
	September 30, 2017		December 31, 2016				March 31, 2021		December 31, 2020
ASSETS						ASSETS
CURRENT ASSETS:						CURRENT ASSETS:
Cash and cash equivalents	$	854,479	$	567,923		Cash and cash equivalents	$	843,336	$	893,219
Marketable securities	488,635		299,910			Marketable securities	2,184,330		1,979,649
Accounts receivable, net of allowances of $7,495 and $1,521, respectively	212,611		253,119
Accounts receivable, net of rebates and allowances of $4,738 and $4,497, respectively						Accounts receivable, net of rebates and allowances of $4,738 and $4,497, respectively	380,466		389,540
Inventories	333,157		236,490			Inventories	483,168		479,668
Prepaid expenses and other current assets	186,657		168,684			Prepaid expenses and other current assets	111,595		94,922
Total current assets	2,075,539		1,526,126			Total current assets	4,002,895		3,836,998
Property and equipment, net	73,061		76,961			Property and equipment, net	32,462		32,231
Acquisition-related intangible assets, net						Acquisition-related intangible assets, net	115,359		122,790
Goodwill						Goodwill	188,277		189,696
Investments	36,136		36,136			Investments	10,314		8,314
Operating lease right-of-use assets						Operating lease right-of-use assets	72,956		77,288
Deferred tax assets	95,697		70,960			Deferred tax assets	438,277		441,531
Other assets	21,277		18,824			Other assets	33,190		30,071
TOTAL ASSETS	$	2,301,710	$	1,729,007		TOTAL ASSETS	$	4,893,730	$	4,738,919
LIABILITIES AND STOCKHOLDERS’ EQUITY						LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:						CURRENT LIABILITIES:
Accounts payable	$	32,893	$	79,457		Accounts payable	$	136,885	$	134,235
Accrued liabilities	94,459		90,951			Accrued liabilities	122,466		143,357

Deferred revenue	423,705		273,350			Deferred revenue	457,799		396,259
Other current liabilities	16,490		15,795			Other current liabilities	69,382		94,392
Total current liabilities	567,547		459,553			Total current liabilities	786,532		768,243
Income taxes payable	22,161		14,498			Income taxes payable	55,314		53,053
Lease financing obligations, non-current	38,199		39,593
Operating lease liabilities, non-current						Operating lease liabilities, non-current	67,770		72,397

Deferred revenue, non-current	141,440		99,585			Deferred revenue, non-current	262,232		254,568
Deferred tax liabilities, non-current						Deferred tax liabilities, non-current	225,924		227,936
Other long-term liabilities	7,811		7,958			Other long-term liabilities	44,620		42,431
TOTAL LIABILITIES	777,158		621,187			TOTAL LIABILITIES	1,442,392		1,418,628
Commitments and contingencies (Note 5)						Commitments and contingencies (Note 5)	0		0
STOCKHOLDERS’ EQUITY:						STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value—100,000 shares authorized, no shares issued and outstanding as of September 30, 2017 and December 31, 2016	—		—
Common stock, $0.0001 par value—1,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 73,067 and 70,811 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	7		7
Preferred stock, $0.0001 par value—100,000 shares authorized and 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020						Preferred stock, $0.0001 par value—100,000 shares authorized and 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020	0		0
Common stock, $0.0001 par value—1,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 76,257 and 76,174 shares issued and outstanding as of March 31, 2021 and December 31, 2020						Common stock, $0.0001 par value—1,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 76,257 and 76,174 shares issued and outstanding as of March 31, 2021 and December 31, 2020	8		8
Additional paid-in capital	770,339		674,183			Additional paid-in capital	1,345,569		1,292,431
Retained earnings	755,281		435,105			Retained earnings	2,106,625		2,027,614
Accumulated other comprehensive loss	(1,075)		(1,475		)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(864)		238
TOTAL STOCKHOLDERS’ EQUITY	1,524,552		1,107,820			TOTAL STOCKHOLDERS’ EQUITY	3,451,338		3,320,291
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,301,710	$	1,729,007		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,893,730	$	4,738,919

The accompanying notes are an integral part of these condensed consolidated financial ~~statements.~~statements (unaudited).

