|
ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
|
20-1751121
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Number)
|
|
Large accelerated filer
x
|
|
|
Accelerated filer
o
|
|
|
Non-accelerated filer
o
|
|
|
Smaller reporting company
o
|
|
|
|
|
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Emerging growth company
o
|
|
|
|
|
Page
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PART I. FINANCIAL INFORMATION
|
|||
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Item 1.
|
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||
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||
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Item 2.
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Item 3.
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Item 4.
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||
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PART II. OTHER INFORMATION
|
|||
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Item 1.
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|
||
Item 1A.
|
|
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Item 2.
|
|
||
Item 3.
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Item 4.
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Item 5.
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Item 6.
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||
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September 30, 2018
|
|
December 31, 2017
|
||||
ASSETS
|
|
|
|
|
||||
CURRENT ASSETS:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
524,687
|
|
|
$
|
859,192
|
|
Marketable securities
|
|
1,137,112
|
|
|
676,363
|
|
||
Accounts receivable, net of rebates and allowances of
$11,251
and
$7,535
, respectively
|
|
322,053
|
|
|
247,346
|
|
||
Inventories
|
|
216,313
|
|
|
306,198
|
|
||
Prepaid expenses and other current assets
|
|
235,881
|
|
|
177,330
|
|
||
Total current assets
|
|
2,436,046
|
|
|
2,266,429
|
|
||
Property and equipment, net
|
|
75,397
|
|
|
74,279
|
|
||
Acquisition-related intangible assets, net
|
|
62,110
|
|
|
—
|
|
||
Goodwill
|
|
55,168
|
|
|
—
|
|
||
Investments
|
|
35,036
|
|
|
36,136
|
|
||
Deferred tax assets
|
|
114,282
|
|
|
65,125
|
|
||
Other assets
|
|
20,199
|
|
|
18,891
|
|
||
TOTAL ASSETS
|
|
$
|
2,798,238
|
|
|
$
|
2,460,860
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
||||
CURRENT LIABILITIES:
|
|
|
|
|
||||
Accounts payable
|
|
$
|
85,097
|
|
|
$
|
52,200
|
|
Accrued liabilities
|
|
103,108
|
|
|
133,827
|
|
||
Deferred revenue
|
|
318,850
|
|
|
327,706
|
|
||
Other current liabilities
|
|
32,727
|
|
|
16,172
|
|
||
Total current liabilities
|
|
539,782
|
|
|
529,905
|
|
||
Income taxes payable
|
|
42,470
|
|
|
34,067
|
|
||
Lease financing obligations, non-current
|
|
36,040
|
|
|
37,673
|
|
||
Deferred revenue, non-current
|
|
211,005
|
|
|
187,556
|
|
||
Other long-term liabilities
|
|
23,065
|
|
|
9,745
|
|
||
TOTAL LIABILITIES
|
|
852,362
|
|
|
798,946
|
|
||
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|||
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
||||
Preferred stock, $0.0001 par value—100,000 shares authorized and no shares issued and outstanding as of
September 30, 2018
and December 31, 2017
|
|
—
|
|
|
—
|
|
||
Common stock, $0.0001 par value—1,000,000 shares authorized as of
September 30, 2018
and
December 31, 2017
;
75,393
and
73,706
shares issued and outstanding as of
September 30, 2018
and
December 31, 2017
|
|
8
|
|
|
7
|
|
||
Additional paid-in capital
|
|
929,829
|
|
|
804,731
|
|
||
Retained earnings
|
|
1,020,481
|
|
|
859,114
|
|
||
Accumulated other comprehensive loss
|
|
(4,442)
|
|
|
(1,938
|
)
|
||
TOTAL STOCKHOLDERS’ EQUITY
|
|
1,945,876
|
|
|
1,661,914
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,798,238
|
|
|
$
|
2,460,860
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
|
||||||||
Product
|
|
$
|
485,481
|
|
|
$
|
380,344
|
|
|
$
|
1,337,865
|
|
|
$
|
1,025,615
|
|
Service
|
|
77,828
|
|
|
57,289
|
|
|
217,778
|
|
|
152,704
|
|
||||
Total revenue
|
|
563,309
|
|
|
437,633
|
|
|
1,555,643
|
|
|
1,178,319
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
||||||||
Product
|
|
187,764
|
|
|
145,874
|
|
|
516,077
|
|
|
390,116
|
|
||||
Service
|
|
13,962
|
|
|
11,142
|
|
|
41,181
|
|
|
33,599
|
|
||||
Total cost of revenue
|
|
201,726
|
|
|
157,016
|
|
|
557,258
|
|
|
423,715
|
|
||||
Gross profit
|
|
361,583
|
|
|
280,617
|
|
|
998,385
|
|
|
754,604
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||||
Research and development
|
|
117,589
|
|
|
79,610
|
|
|
324,029
|
|
|
242,414
|
|
||||
Sales and marketing
|
|
47,903
|
|
|
40,640
|
|
|
136,231
|
|
|
116,297
|
|
||||
General and administrative
|
|
15,321
|
|
|
19,535
|
|
|
53,420
|
|
|
65,009
|
|
||||
Legal settlement (Note 11)
|
|
—
|
|
|
—
|
|
|
405,000
|
|
|
—
|
|
||||
Total operating expenses
|
|
180,813
|
|
|
139,785
|
|
|
918,680
|
|
|
423,720
|
|
||||
Income from operations
|
|
180,770
|
|
|
140,832
|
|
|
79,705
|
|
|
330,884
|
|
||||
Other income (expense), net:
|
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
|
(673
|
)
|
|
(701
|
)
|
|
(2,040
|
)
|
|
(2,039
|
)
|
||||
Other income (expense), net
|
|
9,292
|
|
|
2,136
|
|
|
12,646
|
|
|
4,280
|
|
||||
Total other income (expense), net
|
|
8,619
|
|
|
1,435
|
|
|
10,606
|
|
|
2,241
|
|
||||
Income before income taxes
|
|
189,389
|
|
|
142,267
|
|
|
90,311
|
|
|
333,125
|
|
||||
Provision for (benefit from) income taxes
|
|
20,865
|
|
|
8,545
|
|
|
(67,482
|
)
|
|
13,757
|
|
||||
Net income
|
|
$
|
168,524
|
|
|
$
|
133,722
|
|
|
$
|
157,793
|
|
|
$
|
319,368
|
|
Net income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
168,439
|
|
|
$
|
133,540
|
|
|
$
|
157,706
|
|
|
$
|
318,643
|
|
Diluted
|
|
$
|
168,445
|
|
|
$
|
133,555
|
|
|
$
|
157,713
|
|
|
$
|
318,704
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
2.25
|
|
|
$
|
1.84
|
|
|
$
|
2.12
|
|
|
$
|
4.43
|
|
Diluted
|
|
$
|
2.08
|
|
|
$
|
1.68
|
|
|
$
|
1.95
|
|
|
$
|
4.06
|
|
Weighted-average shares used in computing net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
75,011
|
|
|
72,588
|
|
|
74,506
|
|
|
71,903
|
|
||||
Diluted
|
|
81,018
|
|
|
79,322
|
|
|
80,844
|
|
|
78,528
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net income
|
|
$
|
168,524
|
|
|
$
|
133,722
|
|
|
$
|
157,793
|
|
|
$
|
319,368
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
|
(379
|
)
|
|
343
|
|
|
(1,193
|
)
|
|
500
|
|
||||
Net change in unrealized gains (losses) on available-for-sale securities
|
|
488
|
|
|
(165
|
)
|
|
(1,311
|
)
|
|
(100
|
)
|
||||
Other comprehensive income (loss)
|
|
109
|
|
|
178
|
|
|
(2,504
|
)
|
|
400
|
|
||||
Comprehensive income
|
|
$
|
168,633
|
|
|
$
|
133,900
|
|
|
$
|
155,289
|
|
|
$
|
319,768
|
|
|
|
Nine Months Ended September 30,
|
||||||
|
|
2018
|
|
2017
As Adjusted
(1)
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
||||
Net income
|
|
$
|
157,793
|
|
|
$
|
319,368
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Depreciation, amortization and other
|
|
18,440
|
|
|
15,355
|
|
||
Stock-based compensation
|
|
66,583
|
|
|
54,991
|
|
||
Deferred income taxes
|
|
(49,615
|
)
|
|
(22,743
|
)
|
||
Unrealized loss on investments in privately-held companies, net
|
|
9,100
|
|
|
—
|
|
||
Amortization (accretion) of investment premiums (discounts)
|
|
(1,863
|
)
|
|
1,106
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Accounts receivable, net
|
|
(68,192
|
)
|
|
40,508
|
|
||
Inventories
|
|
98,284
|
|
|
(96,667
|
)
|
||
Prepaid expenses and other current assets
|
|
(50,507
|
)
|
|
(20,973
|
)
|
||
Other assets
|
|
(767
|
)
|
|
(1,560
|
)
|
||
Accounts payable
|
|
