Arista Networks, Inc.

The reminder, this conference is being recorded and will be available for replay from the Investor Relations section at the ERISA website following this call. Ms. Liz Stein, ERISA'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, ERISA Network's Chairperson and Chief Executive Officer, Eda Brennan, Arista's outgoing chief financial officer, and Chantel Brightup, Arista's incoming chief financial officer. This afternoon, Arista Networks issued a press release announcing the results for its fiscal fourth quarter ending December 31st, 2023. If you would like a copy of this release, you can access it online from 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 first quarter of the 2024 fiscal year, longer-term financial outlooks for 2024 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 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 Jayshree.

Thank you, Liz. Thank you, everyone, for joining us this afternoon for our fourth quarter 2023 earnings call. 2023 has been another memorable year for RISTA. We gave initial guidance of 25% year-over-year revenue growth and instead achieved well beyond that at 33.8%, driving revenue to $5.86 billion, coupled with a record non-GAAP earnings per share for the year of $6.94, up in excess of 50% annually. Back to some Q4 specifics, we delivered revenues of $1.54 billion for the quarter, with a non-GAAP record earnings per share of $2.08 due to a one-time favorable tax rate. Services and software support renewals contributed approximately 17% of revenue. Our non-GAAP gross margins of 65.4% was influenced by improving supply chain and greater enterprise mix. International contributions for the quarter registered at 22.3%, with the Americas at 77.7%. This was one of our strongest performing international quarters in recent history. Shifting to annual sector revenue for 2023, cloud titans contributed significantly at approximately 43%. Enterprises, including financials, were strong at approximately 36%, while the providers were at 21%. Both Meta and Microsoft are greater than 10% customer concentration at 21% and 18% respectively. Despite multiple capex reductions last year and the normal volatility of Cloud Titan and AI pivots, we cherish our privileged status with both M and M. Speaking of AI, in fall of 2023, Andy and I attended the 50th Golden Anniversary of Ethernet at the Computer History Museum. It truly is a reminder of how familiar and widely deployed Ethernet is, with its speed increasing by orders of magnitude from a shared collision 2.95 megabits for file printed share to a 10-bit Ethernet switching in the AI and ML era. AI workloads are placing greater demands on Ethernet as they are both data and compute intensive across thousands of processors today. Basically, AI at scale needs Ethernet at scale. AI workloads cannot tolerate the delays in the network because a job can only be completed after all flows are successfully delivered to the GPU clusters. All it takes is one culprit or worst case link to throttle an entire AI workload. Three improvements are being pioneered by Arista and the founding members of the Ultra Ethernet Consortium to improve job completion time. Number one, packet spraying. AI network topology needs packet spraying to allow every flow to simultaneously access all parts of the destination. Arista is developing multiple forms of load balancing dynamically with our customers. Two is flexible ordering. Key to an AI job completion is the rapid and reliable bulk transfer with flexible ordering using Ethernet links to optimally balance AI-intensive operations, unlike the rigid ordering of InfiniBank. Arista is working closely with its leading NIC vendors to achieve this. Finally, network congestion. In AI networks, there's a common in-cast congestion problem whereby multiple uncoordinated senders can send traffic to the receiver simultaneously. Arista's platforms are purpose-built and designed to avoid these kind of hotspots, evenly spreading the load across multipaths across a virtual output queuing VOQ lossless fabric. In terms of annual 2023 product lines, our core, which consists of cloud, AI, and data center products, are built upon a highly differentiated Arista extensible operating software system stack. It is successfully deployed across 10, 25, 100, 200, and 400 gig speeds. Our cloud networking products deliver power efficient, high availability zones without doubling the cost of redundancy as data centers demand insatiable bandwidth capacity and network speeds for both the front end and back end storage and compute clusters. The core drove approximately 65% of our revenue. We continue to gain share in our highest performance switching of 100, 200, and 400 gig ports to attain the number one position at approximately 40 plus percent, according to industry analysts. We have increased our 400 gig customer base from 600 customers in 2022 to approximately 800 customers in 2023. We expect both 400 and 800 gigabit Ethernet will emerge as important pilots for AI backend GPU clusters. We are cautiously optimistic about achieving our AI revenue goal of at least $750 million in AI networking in 2025. Our second market is network adjacencies comprised of routing, replacing routers, and our cognitive campus workspaces. We continue to make progress in campus, aiming for the $750 million revenue by 2025 that we have shared at many analysts' gaze. Our investments in cognitive wired and wireless, zero-touch provisioning, and the introduction of AGNI, Arista Guardian for Network Identities, as well as AVA sensors for threat mitigation is resonating well with our campus customers. The post-pandemic campus is seeking network as a service overlays and zero-trust network embedded in with high availability, observability, and consistency across our OS and management domains. We are also successfully deployed in many routing edge and peering use cases. Just in 2023 alone, we introduced six EOS software releases across 600 new features and 50 platforms. In fall of 2023, we introduced our WAN routing system with a focus on scale, encryption, and WAN transit routing capabilities. It has positioned us well, giving our customers a seamless enterprise LAN and WAN portfolio. The campus and routing adjacencies together contribute approximately 19% of revenue. Our third category is network software and services, based on subscription models such as Arista ACARE, Cloud Vision, DANS monitoring fabric or DMF observability, and advanced threat sensors for network detection and response. Arista's subscription-based network services and software contributed approximately 16% of the total revenue. We surpassed 2,400 cumulative customers with Cloud Vision, pivotal to building a modern operating model for the enterprise. Please note that perpetual software licenses are not included here and are counted inside the core or adjacent markets. While 2023's headline has been mostly about AI, we are pleased with the momentum of enterprise and provider customers as well. Arista continues to diversify its business globally with multiple use cases and verticals. We have more than doubled our enterprise revenue in the last three years, and we are becoming the gold standard for client to cloud to AI networking with one EOS and one Cloud Vision Foundation. Our million-dollar customer logos increased steadily in 2023 at approximately 35% as a direct result of our campus and enterprise momentum. Three principles continue to differentiate us as we are poised to be a market share gainer in the enterprise. One, best-in-class, highly available proactive products with resilience and hitless upgrades at multiple levels. Two, zero-touch automation for predictive client-to-cloud one-click operations that relies less on human staff or manual operations and is instead software-driven. And finally, prescriptive insights based on AI ML autonomous virtual assist AVA algorithms for increased security, observability, and root cause analysis. Our foundational network data lake architecture and the ability to gather, store, and process multiple modalities of network data is the only way to reconcile all the incongruent silos for network operators. While legacy vendors that are 30 to 40 years old are aiming for consolidation, Arista remains the only pure-play networking innovator, earning top spots in Forrester Wave's programmable switching and customer validation in Gartner's voice of customer for campus in 2023. In December, 2023, we conducted one of our largest customer events called Innovate in Vegas. Well, not my most favorite location, our customers and prospects found it very exciting and compelling for their network transformation initiative. They resonate deeply with our Arista 2.0 vision, building best of breed data-driven networking platform. In summary, as we wrap up another fantastic year in 2023, I am so proud of the team's execution across multiple dimensions. They have all worked tirelessly to improve our operational metrics, such as lead time, growth margin, and on-time shipments. Simply put, we outpace the industry in quality, support, and innovation. We set the direction for the future of networking, working intimately with our strategic customers. Despite limited visibility at this time, We reiterate our double-digit growth of 10% to 12% from analyst day, aiming for approximately $6.5 billion in 2024. With that, I'd like to turn it one last time to review our financial metrics with Ida Brennan. Ida?