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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, 2023
or
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.)
5453 Great America Parkway,Santa Clara,California95054
(Address of principal executive offices)
(Zip Code)
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueANETNew 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, 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 filerAccelerated filer
Non-accelerated filerSmaller 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.   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, 2023 was 309,580,630.



ARISTA NETWORKS, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
June 30, 2023December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,261,836 $671,707 
Marketable securities2,479,290 2,352,022 
Accounts receivable, net 779,726 923,096 
Inventories 1,864,334 1,289,706 
Prepaid expenses and other current assets 466,371 314,217 
Total current assets 6,851,557 5,550,748 
Property and equipment, net101,705 95,009 
Acquisition-related intangible assets, net103,575 122,205 
Goodwill268,531 265,924 
Investments61,788 39,468 
Operating lease right-of-use assets61,333 53,390 
Deferred tax assets 705,856 574,912 
Other assets31,696 73,754 
TOTAL ASSETS $8,186,041 $6,775,410 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $351,920 $232,572 
Accrued liabilities 363,036 292,487 
Deferred revenue 624,207 637,432 
Other current liabilities 316,629 131,040 
Total current liabilities 1,655,792 1,293,531 
Income taxes payable 98,722 89,839 
Operating lease liabilities, non-current51,702 43,964 
Deferred revenue, non-current 460,697 403,814 
Other long-term liabilities 61,546 58,442 
TOTAL LIABILITIES 2,328,459 1,889,590 
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 June 30, 2023 and December 31, 2022
  
Common stock, $0.0001 par value—1,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 309,355 and 306,890 shares issued and outstanding as of June 30, 2023 and December 31, 2022
3131 
Additional paid-in capital 1,927,6971,780,714 
Retained earnings 3,955,0623,138,983 
Accumulated other comprehensive income (loss)(25,208)(33,908)
TOTAL STOCKHOLDERS’ EQUITY 5,857,582 4,885,820 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $8,186,041 $6,775,410 
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
1

Table of Contents
ARISTA NETWORKS, INC.
Condensed Consolidated Income Statements
(Unaudited, in thousands, except per share amounts)


Three Months Ended June 30,

Six Months Ended June 30,
2023202220232022
Revenue:
Product$1,261,537 $885,806 $2,433,631 $1,610,524 
Service 197,387 166,085 376,644 318,433 
Total revenue1,458,924 1,051,891 2,810,275 1,928,957 
Cost of revenue:
Product533,613 375,634 1,042,475 669,443 
Service 41,182 32,992 79,164 62,404 
Total cost of revenue574,795 408,626 1,121,639 731,847 
Gross profit 884,129 643,265 1,688,636 1,197,110 
Operating expenses:
Research and development 229,676 178,158 431,084 350,164 
Sales and marketing 97,971 79,372 191,463 160,111 
General and administrative 26,420 22,882 51,449 45,995 
Total operating expenses 354,067 280,412 673,996 556,270 
Income from operations530,062 362,853 1,014,640 640,840 
Other income (expense), net 56,339 (533)68,485 30,947 
Income before income taxes586,401 362,320 1,083,125 671,787 
Provision for income taxes94,516 63,221 154,767 100,429 
Net income$491,885 $299,099 $928,358 $571,358 
Net income per share:
Basic $1.59 $0.98 $3.02 $1.86 
Diluted $1.55 $0.94 $2.94 $1.80 
Weighted-average shares used in computing net income per share:
Basic 308,636 306,754 307,810 307,399 
Diluted 316,485 316,581 316,031 318,040 


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


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ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income$491,885 $299,099 $928,358 $571,358 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 41 (2,359)333 (2,732)
Available-for-sale investments:
Change in net unrealized gains (losses) on available-for-sale securities(3,744)(8,459)4,509 (30,287)
Reclassification adjustment included in net income  3,858  
Other comprehensive income (loss)(3,703)(10,818)8,700 (33,019)
Comprehensive income$488,182 $288,281 $937,058 $538,339 

