Arista Networks, Inc.

Welcome to the first quarter 2023 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. Ms. Liz Stein, Arista's Director of Investor Relations, you may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call are Jay Sriyulal, 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 first quarter ending March 31st, 2023. If you would like a copy of the release, you can access it online at our website. During the course of this conference call, ERISA Networks Management will make forward-looking statements, including those relating to our financial outlook for the second quarter of the 2023 fiscal year, longer-term financial outlook for 2023 and beyond, Our total addressable market and strategy for addressing these market opportunities, including AI, customer demand trends, supply chain constraints, component costs, manufacturing output, inventory management, and inflationary pressures on our business, lead time, product innovation, working capital optimization, and the benefits of acquisitions, which are subject to the risks and uncertainties that we discussed in detail in our documents filed with the SEC. specifically in our most recent Form 10Q and Form 10K, 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, Liz, and happy Monday, everyone, and a happy month of May. We delivered revenues of $1.35 billion for the quarter with a non-GAAP earnings per share of $1.43. Services and software support renewals contributed approximately 13.5% of the revenue. Our non-GAAP gross margins of 60.3% was influenced by supply chain overheads and cloud tightening concentration. We expect our gross margins to improve every quarter throughout this year. International contribution registered at 17.5%, with the Americas strong at 82.5% for the quarter. While we will shift to reporting our vertical segments on an annual basis, I would like to share some overall trends we've seen. We do expect Cloud Titans will moderate compared to our 2022 triple-digit growth, while Enterprise is likely to be more steady-state. It is evident that our lead times are improving. Our visibility to customer forecasts, therefore, are now beyond six months, or now below six months, I should say, and they are shrinking. Despite macro uncertainty, we endorse consensus of 26% annual growth to approximately 5.5 billion revenue in 2023. On the product side, we made many exciting Q1 announcements. At OFC 2023, we introduced our vision for linear drive optics for intra and inter data center connectivity at 800 gig and beyond. This was a highlight for both Arista and the optical industry at large, delivering the promise of low power and improved price performance for demanding AI workloads. Speaking of AI, the mandate to avoid idle states in expensive and large AI processor clusters requires that specialized AI network. Key characteristics include wire rate and lossless delivery of large and synchronized bursts of data at 400 to 800 gig speeds. Today, the combination of RDMA Nix, RDMA stands for remote direct memory access, and Rocky, which is RDMA over converged Ethernet, along with the switches, allows Ethernet to become that predictable transport network. Ethernet, of course, brings familiarity, great economics, massive install base, standards with industry-wide interoperability, and many merchant silicon options. This is supporting compute and data intensive workloads based on generative AI inference and large language model training applications. Arista's CloudCast customers are resonating with our AI and switching strategy for platforms. Presently, we are in the midst of trials leading to production deployments this year in 2023. We expect AI networking to become meaningful throughout the years and through the decade ahead. In Q1 2023, Arista also formalized our new entry into the wide area network with our WAN routing system. Our enterprise class routing platform is based on carrier and cloud neutral transit with cloud vision pathfinder service. Not surprisingly, we support Arista's EOS operating system stack, delivering that operational model for network as a service and wide area as a service. We are targeting mission critical enterprises where high volume and encrypted traffic matter in a modern WAN. Arista has partnered with Equinix to develop and deploy the WAN routing system, and WAN routing will be included as part of our network adjacency category. In the non-cloud category, we have registered a solid number of million dollar customers, which is a direct result of our momentum in the enterprise and campus throughout the past year. Let me illustrate with a few customer wins. The first use case is an international government win. The customer's objective was to detect illegal activities such as money laundering, terrorism, scams, and other criminal behavior in real time by collecting and analyzing data. Arista's data-driven AI clusters optimizes network assurance for mission-critical AI and ML workloads. Using advanced features like microburst and fan-in congestion management, ultra-deep packet buffer memory with latency analyzer provides real-time telemetry, visibility, automation, and dynamic controls for their AI and ML data centers, all based on open standards Ethernet. Our second win continues on the international theme and highlights our ever-growing strength in the education vertical, where Arista's proposal for edge campus platforms ranging from power over ethernet switches, wireless access points, and automation was a decision factor. We leveraged Cloud Vision Q cognitive unified edge, coupled with Arista validated design as an automation framework across multiple distributed locations, bringing unmatched flow visibility. The next win is in the US financial sector. This customer had grown organically and inorganically through acquisitions and was looking to modernize their entire infrastructure, moving their data closer to the cloud to enable a hybrid cloud architecture. This design included multiple greenfield data centers hosted in Equinix, requiring active-active 400 gigabit Ethernet spines, securely encrypted data center interconnects, and internet connectivity at each site. For a smooth upgrade in their campus environment without disruption to their end users, Arista's SSU, or Smart Systems Upgrade feature, played a prominent role. We also helped them build a digital twin of their environment, modeling their designs for automation. The next customer highlights healthcare as a critical win for network monitoring and security analysis tools at their remote data center facilities. This holistic view of port mirroring sessions for traffic analysis from all their remote data centers was a superior approach. Arista's centralized DMS, Dan's Monitoring Fabric, was better than disparate and expensive tools at each remote location. Our final customer win was looking for real-time in-house video streaming and editing capabilities. Video would be stored on their storage arrays, which could be connected at 100 gigabit Ethernet. and then accessed and rendered by the clients, be they PCs or Macs, with 25 gigabit Ethernet. Arista's core strength in the media vertical comes from its deep buffer virtual output queuing architecture with our R3 platforms. The simplicity, scalability, and flexibility shows this elegant design and highlights our strengths in the media and entertainment vertical. So as you can see, this is a recurring theme in all our customer wins, where Arista is deploying innovative solutions based on a consistent architecture, allowing each and every customer to modernize their network with the power of our platform. And with that, I'd like to hand to Ida, our CFO for Financial Metrics.