Arista Networks, Inc.

Welcome to the third quarter 2020 Arista Network's Financial Results Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press the star followed by zero. As a reminder, this conference is being recorded and will be available for replay from the investor relations section at the Arista website following this call. I will now turn the call over to Mr. Curtis McKee, Director of Corporate and Investor Development. Sir, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call are Jay Shrealal, Arista Network's President and Chief Executive Officer, and Ida Brennan, Arista's Chief Financial Officer. This afternoon, Arista Network issued a press release announcing the results for its fiscal third quarter ending September 30th, 2020. If you would like a copy of the release, you can access it online at our website. During the course of this conference call, Arista Networks Management will make forward-looking statements, including those relating to our financial outlook for the fourth quarter of the 2020 fiscal year, longer-term financial outlooks for 2021 and beyond, our total addressable market and strategy for addressing these market opportunities, the potential impact of COVID-19 on our business, our product innovation, and the benefits of recent acquisitions, which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically in our most recent Form 10-Q and Form 10-K, and which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings press release. With that, I will turn the call over to Jay Shree.

Thank you, Curtis. Thank you, everyone, for joining us this afternoon for our third quarter 2020 earnings call. To start with, we all hope that you and your families are safe during the global pandemic. At Arista, we recognize our role and responsibility in supporting global communications and cloud infrastructure during these challenging times. We are working closely with our employees, supply chain, contract manufacturers, customers, and Arista Foundation to assist in business continuity initiatives and people's lives. Back to Q3 2020. We delivered $605.4 million for the quarter, with a non-GAAP earnings per share of $2.42. AK Services and software and support renewals contributed approximately 21% of revenue. Our non-GAAP growth margins were 64.6%, influenced by software and services mix, and a higher Asia-Pacific contribution. We registered a record number of new customer logos this quarter and million-dollar customers, a direct result of our momentum in the enterprise vertical and campus traction this quarter. In Q3 2020, Cloud Titans was our largest vertical. The enterprise is once again consistently our second-largest performer, followed by tier two cloud service providers and financial side for third place and service providers in fourth place. With respect to sector trends, cloud titans are now approximately 37%. Enterprise and financials also are approximately 37%. And providers, which is our cloud service providers combination, is approximately at 26%. What is clear is Arisia's cloud principles now apply to all sectors. And we are diversifying well across customers and verticals. In terms of geography mix, international contribution was 25%, with the Americas at 75%. The European business recovered from Q2, and the Asia business has had a particularly strong quarter. In the absence of a physical analyst day this year, we would like to shed some light on our strategy for addressing our $30-plus billion TAM. The past decade can be best characterized by ERISA's momentum in cloud networking. But in the past four quarters, we have experienced a triad storm of cloud-fighting volatility, COVID pandemic, and deferred revenue-related comps. Despite this tough reset year, we believe Arista will emerge stronger, not only returning to double-digit growth in 2021, but also aiming for consistent growth in the years beyond. We expect our multi-year growth cycle from three major product line contributors. One, our core cloud and data center products. Our largest business, building upon our flagship Arista EOS with the hallmarks of least fine topology across our five major verticals. Two, our second market is the network adjacencies with routing replacing routers and our recent entry into the cognitive campus workspaces. The routing market consists of core, spine, edge, and peering use cases for tier 1, 2, 3 service, cloud, and enterprises. The campus brings a cognitive unified edge for wired and Wi-Fi endpoints, as well as new IoT devices in a two-tier leaf, spine, or slide network. We do expect to disrupt the campus and router incumbency of the last few decades in the next few years. Our third category is network software and services based on software subscription models such as ERISA ACARE, Cloud Vision, Cloud EOS Rider for Multi-Cloud, Big Switch Monitoring, and our latest entry into advanced network detection and response with the acquisition of Awake Security. Elaborating on our focus on subscription-based software, this product line is typically multi-year contracts. Customers are driving mandates for network automation, monitoring, visibility across their data sets. We believe the recent acquisition of Awake Security is a strategic contributor that transforms the silo aspects of security into a seamless, secure network. The moment the cloud blurs the perimeter and the increased use of IoT and shadow IT means that our CIOs and CISOs need a network ground of truth. Simply storing the raw data or alerts isn't comprehensible data. A new AI-driven, data-driven, state-driven software stack like Arista provides is foundational. In our opinion, the security industry is going through a metamorphosis from point security to proactive, predictive, secure networking. Cloud Vision, combined with ERISA's 2020 acquisitions of big-switch networks for observability and awake security for autonomous threat hunting, are very natural software additions to this category. The cognitive campus is a priority for Arista's adjacent product line. We are witnessing a massive transition in the COVID era to work from home, where the boundary between the office, the home, the teleworker in transit, and the user is blurring into elastic and flexible workspaces. Arista's recent introduction of the cognitive campus is a state and data-driven model coupled with a unified dashboard for wired and wireless edge for next-generation, zero-touch campus deployments. This combined with the awake network detection and response security feeds into our campus visibility flow tracker for both IoT and OT applications. We do expect our campus portfolio to double by the end of 2021 as we invest in both engineering and go-to-market models. A fitting example is today's announcement of our flagship 750 series campus chassis, delivering a combination of industry-leading chassis, density, performance for high-definition video, failover resilience for rolling upgrades, cognitive PoE, and secure encryption. I would like to invite Andy Beckershine, our founder and chief development officer, to highlight our launch today. Andy?