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

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ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Stockholders Equity
(Unaudited, in thousands)
Three Months Ended June 30, 2023Six Months Ended June 30, 2023
Common Stock  Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’ Equity
Common Stock  Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance at beginning of period308,098 $31 $1,857,467 $3,493,181 $(21,505)$5,329,174 306,890 $31 $1,780,714 $3,138,983 $(33,908)$4,885,820 
Net income — — — 491,885 — 491,885 — — — 928,358 — 928,358 
Other comprehensive income (loss), net of tax — — — — (3,703)(3,703)— — — — 8,700 8,700 
Stock-based compensation — — 67,127 — — 67,127 — — 130,008 — — 130,008 
Issuance of common stock in connection with employee equity incentive plans 1,488 — 7,314 — — 7,314 3,500 — 30,410 — — 30,410 
Repurchase of common stock(219)— — (30,004)— (30,004)(954)— — (112,279)— (112,279)
Tax withholding paid for net share settlement of equity awards(44)— (6,542)— — (6,542)(113)— (15,766)— — (15,766)
Common stock issued for business acquisition32 — 2,331 — — 2,331 32 — 2,331 — — 2,331 
Balance at end of period309,355 $31 $1,927,697 $3,955,062 $(25,208)$5,857,582 309,355 $31 $1,927,697 $3,955,062 $(25,208)$5,857,582 

Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Common Stock  Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Common Stock  Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Shares Amount SharesAmount
Balance at beginning of period308,165 $31 $1,590,793 $2,592,854 $(30,501)$4,153,177 307,681 $31 $1,530,046 $2,456,823 $(8,300)$3,978,600 
Net income — — — 299,099 — 299,099 — — — 571,358 — 571,358 
Other comprehensive loss, net of tax — — — — (10,818)(10,818)— — — — (33,019)(33,019)
Stock-based compensation — — 50,224 — — 50,224 — — 100,503 — — 100,503 
Issuance of common stock in connection with employee equity incentive plans 1,131 — 3,831 — — 3,831 2,858 — 22,991 — — 22,991 
Repurchase of common stock(4,783)(1)— (483,659)— (483,660)(5,954)(1)— (619,887)— (619,888)
Tax withholding paid for net share settlement of equity awards(58)— (6,061)— — (6,061)(163)— (18,802)— — (18,802)
Common stock issued for business acquisition— $— $— $— $—  33 $— $4,049 $— $— 4,049 
Balance at end of period304,455 $30 $1,638,787 $2,408,294 $(41,319)$4,005,792 304,455 $30 $1,638,787 $2,408,294 $(41,319)$4,005,792 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Six Months Ended June 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$928,358 $571,358 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other39,227 28,012 
Stock-based compensation 130,008 100,503 
Noncash lease expense9,154 9,161 
Deferred income taxes (130,287)(105,937)
Unrealized gain on equity investments(19,172)(23,413)
Amortization (accretion) of investment premiums (discounts)(11,998)11,457 
Changes in operating assets and liabilities:
Accounts receivable, net143,370 (64,335)
Inventories(574,628)(202,052)
Other assets(120,864)(163,692)
Accounts payable114,905 71,169 
Accrued liabilities70,418 (16,210)
Deferred revenue43,658 91,201 
Income taxes, net198,100 10,792 
Other liabilities(11,676)221 
Net cash provided by operating activities808,573 318,235 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities1,265,305 829,714 
Proceeds from sale of marketable securities 21,725 165,746 
Purchases of marketable securities(1,392,020)(641,979)
Purchases of property and equipment (17,212)(23,744)
Cash paid for business combinations, net of cash acquired 1,799 (145,087)
Investment in notes and privately-held companies (4,250)(11,691)
Net cash provided by (used in) investing activities (124,653)172,959 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under equity plans 30,410 22,991 
Tax withholding paid on behalf of employees for net share settlement(15,766)(18,802)
Repurchases of common stock(112,279)(619,888)
Net cash used in financing activities(97,635)(615,699)
Effect of exchange rate changes 429 (3,041)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH586,714 (127,546)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 675,978 625,050 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period $1,262,692 $497,504 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Right-of-use assets obtained in exchange for lease obligations$17,010 $6,022 
Property and equipment included in accounts payable and accrued liabilities5,653 4,520 
Common stock issued for business acquisition2,331 4,049 
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
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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,” "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 Extensible Operating System ("EOS"), a set of network applications and our 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, 2023, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, 2022 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 inter-company 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, 2022, filed with the SEC on February 14, 2023.
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.
Risks and Uncertainties
    Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, the recent banking crisis, recession risks, and potential supply chain and other disruptions from the Russia-Ukraine conflict and the U.S. trade war with China.    
We have continued to work closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed component sourcing and workforce disruptions. We have worked diligently to drive improvements in these areas, including funding additional working capital and incremental purchase commitments, and have begun to see some reduction in customer lead times on certain products. Over time, the recovery of capacity should allow us to ship products against previously committed deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory. On this basis, we now expect some shipments against these deployment schedules to extend into 2024. 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 somewhat shorter demand-planning horizons which has resulted in lower demand levels. Given the shipment and order patterns described above, near term revenue trends may not be reflective of current demand levels, but will benefit from deployment plans that had been previously committed. While inventory and working capital levels may continue to increase and remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten. Although these elevated inventory positions are largely related to early
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life cycle products, we cannot be certain that we will be able to sell all of this inventory, which may in the future result in excess and obsolete inventory 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 the conflict 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 chain, all of which continue to evolve and are unpredictable; however, any continued or renewed disruption in manufacturing and supply resulting from these factors could negatively impact our business. We also believe that our customers, following a year of elevated purchase, must now consider changing technology roadmaps and priorities, including the need for the rapid deployment of artificial intelligence ("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. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.