30,515
|
|
|
(46,075
|
)
|
||
Accrued liabilities
|
|
(35,917
|
)
|
|
4,175
|
|
||
Deferred revenue
|
|
13,161
|
|
|
192,210
|
|
||
Income taxes payable
|
|
10,311
|
|
|
7,421
|
|
||
Other liabilities
|
|
9,974
|
|
|
847
|
|
||
Net cash provided by operating activities
|
|
207,300
|
|
|
447,963
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
||||
Proceeds from maturities of marketable securities
|
|
366,999
|
|
|
135,483
|
|
||
Purchases of marketable securities
|
|
(827,198
|
)
|
|
(325,414
|
)
|
||
Business acquisitions, net of cash acquired
|
|
(95,640
|
)
|
|
—
|
|
||
Purchases of property and equipment
|
|
(17,613
|
)
|
|
(12,159
|
)
|
||
Investments in privately-held companies
|
|
(8,000
|
)
|
|
—
|
|
||
Proceeds from repayment of notes receivable
|
|
—
|
|
|
3,000
|
|
||
Other investing activities
|
|
(2,000
|
)
|
|
—
|
|
||
Net cash used in investing activities
(1)
|
|
(583,452
|
)
|
|
(199,090
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
||||
Principal payments of lease financing obligations
|
|
(1,392
|
)
|
|
(1,170
|
)
|
||
Proceeds from issuance of common stock under equity plans
|
|
49,642
|
|
|
41,870
|
|
||
Tax withholding paid on behalf of employees for net share settlement
|
|
(6,914
|
)
|
|
(2,457
|
)
|
||
Net cash provided by financing activities
|
|
41,336
|
|
|
38,243
|
|
||
Effect of exchange rate changes
|
|
(984
|
)
|
|
697
|
|
||
NET
INCREASE/(DECREASE)
IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
(335,800
|
)
|
|
287,813
|
|
||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period
|
|
864,697
|
|
|
572,168
|
|
||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period
(2)
|
|
$
|
528,897
|
|
|
$
|
859,981
|
|
|
|
|
|
|
•
|
Identification of the contract, or contracts, with a customer
|
•
|
Identification of the performance obligations in the contract
|
•
|
Determination of the transaction price
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
•
|
Recognition of revenue when (or as) we satisfy the performance obligation
|
|
|
Purchase Price Allocation
|
||
Cash and cash equivalents
|
|
$
|
4,953
|
|
Other tangible assets
|
|
22,445
|
|
|
Liabilities
|
|
(29,780
|
)
|
|
Intangible assets
|
|
63,720
|
|
|
Goodwill
|
|
55,168
|
|
|
Net assets acquired
|
|
$
|
116,506
|
|
|
|
Acquisition Date Fair Value
|
|
Estimated Useful Life
(year) |
||
Developed technology
|
|
$
|
52,510
|
|
|
5 years
|
Customer relationships
|
|
7,080
|
|
|
7 years
|
|
Trade name
|
|
2,470
|
|
|
3 years
|
|
Others
|
|
1,660
|
|
|
1 year
|
|
Total intangible assets acquired
|
|
$
|
63,720
|
|
|
|
|
|
September 30, 2018
|
||||||||||||||||||||||||||
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
||||||||||||||
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
|
$
|
170,604
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
170,604
|
|
|
$
|
170,604
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
|
46,572
|
|
|
—
|
|
|
—
|
|
|
46,572
|
|
|
—
|
|
|
46,572
|
|
|
—
|
|
|||||||
U.S. government notes
|
|
227,086
|
|
|
—
|
|
|
(513
|
)
|
|
226,573
|
|
|
226,573
|
|
|
—
|
|
|
—
|
|
|||||||
Corporate bonds
|
|
581,093
|
|
|
19
|
|
|
(1,408
|
)
|
|
579,704
|
|
|
—
|
|
|
579,704
|
|
|
—
|
|
|||||||
Agency securities
|
|
285,261
|
|
|
—
|
|
|
(998
|
)
|
|
284,263
|
|
|
—
|
|
|
284,263
|
|
|
—
|
|
|||||||
|
|
1,140,012
|
|
|
19
|
|
|
(2,919
|
)
|
|
1,137,112
|
|
|
226,573
|
|
|
910,539
|
|
|
—
|
|
|||||||
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds - restricted
|
|
4,210
|
|
|
—
|
|
|
—
|
|
|
4,210
|
|
|
4,210
|
|
|
—
|
|
|
—
|
|
|||||||
Total Financial Assets
|
|
$
|
1,314,826
|
|
|
$
|
19
|
|
|
$
|
(2,919
|
)
|
|
$
|
1,311,926
|
|
|
$
|
401,387
|
|
|
$
|
910,539
|
|
|
$
|
—
|
|
|
|
December 31, 2017
|
||||||||||||||||||||||||||
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
||||||||||||||
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
|
$
|
701,145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
701,145
|
|
|
$
|
701,145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Agency securities
|
|
12,728
|
|
|
—
|
|
|
—
|
|
|
12,728
|
|
|
—
|
|
|
12,728
|
|
|
—
|
|
|||||||
|
|
713,873
|
|
|
—
|
|
|
—
|
|
|
713,873
|
|
|
701,145
|
|
|
12,728
|
|
|
—
|
|
|||||||
Marketable Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
|
11,924
|
|
|
—
|
|
|
—
|
|
|
11,924
|
|
|
—
|
|
|
11,924
|
|
|
—
|
|
|||||||
U.S. government notes
|
|
137,025
|
|
|
—
|
|
|
(378
|
)
|
|
136,647
|
|
|
136,647
|
|
|
—
|
|
|
—
|
|
|||||||
Corporate bonds
|
|
313,080
|
|
|
20
|
|
|
(616
|
)
|
|
312,484
|
|
|
—
|
|
|
312,484
|
|
|
—
|
|
|||||||
Agency securities
|
|
215,923
|
|
|
2
|
|
|
(617
|
)
|
|
215,308
|
|
|
—
|
|
|
215,308
|
|
|
—
|
|
|||||||
|
|
677,952
|
|
|
22
|
|
|
(1,611
|
)
|
|
676,363
|
|
|
136,647
|
|
|
539,716
|
|
|
—
|
|
|||||||
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds - restricted
|
|
5,505
|
|
|
—
|
|
|
—
|
|
|
5,505
|
|
|
5,505
|
|
|
—
|
|
|
—
|
|
|||||||
Total Financial Assets
|
|
$
|
1,397,330
|
|
|
$
|
22
|
|
|
$
|
(1,611
|
)
|
|
$
|
1,395,741
|
|
|
$
|
843,297
|
|
|
$
|
552,444
|
|
|
$
|
—
|
|
|
|
September 30, 2018
|
||
Due in 1 year or less
|
|
$
|
792,542
|
|
Due in 1 year through 2 years
|
|
344,570
|
|
|
Total marketable securities
|
|
$
|
1,137,112
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
||||
Cash and cash equivalents
|
|
$
|
524,687
|
|
|
$
|
854,479
|
|
Restricted cash included in other assets
|
|
4,210
|
|
|
5,502
|
|
||
Total cash, cash equivalents and restricted cash
|
|
$
|
528,897
|
|
|
$
|
859,981
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Accounts receivable
|
|
$
|
333,304
|
|
|
$
|
254,881
|
|
Allowance for doubtful accounts
|
|
(498
|
)
|
|
(112
|
)
|
||
Product sales rebate and returns reserve
|
|
(10,753
|
)
|
|
(7,423
|
)
|
||
Accounts receivable, net
|
|
$
|
322,053
|
|
|
$
|
247,346
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Raw materials
|
|
$
|
48,697
|
|
|
$
|
69,673
|
|
Finished goods
|
|
167,616
|
|
|
236,525
|
|
||
Total inventories
|
|
$
|
216,313
|
|
|
$
|
306,198
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Inventory deposit
|
|
$
|
19,290
|
|
|
$
|
34,141
|
|
Prepaid income taxes
|
|
83,598
|
|
|
38,134
|
|
||
Other current assets
|
|
118,262
|
|
|
96,215
|
|
||
Other prepaid expenses and deposits
|
|
14,731
|
|
|
8,840
|
|
||
Total prepaid expenses and other current assets
|
|
$
|
235,881
|
|
|
$
|
177,330
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Equipment and machinery
|
|
$
|
54,169
|
|
|
$
|
47,711
|
|
Computer hardware and software
|
|
28,549
|
|
|
22,124
|
|
||
Furniture and fixtures
|
|
3,641
|
|
|
3,020
|
|
||
Leasehold improvements
|
|
36,350
|
|
|
30,548
|
|
||
Building
|
|
35,154
|
|
|
35,154
|
|
||
Construction-in-process
|
|
1,931
|
|
|
4,742
|
|
||
Property and equipment, gross
|
|
159,794
|
|
|
143,299
|
|
||
Less: accumulated depreciation
|
|
(84,397
|
)
|
|
(69,020
|
)
|
||
Property and equipment, net
|
|
$
|
75,397
|
|
|
$
|
74,279
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Accrued payroll related costs
|
|
$
|
55,422
|
|
|
$
|
56,626
|
|
Accrued manufacturing costs
|
|
21,282
|
|
|
35,703
|
|
||
Accrued product development costs
|
|
7,552
|
|
|
21,201
|
|
||
Accrued warranty costs
|
|
10,115
|
|
|
7,415
|
|
||
Accrued professional fees
|
|
6,262
|
|
|
7,086
|
|
||
Accrued taxes
|
|
770
|
|
|
794
|
|
||
Other
|
|
1,705
|
|
|
5,002
|
|
||
Total accrued liabilities
|
|
$
|
103,108
|
|
|
$
|
133,827
|
|
|
|
Nine Months Ended September 30,
|
||||||
|
|
2018
|
|
2017
|
||||
Warranty accrual, beginning of period
|
|
$
|
7,415
|
|
|
$
|
6,744
|
|
Liabilities accrued for warranties issued during the period
|
|
6,898
|
|
|
5,020
|
|
||
