Arista Networks, Inc.
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PART I
Item 1. Business
In a world where data is increasingly a precious commodity and competitive differentiator, Arista was founded to enable our customers to access all their centers of data in the quickest, most reliable, and secure manner. Over the last two decades, we have emerged as an industry leader, delivering data-driven, client-to-cloud networking-as-a-service. Our “Centers of Data” strategy is a fundamental pivot from legacy networking approaches that create incongruent silos to a unified, data-driven approach in which the network is a service that interconnects four primary domains: AI Centers, Data Centers, Campus Centers, and WAN Centers. Anchored by Arista’s state-oriented Extensible Operating System (EOS) and Network Data Lake (NetDL), our network-as-a-service platform delivers a seamless, consolidated networking experience regardless of data location.
Our solutions are differentiated because they:
•offer uncompromising reliability derived from the foundation of robust quality assurance capabilities, and a suite of automated diagnostics,
•are based on advanced open and standards-based technology that avoids what is often expensive vendor lock-in, and
•provide consistent real-time telemetry and intelligent automation to decrease the manual workload on the operator.
This strategy and differentiation have also allowed us to deliver our comprehensive suite of products, services, and technologies to a global customer base segmented into three primary categories: Cloud and AI Titans, AI and Specialty Providers, and Enterprise. Market research confirms that we continue to be a leader in high-speed Ethernet switching.
Our Market Drivers and Products
Centers of Data Drive the World
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In the modern competitive landscape, the ability to access, manipulate, and leverage data is fundamental to an organization’s growth and viability. This is especially true in the era of Large Language Models (LLMs), agentic AI, and physical AI, where data has evolved from a byproduct of operations into the primary engine of intelligence and autonomy. Consequently, the network has matured beyond traditional "IT infrastructure" to become the spine or central nervous system. It serves as the critical conduit through which data flows from cloud and edge environments to the AI models that drive decision-making. This heightened dependency on real-time data movement underscores the necessity for a network architecture defined by unprecedented scale, availability, predictable performance, and open programmability. Operational simplicity and robust security are essential to ensure the business can compete in a world of massive, networked transactions.
Public cloud titans and, more recently, AI Neocloud providers have been at the forefront of this evolution, pioneering the development of large-scale data and AI centers to meet the growing demands of their users, including business customers. These networks have become the benchmark for superior performance and efficiency of IT infrastructure at the lowest unit cost. Enterprises and service providers worldwide are therefore adopting these hyperscale technologies and principles for their own network operations to achieve similar performance, operational efficiencies, and cost reductions.
Arista established itself as a market leader with platforms, products, and people to enable some of these hyperscalers’ most consequential networks. Our network-as-a-service approach now empowers customers of all sizes to seamlessly leverage their data through offerings spanning three key categories: Core (AI, Cloud, and Data Center Networking), Cognitive Adjacencies (Campus and Routing), and Cognitive Networks (Software and Services). With world-class engineering expertise and platform innovation, our customers gain the predictable performance and operational simplicity required to turn data into a sustainable competitive advantage in a modern, AI-driven world.
Networking at Scale for the AI Center
The rapid expansion of generative, agentic, and physical AI computing and distributed applications is blurring the lines between frontend and backend AI, Cloud, and Data Centers. Modern workloads are both data- and compute-intensive and place significant demands on the underlying network. For instance, a typical AI job involves large, sparse matrix math, distributed across hundreds or thousands of AI accelerators (XPU, GPU, TPU, etc.) with intense computations for a period of time. This type of workload requires a high-bandwidth, scalable, lossless, and power-efficient network, based on open standards, to eliminate operational costs and complexities associated with proprietary approaches.
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As a pioneer of leaf and spine networking for cloud and data centers, Arista’s "AI Center" now delivers a unified, data-driven network architecture that integrates distinct connectivity layers to optimize time-to-first-job, AI job completion times, and XPU utilization/efficiency. This strategy addresses the massive bandwidth and traffic fidelity requirements of AI workloads through three specific domains:
•Scale Up: Currently dominated by proprietary technologies, this domain involves high-bandwidth, low-latency interconnects linking multiple XPUs within a single rack. We believe Scale Up represents a future incremental opportunity as the market shifts toward open standards like Ethernet for Scale Up Networks (ESUN).
•Scale Out: This network connects XPUs across multiple racks to support massive training or inferencing clusters. The industry trend toward replacing legacy, proprietary approaches, such as InfiniBand, with Ethernet, as defined by the Ultra Ethernet Consortium, creates an opportunity for us to gain share while enabling customers to scale from thousands to a million XPUs and beyond.
