Document

5453 Great America Parkway

Santa Clara

California

(Address of principal executive offices)

(Zip Code)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to



Commission File Number:	001-36468
Arista Networks, Inc.
(Exact Name of Registrant as Specified in its Charter)



Delaware		20-1751121
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)



(408)	547-5500
(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	ANET	New York Stock Exchange

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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of July 26, 2019 was 76,644,302.

ARISTA NETWORKS, INC.

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
	Signatures	62

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ARISTA NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except par value)



	June 30, 2019		December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	944,414	$	649,950
Marketable securities	1,313,389		1,306,197
Accounts receivable, net of rebates and allowances of $7,488 and $9,120, respectively	343,080		331,777
Inventories	314,177		264,557
Prepaid expenses and other current assets	113,458		162,321
Total current assets	3,028,518		2,714,802
Property and equipment, net	41,023		75,355
Acquisition-related intangible assets, net	51,612		58,610
Goodwill	53,684		53,684
Investments	31,486		30,336
Operating lease right-of-use assets	94,203		—
Deferred tax assets	113,660		126,492
Other assets	27,106		22,704
TOTAL ASSETS	$	3,441,292	$	3,081,983
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	86,134	$	93,757
Accrued liabilities	113,898		123,254
Deferred revenue	272,366		358,586
Other current liabilities	52,622		30,907
Total current liabilities	525,020		606,504
Income taxes payable	45,804		36,167
Operating lease liabilities, non-current	89,705		—
Finance lease liabilities, non-current	—		35,431
Deferred revenue, non-current	229,852		228,641
Other long-term liabilities	25,351		31,851
TOTAL LIABILITIES	915,732		938,594
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued and outstanding as of June 30, 2019 and December 31, 2018	—		—
Common stock, $0.0001 par value—1,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 76,555 and 75,668 shares issued and outstanding as of June 30, 2019 and December 31, 2018	8		8
Additional paid-in capital	1,038,740		956,572
Retained earnings	1,484,777		1,190,803
Accumulated other comprehensive income (loss)	2,035		(3,994		)
TOTAL STOCKHOLDERS’ EQUITY	2,525,560		2,143,389
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,441,292	$	3,081,983

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Revenue:
Product	$	513,171	$	444,767		$	1,018,586	$	852,384
Service	95,150		75,078			185,159		139,950
Total revenue	608,321		519,845			1,203,745		992,334
Cost of revenue:
Product	200,534		171,622			398,686		328,313
Service	17,596		14,340			34,298		27,219
Total cost of revenue	218,130		185,962			432,984		355,532
Gross profit	390,191		333,883			770,761		636,802
Operating expenses:
Research and development	114,295		104,078			233,964		206,440
Sales and marketing	53,040		46,188			104,093		88,328
General and administrative	16,019		18,420			31,525		38,099
Legal settlement	—		405,000			—		405,000
Total operating expenses	183,354		573,686			369,582		737,867
Income (loss) from operations	206,837		(239,803		)	401,179		(101,065		)
Other income (expense), net	13,811		(2,169		)	26,144		1,987
Income (loss) before income taxes	220,648		(241,972		)	427,323		(99,078		)
Provision for (benefit from) income taxes	31,397		(86,703		)	37,043		(88,347		)
Net income (loss)	$	189,251	$	(155,269	)	$	390,280	$	(10,731	)
Net income (loss) attributable to common stockholders:
Basic	$	189,152	$	(155,187	)	$	390,063	$	(10,725	)
Diluted	$	189,158	$	(155,187	)	$	390,076	$	(10,725	)
Net income (loss) per share attributable to common stockholders:
Basic	$	2.47	$	(2.08	)	$	5.12	$	(0.14	)
Diluted	$	2.33	$	(2.08	)	$	4.80	$	(0.14	)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic	76,552		74,503			76,238		74,250
Diluted	81,335		74,503			81,271		74,250

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	189,251		$	(155,269	)	$	390,280		$	(10,731	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(272		)	(1,167		)	(37		)	(814		)
Net change in unrealized gains (losses) on available-for-sale securities	2,887			242			6,066			(1,799		)
Other comprehensive income (loss)	2,615			(925		)	6,029			(2,613		)
Comprehensive income (loss)	$	191,866		$	(156,194	)	$	396,309		$	(13,344	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands)



