On Tuesday, Arista Networks (NYSE:ANET) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Arista Networks Inc reported Q1 2026 revenue of $2.71 billion, a 35.1% year-over-year increase, surpassing guidance of $2.6 billion, driven by strong demand in AI and specialty providers.
The company anticipates full-year revenue growth of 27.7%, reaching $11.5 billion, with AI-related revenue targets revised to $3.5 billion amid strong demand.
Despite robust demand, supply chain constraints, particularly in wafers and chips, are a significant challenge, impacting lead times and potentially gross margins.
Arista is leading in AI networking strategy with innovations such as its AI fabric use cases (scale up, scale out, and scale across) and the new XPO optics form factor, which has garnered significant industry support.
Deferred revenue is increasing, reflecting new product qualifications and customer readiness, with the expectation of recognition over multiple quarters.
Gross margin for Q1 2026 was reported at 62.4%, influenced by customer mix and rising supply chain costs.
Arista’s AI-focused initiatives and strategic wins in various sectors, including cloud and insurance, highlight its diversified growth strategy.
The company is actively working on expanding its scale-up capabilities for 2027, while scale-out and scale-across segments are key revenue drivers for 2026.
Full Transcript
OPERATOR
Welcome to the first quarter 2026 Arista Networks Inc 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 you need to reach an operator at any time during the conference, please press the star key followed by zero. As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section of on the Arista Networks Inc website. Following this call, Mr. Rudolph Araujo, Arista’s Head of Investor Advocacy.
Rudolph Araujo (Head of Investor Advocacy)
Thank you, Regina Good afternoon, everyone and thank you for joining us. With me on today’s call are Jaishree Ulal, Arista Network’s Chairperson and Chief Executive Officer, and Chantal Brightoff, Arista Networks Inc’s Chief Financial Officer. This afternoon Arista Networks issued a press release announcing its fiscal first quarter results for the period ending March 31, 2026. If you want a copy of this release, you can find it on 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 second quarter of the 2026 fiscal year, longer term business model and financial outlooks for 2026 and beyond our total addressable market and strategy for addressing these market opportunities including AI inventory management, lead times and product innovation 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 you 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 Q1 results and our guidance for Q2 2026 is based on non GAAP and excludes stock based compensation, expense, intangible asset, amortization gains, losses on strategic investments and income tax effect of these non GAAP exclusions including the recognition of direct access tax benefits associated with stock based awards. 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 Jai Sree.
Jaishree Ulal (Chairperson and Chief Executive Officer)
Thank you Rudy and welcome everyone to our first quarter 2026 earnings call. Arista has experienced significant velocity in all our sectors in Q1 and are now commanding the number one market share in high speed switching in the greater than 10 gigabit ethernet category. With that we have overtaken many incumbent vendors according to major market analysts for 2025 our cloud and AI networking strategy for diverse AI accelerators continues to gain traction. Unlike typical workloads, AI workflow patterns can be long lived elephant flows or short lived and simply not predictable. This implies careful attention to performance where a flow can cause burstiness for a long duration of milliseconds. The intensity of a flow can determine the line rate throughput. The shifting traffic patterns to massive flows synchronized to all in all or all reduce or bursts of collective communication are all important for AI training and inference applications. I would like to take a moment to review our three AI fabric use cases in scale up mode. We have familiar technologies such as NVLink and PCIe that have enabled vertical scaling of single compute nodes or racks. The advent of ESUN Ethernet for scale up networking specifications allows for increasing or decreasing computing power in a flexible manner with ethernet to automatically adapt to workload demands. Scale up will be a new entry for Arista in 2027 and beyond where we will be working closely with our customers to build AI racks with very fast interconnects for CO packaged copper, CPC or open co packaged optics CTO as well as supporting collectives and memory acceleration Scale out or horizontal scaling involves adding more machines to a leaf spine fabric, moving workloads across multiple servers or nodes, or even connecting other elements like storage or CPUs as you scale up or out with massive data sets, bottlenecks can be resolved with collectives and protocol acceleration. At L2 L3 cluster load balancing all at wire rate. The system must deliver consistent performance without degradation as more nodes participate. Arista is a shining example here with greater than 100 cumulative customers to date in 800 Gigabit Ethernet deployments and we expect the addition of 1.6 terabyte in 2027 and at production scale. Scale across drives across the cloud in AI as the AI accelerators in a location may need to be distributed to achieve the appropriate bandwidth capacity with the optimal power. As workloads become more complex and more distributed, the bisectional bandwidth must scale smoothly to avoid bottlenecks and preserve performance. This demands sophisticated traffic engineering, deep routing, encryption properties and integrated optics based on Arista EOS stack and using Arista’s flagship 7800 R3 or R4 series. The 7800 has established itself in this category as the premier scale across choice. You can see with Arista’s accelerated networking strategy and these three types of AI fabrics. These are critical to deployment of diverse accelerators and frontier models. Traditional static network topologies with hotspot jitter that slows down job completion time or increases time to first token for inference are all not the way to go. Arista’s EtherLink portfolio addresses both the synchronous flows for massive training and the low latency for concurrent swarms of real time inference in this era of trillions of tokens, terabits of performance and terawatts of power. In 2024 you may recall we discussed four Ethernet based AI training deployments and of course since then we’ve expanded and exploded to countless others. This fourth customer from the group has officially moved from Infiniband to Ethernet at production scale over the last two years. The high speed Ethernet AI leaf spine with flexible air or liquid cooled infrastructure overcomes the physical constraints of power and space for AI workloads. It results in a low