•Scale Across: Power and space constraints, along with the need for AI inference closer to the edge, are driving the need for distributed clusters spread across large geographic distances. Our Scale Across solutions deliver the capabilities necessary to enable long-distance routed access while accounting for factors such as packet loss and delays, as well as data security on the wire.
The Arista Etherlink portfolio comprises a family of over twenty products designed to support the diverse range of AI Scale Out and Scale Across use cases today and Scale Up in the future. Our portfolio of 800G switches, coupled with Arista's EOS innovations such as Smart System Upgrades (SSU), AI Analyzer, and optimal load-balancing, offers compelling solutions for contemporary AI applications and deployments. Arista also continues to be innovative in areas such as deep packet buffer architectures, virtual output queuing, non-disruptive upgrades, optics, reversible cooling, and overall system power efficiency. The Arista 7800R AI Spine, 7060 AI Leaf, and the 7700R4 Distributed Etherlink Switch ("DES") are designed to address the demanding scale and performance requirements of AI Scale Out, Scale Up and Scale Across networking.
Next Generation Campus and Routing
The traditional concept of a “campus” has been redefined in the post-pandemic world, and the boundaries between the office, home, teleworker, and user have converged. At the same time, the proliferation and sophistication of devices that connect the campus, such as smart devices, security cameras, and the Internet of Things ("IoT"), have grown dramatically. The
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challenge lies in successfully transitioning the existing siloed campus into a data-driven, distributed campus with a common operating model, while addressing the growing security and availability needs.
Arista’s cognitive campus portfolio was driven by customers seeking the same quality and operational efficiency available in the data center across their enterprise networks. We offer a robust set of solutions, ranging from modular and fixed-form-factor campus spine switches to Power-over-Ethernet ("PoE") leaf switches and Wi-Fi access points, all managed through CloudVision®.
Recently, we also added the VeloCloud SD-WAN portfolio, which complements our wired and wireless campus portfolio by enhancing the branch center by providing leading cloud-delivered SD-WAN solutions with integrated security. This portfolio of solutions offers expanded choice and enhanced performance for our customers, enabling global WAN services that seamlessly interconnect data centers and distributed campus offices.
Arista’s Cloud-Grade Routing platforms, powered by EOS, combine high-performance routing, high port density, deep buffers, integrated dense wavelength division multiplexing (DWDM), and wire-speed encryption. Our 7280R4 Universal Leaf and 7500R3 and 7800R4 Universal Spine platforms serve a variety of use cases, including high-speed multi-cloud connect, Data Center Interconnect (DCI), controller-based traffic engineering, peering, business VPNs, core routing, and secure enterprise edge routing.
Software and Services: AI Ops, Management, Observability, Zero Trust Networking, and A-Care Services
The Arista EOS network architecture provides a foundational set of services for continuous streamed device state, telemetry, packet, flow, alert, sensor, and third-party data into an aggregated Network Data Lake (“Arista NetDL™”). NetDL makes these diverse datasets available via a single service endpoint, enhancing Arista and third-party applications and enabling customer-specific private clouds.
CloudVision is Arista’s modern, multi-domain AI Ops and management platform that leverages cloud networking principles to deliver a simplified end-to-end network operations experience for our Enterprise market. Unlike traditional domain-specific management solutions, CloudVision enables consistent, zero-touch network operations across data centers, campus wired and wireless networks, routing interconnects, and multi-cloud networks, thus helping to break down the complexity of siloed management approaches.
Arista AVA (autonomous virtual assist) is an agentic AI-enabled decision-support system that provides unprecedented visibility and responsiveness for network and security operations. It combines cloud scalability with the codified expertise of real-world professionals to proactively identify issues such as unusual connectivity jitter, failing optics, a lack of disk space, or network security threats, while reducing operational noise so teams can focus on the most impactful issues. AVA capabilities also expand to include automating provisioning changes and running network audits. With AVA agents, our goal is to alert users about potential network problems and pre-compute answers by anticipating the operator’s questions. We thus attempt to significantly simplify network management for our customers and allow human operators to focus on high-level strategy and innovation, rather than mundane network operations.
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Zero trust architectures aim to mitigate the risks posed by cyber threats by eliminating the assumption that a device is trusted simply because it is on the “internal” network. However, this is easier said than done, given today’s changing definition of the network that spans campus, data center, cloud, and more. Adding multiple network security layers, such as firewalls, network access control, and threat detection, among others, comes with tremendous cost, complexity, and brittleness, whereas the benefits are often hard to quantify.