Warranty costs incurred during the period
|
|
(4,198
|
)
|
|
(3,478
|
)
|
||
Warranty accrual, end of period
|
|
$
|
10,115
|
|
|
$
|
8,286
|
|
|
|
Three Months Ended
September 30, 2018 |
|
Nine Months Ended
September 30, 2018 |
||||
Contract assets, beginning balance
|
|
$
|
6,959
|
|
|
$
|
—
|
|
Less: Beginning balance reclassified to accounts receivable upon invoice
|
|
(1,505
|
)
|
|
—
|
|
||
Add: Contract assets recognized
|
|
3,963
|
|
|
9,417
|
|
||
Contract assets, ending balance
|
|
$
|
9,417
|
|
|
$
|
9,417
|
|
|
|
Three Months Ended
September 30, 2018 |
|
Nine Months Ended
September 30, 2018 |
||||
Contract liabilities, beginning balance
|
|
$
|
21,842
|
|
|
$
|
16,521
|
|
Less: Revenue recognized from beginning balance
|
|
(2,157
|
)
|
|
(6,107
|
)
|
||
Less: Beginning balance reclassified to deferred revenue
|
|
(970
|
)
|
|
(521
|
)
|
||
Add: Contract liabilities recognized
|
|
6,580
|
|
|
15,402
|
|
||
Contract liabilities, ending balance
|
|
$
|
25,295
|
|
|
$
|
25,295
|
|
|
|
Three Months Ended
September 30, 2018 |
|
Nine Months Ended
September 30, 2018 |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Interest income
|
|
$
|
8,585
|
|
|
$
|
2,332
|
|
|
$
|
21,933
|
|
|
$
|
4,889
|
|
Unrealized loss on investments in privately-held companies, net
|
|
—
|
|
|
—
|
|
|
(9,100
|
)
|
|
—
|
|
||||
Other income (expense)
|
|
707
|
|
|
(196
|
)
|
|
(187
|
)
|
|
(609
|
)
|
||||
Total
|
|
$
|
9,292
|
|
|
$
|
2,136
|
|
|
$
|
12,646
|
|
|
$
|
4,280
|
|
|
|
Options Outstanding
|
|
|
|
|
|||||||
|
|
Number of
Shares Underlying
Outstanding Options
|
|
Weighted-
Average Exercise Price per Share |
|
Weighted-
Average Remaining Contractual Term (Years) of Stock Options |
|
Aggregate
Intrinsic Value of Stock Options Outstanding |
|||||
Balance—December 31, 2017
|
|
7,024
|
|
|
$
|
33.05
|
|
|
6.1
|
|
$
|
1,422,637
|
|
Options granted
|
|
82
|
|
|
244.20
|
|
|
|
|
|
|||
Options exercised
|
|
(1,038
|
)
|
|
33.07
|
|
|
|
|
|
|||
Options canceled
|
|
(41
|
)
|
|
53.44
|
|
|
|
|
|
|||
Balance—September 30, 2018
|
|
6,027
|
|
|
$
|
35.78
|
|
|
5.4
|
|
$
|
1,386,807
|
|
Vested and exercisable—September 30, 2018
|
|
2,734
|
|
|
$
|
22.39
|
|
|
4.8
|
|
$
|
665,576
|
|
|
|
Number of
Shares |
|
Weighted-
Average Grant Date Fair Value Per Share |
|
Weighted-Average
Remaining
Contractual Term (in years)
|
|
Aggregate Intrinsic Value
|
|||||
Unvested balance—December 31, 2017
|
|
1,537
|
|
|
$
|
104.29
|
|
|
1.6
|
|
$
|
362,119
|
|
RSUs granted
|
|
231
|
|
|
274.46
|
|
|
|
|
|
|||
RSUs vested
|
|
(405
|
)
|
|
93.92
|
|
|
|
|
|
|||
RSUs forfeited/canceled
|
|
(56
|
)
|
|
127.57
|
|
|
|
|
|
|||
Unvested balance—September 30, 2018
|
|
1,307
|
|
|
$
|
136.63
|
|
|
1.5
|
|
$
|
347,386
|
|
|
|
Number of Shares
|
|
Balance—December 31, 2017
|
|
13,512
|
|
Authorized
|
|
2,211
|
|
Options granted
|
|
(82
|
)
|
RSUs granted
|
|
(231
|
)
|
Options canceled
|
|
41
|
|
RSUs forfeited
|
|
56
|
|
Shares traded for taxes
|
|
27
|
|
Balance—September 30, 2018
|
|
15,534
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Cost of revenue
|
|
$
|
1,268
|
|
|
$
|
1,113
|
|
|
$
|
3,706
|
|
|
$
|
3,224
|
|
Research and development
|
|
12,010
|
|
|
11,048
|
|
|
34,700
|
|
|
30,977
|
|
||||
Sales and marketing
|
|
6,537
|
|
|
5,115
|
|
|
18,771
|
|
|
12,651
|
|
||||
General and administrative
|
|
3,439
|
|
|
2,876
|
|
|
9,406
|
|
|
8,139
|
|
||||
Total stock-based compensation
|
|
$
|
23,254
|
|
|
$
|
20,152
|
|
|
$
|
66,583
|
|
|
$
|
54,991
|
|
|
|
September 30, 2018
|
||||||||||||||
|
|
Stock Option
|
|
RSU
|
|
ESPP
|
|
Restricted Stock
|
||||||||
Unrecognized stock-based compensation expense
|
|
$
|
60,754
|
|
|
$
|
161,733
|
|
|
$
|
9,722
|
|
|
$
|
5,825
|
|
Weighted-average amortization period
|
|
3.6 years
|
|
|
3.2 years
|
|
|
1.2 years
|
|
|
4.0 years
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
168,524
|
|
|
$
|
133,722
|
|
|
$
|
157,793
|
|
|
$
|
319,368
|
|
Less: undistributed earnings allocated to participating securities
|
|
(85
|
)
|
|
(182
|
)
|
|
(87
|
)
|
|
(725
|
)
|
||||
Net income available to common stockholders, basic
|
|
$
|
168,439
|
|
|
$
|
133,540
|
|
|
$
|
157,706
|
|
|
$
|
318,643
|
|
Diluted:
|
|
|
|
|
|
|
|
|
||||||||
Net income attributable to common stockholders, basic
|
|
$
|
168,439
|
|
|
$
|
133,540
|
|
|
$
|
157,706
|
|
|
$
|
318,643
|
|
Add: undistributed earnings allocated to participating securities
|
|
6
|
|
|
15
|
|
|
7
|
|
|
61
|
|
||||
Net income attributable to common stockholders, diluted
|
|
$
|
168,445
|
|
|
$
|
133,555
|
|
|
$
|
157,713
|
|
|
$
|
318,704
|
|
Denominator:
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares used in computing net income per share available to common stockholders, basic
|
|
75,011
|
|
|
72,588
|
|
|
74,506
|
|
|
71,903
|
|
||||
Diluted:
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares used in computing net income per share available to common stockholders, basic
|
|
75,011
|
|
|
72,588
|
|
|
74,506
|
|
|
71,903
|
|
||||
Add weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
||||||||
Stock options and RSUs
|
|
5,967
|
|
|
6,636
|
|
|
6,298
|
|
|
6,528
|
|
||||
Employee stock purchase plan
|
|
40
|
|
|
98
|
|
|
40
|
|
|
97
|
|
||||
Weighted-average shares used in computing net income per share available to common stockholders, diluted
|
|
81,018
|
|
|
79,322
|
|
|
80,844
|
|
|
78,528
|
|
||||
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
2.25
|
|
|
$
|
1.84
|
|
|
$
|
2.12
|
|
|
$
|
4.43
|
|
Diluted
|
|
$
|
2.08
|
|
|
$
|
1.68
|
|
|
$
|
1.95
|
|
|
$
|
4.06
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Stock options and RSUs to purchase common stock
|
|
82
|
|
|
14
|
|
|
87
|
|
|
73
|
|
Employee stock purchase plan
|
|
98
|
|
|
—
|
|
|
59
|
|
|
—
|
|
Total
|
|
180
|
|
|
14
|
|
|
146
|
|
|
73
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
(in thousands, except percentages)
|
||||||||||||||
Income before income taxes
|
|
$
|
189,389
|
|
|
$
|
142,267
|
|
|
$
|
90,311
|
|
|
$
|
333,125
|
|
Provision for (benefit from) income taxes
|
|
$
|
20,865
|
|
|
$
|
8,545
|
|
|
$
|
(67,482
|
)
|
|
$
|
13,757
|
|
Effective tax rate
|
|
11.0
|
%
|
|
6.0
|
%
|
|
(74.7
|
)%
|
|
4.1
|
%
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Americas
|
|
$
|
406,666
|
|
|
$
|
309,318
|
|
|
$
|
1,099,624
|
|
|
$
|
878,201
|
|
Europe, Middle East and Africa
|
|
92,911
|
|
|
79,143
|
|
|
316,608
|
|
|
199,244
|
|
||||
Asia-Pacific
|
|
63,732
|
|
|
49,172
|
|
|
139,411
|
|
|
100,874
|
|
||||
Total revenue
|
|
$
|
563,309
|
|
|
$
|
437,633
|
|
|
$
|
1,555,643
|
|
|
$
|
1,178,319
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
United States
|
|
$
|
69,093
|
|
|
$
|
69,128
|
|
International
|
|
6,304
|
|
|
5,151
|
|
||
Total
|
|
$
|
75,397
|
|
|
$
|
74,279
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
(in thousands)
|
||||||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
||||||||
Revenue
|
|
|
|
|
|
|
|
|
||||||||
Product
|
|
$
|
485,481
|
|
|
$
|
380,344
|
|
|
$
|
1,337,865
|
|
|
$
|
1,025,615
|
|
Service
|
|
77,828
|
|
|
57,289
|
|
|
217,778
|
|
|
152,704
|
|
||||
Total revenue
|
|
563,309
|
|
|
437,633
|
|
|
1,555,643
|
|
|
1,178,319
|
|
||||
Cost of revenue
(1)
|
|
|
|
|
|
|
|
|
||||||||
Product
|
|
187,764
|
|
|
145,874
|
|
|
516,077
|
|
|
390,116
|
|
||||
Service
|
|
13,962
|
|
|
11,142
|
|
|
41,181
|
|
|
33,599
|
|
||||
Total cost of revenue
|
|
201,726
|
|
|
157,016
|
|
|
557,258
|
|
|
423,715
|
|
||||
Gross profit
|
|
361,583
|
|
|
280,617
|
|
|
998,385
|
|
|
754,604
|
|
||||
Operating expenses
(1)
|
|
|
|
|
|
|
|
|
||||||||
Research and development
|
|
117,589
|
|
|
79,610
|
|
|
324,029
|
|
|
242,414
|
|
||||
Sales and marketing