Recent Accounting Pronouncements Not Yet Effective
We believe that all recently issued accounting pronouncements from the FASB will not have a material impact on our Consolidated Financial Statements or do not apply to our operations.
2.    Fair Value Measurements
    Assets measured at fair values on a recurring basis
    We measure and report our cash equivalents, restricted cash, marketable equity securities and available-for-sale debt 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):
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June 30, 2023December 31, 2022
Level ILevel IILevel IIITotal Level ILevel IILevel IIITotal
Financial Assets:
Cash Equivalents:
Money market funds $574,779 $ $ $574,779 $322,294 $ $ $322,294 
Commercial paper     5,422  5,422 
U.S. government notes99,898   99,898 51,986   51,986 
Agency securities 14,986  14,986  17,559  17,559 
674,677 14,986  689,663 374,280 22,981  397,261 
Marketable Securities:
Commercial paper 88,960  88,960     
Certificates of deposits(1)
 6,998  6,998  10,492  10,492 
U.S. government notes783,513   783,513 993,955   993,955 
Corporate bonds 1,051,495  1,051,495  1,113,134  1,113,134 
Agency securities 523,491  523,491  215,380  215,380 
Marketable equity securities(2)
24,833   24,833 19,061   19,061 
808,346 1,670,944  2,479,290 1,013,016 1,339,006  2,352,022 
Other Assets:
Money market funds - restricted856   856 4,271   4,271 
Total Financial Assets$1,483,879 $1,685,930 $ $3,169,809 $1,391,567 $1,361,987 $ $2,753,554 
______________________________________
(1) As of June 30, 2023 and December 31, 2022, all of our certificates of deposits were domestic deposits.
(2) The $24.8 million represents the fair value of marketable equity securities as of June 30, 2023. This publicly-traded equity investment generated an unrealized gain of $5.8 million for the six months ended June 30, 2023, and an unrealized gain of $11.3 million for the three months ended June 30, 2023. Total initial cost for this investment was $3.0 million with no changes since our initial investment. The unrealized gains and 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 three and six months ended June 30, 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):
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June 30, 2023December 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair ValueAmortized CostUnrealized GainsUnrealized LossesFair Value
Commercial paper$88,960 $ $ $88,960 $ $ $ $ 
U.S. government790,970 34 (7,491)783,513 1,007,175 3 (13,223)993,955 
Corporate bonds1,059,915 111 (8,531)1,051,495 1,125,920 271 (13,057)1,113,134 
Agency securities527,766 8 (4,283)523,491 217,893 83 (2,596)215,380 
Total $2,467,611 $153 $(20,305)$2,447,459 $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, our debt securities are generally not subject to credit risk; therefore, we did not recognize any credit losses or non-credit-related impairments related to such securities for the three and six months ended June 30, 2023. All unrealized losses were recognized in other comprehensive income (loss). Realized losses were immaterial for the three and six months ended June 30, 2023.
    The following table is an analysis of our marketable debt securities in unrealized loss positions (in thousands):
June 30, 2023
Unrealized Losses within 12 months Unrealized Losses 12 months or greaterTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. government notes$457,325 $(3,346)$291,908 $(4,145)$749,233 $(7,491)
Corporate bonds743,043 (4,714)256,414 (3,817)999,457 (8,531)
Agency securities432,179 (3,063)61,730 (1,220)493,909 (4,283)
Total $1,632,547 $(11,123)$610,052 $(9,182)$2,242,599 $(20,305)
     As of June 30, 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):
June 30, 2023
Fair Value
Due in 1 year or less$1,494,804 
Due in 1 to 2 years952,655 
Total debt securities $2,447,459 
    The weighted-average remaining duration of our marketable debt securities is approximately 0.9 years as of June 30, 2023. As we view these marketable debt securities as available to support current operations, we classify marketable debt securities with maturities beyond 12 months as current assets under the caption "Marketable securities" on the condensed consolidated balance sheets.
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. These equity securities are included in Investments on the condensed consolidated balance sheets. 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.
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We did not record any realized gains for our non-marketable equity securities during the three and six months ended June 30, 2023 and June 30, 2022, and we recorded an immaterial amount of realized and unrealized losses for the three and six months ended June 30, 2023 and June 30, 2022. Unrealized gains for our non-marketable equity securities are summarized below (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Unrealized gains on non-marketable equity securities (1)
$13,401 $ $13,401 $15,000 
(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 affected the value of the non-marketable equity securities.
    The following table summarizes the activity related to our non-marketable equity securities as of June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023December 31, 2022
Cost of investments(1)
$31,656 $23,625 
Cumulative impairment and downward adjustment (888)
Cumulative upward adjustment 30,132 16,731 
Carrying amount of investments$61,788 $39,468 
(1) During the three months ended June 30, 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 investments.
3.    Financial Statements Details
Cash, Cash Equivalents and Restricted Cash
    The reconciliation of cash, cash equivalents and restricted cash reported on the unaudited condensed consolidated balance sheets to the total of the same such amounts in the unaudited condensed consolidated statements of cash flows is as follows (in thousands):