We offer a comprehensive suite of security solutions that align with the Cybersecurity and Infrastructure Security Agency’s Zero Trust Maturity Model and help organizations accelerate toward optimal zero trust maturity. Moreover, these network security controls can help address gaps in an organization’s zero trust posture across other domains such as identity, devices, workloads, and data.
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We have designed our customer support offerings, Arista A-Care Services, to deliver high levels of support to our customers. Our global team of support engineers engages directly with client IT teams and is available by email, phone, or through our website.
We offer multiple service options, allowing our customers to select the product replacement service level that best meets their needs. We stock spare parts in over 200 locations worldwide through our third-party logistics suppliers. All our service options include unlimited access to bug fixes, new-feature releases, online case management, and our community forums.
The Arista Data-Driven Cloud Networking-as-a-Service Platform
The core of our cloud networking-as-a-service platform is our data-driven operating system, EOS®, which runs on top of standard Linux and offers programmability at all layers of the stack. System state and data are stored in EOS and maintained in a highly efficient, centralized system database where data is accessed via an automated publish/subscribe model. This distinct design principle provides module independence, self-healing resiliency, and multi-process software stability.
Our Competitive Strengths
•Broad and Differentiated Portfolio: Using best-of-breed merchant silicon, we deliver high-performance, purpose-built platforms with industry-leading capacity and designed to support a variety of customer needs, including low latency, high port density, deep packet buffers, and modular chassis. Our diagnostics and infrastructure service ("NetdiTM) ensures these platforms deliver the highest quality levels with superior signal integrity and power efficiency.
•Rich Software-Driven Networking-as-a-Service: Our networking-as-a-service platform addresses the inherent limitations of legacy network architectures by relying on a single operating system (EOS), a single data lake (NetDL), and a single management solution (CloudVision). This strategy allows us to address a broad set of needs from client to cloud while maintaining feature consistency across our entire product portfolio. Unlike the competition, our modular, software-driven architecture enables us to partner closely with our customers and rapidly evolve our offerings to address changing needs while maintaining structural integrity and quality. Customers thus lower their total network operations costs with a modern operating model powered by capabilities such as streaming real-time telemetry, in-service software upgrades, and AI Ops.
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•Award-winning Support System:
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q, and our Annual Report on Form 10-K filed with the SEC. This Quarterly Report on Form 10-Q contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. The words “believe,” “may,” “will,” “potentially,” "likely" “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” "should", “project,” “plan,” “predict,” “expect,” the negative of any of these words and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to statements concerning the following: our ability to retain and increase sales to existing customers and attract new customers, including large and government customers; our expectation that we will derive substantially all of our product revenue from sales of our switching and routing platforms for the foreseeable future; our relationships with and expectations concerning third parties, including, but not limited to our large customers, suppliers, distributors, systems integrators, channel partners and value-added resellers; our expectations regarding the growth of our revenue, including variability in sales and revenue concentration and timing, and the development and sale of next-generation versions of our switches; our plans to continue to expand our sales force, marketing activities and relationships with channel, technology and system-level partners; our expectation that our sales and marketing expenses will increase in absolute dollars as we expand our sales and marketing efforts worldwide; our expectation that our results of operations will vary from period to period, including the potential impact on our results of operations of the timing and size of our investments to introduce new products and services and to enhance our existing platform; our expectations related to our inventory and purchase commitments; the potential impacts of tightening supply conditions and our ability to manage such supply chain constraints, particularly in the memory and silicon markets; actions we might take related to our supply of components, such as our expectation that we will continue to issue non-cancellable and non-returnable purchase orders; our expectation that our gross margin will fluctuate over time and the factors influencing such expectation; our plans to invest in the business, including in research and development; market trends, including our expectation that large system vendors will continue to combine cloud-focused hardware and software solutions as an alternative to our products; our expectation of increased competition and our ability to compete effectively; our expectation that our business will continue to be subject to new and changing legal and regulatory obligations, particularly related to AI, privacy, data protection, cybersecurity and the environment; our belief that no potential litigation-related liabilities are likely to have a material adverse effect on our financial position, results of operations or cash flows; our belief that we will not pay any cash dividends in the foreseeable future; the potential amount of capital expenditures related to our new building in Santa Clara; and our belief that our existing cash, cash equivalents and marketable securities, together with cash flow from operations, will be sufficient to meet our working capital requirements and our growth strategies for the foreseeable future. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. You should not place undue reliance on our forward-looking statements.