|
|
47,903
|
|
|
40,640
|
|
|
136,231
|
|
|
116,297
|
|
||||
General and administrative
|
|
15,321
|
|
|
19,535
|
|
|
53,420
|
|
|
65,009
|
|
||||
Legal settlement
|
|
—
|
|
|
—
|
|
|
405,000
|
|
|
—
|
|
||||
Total operating expenses
|
|
180,813
|
|
|
139,785
|
|
|
918,680
|
|
|
423,720
|
|
||||
Income from operations
|
|
180,770
|
|
|
140,832
|
|
|
79,705
|
|
|
330,884
|
|
||||
Other income (expense), net
|
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
|
(673
|
)
|
|
(701
|
)
|
|
(2,040
|
)
|
|
(2,039
|
)
|
||||
Other income (expense), net
|
|
9,292
|
|
|
2,136
|
|
|
12,646
|
|
|
4,280
|
|
||||
Total other income (expense), net
|
|
8,619
|
|
|
1,435
|
|
|
10,606
|
|
|
2,241
|
|
||||
Income before income taxes
|
|
189,389
|
|
|
142,267
|
|
|
90,311
|
|
|
333,125
|
|
||||
Provision for (benefit from) income taxes
|
|
20,865
|
|
|
8,545
|
|
|
(67,482
|
)
|
|
13,757
|
|
||||
Net income
|
|
$
|
168,524
|
|
|
$
|
133,722
|
|
|
$
|
157,793
|
|
|
$
|
319,368
|
|
__________________________
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
(in thousands)
|
||||||||||||||
Stock-Based Compensation Expense:
|
|
|
|
|
|
|
|
|
||||||||
Cost of revenue
|
|
$
|
1,268
|
|
|
$
|
1,113
|
|
|
$
|
3,706
|
|
|
$
|
3,224
|
|
Research and development
|
|
12,010
|
|
|
11,048
|
|
|
34,700
|
|
|
30,977
|
|
||||
Sales and marketing
|
|
6,537
|
|
|
5,115
|
|
|
18,771
|
|
|
12,651
|
|
||||
General and administrative
|
|
3,439
|
|
|
2,876
|
|
|
9,406
|
|
|
8,139
|
|
||||
Total stock-based compensation
|
|
$
|
23,254
|
|
|
$
|
20,152
|
|
|
$
|
66,583
|
|
|
$
|
54,991
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
(as a percentage of revenue)
|
||||||||||
Revenue
|
|
|
|
|
|
|
|
|
||||
Product
|
|
86.2
|
%
|
|
86.9
|
%
|
|
86.0
|
%
|
|
87.0
|
%
|
Service
|
|
13.8
|
|
|
13.1
|
|
|
14.0
|
|
|
13.0
|
|
Total revenue
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
||||
Product
|
|
33.3
|
|
|
33.4
|
|
|
33.2
|
|
|
33.1
|
|
Service
|
|
2.5
|
|
|
2.5
|
|
|
2.6
|
|
|
2.9
|
|
Total cost of revenue
|
|
35.8
|
|
|
35.9
|
|
|
35.8
|
|
|
36.0
|
|
Gross margin
|
|
64.2
|
|
|
64.1
|
|
|
64.2
|
|
|
64.0
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
||||
Research and development
|
|
20.9
|
|
|
18.2
|
|
|
20.9
|
|
|
20.5
|
|
Sales and marketing
|
|
8.5
|
|
|
9.2
|
|
|
8.8
|
|
|
9.9
|
|
General and administrative
|
|
2.7
|
|
|
4.5
|
|
|
3.4
|
|
|
5.5
|
|
Legal settlement
|
|
—
|
|
|
—
|
|
|
26.0
|
|
|
—
|
|
Total operating expenses
|
|
32.1
|
|
|
31.9
|
|
|
59.1
|
|
|
35.9
|
|
Income from operations
|
|
32.1
|
|
|
32.2
|
|
|
5.1
|
|
|
28.1
|
|
Interest expense
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
Other income (expense), net
|
|
1.6
|
|
|
0.5
|
|
|
0.8
|
|
|
0.4
|
|
Total other income (expense), net
|
|
1.5
|
|
|
0.4
|
|
|
0.7
|
|
|
0.2
|
|
Income before income taxes
|
|
33.6
|
|
|
32.6
|
|
|
5.8
|
|
|
28.3
|
|
Provision for (benefit from) income taxes
|
|
3.7
|
|
|
2.0
|
|
|
(4.3
|
)
|
|
1.2
|
|
Net income
|
|
29.9
|
%
|
|
30.6
|
%
|
|
10.1
|
%
|
|
27.1
|
%
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
|
2018
|
|
2017
|
|
Change in
|
|
2018
|
|
2017
|
|
Change in
|
||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
%
|
|
$
|
|
$
|
|
$
|
|
%
|
||||||||||||||
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Product
|
|
$
|
485,481
|
|
|
$
|
380,344
|
|
|
$
|
105,137
|
|
|
27.6
|
%
|
|
$
|
1,337,865
|
|
|
$
|
1,025,615
|
|
|
$
|
312,250
|
|
|
30.4
|
%
|
Service
|
|
77,828
|
|
|
57,289
|
|
|
20,539
|
|
|
35.9
|
|
|
217,778
|
|
|
152,704
|
|
|
65,074
|
|
|
42.6
|
|
||||||
Total revenue
|
|
563,309
|
|
|
437,633
|
|
|
125,676
|
|
|
28.7
|
|
|
1,555,643
|
|
|
1,178,319
|
|
|
377,324
|
|
|
32.0
|
|
||||||
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Product
|
|
187,764
|
|
|
145,874
|
|
|
41,890
|
|
|
28.7
|
|
|
516,077
|
|
|
390,116
|
|
|
125,961
|
|
|
32.3
|
|
||||||
Service
|
|
13,962
|
|
|
11,142
|
|
|
2,820
|
|
|
25.3
|
|
|
41,181
|
|
|
33,599
|
|
|
7,582
|
|
|
22.6
|
|
||||||
Total cost of revenue
|
|
201,726
|
|
|
157,016
|
|
|
44,710
|
|
|
28.5
|
|
|
557,258
|
|
|
423,715
|
|
|
133,543
|
|
|
31.5
|
|
||||||
Gross profit
|
|
$
|
361,583
|
|
|
$
|
280,617
|
|
|
$
|
80,966
|
|
|
28.9
|
%
|
|
$
|
998,385
|
|
|
$
|
754,604
|
|
|
$
|
243,781
|
|
|
32.3
|
%
|
Gross margin
|
|
64.2%
|
|
64.1%
|
|
|
|
|
|
64.2%
|
|
64.0%
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
|
2018
|
|
% of Total
|
|
2017
|
|
% of Total
|
|
2018
|
|
% of Total
|
|
2017
|
|
% of Total
|
||||||||||||
Americas
|
|
$
|
406,666
|
|
|
72.2
|
%
|
|
$
|
309,318
|
|
|
70.7
|
%
|
|
$
|
1,099,624
|
|
|
70.7
|
%
|
|
$
|
878,201
|
|
|
74.5
|
%
|
Europe, Middle East and Africa
|
|
92,911
|
|
|
16.5
|
|
|
79,143
|
|
|
18.1
|
|
|
316,608
|
|
|
20.4
|
|
|
199,244
|
|
|
16.9
|
|
||||
Asia-Pacific
|
|
63,732
|
|
|
11.3
|
|
|
49,172
|
|
|
11.2
|
|
|
139,411
|
|
|
8.9
|
|
|
100,874
|
|
|
8.6
|
|
||||
Total revenue
|
|
$
|
563,309
|
|
|
100.0
|
%
|
|
$
|
437,633
|
|
|
100.0
|
%
|
|
$
|
1,555,643
|
|
|
100.0
|
%
|
|
$
|
1,178,319
|
|
|
100.0
|
%
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
|
2018
|
|
2017
|
|
Change in
|
|
2018
|
|
2017
|
|
Change in
|
||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
%
|
|
$
|
|
$
|
|
$
|
|
%
|
||||||||||||||
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest expense
|
|
$
|
(673
|
)
|
|
$
|
(701
|
)
|
|
$
|
28
|
|
|
(4.0
|
)%
|
|
$
|
(2,040
|
)
|
|
$
|
(2,039
|
)
|
|
$
|
(1
|
)
|
|
—
|
%
|
Other income (expense), net
|
|
9,292
|
|
|
2,136
|
|
|
7,156
|
|
|
335.0
|
|
|
12,646
|
|
|
4,280
|
|
|
8,366
|
|
|
195.5
|
|
||||||
Total other income (expense), net
|
|
$
|
8,619
|
|
|
$
|
1,435
|
|
|
$
|
7,184
|
|
|
500.6
|
%
|
|
$
|
10,606
|
|
|
$
|
2,241
|
|
|
$
|
8,365
|
|
|
373.3
|
%
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
|
2018
|
|
2017
|
|
Change in
|
|
2018
|
|
2017
|
|
Change in
|
||||||||||||||||||
|
|
$
|
|
$
|
|
$
|
|
%
|
|
$
|
|
$
|
|
$
|
|
%
|
||||||||||||||
Income before income taxes
|
|
$
|
189,389
|
|
|
$
|
142,267
|
|
|
$
|
47,122
|
|
|
33.1
|
%
|
|
$
|
90,311
|
|
|
$
|
333,125
|
|
|
$
|
(242,814
|
)
|
|
(72.9
|
)%
|
Provision for (benefit from) income taxes
|
|
20,865
|
|
|
8,545
|
|
|
12,320
|
|
|
144.2
|
%
|
|
(67,482
|
)
|
|
13,757
|
|
|
(81,239
|
)
|
|
(590.5
|
)%
|
||||||
Effective tax rate
|
|
11.0%
|
|
6.0%
|
|
|
|
|
|
(74.7)%
|
|
4.1%
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
||||||
|
|
2018
|
|
2017
As Adjusted
(1)
|
||||
|
|
|
|
|
||||
|
|
(in thousands)
|
||||||
Cash provided by operating activities
|
|
$
|
207,300
|
|
|
$
|
447,963
|
|
Cash used in investing activities
(1)
|
|
(583,452
|
)
|
|
(199,090
|
)
|
||
Cash provided by financing activities
|
|
41,336
|
|
|
38,243
|
|
||
Effect of exchange rate changes
|
|
(984
|
)
|
|
697
|
|
||
Net increase/(decrease) in cash, cash equivalents and restricted cash
|
|
$
|
(335,800
|
)
|
|
$
|
287,813
|
|
___________________________
|
|
|
|
|
||||
(1) Cash used in investing activities for the nine months ended September 30, 2017 was adjusted as a result of our adoption of ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
, in the first quarter of 2018. See Note 1 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
|
•
|
Identification of the contract, or contracts, with a customer
|
•
|
Identification of the performance obligations in the contract
|
•
|
Determination of the transaction price
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
•
|
Recognition of revenue when (or as) we satisfy the performance obligation
|
•
|
Our ability to attract a customer base in markets in which we have less experience;
|
•
|
Our successful development of new sales and marketing strategies to meet customer requirements;