	Three Months Ended June 30, 2019																Six Months Ended June 30, 2019
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at beginning of period	76,453		$	8	$	1,005,405		$	1,395,534		$	(580	)	$	2,400,367		75,668		$	8	$	956,572		$	1,190,803		$	(3,994	)	$	2,143,389
Cumulative-effect adjustment to beginning balance ⁽¹⁾	—		—		—			—			—			—			—		—		—			3,702			—			3,702
Net income	—		—		—			189,251			—			189,251			—		—		—			390,280			—			390,280
Other comprehensive income, net of tax	—		—		—			—			2,615			2,615			—		—		—			—			6,029			6,029
Stock-based compensation	—		—		24,297			—			—			24,297			—		—		48,588			—			—			48,588
Issuance of common stock in connection with employee equity incentive plans	521		—		11,781			—			—			11,781			1,312		—		38,104									38,104
Tax withholding paid for net share settlement of equity awards	(12	)	—		(2,812		)	—			—			(2,812		)	(18	)	—		(4,662		)	—			—			(4,662		)
Vesting of early-exercised stock options	—		—		69			—			—			69			—		—		138			—			—			138
Repurchase of common stock	(407	)	—		—			(100,008		)	—			(100,008		)	(407	)	—		—			(100,008		)	—			(100,008		)
Balance at end of period	76,555		$	8	$	1,038,740		$	1,484,777		$	2,035		$	2,525,560		76,555		$	8	$	1,038,740		$	1,484,777		$	2,035		$	2,525,560
_________________________________________
(1) On January 1, 2019, we adopted Accounting Standard Codification Topic 842 - Leases (“ASC 842”), which resulted in a cumulative-effect adjustment to the beginning balance of Retained Earnings for 2019. See Note 1 of the accompanying notes for further details.



	Three Months Ended June 30, 2018																Six Months Ended June 30, 2018
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at beginning of period	74,338		$	8	$	841,431		$	1,007,226		$	(3,626	)	$	1,845,039		73,706		$	7	$	804,731		$	859,114		$	(1,938	)	$	1,661,914
Cumulative-effect adjustment to beginning balance	—		—		—			—			—			—			—		—		—			3,574			—			3,574
Net loss	—		—		—			(155,269		)	—			(155,269		)	—		—		—			(10,731		)	—			(10,731		)
Other comprehensive loss, net of tax	—		—		—			—			(925		)	(925		)	—		—		—			—			(2,613		)	(2,613		)
Stock-based compensation	—		—		22,478			—			—			22,478			—		—		43,329			—			—			43,329
Issuance of common stock in connection with employee equity incentive plans	465		—		11,510			—			—			11,510			1,103		1		28,809			—			—			28,810
Tax withholding paid for net share settlement of equity awards	(12	)	—		(2,927		)	—			—			(2,927		)	(18	)	—		(4,463		)	—			—			(4,463		)
Vesting of early-exercised stock options	—		—		67			—			—			67			—		—		153			—			—			153
Balance at end of period	74,791		$	8	$	872,559		$	851,957		$	(4,551	)	$	1,719,973		74,791		$	8	$	872,559		$	851,957		$	(4,551	)	$	1,719,973

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)



	Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	390,280		$	(10,731	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and other	16,757			11,328
Stock-based compensation	48,588			43,329
Noncash lease expense	7,955			—
Deferred income taxes	7,914			(18,281		)
(Gain) loss on investments in privately-held companies	(1,150		)	9,100
Accretion of investment discounts	(4,260		)	(783		)
Changes in operating assets and liabilities:
Accounts receivable, net	(11,303		)	(13,571		)
Inventories	(49,620		)	60,759
Prepaid expenses and other current assets	48,864			(72,418		)
Other assets	(4,635		)	629
Accounts payable	(6,783		)	3,597
Accrued liabilities	(9,476		)	(47,153		)
Accrued legal settlement	—			405,000
Deferred revenue	(85,009		)	(50,096		)
Income taxes payable	14,399			6,653
Other liabilities	3,955			(1,237		)
Net cash provided by operating activities	366,476			326,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities	552,512			222,764
Purchases of marketable securities	(549,383		)	(696,665		)
Purchases of property and equipment	(8,639		)	(13,071		)
Investments in privately-held companies	—			(8,000		)
Other investing activities	—			(2,000		)
Net cash used in investing activities	(5,510		)	(496,972		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of lease financing obligations	—			(921		)
Proceeds from issuance of common stock under equity plans	38,104			28,810
Tax withholding paid on behalf of employees for net share settlement	(4,662		)	(4,463		)
Repurchase of common stock	(100,008		)	—
Net cash provided by (used in) financing activities	(66,566		)	23,426
Effect of exchange rate changes	72			(607		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	294,472			(148,028		)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period	654,164			864,697
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period ⁽¹⁾	$	948,636		$	716,669