latency distributed AI supercomputer fabric across global regions. What is clear to me and us is our networking prowess with data control and management and multiplanear orchestration is not only central to our AI switching performance but also important for high speed optics transmission. At the recent Optical Cyber Conference, Arista unveiled its extended pluggable Optics XPO form factor designed specifically for optics optics innovations at high speed. Now endorsed by greater than 100 vendors. Salient features include record breaking throughput delivering 12.8 terabits per pluggable module, unprecedented rack density achieving 204.8 terabits per OCP rack unit, integrated cold plate capable of cooling up to 400 watts power per module, and the universality and flexibility across a range of pluggable optics copper as well as linear half time or retimed interfaces. A special kudos to Andy Bechtelsheim, Arista’s chief architect for driving from OSFP 10 years ago to this next generation XPO, bringing structural improvements in power footprint and cost reductions. Our enterprise business experienced Strong results in Q1 2026 both in data center and campus. Our VeloCloud acquisition is also integrating well into our branch and campus strategy, bringing more distributed enterprise use cases and a new channel motion with managed service providers MSPs to share some recent wins. Let us hear now from Todd Nightingale and Ken Duda, our co Presidents, to delineate our ARISTA 2.0 centers of data strategy over to you.
Todd Nightingale (Co-President)
Thanks teacher. Arista is diversifying its business with new customer acquisitions covering a broad set of use cases, all unified by Arista’s EOS stack and its ability to modernize enterprise infrastructure operating models. Our first highlighted win is a NEO Cloud AI network. The customer was constrained by an incumbent white box architecture that simply could not keep pace with the massive scale out requirements of AI. Arista Networks Inc was selected as a commercially proven and reliable scale out architecture with unmatched stability of EOS and the ability to connect AMD MI Series XPUs. Arista Networks Inc’s AI Leaf and Spine EtherLink products were deployed at 800 gigabits to provide the incredible performance modern AI networks require. The AI fabric was tuned using Arista’s cluster load balancing to scale out to thousands of XPUs, minimizing hotspots and congestion. On the software side, the customer leveraged AVD Arista’s validated design framework to automate network provisioning which both reduces the total cost of ownership but also provides an easy path to reliable network deployment at scale where without AVD automation a small mistake can cost precious days of debugging time. This was a strategic NEO Cloud win with large potential for upside growth in an area where we are seeing enormous opportunity and velocity in both NEO Cloud and sovereign cloud customers. Our next win is in the service provider sector with a leading regional fiber to the home provider serving hundreds of thousands of subscribers. As subscriber bandwidth demands have surged, this customer realized their legacy routing architecture was too rigid, too brittle and too costly to scale. They needed a solution which would modernize their next generation backbone and Internet peering edge. Arista Networks Inc won this upgrade by proving an automation first approach with a modern operating model, driving operational savings and increased subscriber reliability. On the hardware side, we deployed popular 7280 routing platforms using EOS’s FLX capabilities which unlock deep buffering, a rich control plane, software stack and full Internet route scale. On the software side, Arista Networks Inc’s AVD framework again automates router provisioning to reduce the time it takes to turn up services while also reducing errors. Here we saw great results from our technology partnership with Palo Alto Networks, ensuring the routing edge integrated securely and seamlessly with our overarching security architecture and heres core value proposition of lower operating costs and greater reliability drove a competitive win. Now I’ll hand it off to Todd Thanks Ken. Our third win is in the insurance services sector. Following a year of strategic collaboration, the customer wanted to modernize their infrastructure with a streamlined automated foundation capable of delivering granular real time insights to secure and monitor critical applications. Here, observability was truly the key. Arista secured this comprehensive win after executing a flawless proof of concept, proving our architecture significantly exceeded operational standards to achieve deep network observability. The customer deployed our R3 series for filter and delivery roles on our monitoring fabric dms. Additionally they deployed campus switches to radically simplify out of band management. Leveraging rich telemetry capabilities of eos, the customer unlocked advanced features like VXLAN header stripping and transition to a fully automated declarative operational model. Our final win is within the manufacturing sector where we’re seeing amazing momentum. Here we have a customer operating more than 100 factory sites globally servicing consumer, healthcare, aerospace, defense and AI infrastructure customers. This was a true mission critical use case and their legacy campus network had become the bottleneck for achieving real 24 by 7 production. Shifting traffic patterns, manual provisioning and importantly a lack of visibility and forensics into microbursts and drops were keeping them from achieving their goals. Arista won an extensive bake off against two established vendors, both of whom proposed campus design that could not match what Arista delivered A universal leaf spine campus based on open standard standards, running a single EOS binary across campus Data center and WAN. The Cognitive Campus solution leveraged 100 gig campus spine, high powered poe leaves and Arista Wi Fi 7 Cloud Vision drove provisioning, configuration and life cycle end to end with consistent tooling across the network infrastructure. Here it really was Arista’s modern operating model that drove differentiation in the engagement and hit list production upgrades, latency analyzer for microburst visibility and true packet drop forensics. The teams were able to significantly reduce production, impacting maintenance windows and expose events that had previously caused line interruption. In all four of these examples, Arista’s support team stood out to customers for its best in class service. Well known for troubleshooting issues with customers long after Arista Gear is no longer suspected to be at fault. Arista Networks Inc’s modern operating model also played a key role, especially the AVD tooling that Ken mentioned for architecture validation and deployment. We’re excited about the momentum across the entire enterprise business and especially the diversification that it brings to Arista Networks Inc. Thanks Jasher.