|
•
|
Our ability to compete with new and existing competitors in these adjacent markets, many of which may have more financial resources, market experience, brand recognition, relevant intellectual property rights, or established customer relationships than we currently do;
|
•
|
Our ability to skillfully balance our investment in adjacent markets with investment in our existing products and services;
|
•
|
our ability to increase sales to existing customers and attract new end customers, including large end customers;
|
•
|
the budgeting cycles, purchasing practices and buying patterns of end customers, including large end customers who may receive lower pricing terms due to volume discounts and who may or may not make large bulk purchases in certain quarters;
|
•
|
changes in end-customer, geographic or product mix;
|
•
|
changes in growth rates of the networking market;
|
•
|
the cost and potential outcomes of existing and future litigation, including the OptumSoft litigation matters;
|
•
|
increased expenses resulting from the tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other countries on U.S. goods, including the tariffs recently implemented and additional tariffs that have been proposed by the U.S. government on various imports from China;
|
•
|
changes in the sales and implementation cycles for our products including the qualification and testing of our products by our customers and any delays or cancellations of purchases caused by such activities;
|
•
|
the rate of expansion and productivity of our sales force including any expansion into new markets;
|
•
|
changes in our pricing policies, whether initiated by us or as a result of competition;
|
•
|
our inability to fulfill our end customers’ orders due to the availability of inventory, supply chain delays, access to key commodities or technologies or events that impact our manufacturers or their suppliers;
|
•
|
the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;
|
•
|
changes in end-customer, distributor or reseller requirements or market needs;
|
•
|
difficulty forecasting, budgeting and planning due to limited visibility beyond the first two quarters into the spending plans of current or prospective customers;
|
•
|
deferral or cancellation of orders from end customers, including in anticipation of new products or product enhancements announced by us or our competitors, or warranty returns;
|
•
|
the inclusion of any acceptance provisions in our customer contracts or any delays in acceptance of those products;
|
•
|
the actual or rumored timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end customers;
|
•
|
our ability to successfully expand our business domestically and internationally;
|
•
|
our ability to increase the size of our sales or distribution channel, any disruption in our sales or distribution channels, and/or termination of our relationship with important channel partners;
|
•
|
decisions by potential end customers to purchase our networking solutions from larger, more established vendors, white box vendors or their primary network equipment vendors;
|
•
|
price competition;
|
•
|
insolvency or credit difficulties confronting our end customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;
|
•
|
seasonality or cyclical fluctuations in our markets;
|
•
|
future accounting pronouncements or changes in our accounting policies;
|
•
|
stock-based compensation expense;
|
•
|
our overall effective tax rate, including impacts caused by any reorganization in our corporate structure, any changes in our valuation allowance for domestic deferred tax assets and any new legislation or regulatory developments, including the Tax Act;
|
•
|
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing portion of our expenses are incurred and paid in currencies other than the U.S. dollar;
|
•
|
general economic conditions, both domestically and in foreign markets; and
|
•
|
other risk factors described in this Quarterly Report on Form 10-Q.
|
•
|
greater name recognition and longer operating histories;
|
•
|
larger sales and marketing budgets and resources;
|
•
|
broader distribution and established relationships with channel partners and end customers;
|
•
|
greater access to larger end-customer bases;
|
•
|
greater end-customer support resources;
|
•
|
greater manufacturing resources;
|
•
|
the ability to leverage their sales efforts across a broader portfolio of products;
|
•
|
the ability to leverage purchasing power with vendor subcomponents;
|
•
|
the ability to bundle competitive offerings with other products and services;
|
•
|
the ability to develop their own silicon chips;
|
•
|
the ability to set more aggressive pricing policies including bundling of products that are competitive with ours with other products that we do not sell or with support service contracts;
|
•
|
lower labor and development costs;
|
•
|
greater resources to make acquisitions;
|
•
|
larger intellectual property portfolios; and
|
•
|
substantially greater financial, technical, research and development or other resources.
|
•
|
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
|
•
|
increased expenses incurred in establishing and maintaining our international operations;
|
•
|
fluctuations in exchange rates between the U.S. dollar and foreign currencies where we do business;
|
•
|
greater difficulty and costs in recruiting local experienced personnel;
|
•
|
wage inflation in certain growing economies;
|
•
|
general economic and political conditions in these foreign markets;
|
•
|
economic uncertainty around the world as a result of sovereign debt issues;
|
•
|
communication and integration problems resulting from cultural and geographic dispersion;
|
•
|
limitations on our ability to access cash resources in our international operations;
|
•
|
ability to establish necessary business relationships and to comply with local business requirements;
|
•
|
risks associated with foreign legal requirements, including the importation, certification and localization of our products required in foreign countries;
|
•
|
risks associated with U.S. government trade restrictions, including those which may impose restrictions, including prohibitions, on the exportation, reexportation, sale, shipment or other transfer of programming, technology, components, and/or services to foreign persons;
|
•
|
greater risk of unexpected changes in regulatory practices, tariffs and tax laws and treaties, including the Tax Act;
|
•
|
greater risk of unexpected changes in tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other countries on U.S. goods, including the tariffs recently implemented and additional tariffs that have been proposed by the U.S. government on various imports from China, Canada, Mexico and the EU, and by the governments of these jurisdictions on certain U.S. goods, and any other possible tariffs that may be imposed on services such as ours, the scope and duration of which, if implemented, remain uncertain;
|
•
|
deterioration of political relations between the U.S. and Canada, the U.K. and the EU, which could have a material adverse effect on our sales and operations in these countries;
|
•
|
greater risk of changes in diplomatic and trade relationships, including new tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers;
|
•
|
the uncertainty of protection for intellectual property rights in some countries;
|
•
|
greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including antitrust regulations, the FCPA and any trade regulations ensuring fair trade practices; and
|
•
|
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements.