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Right-of-use assets recognized upon the adoption of ASC 842 ⁽²⁾	$	93,207		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	9,130			—
Property and equipment included in accounts payable and accrued liabilities	1,376			1,077
___________________________________________________
(1) See Note 4 of the accompanying notes for a reconciliation of the ending balance of cash, cash equivalents and restricted cash as shown in this condensed consolidated statements of cash flows. (2) See Note 1 of the accompanying notes.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARISTA NETWORKS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Arista Networks, Inc. (together with our subsidiaries, “we,” “our” or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation enterprise. Our cloud networking solutions consist of our Extensible Operating System (“EOS”), a set of network applications and our 10/25/40/50/100 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 unaudited condensed consolidated financial statements include the accounts of Arista Networks, Inc. and its wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial information. The results for the three and six months ended June 30, 2019, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated.

Our condensed consolidated financial statements and related financial information in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 15, 2019.

Use of Estimates

The preparation of the accompanying condensed 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, revenue recognition and deferred revenue; allowance for doubtful accounts, sales rebates and return reserves; valuation of goodwill and acquisition-related intangible assets, accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; estimate of useful lives of long-lived assets including intangible assets; valuation of inventory and contract manufacturer/supplier liabilities; recognition and measurement of contingent liabilities; valuation of equity investments in privately-held companies; determination of fair value for stock-based awards; estimate of incremental borrowing rate for determining the present value of future lease payments; and valuation of warranty accruals. We evaluate our estimates and assumptions based on historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates.

Significant Accounting Policies

During the six months ended June 30, 2019, we adopted ASC 842 - Leases, as discussed in the section titled Recently Adopted Accounting Pronouncements of this Note 1. As a result, we added a new significant accounting policy “Leases” as described below. There have been no other significant changes to our accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 15, 2019.

Leases

Our initial application date of ASC 842 is January 1, 2019. For the periods prior to 2019, our leases were accounted for under the legacy guidance in ASC 840.

We determine if a contract contains a lease at inception. The lease term represents the non-cancellable period for which we have the right to use an underlying asset, which may include periods covered by certain options to extend and/or terminate the lease. Lease liabilities and corresponding right-of-use (“ROU”) assets are recognized at the commencement date of a lease. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet.

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A lease liability is the present value of our future fixed lease payments. As none of our leases provides an implicit interest rate, we use our estimated incremental borrowing rate as of the lease commencement date to determine the present value of future lease payments. Our discount rates are determined and applied at a company level. An ROU asset is calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses.

For fixed lease payments under operating leases, lease expense is recognized on a straight-lined basis over the lease term. For variable lease payments, lease expense is recognized when incurred. For operating leases that include both lease and non-lease components, we account for lease and non-lease components as a single lease component for all classes of underlying assets and, therefore, recognize non-lease payments as lease expense.

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”), and in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”) (collectively referred to as “ASC 842”). Under the guidance, lessees are required to recognize assets and lease liabilities on the balance sheet for most leases including operating leases and provide enhanced disclosures. Companies are required to adopt this guidance using a modified retrospective approach and apply the transition provisions under the guidance at either 1) the later of the beginning of the earliest comparative period presented in the financial statements and the commencement date of the lease, or 2) the beginning of the period of adoption (i.e. on the effective date). Under the transition method using the second application date, a company initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We adopted the guidance on January 1, 2019 using the modified retrospective transition method and initially applied the transition provisions at January 1, 2019, which allows us to continue to apply the legacy guidance in ASC 840 for periods prior to 2019. We elected the package of transition practical expedients, which, among other things, allows us to keep the historical lease classifications and not have to reassess the lease classification for any existing leases as of the date of adoption. We also made the following accounting policy elections as allowed by ASC 842:


•	to apply the short-term lease exception, which allows us to keep leases with an initial term of twelve months or less off the balance sheet.