Overview
In a world where data is increasingly a precious commodity and competitive differentiator, Arista was founded to enable our customers to access all their centers of data in the quickest, most reliable, and secure manner. Over the last two decades, we have established ourselves as an industry leader in data-driven, client-to-cloud networking-as-a-service. Our “Centers of Data” strategy is a fundamental pivot from legacy, siloed networking to a unified, data-driven approach in which the network is a service that interconnects four primary domains: AI Centers, Data Centers, Campus Centers, and WAN Centers. Anchored by Arista’s state-oriented Extensible Operating System (EOS) and Network Data Lake (NetDL), our network-as-a-service platform delivers a seamless, consolidated networking experience regardless of data location.
Our solutions are differentiated because they:
•offer uncompromising reliability derived from the foundation of robust quality assurance capabilities, and a suite of automated diagnostics;
•are based on advanced open and standards-based technology that avoids what is often expensive vendor lock-in, and
•provide consistent real-time telemetry and intelligent automation to decrease the manual workload on the operator.
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Our strategic differentiation enables us to deliver a comprehensive suite of products and services to a global scale. Through our network-as-a-service approach, we empower customers to seamlessly leverage their data across our entire platform. By combining world-class engineering with continuous innovation, we provide the predictable performance and simplicity needed to turn data into a sustainable competitive advantage in today’s AI-driven world.
The market for cloud networking is characterized by rapid technological evolution, intensifying competition, and the expansion of generative and agentic AI. To sustain our success and adapt to the market, we must increase sales in cloud, AI and enterprise data center Ethernet switching/routing markets, and campus workspace markets by leveraging our ability to rapidly develop new features and software applications. Our growth strategy relies on maintaining our agility and increasing our investment in research and development to deliver market-leading features to enhance the functionality of our existing cloud networking platform, expand our product offerings and build upon our technology leadership. In addition, we must continue to expand our global sales force and deepen our channel partnerships to reach new customers more effectively and increase sales to existing customers.
Historically, a limited number of customers have accounted for a significant portion of our revenue. Two of our customers accounted for more than 10% of our total revenue in each of the last three years. Sales to one end customer represented 16%, 15%, and 21% of our total revenue, and sales to the other end customer represented 26%, 20%, and 18% of our total revenue for the years ended December 31, 2025, 2024, and 2023, respectively. We have experienced unpredictability in the timing of orders from our high-volume customers, primarily due to the inherent complexity of large-scale orders and fluctuations in their specific demand. This includes reductions or shifts in their capital expenditure budgets, as well as the impact of their internal cost-reduction and efficiency initiatives. Furthermore, variability in customer concentration is driven by the timing of new product deployments, customer spending cycles, and the extensive periods required for evaluation, testing, and qualification. We expect this variability in concentration and sales timing to continue on both a quarterly and annual basis. Additionally, the pricing discounts typically required for these large-scale orders adversely impact our gross margins.
We believe an increased focus on the deployment of AI-enabled solutions by our large customers has accelerated the need for advanced technology offerings, including some offerings from potential new market entrants. This prioritization and acceleration of AI related infrastructure investment has, at times, come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures. In addition, although the focus on deployment of AI-enabled solutions has driven increased demand for networking, the long-term trajectory is unknown. As such, demand estimates for our new products are difficult to forecast and can create volatility in our revenue. We remain in a period of new product introductions and expanded use cases, particularly in the AI Ethernet market. This has resulted in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our evaluation inventory and product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis. In addition, if we are not able to satisfy the requirements under customer trials or contracts with acceptance periods, we may be required to accept product returns from our customers, which would prevent us from recognizing revenue on such transactions and may result in the write-down of inventory.
Macroeconomic Update
Global economic and business activities continue to face widespread macroeconomic uncertainties, including the effects of, among other things, inflation, monetary policy shifts, recession risks, supply constraints and potential supply chain disruptions, changes in government administration policy positions, and geopolitical pressures, including the war in Iran and international trade measures and tariff uncertainty.
Management is actively collaborating with contract manufacturers and suppliers to optimize our supply chain in response to component constraints, evolving international trade policies, and tariff uncertainties. Ongoing supply constraints and future trade measures have and could continue to adversely affect our supply chain stability and increase our product costs. We are maintaining a disciplined fulfillment cadence to ensure reliable inventory deployment. As we build capacity to meet escalating demand, we are shipping products against previously committed demand/deployment plans and accelerating some shipments as needed. Simultaneously, we are balancing customers’ requirements and lead times against the availability and lead times of key components and products from our suppliers and contract manufacturers. Given the timing and prioritization of customer orders and shipment patterns, as well as the timing and outcome of customer trials and contracts with acceptance periods, near term revenue trends may not be reflective of current demand levels and may benefit from demand/deployment plans that have been previously committed.
