Arista Networks, Inc.

Thank you Regina. Good afternoon everyone and thank you for joining us.

With me on today's call are Jayshree Ullal, Arista Networks Chairperson and Chief Executive Officer, and Chantelle Brydup, Arista's Chief Financial Officer. This afternoon, Arista Networks issued a press release announcing the results for its fiscal second quarter ending June 30th, 2025. If you want 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 third quarter of the 2025 fiscal year, longer-term business model, and financial outlooks for 2025 and beyond. Our total addressable market and strategy for addressing these market opportunities, including AI, custom demand trends, tariffs and trade restrictions, supply chain constraints, component costs, manufacturing output, Inventory management and inflationary pressures in our business lead times 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 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 should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. This analysis of our Q2 results and our guidance for Q3 2025 is based on non-GAAP and excludes all non-cast stock-based compensation impacts, certain acquisition-related charges, and other non-recurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release. With that, I will turn the call over to Jayshree.

Thank you, Rudy. And thank you everyone for joining us this afternoon for our second quarter 2025 earnings call. Arista is experiencing momentum in our business as demonstrated in our record Q2 2025 results. We achieved $2.2 billion this quarter, surpassing our plan by $100 million. Software and service renewals contributed approximately 16.3% of revenue. Our non-GAAP gross margins of 65.6% was influenced by efficient supply chain and inventory benefit with a non-material tariff impact in the quarter. International contributions for the quarter registered strongly at 21.8%, with the Americas at 78.2%. Reviewing our mid-year inflection point, our conviction with AI and CloudTitans and enterprise customers has only strengthened. We began the year with a pragmatic guide of 17% or 8.2 billion annual revenue, but as the year has progressed, we recognize the potential to build a truly transformational networking company addressing a massive total available market. This feels to us like a unique once in a lifetime opportunity. We therefore raised our 2025 annual growth to 25%, now targeting 8.75 billion in revenue, which is an incremental 550 million more due to our increased momentum that we are experiencing across AI, cloud, and enterprise sectors. It is important to appreciate that Arista's AI Center strategy is complementing our data center focus to drive some of this increase. AI centers consist of both scale-out front-end and scale-up-scale-out combination for back-end networks. Scale-up back-end networks consist of high bandwidth, low latency interconnects that tightly link multiple accelerators within a single rack as a unified compute system with workload parallelism. Today, this is predominantly constructed with NVLink as a compute-attached I.O., but we do expect a move to open standards such as Ethernet or UA-Link in the next few years. Scale-out backend network is dedicated spines interconnecting XPUs across racks, engineered for high bandwidth and minimal latency, thereby resulting in efficient parallel processing of massive training models. Here, InfiniBand is rapidly migrating to Ethernet based on the UltraEthernet Consortium specification released in June of 2025. Scale-Out Frontend connects the backend clusters to external clouds, compute resources, storage, wide area networks, and data center interconnect to handle data ingestion, orchestration for AI, and cloud traffic in a leaf-spine network topology. Arista's flagship EtherLink and EOS are key hallmarks of scale-out networking with a wide breadth and depth of network protocol support. Introduced in 2024, Arista's EtherLink portfolio is now 20 plus products with the most comprehensive and complete solution in the industry, especially for scale-out back-end and scale-out front-end networking. It highlights our accelerated networking approach, bringing a single point of network control and visibility differentiation and improved GPU utilization. Poor networks and bottlenecks lead to idle cycles on GPUs, wasting both capital GPU costs and operational expenses such as power and cooling. With a 30% to 50% processing time spent in exchanging data over networks and GPU, the economic impact of building an efficient GPU cluster with good networking improves utilization, and this is super paramount. Our stated goal of 750 million backend AI networking is well on track and gaining from nearly zero revenue three years ago in 2022 to production deployments this year in 2025. As a reminder to you all, the back end AI is all incremental revenue and incremental market share to Arista. As large language models continue to expand into distributed training and inference use cases, we expect to see the back end and the front end converge and coalesce more together. This will make it increasingly difficult to parse the back end and the front end precisely in the future. but we do expect an aggregate AI networking revenue to be ahead of the 1.5 billion in 2025 and growing in many years to come. We will elaborate more on this in Analyst Day in September, including our AI strategy and forecast. What is crystal clear to us and our customers is that Arista continues to be the premier and preferred AI networking platform of choice for all flavors of AI accelerators. While majority today is NVIDIA GPUs, we are entering early pilots connecting with alternate AI accelerators, including startup XPUs, the AMD MI series, and in AI and Titan customers who are building their own XPUs. As we continue to progress with our four top AI Titan customers, AI is also spreading its wings into the enterprise and Neo Cloud sectors, and we are winning approximately 25 to 30 customers to date. The rise in agentic AI ensures any-to-any conversations with bidirectional bandwidth utilization. Such AI agents are pushing the envelope of LAN and WAN traffic patterns in the enterprise. So speaking of WAN, we are very pleased to announce the purchase of SD-WAN leader VeloCloud to offer modern branches in the agentic AI era. VeloCloud's secure AI-optimized WAN portfolio offers seamless, application-aware solutions to connect customer branch sites, complementing Arista's leading spines in the data center and campus. In a classic lead-spine atomic identifier, we are enabling multipapping, encryption, in-band network telemetry, segmentation, application identification, and traffic engineering across distributed enterprise sites. We are so excited to fill this missing void in our distributed enterprise puzzle to bring that holistic branch solution. This also increases our foothold with managed service providers, MSPs, as an important route to market for our distributed campus and branch offerings. We also intend to work closely with best-of-breed security partners to enable SASE overlays. Please do note that Velo is not material in 2025, and we have some work to do to restore annual revenue back to pre-Broadcom levels. Last quarter, I shared the development and internal promotions of several tenured executives at Arista to bolster our leadership. They display that strong cultural synergy and a mission to ignite innovation and delight our customers. As we enter the next phase of Arista 2.0, growing from $5.8 billion in 2023 to a forecasted $10 billion revenue in 2026, we rely on this trifecta foundation of great customers, innovative products, and great next-gen leaders to achieve this. I am so thrilled to welcome Todd Nightingale as Arista's President and Chief Operating Officer. Todd brings that incredible passion for networking with his over two decades of technical leadership in Meraki, Cisco, and most recently, CEO of Fastly. In just a month, he is epitomizing the Arista way, and I'm really looking forward to his impactful contributions to boost Arista's overall campus and enterprise operations. Todd, welcome to your first ANET earnings call. How does it feel to be here?