•	to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all our leases.

As a result of the adoption, we recognized operating leases that were previously not recognized on the consolidated balance sheets. In addition, we derecognized the assets and the lease financing liabilities previously recorded for our headquarters building under a build-to-suit lease. Under ASC 842, this lease is recognized as an operating lease in our condensed consolidated financial statements beginning in the first quarter of 2019. The table below summarizes the impact of the adoption of ASC 842 on the condensed consolidated balance sheet as of January 1, 2019 (in thousands).



			Adjustments for the Adoption of ASC 842
Balance Sheet Line Item	December 31, 2018		Derecognition of Build-to-Suit Lease			Recognition of Operating Leases ⁽¹⁾			January 1, 2019
Property and equipment, net	$	75,355	$	(32,806	)	$	—		$	42,549
Operating lease right-of-use assets	—		—			93,207			93,207
Deferred tax assets	126,492		(1,165		)	—			125,327
Other current liabilities	30,907		(2,242		)	12,391			41,056
Operating lease liabilities, non-current	—		—			88,230			88,230
Finance lease liabilities, non-current	35,431		(35,431		)	—			—
Other long-term liabilities	31,851		—			(7,414		)	24,437
Retained earnings	1,190,803		3,702			—			1,194,505
__________________
(1) Includes an operating lease for our corporate headquarters building under the build-to-suit arrangement, which was accounted for as a financing lease prior to 2019 and derecognized on January 1, 2019 upon the adoption of ASC 842.

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Recent Accounting Pronouncements Not Yet Effective

Credit Losses of Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The proposed standard requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. For trade receivables, we will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, we will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses, Topic 326, which allows companies to make an irrevocable one-time election upon adoption of ASU 2016-13 to elect the fair value option for certain financial assets currently measured at amortized cost (except held-to-maturity securities). The election is to be applied on an instrument-by-instrument basis. ASU 2016-13 is effective for us for our first quarter of 2020. We are currently assessing the impact this guidance may have on our consolidated financial statements.

2. Business Combinations

In the three months ended September 30, 2018, we acquired Mojo Networks, Inc. (“Mojo”) and Metamako Holding PTY LTD. (“Metamako”) in order to extend our cognitive cloud networking architecture and to improve our next generation platforms for low-latency applications.

The total fair value of consideration transferred for these acquisitions was approximately $117.5 million, which consisted of $101.9 million in cash and $15.6 million for the fair value of 58,072 shares of our common stock issued. The following table summarizes our preliminary purchase price allocation of the two acquisitions, in aggregate, based on the estimated fair value of the assets acquired and liabilities assumed at their respective acquisition dates (in thousands):



	Purchase Price Allocation
Cash and cash equivalents	$	4,953
Other tangible assets	23,824
Liabilities	(28,706		)
Intangible assets	63,720
Goodwill	53,684
Net assets acquired	$	117,475

We continue the process of identifying and evaluating pending escrow claims related to inventory, tax and other liabilities. Accordingly, the preliminary values reflected in the table above are subject to further measurement period adjustments.

The acquired intangible assets are amortized on a straight-line basis over their estimated useful lives as we believe this method most closely reflects the pattern in which the economic benefits of the assets will be consumed. The following table shows the valuation of the intangible assets acquired (in thousands) along with their estimated useful lives.



	Acquisition Date Fair Value		Estimated Useful Life
Developed technology	$	52,510	5 years
Customer relationships	7,080		7 years
Trade name	2,470		3 years
Others	1,660		1 year
Total intangible assets acquired	$	63,720

Goodwill of $53.7 million is primarily attributable to the expected synergies created by incorporating the solutions of the acquired businesses into our technology platform, and the value of the assembled workforce. We operate under a single reportable segment. The goodwill is not deductible for income taxes purposes.