In addition, we expect inventory and purchase commitments to remain elevated and subject to volatility as a result of new product introductions, shifts in customer demand, and fluctuations in supplier lead times. This volatility creates a heightened risk of excess or obsolete inventory and supplier liability charges. Simultaneously, supply chain inflation and material scarcity, such as the tightening of supply conditions in the memory and silicon markets, have continued to put pressure on our gross margin. If tariff or non-tariff measures escalate, and/or if supply conditions worsen and we are unable to pass on
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these costs to customers, our gross margins could be further impacted. Additionally, broader macroeconomic instability could negatively affect demand. Given these unpredictable factors, current financial conditions discussed herein may not be indicative of future operating results and trends.
Results of Operations
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Revenue, Cost of Revenue and Gross Margin (in millions, except percentages)
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change in | |||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||||||||
| Product | $ | 2,311.3 | $ | 1,692.5 | $ | 618.8 | 36.6 | % | |||||||||||||||||||||||||||||||||
| Service | 397.7 | 312.3 | 85.4 | 27.3 | |||||||||||||||||||||||||||||||||||||
| Total revenue | 2,709.0 | 2,004.8 | 704.2 | 35.1 | |||||||||||||||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||||||||
| Product | 961.9 | 672.7 | 289.2 | 43.0 | |||||||||||||||||||||||||||||||||||||
| Service | 70.3 | 56.0 | 14.3 | 25.5 | |||||||||||||||||||||||||||||||||||||
| Total cost of revenue | 1,032.2 | 728.7 | 303.5 | 41.6 | |||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 1,676.8 | $ | 1,276.1 | $ | 400.7 | 31.4 | % | |||||||||||||||||||||||||||||||||
| Gross margin | 61.9 | % | 63.7 | % | |||||||||||||||||||||||||||||||||||||
Revenue by Geography (in millions, except percentages)
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2026 | % of Total | 2025 | % of Total | ||||||||||||||||||||||||||||||||||||||
| Americas | $ | 2,290.1 | 84.5 | % | $ | 1,598.5 | 79.7 | % | |||||||||||||||||||||||||||||||||
| Europe, Middle East and Africa | 235.0 | 8.7 | 174.6 | 8.7 | |||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 183.9 | 6.8 | 231.7 | 11.6 | |||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,709.0 | 100.0 | % | $ | 2,004.8 | 100.0 | % | |||||||||||||||||||||||||||||||||
Revenue
Product revenue primarily consists of sales of our switching and routing products, and related network applications. Service revenue is primarily derived from sales of PCS, which are typically purchased in conjunction with our products, and subsequent renewals of those contracts. Our revenue may vary from period to period based on, among other things, customer demand, industry and customer cyclicality, the timing, size, and complexity of orders, especially with respect to our large customers, and the time it takes for customers to evaluate, test, qualify and accept our products and services.
Product revenue increased by $618.8 million, or 36.6% for the three months ended March 31, 2026, compared to the same period in 2025. This increase reflects healthy customer demand and higher shipments of our switching and routing platforms across our customer base. In addition, service revenue increased by $85.4 million, or 27.3% for the three months ended March 31, 2026, compared to the same period in 2025, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand. Non-Americas revenue represented 15.5% of total revenue for the three months ended March 31, 2026, decreasing from 20.3% for the same period in the prior year, which was primarily influenced by changes in the geographic mix of sales to our large global customers.
Cost of Revenue and Gross Margin
Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, including freight and tariffs, and other costs associated with manufacturing our products and managing our inventory and supply chain. Cost of service revenue primarily consists of personnel and other costs associated with our global customer support and services organizations.
Cost of revenue increased by $303.5 million, or 41.6% for the three months ended March 31, 2026, compared to the same period in 2025. These increases were primarily driven by a corresponding increase in product and service revenues.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large customers who
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generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with our manufacturing operations personnel, inflationary pressure and scarcity of materials in our supply chain, merchant silicon costs, and excess/obsolete inventory and supplier liability charges. We expect our gross margin to fluctuate over time, depending on the factors described above.
Gross margin decreased from 63.7% to 61.9% for the three months ended March 31, 2026, compared to the same period in 2025. The decrease was primarily driven by an increased proportion of our sales to large end customers who generally receive higher discounts.