June 30, 2023December 31, 2022
Cash and cash equivalents$1,261,836 $671,707 
Restricted cash included in other assets856 4,271 
 Total cash, cash equivalents and restricted cash$1,262,692 $675,978 
Accounts Receivable, net
    Accounts receivable, net consists of the following (in thousands):
June 30, 2023December 31, 2022
Accounts receivable $793,306 $928,490 
Allowance for doubtful accounts (4,917)(19)
Product sales rebate and returns reserve(8,663)(5,375)
   Accounts receivable, net $779,726 $923,096 
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Inventories
    Inventories consist of the following (in thousands):
June 30, 2023December 31, 2022
Raw materials $1,050,253 $759,519 
Finished goods 814,081 530,187 
   Total inventories $1,864,334 $1,289,706 
Prepaid Expenses and Other Current Assets
    Prepaid expenses and other current assets consist of the following (in thousands):
June 30, 2023December 31, 2022
Inventory deposits$298,827 $162,047 
Other current assets167,544 152,170 
   Total prepaid expenses and other current assets$466,371 $314,217 
Property and Equipment, net
    Property and equipment, net consists of the following (in thousands):
June 30, 2023December 31, 2022
Land$42,567 $41,500 
Equipment and machinery 137,496 122,407 
Computer hardware and software 56,887 52,148 
Leasehold improvements
32,083 30,102 
Furniture and fixtures 3,589 3,575 
Construction-in-process 1,721 2,124 
    Property and equipment, gross 274,343 251,856 
Less: accumulated depreciation (172,638)(156,847)
    Property and equipment, net $101,705 $95,009 
    Depreciation expense was $7.8 million and $6.2 million for the three months ended June 30, 2023 and 2022, respectively, and $14.9 million and $11.8 million for the six months ended June 30, 2023 and 2022, respectively.
Accrued Liabilities
    Accrued liabilities consist of the following (in thousands):
June 30, 2023December 31, 2022
Accrued compensation-related costs$88,984 $117,053 
Accrued supplier liability135,623 71,481 
Accrued manufacturing costs49,095 45,379 
Accrued product development costs47,254 27,380 
Other42,080 31,194 
   Total accrued liabilities $363,036 $292,487 
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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):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Contract liabilities, beginning balance$105,047 $98,422 $103,448 $93,382 
Less: Revenue recognized from beginning balance(9,941)(8,589)(22,105)(19,076)
Less: Beginning balance reclassified to deferred revenue(4,962)(4,338)(4,145)(3,606)
Add: Contract liabilities recognized19,953 16,105 32,899 30,900 
Contract liabilities, ending balance$110,097 $101,600 $110,097 $101,600 
    As of June 30, 2023 and December 31, 2022, $48.8 million and $45.2 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.
Deferred Revenue
    Deferred revenue is comprised mainly of unearned revenue related to multi-year post-contract support ("PCS") contracts, services and product deferrals related to acceptance clauses. The following table summarizes the activity related to our deferred revenue (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Deferred revenue, beginning balance
$1,092,274 $1,123,746 $1,041,246 $929,312 
Less: Revenue recognized from beginning balance(263,353)(309,594)(395,056)(322,954)
Add: Deferral of revenue in current period, excluding amounts recognized during the period255,983 219,338 438,714 427,132 
Deferred revenue, ending balance$1,084,904 $1,033,490 $1,084,904 $1,033,490 
Other Performance Obligations
    Other performance obligations totaling $812.8 million as of June 30, 2023 include unbilled multi-year PCS and service contract amounts of $95.8 million and $717.0 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 $2.0 billion. Included in this amount is the $717.0 million of binding contractual agreements related primarily to future product shipments that will be recognized as revenue over the next two years. In addition, approximately 82% of the remaining $1.3 billion of this future revenue is expected to be recognized over the next two years and approximately 18% is expected to be recognized during the third to the fifth year.
Other Income (Expense), net
    Other income (expense), net consists of the following (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Interest income$32,206 $4,427 $54,715 $6,855 
Unrealized gain (loss) on equity investments24,743 (5,084)19,172 23,413 
Other income (expense), net(610)124 (5,402)679 
    Total$56,339 $(533)$68,485 $30,947 
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4.    Acquisition, Goodwill and Acquisition-Related Intangible Assets
Acquisitions
    We had no material business acquisitions during the six months ended June 30, 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 purchase price allocation for the two acquisitions have been finalized. No changes were made to the purchase price allocation for the three and six months ended June 30, 2023.
Goodwill
    No material changes were made to the carrying values of goodwill for the three and six months ended June 30, 2023.
Acquisition-Related Intangible Assets
    Acquisition-related intangible assets, excluding those that are fully amortized, were as follows (in thousands, except years):
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountWeighted Average Remaining Useful Life (in years)
December 31, 2022
AdditionsJune 30, 2023
December 31, 2022
AmortizationJune 30, 2023
December 31, 2022
June 30, 2023
Developed technology$154,930 $ $154,930 $(79,036)$(13,640)$(92,676)$75,894 $62,254 4.3
Customer relationships54,620  54,620 (14,097)(3,850)(17,947)40,523 36,673 5.2
Trade name12,390  12,390 (6,602)(1,140)(7,742)5,788 4,648 2.1
Total$221,940 $ $221,940 $(99,735)$(18,630)$(118,365)$122,205 $103,575 4.5