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of ~~Income~~Operations

(Unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2017			2016			2017			2016				2021		2020
Revenue:													Revenue:
Product	$	380,344		$	254,238		$	1,025,615		$	702,329		Product	$	539,145	$	410,906
Service	57,289			36,023			152,704			98,869			Service	128,417		112,123
Total revenue	437,633			290,261			1,178,319			801,198			Total revenue	667,562		523,029
Cost of revenue:													Cost of revenue:
Product	145,874			94,777			390,116			261,711			Product	218,433		163,629
Service	11,142			9,064			33,599			26,526			Service	23,857		21,149
Total cost of revenue	157,016			103,841			423,715			288,237			Total cost of revenue	242,290		184,778
Total gross profit	280,617			186,420			754,604			512,961
Gross profit													Gross profit	425,272		338,251
Operating expenses:													Operating expenses:
Research and development	79,610			70,648			242,414			202,183			Research and development	132,487		113,154
Sales and marketing	40,640			33,216			116,297			92,566			Sales and marketing	71,020		57,086
General and administrative	19,535			19,535			65,009			52,298			General and administrative	15,473		18,349

Total operating expenses	139,785			123,399			423,720			347,047			Total operating expenses	218,980		188,589
Income from operations	140,832			63,021			330,884			165,914			Income from operations	206,292		149,662
Other income (expense), net:
Interest expense	(701		)	(735		)	(2,039		)	(2,218		)
Other income (expense), net	2,136			639			4,280			1,392
Total other income (expense), net	1,435			(96		)	2,241			(826		)
Income before provision for income taxes	142,267			62,925			333,125			165,088
Other income, net													Other income, net	1,575		12,157
Income before income taxes													Income before income taxes	207,867		161,819
Provision for income taxes	8,545			11,668			13,757			39,682			Provision for income taxes	27,501		23,388
Net income	$	133,722		$	51,257		$	319,368		$	125,406		Net income	$	180,366	$	138,431
Net income attributable to common stockholders:

Net income per share:													Net income per share:
Basic	$	133,540		$	50,962		$	318,643		$	124,475		Basic	$	2.36	$	1.82
Diluted	$	133,555		$	50,980		$	318,704		$	124,531		Diluted	$	2.27	$	1.73
Net income per share attributable to common stockholders:
Weighted-average shares used in computing net income per share:													Weighted-average shares used in computing net income per share:
Basic	$	1.84		$	0.74		$	4.43		$	1.82		Basic	76,306		76,264
Diluted	$	1.68		$	0.69		$	4.06		$	1.71		Diluted	79,623		79,939
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic	72,588			69,076			71,903			68,365
Diluted	79,322			73,453			78,528			72,811

The accompanying notes are an integral part of these condensed consolidated financial ~~statements.~~statements (unaudited).

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in thousands)


	Three Months Ended March 31,
	2021		2020
Net income	$	180,366	$	138,431
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(541)		(2,739)
Net change in unrealized gains (losses) on available-for-sale securities	(561)		3,424
Other comprehensive income (loss)	(1,102)		685
Comprehensive income	$	179,264	$	139,116

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 133,722
$ 51,257
$ 319,368
$ 125,406
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 343
(165 ) 500
(402 )
Net change in unrealized gains (losses) on available-for-sale securities (165)
(113 ) (100 ) 94
Other comprehensive income (loss) 178
(278)
400
(308)
Comprehensive income $ 133,900
$ 50,979
$ 319,768
$ 125,098

The accompanying notes are an integral part of these condensed consolidated financial ~~statements.~~statements (unaudited).

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ARISTA NETWORKS, INC.

Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity

(Unaudited, in thousands)

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities
Net income $ 319,368
$ 125,406
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,355
14,807
Stock-based compensation 54,991
42,708
Deferred income taxes (22,743 ) (13,720 )
Amortization of investment premiums 1,106
994
Changes in operating assets and liabilities:
Accounts receivable, net 40,508
(65,980 )
Inventories (96,667 ) (69,998 )
Prepaid expenses and other current assets (20,973 ) (98,050 )
Other assets (1,560 ) 3,208
Accounts payable (46,075 ) 35,510
Accrued liabilities 4,175
15,913
Deferred revenue 192,210
88,027
Income taxes payable 7,421
27,275
Other liabilities 847
2,628
Net cash provided by operating activities⁽¹⁾
447,963
108,728
Cash flows from investing activities
Proceeds from marketable securities 135,483
41,917
Purchases of marketable securities (325,414 ) (342,484 )
Purchases of property and equipment (12,159 ) (16,484 )
Proceeds from repayment of notes receivable 3,000
—
Investment in privately-held companies —
(2,500 )
Change in restricted cash (1,257 ) —
Net cash used in investing activities (200,347 ) (319,551 )
Cash flows from financing activities
Principal payments of lease financing obligations (1,170 ) (960 )
Proceeds from issuance of common stock under equity plans 41,870
25,882
Minimum tax withholding paid on behalf of employees for net share settlement (2,457 ) (811 )
Net cash provided by financing activities⁽¹⁾
38,243
24,111
Effect of exchange rate changes 697
(133 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 286,556
(186,845 )
CASH AND CASH EQUIVALENTS—Beginning of period 567,923
687,326
CASH AND CASH EQUIVALENTS—End of period $ 854,479
$ 500,481
Supplemental disclosures of non-cash investing activities:
Property and equipment included in accounts payable and accrued liabilities $ 468
$ 1,313


	Three Months Ended March 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at beginning of period	76,174	$	8	$	1,292,431	$	2,027,614	$	238	$	3,320,291

Net income	—	—		—		180,366		—		180,366
Other comprehensive loss, net of tax	—	—		—		—		(1,102)		(1,102)
Stock-based compensation	—	—		37,553		—		—		37,553
Issuance of common stock in connection with employee equity incentive plans	459	—		18,081		—		—		18,081
Tax withholding paid for net share settlement of equity awards	(9)	—		(2,496)		—		—		(2,496)

Repurchase of common stock	(367)	—		—		(101,355)		—		(101,355)

Balance at end of period	76,257	$	8	$	1,345,569	$	2,106,625	$	(864)	$	3,451,338

⁽¹⁾During our first fiscal quarter of 2017, we adopted Accounting Standards Update 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." Refer to Note 1 Recently Adopted Accounting Pronouncements for further details. This adoption resulted in a $30.0 million increase in net cash provided by operating activities and a corresponding $30.0 million decrease in net cash provided by financing activities for the nine months ended September 30, 2016.


	Three Months Ended March 31, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance at beginning of period	76,389	$	8	$	1,106,305	$	1,788,230	$	143	$	2,894,686

Net Income	—	—		—		138,431		—		138,431
Other comprehensive income, net of tax	—	—		—		—		685		685
Stock-based compensation	—	—		27,556		—		—		27,556
Issuance of common stock in connection with employee equity incentive plans	482	0		17,082		—		—		17,082
Tax withholding paid for net share settlement of equity awards	(7)	—		(1,740)		—		—		(1,740)
Vesting of early-exercised stock options	—	—		21		—		—		21
Repurchase of common stock	(1,209)	—		—		(227,895)		—		(227,895)
Balance at end of period	75,655	$	8	$	1,149,224	$	1,698,766	$	828	$	2,848,826

The accompanying notes are an integral part of these condensed consolidated financial ~~statements.~~

statements (unaudited).