Operating Expenses (in millions, except percentages)
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest component of our operating expenses is personnel costs and new product introduction costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales incentive compensation. Personnel costs also include stock-based compensation and travel-related expenses. New product introduction costs are primarily comprised of third-party engineering and prototype expenses.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change in | |||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 343.7 | $ | 266.4 | $ | 77.3 | 29.0 | % | |||||||||||||||||||||||||||||||||
| Sales and marketing | 141.6 | 116.6 | 25.0 | 21.4 | |||||||||||||||||||||||||||||||||||||
| General and administrative | 33.7 | 34.3 | (0.6) | (1.7) | |||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 519.0 | $ | 417.3 | $ | 101.7 | 24.4 | % | |||||||||||||||||||||||||||||||||
Research and development
Research and development expenses consist primarily of personnel costs, new product introduction costs and an allocated portion of facility and IT costs. Our research and development efforts are focused on new product development and maintaining and developing additional functionality for our existing products, including new releases and upgrades to our EOS software and applications. We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and development in order to expand the capabilities of our cloud networking platform, introduce new products and features, and continue to invest in our technology.
Research and development expenses increased by $77.3 million, or 29.0% for the three months ended March 31, 2026, compared to the same period in 2025. The increase for the three months periods was primarily driven by a $10.9 million increase in personnel costs due to headcount growth, and a $52.1 million increase in new product introduction costs.
Sales and marketing
Sales and marketing expenses consist primarily of personnel costs, marketing, trade shows, and other promotional activities, and an allocated portion of facility and IT costs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our sales and marketing efforts worldwide.
Sales and marketing expenses increased by $25.0 million, or 21.4% for the three months ended March 31, 2026, compared to the same period in 2025, which was primarily driven by increased personnel costs due to headcount growth.
General and administrative
General and administrative expenses consist primarily of personnel costs and professional services costs for our finance, human resources, legal and certain executive functions. Our professional services costs are primarily related to external legal, accounting and tax services.
General and administrative expenses decreased slightly by $0.6 million, or 1.7% for the three months ended March 31, 2026, compared to the same period in 2025.
Other Income (Expense), Net (in millions, except percentages)
Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities. We expect other income (expense), net may fluctuate in the future as a result of changes in interest rates and changes in our cash, cash equivalents and marketable securities balances.
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| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change in | |||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 109.2 | $ | 90.2 | $ | 19.0 | 21.1 | % | |||||||||||||||||||||||||||||||||
| Other income (expense), net | 4.4 | 6.0 | (1.6) | (26.7) | |||||||||||||||||||||||||||||||||||||
| Total other income (expense), net | $ | 113.6 | $ | 96.2 | $ | 17.4 | 18.1 | % | |||||||||||||||||||||||||||||||||
The favorable movement in other income (expense), net, during the three months ended March 31, 2026, compared to the same period in 2025 was primarily driven by increased interest income of $19.0 million due to an increase in our cash and marketable securities balances.
Provision for Income Taxes (in millions, except percentages)
We operate in a number of tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may also be subject to U.S. income tax. Generally, our U.S. tax obligations are reduced by a credit for foreign income taxes paid on these foreign earnings, which avoids double taxation. Our tax expense to date consists of federal, state and foreign current and deferred income taxes.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change in | |||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
| Income before income taxes | $ | 1,271.4 | $ | 955.0 | $ | 316.4 | 33.1 | % | |||||||||||||||||||||||||||||||||
| Provision for income taxes | 248.5 | 141.2 | 107.3 | 76.0 | % | ||||||||||||||||||||||||||||||||||||
| Effective tax rate | 19.5 | % | 14.8 | % | |||||||||||||||||||||||||||||||||||||
The increase in the effective tax rate in the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to a decrease in tax benefits attributable to equity-based compensation.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of March 31, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $12.4 billion, of which approximately $377.0 million was held outside the U.S. in our foreign subsidiaries.
Our cash, cash equivalents and marketable securities are held for general business purposes, including the funding of working capital. Our marketable securities investment portfolio is primarily invested in highly-rated securities, with the primary objective of minimizing the potential risk of principal loss. We plan to continue to invest for long-term growth. We believe that our existing balances of cash, cash equivalents and marketable securities, together with cash generated from operations, will be sufficient to meet our working capital requirements and our growth strategies for at least the next 12 months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced product and service offerings, our costs associated with supply chain activities, including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or strategic businesses and technologies, the continued market acceptance of our products, stock repurchases, and capital expenditures, including the ongoing construction of a building for office, lab and data center space. In addition, we expect that our inventory and purchase commitments to remain elevated and subject to volatility as we ramp new product introductions. In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks, and to navigate the tightening supply within the memory and silicon markets and reduce overall lead times, which will increase our working capital requirements in the future. We regularly review our liquidity and funding sources to support our long-term growth and capital needs.