|
•
|
changes in end-customer, geographic or product mix, including mix of configurations within each product group;
|
•
|
increased price competition and changes in the actions of our competitors or their pricing strategies;
|
•
|
introduction of new products, including products with price-performance advantages and new business models including the sale and delivery of more software and subscription solutions;
|
•
|
increases in material or component costs including such increases caused by any restriction from sourcing components and manufacturing products internationally;
|
•
|
our ability to reduce production costs;
|
•
|
entry into new markets or growth in lower margin markets, including markets with different pricing and cost structures, through acquisitions or internal development;
|
•
|
entry in markets with different pricing and cost structures;
|
•
|
pricing discounts;
|
•
|
increases in material costs in the event we are restricted from sourcing components and manufacturing products internationally.
|
•
|
costs associated with defending intellectual property infringement and other claims and the potential outcomes of such disputes, such as those claims discussed in “Legal Proceedings,” including the OptumSoft litigation matters;
|
•
|
excess inventory and inventory holding charges;
|
•
|
obsolescence charges;
|
•
|
changes in shipment volume;
|
•
|
the timing of revenue recognition and revenue deferrals;
|
•
|
increased cost, loss of cost savings or dilution of savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand or if the financial health of either contract manufacturers or suppliers deteriorates;
|
•
|
increased costs arising from the tariffs imposed by the U.S. on goods from other countries and tariffs imposed by other countries on U.S. goods, including the tariffs recently implemented and additional tariffs that have been proposed by the U.S. government on various imports from China, Canada, Mexico and the E.U. and by the governments of these jurisdictions on certain U.S. goods;
|
•
|
lower than expected benefits from value engineering;
|
•
|
changes in distribution channels;
|
•
|
increased warranty costs; and
|
•
|
our ability to execute our strategy and operating plans.
|
•
|
evolve or enhance our products and services;
|
•
|
continue to expand our sales and marketing and research and development organizations;
|
•
|
acquire complementary technologies, products or businesses;
|
•
|
expand operations in the U.S. or internationally;
|
•
|
hire, train and retain employees; or
|
•
|
respond to competitive pressures or unanticipated working capital requirements.
|
•
|
sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen;
|
•
|
our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored;
|
•
|
our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;
|
•
|
defects and security vulnerabilities could be introduced into our software, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data loss and cyber incidents; and
|
•
|
personally identifiable data of our customers, employees and business partners could be compromised.
|
•
|
actual or anticipated announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;
|
•
|
forward-looking statements related to future revenue, gross margins and earnings per share;
|
•
|
price and volume fluctuations in the overall stock market from time to time;
|
•
|
changes in the growth rate of the networking market;
|
•
|
litigation involving us, our industry, or both including events occurring in our litigation with OptumSoft;
|
•
|
manufacturing, supply or distribution shortages or constraints, or challenges with adding or changing our manufacturing process or supply chain;
|
•
|
significant volatility in the market price and trading volume of technology companies in general and of companies in the IT security industry in particular;
|
•
|
fluctuations in the trading volume of our shares or the size of our public float;
|
•
|
sales by our officers, directors or significant stockholders;
|
•
|
actual or anticipated changes or fluctuations in our results of operations;
|
•
|
adverse changes to our relationships with any of our channel partners;
|
•
|
whether our results of operations or our financial outlook for future fiscal periods meet the expectations of securities analysts or investors;
|
•
|
actual or anticipated changes in the expectations of investors or securities analysts;
|
•
|
regulatory developments in the U.S., foreign countries or both;
|
•
|
general economic conditions and trends;
|
•
|
major catastrophic events;
|
•
|
sales of large blocks of our common stock; or
|
•
|
departures of key personnel.
|
•
|
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
|
•
|
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
|
•
|
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
|
•
|
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
|
•
|
the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
|
•
|
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
|
•
|
the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and
|
•
|
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
|
|
|
|
Exhibit Number
|
|
Description
|
10.1+
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1*
|
|
|
101.INS
|
|
XBRL Instance Document.
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
Arista Networks, Inc.
|
|
|
|
(Registrant)
|
|
|
|
|
Date:
|
November 5, 2018
|
By:
|
/s/ JAYSHREE ULLAL
|
|
|
|
Jayshree Ullal
|
|
|
|
President, Chief Executive Officer and Director
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Date:
|
November 5, 2018
|
By:
|
/s/ ITA BRENNAN
|
|
|
|
Ita Brennan
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Accounting and Financial Officer)
|
This Term Sheet, effective August 6, 2018 (the “
Effective Date
”), summarizes the principal terms of a mutual release and settlement agreement (the “
Definitive Agreement
” which also will have an effective date of August 6, 2018) between Arista Networks, Inc. (“
Arista
”) and Cisco Systems, Inc. (“
Cisco
”) to fully resolve the parties’ ongoing disputes. Once executed, this Term Sheet shall constitute a binding agreement of Cisco and Arista (separately “
Party
,” and collectively “
the
Parties
”) regardless of whether the Parties conclude the Definitive Agreement referenced below. The Parties shall negotiate in good faith to conclude and execute the Definitive Agreement no later than August 20, 2018, with each Party using all reasonable efforts to conclude and execute the Definitive Agreement before that date. If the Parties are unable to reach agreement on a Definitive Agreement by August 20, 2018, then this Term Sheet shall be enforceable and control, and the Parties will submit any disputed term(s) to Magistrate Judge Van Keulen for final resolution consistent with the terms and conditions set forth below.
|
Affiliates Definition
|
|
“
Affiliate
” of a Party shall mean any and all entities that, at any time during the term of this Term Sheet or Definitive Agreement (but only during such period of time that the following ownership and control exist): (i) own or Control, directly or indirectly, that Party; or (ii) are owned or Controlled by, or under common Control with, directly or indirectly, that Party; or (iii) are owned or Controlled by, directly or indirectly, the same parent company as the Party. “Control” of an entity means (a) if the entity has voting shares or other voting securities, ownership of, or authority over, (directly or indirectly) more than fifty percent (50%) or more of the voting power of the outstanding voting stock or other equity interests in the entity; (b) if the entity does not have voting shares or other voting securities, ownership of, or authority over, (directly or indirectly) more than fifty percent (50%) or more of the ownership interest representing the right to make decisions for such entity; or (c) the power to otherwise direct the affairs of the entity.
|
Continuance of Antitrust Case
|
|
On August 6, 2018, the Parties will jointly ask the Court presiding over Case No. 5:16-cv-00923-BLF before the U.S. District Court for the Northern District of California (the “
Antitrust Case
”) to continue the antitrust trial so the Parties can conclude and execute the Definitive Agreement. The Parties will request that the Court retain jurisdiction over the Antitrust Case and order the Parties to resolve any disputed terms in the expected Definitive Agreement before Magistrate Judge Van Keulen.
|
Suspension of ITC Investigation No. 337-TA-944
|
|
Upon receipt of the Monetary Payment, the Parties will jointly ask the ITC to suspend the enforcement action in ITC Investigation No. 337-TA-944 so the Parties can conclude and execute the Definitive Agreement. Upon execution of this Term Sheet, the Parties will jointly ask the ITC to extend the August 10, 2018 deadline for replies to the Parties’ written submissions to the Commission’s questions to August 27, 2018 and to continue the target date by seventeen (17) calendar days.
|
No New Litigation Before August 20, 2018
|
|
Neither Party will initiate new litigation against the other Party on or before August 20, 2018.
|
Dismissals
|
|
Within 5 business days after receipt of the Monetary Payment, the following will occur:
• Cisco will move to terminate all active ITC Actions for ITC Investigation Nos. 337-TA-944 (including the enforcement action) and 337-TA-945 (including the modification proceeding) (the “
ITC Actions
”). Cisco will also seek to suspend the remedial order from the 944 Investigation subject to Arista’s compliance with the requirements below that Arista maintain the modifications in its Redesigned Products to address the ITC’s infringement findings for U.S. Patent Nos. 7,162,537; 6,741,592; and 7,200,145.
• Cisco will cooperate with Arista to facilitate suspension by United States Custom and Border Protection of enforcement of the ITC remedial orders relating to Arista products.
• Both Cisco and Arista will dismiss with prejudice any appeals from the ITC Actions.
• Cisco will dismiss with prejudice District Court Case No. 4:14-cv-05343-JSW (the “
District Court Patent Case
”).
• Arista will dismiss with prejudice District Court Case No. 5:16-cv-00923-BLF (the “
Antitrust Case
”).
The disposition of Cisco’s District Court Case No. 5:14-cv-5344 (BLF) (the “
District Court Copyright Case
”) and the related Federal Circuit appeal is specifically addressed below in the Command Line Interface section of this Term Sheet.
|
Continuation of IPR Proceeding and Appeals
|
|
Arista may continue at its discretion the current IPR-related proceedings involving U.S. Patent Nos. 7,162,537, 7,023,853, 7,340,597, and 8,051,211 (the “
IPR Proceedings
”). In the event Arista chooses to proceed adjudicating any of the IPR Proceedings, Cisco may continue to defend against those proceedings.
Either Party may continue adjudicating its appeals of decisions in the IPR Proceedings finding certain claims of certain Cisco patents invalid, including the Parties’ appeals related to the IPRs of the 6,377,577; 7,162,537; 7,023,853; 7,340,597; and 8,051,211 patents.
|
Mutual Releases
|
|
Upon receipt of the Monetary Payment, each Party will on behalf of itself and its Affiliates release all claims that exist as of the Effective Date against the other Party and its Affiliates, whether known or unknown, arising from or relating to (a) the patents asserted in the ITC Actions, the District Court Patent Case and the District Court Copyright Case; and (b) all antitrust or unfair competition claims that could have been brought against the other Party or its Affiliates as of the Effective Date. Each Party hereby represents and warrants that it has the authority to execute such releases.