    Amortization expense related to acquisition-related intangible assets was $9.3 million, and $7.7 million for the three months ended June 30, 2023 and 2022, respectively, and $18.6 million and $15.0 million for the six months ended June 30, 2023 and 2022, respectively.
    As of June 30, 2023, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):
Future Amortization Expense
Remainder of 2023$14,808 
202426,759 
202519,642 
202617,260 
202713,436 
Thereafter11,670 
Total $103,575 
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5.    Commitments and Contingencies
Purchase Commitments
    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 June 30, 2023, we had non-cancellable purchase commitments of $2.2 billion, of which $1.9 billion have confirmed receipt dates within 12 months, and $0.3 billion 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 $301.6 million and $192.5 million as of June 30, 2023 and December 31, 2022, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the condensed 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 a significant 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 stayed 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
    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 June 30, 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
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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
    Our board of directors has authorized a $1.0 billion stock repurchase program (the “Repurchase Program”). This authorization allows us to repurchase shares of our common stock that will be funded from working capital and 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, trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 the company at any time without prior notice. As of June 30, 2023, the remaining authorized amount for stock repurchases under the Repurchase Program was approximately $144.5 million.
    A summary of the stock repurchase activity under the Repurchase Program for the three and six months ended June 30, 2023 is as follows (in thousands, except per share amounts):
Three Months EndedSix Months Ended
June 30, 2023June 30, 2023
Aggregate purchase price$30,004 $112,279 
Shares repurchased219 954 
Average price paid per share$137.21 $117.70 
    The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained earnings in our unaudited condensed consolidated statements of stockholders' equity. All shares repurchased have been retired.
Equity Award Plan Activities
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 our 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 to the shares available for issuance under the 2014 Plan. As of June 30, 2023, there remained approximately 98.0 million shares available for issuance under the 2014 Plan.
2014 Employee Stock Purchase Plan
    In April 2014, our 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 outstanding on the immediately preceding December 31, but not to exceed 10 million shares, unless our 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 to the shares available for issuance under the ESPP. During the six months ended June 30, 2023, we issued 139,758 shares at a weighted-average purchase price of $102.66 per share under the ESPP. As of June 30, 2023, there remained approximately 23.5 million shares available for issuance under the ESPP.
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Stock Option Activities
    The following table summarizes the option activity under our stock plans 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, 20225,769 $14.09 2.0$618,774 
       Options granted   
       Options exercised (1,930)8.32 
       Options canceled(1)9.26 
Balance—June 30, 20233,838 $17.00 1.8$556,820 
Vested and exercisable—June 30, 20233,497 $14.89 1.5$514,659 
Restricted Stock Unit (RSU) Activities
    A summary of the RSU activity is presented below (in thousands, except years and per share amounts):
Number of
Shares
Weighted-
Average Grant
Date Fair Value Per Share
Weighted-Average
Remaining
Contractual Term (in years)
Aggregate Intrinsic Value
Unvested balance—December 31, 20228,360 $85.83 1.7$1,014,431 
              RSUs granted2,498 155.81 
              RSUs vested(1,416)77.40 
              RSUs forfeited/canceled(180)95.49 
Unvested balance—June 30, 20239,262 $106.28 1.9$1,500,987 
Stock-Based Compensation Expense
    The following table summarizes the stock-based compensation expense related to our equity awards (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of revenue $2,824 $2,312 $5,799 $3,621 
Research and development 41,137 28,449 77,706 56,025 
Sales and marketing
15,833 12,827 30,971 25,936 
General and administrative 7,333 6,636 15,532 14,921 
              Total stock-based compensation $67,127 $50,224 $130,008 $100,503 
    As of June 30, 2023, there were $868.7 million of unamortized compensation costs related to all unvested awards. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 3.7 years.
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7.    Net Income Per Share
    The following table sets forth the computation of our basic and diluted net income per share (in thousands, except per share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Numerator:
Net income$491,885 $299,099 $928,358 $571,358 
Denominator:
Weighted-average shares used in computing net income per share, basic 308,636 306,754 307,810 307,399 
Add weighted-average effect of dilutive securities:
    Employee equity awards7,849 9,827 8,221 10,641 
Weighted-average shares used in computing net income per share, diluted 316,485 316,581 316,031 318,040 
Net income per share:
         Basic $1.59 $0.98 $3.02 $1.86 
         Diluted $1.55 $0.94 $2.94 $1.80 
    The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Stock options and RSUs 548 781 285 423 
Employee stock purchase plan77  213 8 
       Total625 781 498 431 

8.    Income Taxes (in thousands, except percentages)
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Income before income taxes$586,401 $362,320 $1,083,125