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Cash Flows (in millions)
| Three Months Ended March 31, | |||||||||||||
| 2026 | 2025 | ||||||||||||
| Cash provided by operating activities | $ | 1,693.5 | $ | 641.7 | |||||||||
| Cash used in investing activities | (865.3) | (765.9) | |||||||||||
| Cash used in financing activities | — | (793.8) | |||||||||||
| Effect of exchange rate changes | (2.6) | 0.7 | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 825.6 | $ | (917.3) | |||||||||
Cash Flows from Operating Activities
During the three months ended March 31, 2026, cash provided by operating activities was $1.7 billion, consisting of net income of $1.0 billion, a net decrease of $634.7 million in working capital requirements, and non-cash adjustments to net income of $35.9 million. The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $826.2 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, and a $352.9 million increase in income tax payables related to timing of payments. These cash inflows were partially offset by a $298.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, and a $133.0 million increase in inventory. The non-cash adjustments to net income were driven by stock-based compensation of $120.9 million, and offset by a $104.9 million increase in deferred taxes primarily due to the increase in deferred revenue.
During the three months ended March 31, 2025, cash provided by operating activities was $641.7 million, consisting of net income of $813.8 million, offset by a net increase of $159.7 million in working capital requirements. The increase in working capital requirements primarily consisted of an increase in accounts receivable of $295.4 million due to increased product and service billings, a $173.3 million decrease in other liabilities primarily due to timing of inventory-related receipts and payments, a $122.7 million increase in inventory and $113.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals. These cash outflows were partly offset by a $241.3 million increase in income tax payables related to timing of payments, and an increase in deferred revenue of $297.4 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms.
Cash Flows from Investing Activities
During the three months ended March 31, 2026, cash used in investing activities was $0.9 billion, consisting of purchases of marketable securities of $1.9 billion. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $1.1 billion.
During the three months ended March 31, 2025, cash used in investing activities was $765.9 million, consisting of purchases of marketable securities of $1,545.5 million. These amounts were partially offset by proceeds from maturities and sales of marketable securities of $808.0 million.
Cash Flows from Financing Activities
During the three months ended March 31, 2026, net cash used in financing activities was negligible as proceeds from the issuance of stock under equity incentive plans was wholly offset by taxes paid under equity incentive and stock repurchase plans.
During the three months ended March 31, 2025, cash used in financing activities was $793.8 million, consisting of payments for repurchases of our common stock from the open market of $787.1 million.
Stock Repurchase Programs
From time to time, we repurchase shares of our common stock pursuant to repurchase programs that are funded from working capital. In May 2025, our board of directors authorized a $1.5 billion stock repurchase program (the "Repurchase Program"). The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by the Company at any time without prior notice. We did not repurchase any shares during the three months ended March 31, 2026. As of March 31, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million. Refer to Note 6. Stockholders' Equity and Stock-Based Compensation of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for further discussion.
20
Material Cash Requirements
Our material cash requirements will have an impact on our future liquidity. Our material cash requirements represent material expected or contractually committed future payment obligations. We believe that we will be able to fund these obligations through cash generated from operations and from our existing balances of cash, cash equivalents and marketable securities.
Our material cash requirements include the following contractual and other obligations:
Purchase Obligations
We outsource most of our manufacturing and supply chain management operations to third-party contract manufacturers, who procure components and assemble products on our behalf. A significant portion of our purchase orders for finished goods and strategic components, including integrated circuits consigned to contract manufacturers, consists of non-cancellable commitments. Our purchase obligations also encompass software and technology licenses, property and equipment, and other corporate goods and services. As of March 31, 2026, we had $8.9 billion of such purchase obligations, of which $7.6 billion are expected to be received within one year, and $1.3 billion are expected to be received after one year. These open purchase orders are considered enforceable and legally binding, and while we may have some limited ability to reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services, this can only occur with the agreement of the related supplier.
Property Project
In 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space. As of March 31, 2026, the estimated remaining capital expenditures related to this project are expected to be approximately $130.0 million to $150.0 million through the end of fiscal 2026 when we expect construction to be completed.