Upon receipt of the Monetary Payment, each Party will on behalf of itself and its Affiliates release claims against the customers, Contract Manufacturers (but only to the extent specified below), and downstream partners of the other Party or its Affiliates, but only claims against Existing Products (defined below) of the other Party or its Affiliates that exist as of the Effective Date, whether known or unknown, arising from or relating to the patents asserted in the ITC Actions, the District Court Patent Case and the District Court Copyright Case.
The above-mentioned releases will take effect from the date of receipt of the Monetary Payment specified below and will from such date be irrevocable.
|
|
|
“
Contract Manufacturers
” are entities independent from a Party that assemble finished products in accordance with that Party’s proprietary specifications. “Contract Manufacturers” expressly excludes component or subassembly manufacturers or developers and designers thereof. The mutual releases extend to Contract Manufacturers solely for their activities of assembling finished products for a Party according to the proprietary specifications of that Party and do not extend to any other activities performed by a Contract Manufacturer for a Party or any activities performed for another entity.
|
5 Year Stand Down for Existing Products
|
|
Upon receipt of the Monetary Payment, for a period of five (5) years from the Effective Date (the “
5 Year
Stand Down Period for Existing Products
”), neither Party nor any of its Affiliates will bring in a court or other governmental tribunal against (a) the other Party or any of its Affiliates any utility patent infringement claim against features or functionalities used in any generally available products or services of the other Party sold or offered for sale under the Party’s or its Affiliates’ brand before the Effective Date (“
Existing Products
”), or (b) the other Party’s or its Affiliates’ respective customers, Contract Manufacturers (as defined above but only to the extent specified above), or downstream partners any utility patent infringement claim against features or functionalities used in Existing Products, or (c) any antitrust claim against the other Party or its Affiliates. Also, during the 5 Year Stand Down Period for Existing Products, neither Party nor any of its Affiliates will bring against (x) the other Party or any of its Affiliates any copyright infringement claim against user interfaces based on material subject to copyright in use by the other Party or its Affiliates as of the Effective Date (“
Existing Material
”), or (y) the other Party’s or its Affiliates’ respective customers, Contract Manufacturers, or downstream partners any copyright infringement claim against user interfaces based on Existing Material.
“Existing Products” excludes Acquired Products. “
Acquired Products
” means any products or services developed, offered for sale, marketed or sold by (a) Mojo Networks or Duo Security, (b) any entity that has been or is acquired by a Party or its Affiliates in an acquisition with a closing date after August 1, 2018 or (c) any entity that otherwise has become or becomes an Affiliate of a Party after August 1, 2018 (“
Acquired Products
”). Acquired Products will be treated as New Products and subject to the 3 Year Stand Down and Dispute Resolution Process below.
|
3 Year Stand Down and Dispute Resolution Process for New Products
|
|
Upon receipt of the Monetary Payment, for three (3) years from the Effective Date (“
Arbitration Period
”), and subject to the terms and conditions set forth below, neither Party nor any of its Affiliates (the
“Asserting Party”
) will bring in a court or other governmental tribunal a utility patent infringement claim against the other Party or its Affiliates (the
“Defending Party”
) for products or services of the Defending Party having any new or changed features and/or functionality from Existing Products or otherwise different from any Existing Products (“
New Products
”), unless the following occur:
• The Asserting Party first in good faith engages in a meet and confer process of not more than fifteen (15) calendar days with the Defending Party in which they attempt to resolve a claim or allegation that New Product(s) of the Defending Party infringe one or more valid claims of utility patent(s) of the Asserting Party (the “
Infringement Claim
”) and whether any such infringement arises entirely from features or functionality completely contained within a component generally available for sale by a third party supplier and which features or functionality were developed entirely without input from the Defending Party (“
Supplier Functionality
”). Features and/or
|
|
|
functionality which are implemented by a combination of one or more supplier components with software or hardware developed by or for the Defending Party shall not be deemed to be Supplier Functionality.
During the meet and confer process, the Defending Party shall in good faith provide sufficient information to the Asserting Party (or, at the request of the Defending Party to protect its Confidential Business Information (“
CBI
”) to the Asserting Party’s outside counsel or third party experts) about the New Product(s) for the Asserting Party to assess whether there is any infringement or alternatively whether the Infringement Claim is entirely directed to Supplier Functionality.
• If the Infringement Claim is not resolved during the meet and confer process, the Asserting Party may then provide written notice to the Defending Party within five (5) calendar days after completion of the meet and confer period that it intends to initiate arbitration proceedings to determine the Infringement Claim (“
New Product Arbitration Notice
”). The Defending Party may elect to defend against the Infringement Claim on the basis of any defenses that would be available in U.S. District Court (“
Infringement Defense
”) and/or on the basis that the infringement assertion is entirely directed to Supplier Functionality (“
Supplier Defense
”). For avoidance of doubt, the Defending Party may assert both an Infringement Defense and a Supplier Defense, and in such case the paragraphs below referring to Infringement Defense and Supplier Defense will both apply. The Parties will meet and confer to seek to mutually agree on an arbitrator from Judicial Arbitration and Mediation Services, Inc. (“
JAMS
”) within ten (10) calendar days of the New Product Arbitration Notice; in the absence of agreement, the Parties hereby consent to appointment of an arbitrator by JAMS according to its appointment procedures. The arbitration will proceed in accordance with JAMS Comprehensive Arbitration Rules as modified herein, or by the Definitive Agreement if any other modifications are agreed. In the case of an Infringement Defense, the arbitration shall provide for discovery of information relevant to the Infringement Claim, the construction of the patent claims and validity of the patent. In the case of a Supplier Defense, the arbitration shall provide for discovery of information relevant to establishing whether the Infringement Claim is directed exclusively to Supplier Functionality. In either case, the arbitration shall provide for written briefing and a hearing within one hundred (100) calendar days of the New Product Arbitration Notice. Within fifteen (15) calendar days of the hearing, the arbitrator will render a preliminary determination (the “
PD
”) of the Infringement Claim. In the case of an Infringement Defense, the PD will include a determination as to validity and infringement of the patent. In the case of a Supplier Defense, the PD will include a determination as to whether the Infringement Claim is entirely directed to Supplier Functionality. The arbitrator shall issue a final arbitration decision (“
FAD
”) within fifteen (15) calendar days of the PD. Prior to the FAD, the Parties may provide information to each other and the arbitrator relevant to the FAD, or the Defending Party may elect, if the PD finds infringement, to end the arbitration and proceed to modification in accordance with the following paragraphs. For the sake of clarity, if the Defending Party proceeds to successful modification in accordance with the following paragraphs in
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response to the PD and before issuance of a FAD, the 3 Year Stand Down and Dispute Resolution Process will remain in effect.
• If the arbitrator determines in a FAD in the case of an Infringement Defense that there is infringement of a valid patent (“
Infringement Finding
”) or the Defending Party elects to proceed to modification after a PD but before the FAD, then the Defending Party shall have [***] calendar days following such determination to cure the infringement through modification of the New Product, and to provide sufficient evidence to the arbitrator that the New Product as modified no longer infringes. The arbitrator will review the New Product as modified and will determine within thirty (30) calendar days whether the New Product as modified infringes the asserted valid patent. If the arbitrator determines that the New Product as modified does not infringe, the arbitrator shall determine a time period up to a maximum of [***] calendar days for software-related changes and [***] calendar days for hardware-related changes, by which the Defending Party must transition to sell and distribute to its customers this modification of the New Product (“
Implementation of New Product as Modified
”). At the time the arbitrator determines that the New Product as modified does not infringe, the Defending Party may make a request to the arbitrator for up to an additional [***] calendar days for Implementation of New Product as Modified, provided that the Defending Party publicly announces the modification and that it is to respond to a patent related issue simultaneously with the request for additional time. The arbitrator shall grant such request for additional time if the arbitrator deems it is necessary and that it would have been impractical for the Defending Party to commence earlier work on the modification or to have avoided infringement. The Defending Party may continue to provide service and support in accordance with existing service contracts for any products that were shipped before the end of the timeframe for completing Implementation of New Product as Modified.
• In the event the Defending Party does not complete Implementation of New Product as Modified within the designated timeframe, then the Arbitration Period and Three Year Stand Down and Dispute Resolution Process for New Products shall immediately terminate for all purposes and the Asserting Party may bring any action for patent infringement in a court or other governmental tribunal.
• If the arbitrator determines that the New Product as modified infringes (whether or not a related Supplier Defense is raised) or the Defending Party has failed to submit a modified product for review by the arbitrator, then the Arbitration Period and Three Year Stand Down and Dispute Resolution Process for New Products shall terminate and either Party may bring a patent infringement claim (other than infringement claims subject to the 5 year Stand Down Period) against any New Product of the other Party based on any patent in a court or other governmental tribunal. Neither the arbitration proceedings nor the findings in the arbitration proceedings will be admissible in any court or other government tribunal proceeding.
