Arista Networks Inc.ANET reported strong second-quarter 2018 results with healthy year-over-year increase in earnings and revenues on the back of solid order trends and favorable growth dynamics.
GAAP earnings improved to $150.7 million or $1.86 per share from $102.7 million or $1.30 per share in the year-earlier quarter, largely due to top-line growth and record profitability.
Non-GAAP earnings for the reported quarter were $155.7 million or $1.93 per share compared with $105.5 million or $1.34 per share in the year-ago quarter. The bottom line comfortably surpassed the Zacks Consensus Estimate of $1.72.
Arista Networks, Inc. Price, Consensus and EPS Surprise
Revenues of $519.8 million increased 28.3% year over year and outpaced the Zacks Consensus Estimate of $508 million with continued strength from the Cloud Titans vertical. Further, revenues came ahead of management's guidance of $500 million. Product revenues improved to $444.8 million from $353.9 million, while Service revenues rose to $75.1 million from $51.3 million.
Arista is benefiting from strong demand of the 'Cloud Titans' vertical, which was the top revenue contributor for the quarter followed by 'Enterprises' and 'Cloud Specialized Providers'.
Non-GAAP gross margin expanded 10 basis points (bps) to 64.5% and was above the mid-point of management's guidance of 62-64%, primarily driven by strong revenues and favorable customer mix. Non-GAAP operating margin jumped to 36.8% from 36.3% in the prior-year period.
Balance Sheet & Cash Flow
Cash & cash equivalents as of Jun 30, 2018, were $711.2 million. Inventory declined to $245.4 million in the quarter from $268.1 million in the previous quarter due to reduction in finished goods, reflecting optimization of supply chain. Deferred revenue balance was $448.6 million, down from $456.1 million in the previous quarter.
For the first six months of 2018, cash flow from operating activities aggregated $326.1 million compared with $242.1 million in the year-ago period.
For third-quarter 2018, Arista projects revenues in the range of $540-$552 million. The company anticipates non-GAAP gross margin of 63-65% and operating margin of approximately 32-34%.
Zacks Rank & Stocks to Consider
Arista currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Clearfield, Inc. CLFD and Qualcomm Inc. QCOM , both carrying a Zacks Rank #2 (Buy), and Comtech Telecommunications Corp. CMTL sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Clearfield has a positive earnings surprise history with an average of 52.8% in the trailing four quarters, beating estimates in each.
Qualcomm has long-term earnings growth expectations of 10.9%. It has a positive earnings surprise history with an average of 19.8% in the trailing four quarters, beating estimates in each.
Comtech Telecommunications has long-term earnings growth expectations of 5%. It has a positive earnings surprise history with an average of 123.7% in the trailing four quarters, beating estimates in each.
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