Jaishree Ulal (Chairperson and Chief Executive Officer)
Thank you Todd. Thank you Ken. It was so fantastic to hear of happy customer outcomes. We had another fitting example of that at our Innovate 2026 event here in the Headquarter facility held in March. The energy and enthusiasm of our greater than 250 customers who attended was truly infectious and inspiring. I want to especially give a shout out to Ashwin Kohli and Divya Wagner’s teams who have already improved our outstanding net promoter score from 87 to 89 ratings, translating to a 94% customer approval. This really exemplifies the lowest security vulnerabilities in the tech industry. It enhances our ability to better cope with the many risks that AI is creating. As I look ahead at the year, our Arista Networks Inc 2.0 momentum continues to march on and resonate. Our demand is actually the best I have ever seen in my Arista tenure. The supply however is a slightly different and opposite tale. We are experiencing industry wide shortages across the board be it wafers, silicon chips, CPUs, optics and of course memory that I referred to last quarter coupled with elevated cost to procure these. Clearly our demand is outstripping our supply this year. While we hope the supply chain will ease in the next year or two, the Arista operations team has been diligently engaging with our vendors in strengthening supply agreements and engaging in multi year purchase commitments. We anticipate gross margin pressure due to mix and trade offs we are making to pay more to assure supply continuity to our customers. Nevertheless, it gives us confidence to increase our forecasted growth slightly to 27.7%, aiming now for 11.5 billion for 2026. We also increase our AI target now to 3.5 billion this year, thereby more than doubling our AI sales annually. And with that good news, over to you Shantel for the financial details.
Chantal Brightoff (Chief Financial Officer)
Thank you Jaishree Ulal. I continue to be impressed by our company’s ability to deliver such a breadth and depth of networking innovation. It is a core tenet that underpins our strong financial return to shareholders. Q1 to detail our most recent financial outcomes to start off, Total revenues in Q1 were $2.71 billion up 35.1% year over year and above. Our guidance of 2.6 billion. Growth was seen across the customer sectors led by our AI and specialty providers customers within the quarter. International revenues for the quarter came in at $418.9 million or 15.5% of total revenue, down from 21.2% last quarter. This quarter over quarter decrease was primarily influenced by America’s base sales to our large global customers. The overall gross margin in Q1 was 62.4% within the guidance range of 62 to 63% and down from 63.4% in the prior quarter. This quarter over quarter decrease is due to the lower mix of sales to our enterprise customers in the quarter. Operating expenses for the quarter were $396.8 million or 14.6% of revenue, down slightly from last quarter at $397.1 million. Our R&D spending came in strong at $271.5 million or 10% of revenue despite a slight sequential decrease due to the timing of new product introduction Costs Arista continues to demonstrate its commitment focus on networking, innovation, sales and marketing. Expense was $103.5 million or 3.8% of revenue, down from 4% last quarter. Representative of the highly efficient Arista go to market methodology, our G and A cost came in at $21.8 million or 0.8% of revenue, down from $26.3 million last quarter. Reflecting our strong base cost productivity within a pure play networking business model, our operating income for the quarter was $1.29 billion, or 47.8% of revenue. Let me pause here to thank the greater Arista team for all of their efforts and resulting excellent execution in a dynamic environment. Other income and expense for the quarter was a favorable $110.8 million and our effective tax rate was 21.1%. Overall. This resulted in net income for the quarter of $1.11 billion or 40.9% of revenue. Our diluted share count was 1.27 billion shares, resulting in a diluted earnings per share for the quarter of $0.87, up 31.8% from the prior year. Now turning to the balance sheet Cash, cash equivalents and marketable securities ended the quarter at approximately $12.35 billion. In the quarter, we did not repurchase our common stock. Of the $1.5 billion repurchase program approved in May 2025, $817.9 million remain available for repurchase in future quarters. The actual timing and amount of future repurchases will be dependent on market and business conditions, stock price and other factors. Now turning to operating cash performance for the for the quarter, we generated approximately $1.69 billion of cash from operations in the period, the strongest in the history of arista. This was driven by a robust earnings performance coupled with an increase …
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