• Notwithstanding the foregoing, the Arbitration Period and Three Year Stand Down and Dispute Resolution Process for New Products shall remain in effect, notwithstanding the fact that the Defending Party has not
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__________________________
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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modified the New Product so as to no longer infringe, under the following circumstances: (a) if the patent alleged to be infringed is a Standards Essential Patent (and the arbitrator determines that the infringed patent is a Standards Essential Patent) with respect to which the Defending Party gives the Asserting Party written notice it is willing to pay royalties at FRAND rates determined by a U.S. District Court after adjudication of infringement and any defenses by the arbitrator; or (b) if the infringement arises from a combination of new, different or changed Supplier Functionality with a feature or functionality of the Defending Party and the only way the Defending Party can cure the infringement would be to remove a significant feature or functionality (as determined by the arbitrator) that was present in an Existing Product, and where the prior Supplier Functionality is no longer available.
• In the case of a Supplier Defense, if the arbitrator determines in a FAD that the Infringement Claim is not entirely directed to Supplier Functionality then the Arbitration Period and Three Year Stand Down and Dispute Resolution Process for New Products continues, but the Asserting Party may bring a patent infringement claim in a court or administrative proceeding against the accused New Product.
• In the case of a Supplier Defense, if the arbitrator determines in a FAD that the Infringement Claim is entirely directed to Supplier Functionality, then the Arbitration Period and Three Year Stand Down and Dispute Resolution Process for New Products continue, the Asserting Party may not bring a patent infringement claim against the Defending Party based on the Supplier Functionality for the remainder of the Arbitration Period, but the Asserting Party retains its rights to proceed directly against the relevant supplier.
• The prevailing Party in the arbitration will be entitled to its reasonable attorneys’ fees and costs incurred in connection with the arbitration.
• Notwithstanding the foregoing, if the arbitrator determines in a FAD that a New Product has infringed, and regardless of whether the New Product is modified to avoid infringement after the FAD and regardless of whether the Defending Party also raises a Supplier Defense, the Arbitration Period and 3 Year Stand Down and Dispute Resolution Process for New Products terminates and either Party may bring a patent infringement claim (other than infringement claims subject to the 5 year Stand Down Period) against any New Product of the other Party based on any patent in a court or other governmental tribunal (except with respect to the New Product that was subject to the FAD, provided modification occurs and is timely implemented as provided above).
• For sake of clarity, any Infringement Claim that is based on features or functionalities that are new, changed, or different from Existing Products, either alone or in combination with any other products, services, features or functionalities, where such Infringement Claim would not have arisen based on the same patent but-for the new, changed, or different feature or functionality, will be subject to the 3 Year Stand Down and Dispute Resolution Process for New Products so long as such process remains in effect. Any Infringement Claim that is based entirely on the features or functionalities of Existing Products, even if the features or functionalities that were present in Existing Products are contained in New Products, will be subject to the 5 Year Stand Down.
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Access to Products
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Neither Party, directly or indirectly, will take any action to block or prevent the other Party from purchasing its products generally available for sale on the market.
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Excluded Claims
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Notwithstanding any other provision of this Term Sheet, there is no 5 Year Stand Down for Existing Products or 3 Year Stand Down and Dispute Resolution Process for New Products applicable to claims (a) based on trade secret theft or misappropriation, design patents, theft, use of confidential information, copying of source code, object code or firmware, an intentional tort, trademark or trade dress, (b) for other claims not expressly referenced in the 5 Year Stand Down Section or the 3 Year Stand Down and Dispute Resolution Process Section and (c) breach of, or to enforce, this Term Sheet or the Definitive Agreement (“
Excluded Claims
”). For the avoidance of doubt, (i) a claim of willful patent infringement will not constitute an Excluded Claim, and (ii) either Party may bring an action in any forum for relief based on an Excluded Claim at any time. Except for the copyright appeal, each Party will represent in the Definitive Agreement that as of the Effective Date it is unaware of any facts that would give rise to an Excluded Claim.
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Successors and Tolling
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The obligations set forth in the 5 Year Stand Down for Existing Products and the 3 Year Stand Down and Dispute Resolution Process for New Products provisions above run with title to the patents and copyrights referred to therein, and each Party will cause such obligations to bind any future owner of such patents and copyrights. Notwithstanding anything to the contrary and for the avoidance of doubt, any patent that Cisco has agreed to dispose of as part of Cisco’s business divestiture of its video software business announced in May 2018 shall not be subject to any licenses, releases, covenants, immunities, and other rights under this Term Sheet or the Definitive Agreement when reached, including, without limitation, the 5 Year Stand Down for Existing Products and the 3 Year Stand Down and Dispute Resolution Process for New Products.
The statute of limitations for any claim that is covered by the 5 year Stand Down Period for Existing Products and 3 Year Stand Down and Dispute Resolution Process for New Products will be tolled during such periods and damages for such claims will continue to accrue during such periods.
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Non-infringement of Redesigned Products
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Arista will maintain the modifications it has made to its current products for sale in the United States as described below to address the ITC’s infringement findings for U.S. Patent Nos. 7,162,537; 6,741,592; and 7,200,145 (the “
Redesigned Products
”). Arista will not be obligated to modify products sold outside the United States for use outside the United States. Upon expiration of the ‘537, ‘592 and ‘145 patents, Arista will have no obligation to retain any product modifications made to address any of those patents which has expired.
Neither Cisco nor its Affiliates will claim or bring any action in a court or other governmental tribunal claiming that the Redesigned Products (and future Arista products containing the modifications made for the ‘537, ‘145 and ‘592 patents below and the same features and functionality in the Redesigned Products) infringe any patent asserted in the ITC Actions or the District Court Patent Case. The foregoing obligations run with title to such patents, and Cisco will cause such obligations to bind any future owner of such patents.
If Arista or an Affiliate of Arista creates a future product with additional features or functionality not present in the Redesigned Products (a “
Modified Product
”), Cisco may claim infringement of any patent in the ITC Actions or the District Court Patent Case only based on the difference in features or functionality between the Redesigned Product and the Modified Product subject to the 3 Year Stand Down and Dispute Resolution Process for New Products.
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Modified CLI
:
•
Existing Commands
: Arista will remove from products sold after the Transition Period the multiword commands set forth in
Appendix A
and replace them with new commands that are consistent with Future CLI Elements defined below.
•
Existing Help Description Strings
: Arista will remove from products sold after the Transition Period the help description strings identified in
Appendix B
and replace them with help description strings that comply with the Future CLI Elements below.
• If Arista complies with the Modified CLI requirements as determined by the arbitrator following the completion of any arbitration proceeding as described above, Cisco will not bring any copyright infringement claim against the Modified CLI.
•
Backward Compatibility
:
Notwithstanding the provisions above and the Pending Appeal section below, Arista’s Extensible Operating System may continue to read and interpret customer configuration files using the commands identified in Exhibit A. Arista agrees that after the Transition Period, the following will be implemented in Arista’s products: [***]. Arista may continue to make maintenance releases on old releases without implementing the Modified CLI to make bug fixes. If Arista is required to make additional changes to the Disputed CLI Elements set forth in the Pending Appeal section below, the Backward Compatibility requirements in this section will apply to the Additional Commands in Exhibit D.
Future CLI Elements:
• Arista will independently select, arrange, organize, and design all new and Modified CLI elements (“Future CLI Elements”), including multiword commands, help descriptions and screen outputs without reference (except to the extent necessary to ensure compliance with this Agreement) to Cisco’s multiword commands, help descriptions, screen outputs, user interfaces, or any other copyright protected or proprietary Cisco materials.
• Arista may create Future CLI Elements that use individual terms and syntax that are common to the industry and/or found in standards, provided that such CLI elements are created without reference (except to the extent necessary to ensure compliance with this Agreement) to the corresponding CLI element used by Cisco, if any.
• In determining whether Arista Future CLI Elements comply with these requirements, the Parties and any arbitrator(s) will take into account (i) common terms and commands used in the industry; (ii) common acronyms used in the industry; (iii) terms used in industry standards; (iv) a range of up to [***] identity between the multiword command expressions used by Arista and the Cisco multiword commands used by Cisco for competitive products and services. Ultimately, a Future CLI Element complies with these requirements if its use by Arista would not constitute infringement of a copyright in the corresponding Cisco CLI element.
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_________________
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
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ARISTA NETWORKS, INC.
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CISCO SYSTEMS, INC.
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By:
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/s/ Ita Brennan
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By:
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/s/ Kelly A. Kramer
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Name:
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ITA BRENNAN
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Name:
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KELLY A. KRAMER
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Title:
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CFO
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Title:
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EVP & CFO
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Date:
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August 6, 2018
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Date:
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August 6, 2018
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.
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[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions.
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1.
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I reviewed this Quarterly Report on Form 10-Q of Arista Networks, Inc. for the quarter ended
September 30, 2018
;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ JAYSHREE ULLAL
|
Jayshree Ullal
|
President, Chief Executive Officer and Director
|
(Principal Executive Officer)
|
1.
|
I reviewed this Quarterly Report on Form 10-Q of Arista Networks, Inc. for the quarter ended
September 30, 2018
;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ ITA BRENNAN
|
Ita Brennan
|
Chief Financial Officer
|
(Principal Accounting and Financial Officer)
|
By:
|
/s/ JAYSHREE ULLAL
|
Name:
|
Jayshree Ullal
|
Title:
|
President, Chief Executive Officer and Director
|
|
(Principal Executive Officer)
|
By:
|
/s/ ITA BRENNAN
|
Name:
|
Ita Brennan
|
Title:
|
Chief Financial Officer
|
|
(Principal Accounting and Financial Officer)
|