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3. Fair Value Measurements

Assets and liabilities recorded at fair value on a recurring basis in the accompanying condensed 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.

We measure and report our cash equivalents, restricted cash, and available-for-sale marketable securities at fair value on a recurring basis. The following tables summarize the amortized costs, unrealized gains and losses and fair value of these financial assets by significant investment category and their level within the fair value hierarchy (in thousands):



	June 30, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Level I		Level II		Level III
Financial Assets:
Cash Equivalents:
Money market funds	$	518,039	$	—	$	—		$	518,039	$	518,039	$	—	$	—
Agency securities	3,992		—		—			3,992		—		3,992		—
U.S. government notes	3,996		—		—			3,996		3,996		—		—
	526,027		—		—			526,027		522,035		3,992		—
Marketable Securities:
Corporate bonds	658,913		2,863		(33		)	661,743		—		661,743		—
U.S. government notes	342,004		834		(11		)	342,827		342,827		—		—
Agency securities	269,193		864		(28		)	270,029		—		270,029		—
Commercial paper	35,790		—		—			35,790		—		35,790		—
Certificates of deposits ⁽¹⁾	3,000		—		—			3,000		—		3,000		—
	1,308,900		4,561		(72		)	1,313,389		342,827		970,562		—
Other Assets:
Money market funds - restricted	4,222		—		—			4,222		4,222		—		—
Total Financial Assets	$	1,839,149	$	4,561	$	(72	)	$	1,843,638	$	869,084	$	974,554	$	—

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	December 31, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Level I		Level II		Level III
Financial Assets:
Cash Equivalents:
Money market funds	$	322,080	$	—	$	—		$	322,080	$	322,080	$	—	$	—
Marketable Securities:
Corporate bonds	660,353		264		(1,399		)	659,218		—		659,218		—
U.S. government notes	308,946		118		(286		)	308,778		308,778		—		—
Agency securities	273,993		240		(511		)	273,722		—		273,722		—
Commercial paper	59,479		—		—			59,479		—		59,479		—
Certificates of deposits ⁽¹⁾	5,000		—		—			5,000		—		5,000		—
	1,307,771		622		(2,196		)	1,306,197		308,778		997,419		—
Other Assets:
Money market funds - restricted	4,214		—		—			4,214		4,214		—		—
Total Financial Assets	$	1,634,065	$	622	$	(2,196	)	$	1,632,491	$	635,072	$	997,419	$	—

______________________

(1) As of June 30, 2019 and December 31, 2018, all of our certificates of deposits were domestic deposits.

We did not realize any other-than-temporary losses on our marketable securities for the three and six months ended June 30, 2019 and 2018. As of June 30, 2019 and December 31, 2018, total unrealized losses of our marketable securities that had been in a continuous unrealized loss position were immaterial. We invest in marketable securities that have maximum maturities of up to two years and are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those marketable securities purchased at a time with lower interest rates show a mark-to-market unrealized loss. We expect to realize the full value of these investments upon maturity or sale and therefore, we do not consider any of our marketable securities to be other-than-temporarily impaired as of June 30, 2019.

As of June 30, 2019, the contractual maturities of our investments did not exceed 24 months. The fair values of available-for-sale marketable securities, by remaining contractual maturity, are as follows (in thousands):



	June 30, 2019
Due in 1 year or less	$	932,285
Due in 1 year through 2 years	381,104
Total marketable securities	$	1,313,389

The weighted-average remaining duration of our current marketable securities is approximately 0.8 years as of June 30, 2019. 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 unaudited condensed consolidated balance sheets.

4. Financial Statements Details

Cash, Cash Equivalents and Restricted Cash

The following table is a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated balance sheets that sum to the total of the same such amounts shown in the accompanying condensed consolidated statements of cash flows (in thousands):



	June 30, 2019		June 30, 2018
Cash and cash equivalents	$	944,414	$	711,157
Restricted cash included in other assets	4,222		5,512
Total cash, cash equivalents and restricted cash	$	948,636	$	716,669

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Restricted cash included in other assets as of June 30, 2019 and June 30, 2018