Off-balance Sheet Arrangements
As of March 31, 2026, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. We believe the critical accounting estimates in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K reflect our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates as disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
Refer to the subheading titled “Recent Accounting Pronouncements Not Yet Effective” in Note 1. Organization and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-05-26 | Breithaupt Chantelle Yvette | Senior Vice President, CFO | Sell | -2,448 | $157.00 | -$384,336 |
| 2026-05-26 | Ullal Jayshree | CEO and Chairperson | Sell | -13,809 ×4 | $155.04 | -$2,141,004 |
| 2026-05-21 | Battles Kelly Bodnar | Director | Sell | -422 ×5 | $146.44 | -$61,797 |
| 2026-05-20 | Wassenaar Yvonne | Director | Sell | -971 ×4 | $140.93 | -$136,846 |
| 2026-05-18 | Duda Kenneth indirect | President and CTO | Sell | -26,000 ×10 | $140.08 | -$3,642,203 |
| 2026-05-18 | Duda Kenneth | President and CTO | Sell | -32,000 ×5 | $140.08 | -$4,482,711 |
| 2026-05-01 | Giancarlo Charles H indirect | Director | Sell | -8,000 ×5 | $175.40 | -$1,403,202 |
| 2026-04-22 | Ullal Jayshree indirect | CEO and Chairperson | Sell | -428,000 ×6 | $177.44 | -$75,944,314 |
| 2026-04-21 | Ullal Jayshree indirect | CEO and Chairperson | Sell | -93,861 ×12 | $168.57 | -$15,822,499 |
| 2026-04-20 | Ullal Jayshree indirect | CEO and Chairperson | Sell | -306,139 ×3 | $167.31 | -$51,220,728 |
| 2026-04-17 | Duda Kenneth indirect | President and CTO | Sell | -26,000 ×10 | $163.31 | -$4,246,107 |
| 2026-04-17 | Duda Kenneth | President and CTO | Sell | -32,000 ×5 | $163.31 | -$5,225,978 |
| 2026-04-16 | Ullal Jayshree indirect | CEO and Chairperson | Sell | -350,000 ×6 | $159.32 | -$55,760,630 |
| 2026-04-15 | Wassenaar Yvonne | Director | Sell | -1,395 ×5 | $153.07 | -$213,533 |
| 2026-04-14 | Breithaupt Chantelle Yvette | Senior Vice President, CFO | Sell | -8,890 | $155.02 | -$1,378,164 |
| 2026-04-13 | Ullal Jayshree | CEO and Chairperson | Sell | -112,812 | $150.11 | -$16,934,672 |
| 2026-04-01 | Giancarlo Charles H indirect | Director | Sell | -8,000 ×3 | $125.95 | -$1,007,603 |
| 2026-03-17 | Duda Kenneth indirect | President and CTO | Sell | -26,000 ×8 | $134.14 | -$3,487,728 |
| 2026-03-17 | Duda Kenneth | President and CTO | Sell | -32,000 ×4 | $134.14 | -$4,292,591 |
| 2026-03-16 | Wassenaar Yvonne | Director | Sell | -1,395 ×4 | $134.34 | -$187,404 |
| 2026-03-02 | Giancarlo Charles H indirect | Director | Sell | -8,000 ×3 | $128.67 | -$1,029,372 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-08-05 10-Q expected by 2026-08-11 (in 66 days)
- ~2026-11-04 10-Q expected by 2026-11-10 (in 157 days)
- ~2027-02-16 10-K expected by 2027-04-08 (in 261 days)
- ~2027-05-05 10-Q expected by 2027-05-11 (in 339 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-05-06 10-Q Quarterly Report
- 2026-05-05 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-16 DEF 14A Proxy Statement
- 2026-02-17 10-K Annual Report
- 2026-02-12 8-K Earnings Release; Financial Statements and Exhibits
- 2025-11-05 10-Q Quarterly Report
- 2025-11-04 8-K Earnings Release; Financial Statements and Exhibits
- 2025-09-08 8-K Officer/Director Change; Bylaws/Articles Amended; Other Events; Financial Statements and Exhibits
- 2025-08-06 10-Q Quarterly Report
- 2025-08-05 8-K Earnings Release; Financial Statements and Exhibits
- 2025-06-16 8-K Officer/Director Change; Financial Statements and Exhibits
- 2025-05-07 10-Q Quarterly Report
- 2025-05-06 8-K Earnings Release; Officer/Director Change; Other Events; Financial Statements and Exhibits
- 2025-03-17 8-K Officer/Director Change; Other Events; Financial Statements and Exhibits
- 2025-02-19 10-K Annual Report