% or $8.87 billion at the midpoint. Campus segment target of $750 million to $800 million and AI center target of at least $1.5 billion. Gross margin outlook of approximately 64%, inclusive of possible known tariff scenarios. Operating margin of roughly 48%.
FY 2026 Guidance: Full year revenue growth of approximately 20%, now at a higher dollar amount of $10.65 billion. Campus target of $1.25 billion and AI center target of $2.75 billion. Gross margin expected in the range of 62% to 64%, driven by customer mix. Operating margin outlook of approximately 43% to 45%.
AI and Cloud Market Trends: Arista is experiencing unprecedented demand and scale of AI build-outs, with a stated goal of $1.5 billion AI aggregate for 2025 and $2.75 billion for 2026. The company is focused on building next-gen architectures for cloud networks and AI systems, leveraging open standards and innovations like ESUN and UEC.
Capital Expenditures: Approximately $100 million in CapEx expected during fiscal year 2025 for expanded facilities in Santa Clara.
Share Repurchase Program: Of the $1.5 billion repurchase program approved in May 2025, $1.4 billion remains available for repurchase in future quarters. The actual timing and amount of future repurchases will be dependent on market and business conditions, stock price and other factors.
The earnings call summary indicates strong demand and growth in AI and cloud sectors, but concerns arise from supply constraints and variability in growth rates. The Q&A session highlights management's confidence in future growth, yet acknowledges supply chain challenges and lower margins in some segments. These mixed signals suggest a neutral sentiment, with potential for both positive and negative short-term reactions.
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