Table of Contents

ARISTA NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	180,366	$	138,431
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other	12,658		10,208
Stock-based compensation	37,553		27,556
Noncash lease expense	4,243		4,073
Deferred income taxes	1,425		457

Amortization of investment premiums	5,446		1,042
Changes in operating assets and liabilities:
Accounts receivable, net	9,074		46,329
Inventories	(3,500)		(17,691)
Prepaid expenses and other current assets	(15,272)		25,751
Other assets	(3,499)		3,946
Accounts payable	2,833		(6,386)
Accrued liabilities	(20,759)		(39,450)

Deferred revenue	69,204		21
Income taxes payable	(10,436)		3,982
Other liabilities	(14,661)		(3,422)
Net cash provided by operating activities	254,675		194,847
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities	379,605		414,503
Purchases of marketable securities	(590,476)		(674,649)
Business acquisitions, net of cash acquired	0		(66,225)
Purchases of property and equipment	(5,096)		(3,107)
Escrow receipts from past business acquisitions	18		0
Purchases of investments in privately-held companies	(2,000)		0


Net cash used in investing activities	(217,949)		(329,478)
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under equity plans	18,081		17,082
Tax withholding paid on behalf of employees for net share settlement	(2,496)		(1,740)
Repurchase of common stock	(101,355)		(227,895)
Net cash used in financing activities	(85,770)		(212,553)
Effect of exchange rate changes	(838)		(2,691)
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(49,882)		(349,875)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period	897,454		1,115,515
CASH, CASH EQUIVALENTS AND RESTRICTED CASH —End of period	$	847,572	$	765,640

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:


Property and equipment included in accounts payable and accrued liabilities	$	1,529	$	524

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

Table of Contents

ARISTA NETWORKS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	~~Organization and Summary of Significant Accounting Policies~~

1. Organization and Summary of Significant Accounting Policies

Organization

Arista Networks, Inc. (together with our subsidiaries, “we,” ~~“our”~~“our,” "Arista," "Company" or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of large-scale ~~Internet~~internet companies, cloud service providers and next-generation ~~enterprise.~~enterprises. Our cloud networking solutions consist of our Extensible Operating System ~~(“EOS”~~("EOS"), a set of network applications and our ~~10/25/40/50/100~~ Gigabit Ethernet switching and routing platforms. We ~~were~~are incorporated in October 2004 in the State of California under the name Arastra, Inc. In March 2008, we reincorporated in the State of Nevada and in October 2008 changed our name to Arista Networks, Inc. We reincorporated in the state of ~~Delaware in March 2014.~~Delaware. Our corporate headquarters are located in Santa Clara, California, and we have wholly-owned subsidiaries throughout the world, including North America, Europe, Asia and Australia.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Arista Networks, Inc. and its wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles ~~("GAAP"~~(“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial information. The results for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, are not necessarily indicative of the results expected for the full fiscal year. The condensed consolidated balance sheet as of December 31, ~~2016~~2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. Our unaudited condensed consolidated financial statements ("consolidated financial statements") include the accounts of Arista Networks, Inc. and its wholly-owned subsidiaries and are prepared in accordance with GAAP. All significant ~~intercompany~~inter-company accounts and transactions have been eliminated.

Our condensed consolidated financial statements and related financial information in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, filed with the SEC on February ~~17, 2017.~~19, 2021.

Use of Estimates

The preparation of the ~~accompanying~~condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. ~~Those~~These estimates and assumptions include, but are not limited to, revenue recognition and deferred revenue; allowance for doubtful accounts, sales rebates and ~~sales~~ return ~~reserve; determination~~reserves; valuation of ~~fair value for stock-based awards;~~goodwill and acquisition-related intangible assets, accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; estimate of useful lives of long-lived assets including intangible assets; valuation of ~~inventory; valuation of warranty accruals;~~inventory and contract ~~manufacturing~~manufacturer/supplier liabilities; and the recognition and measurement of contingent liabilities. We evaluate our estimates and assumptions based on historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates.

Risks and Uncertainties

The global coronavirus ("COVID-19") pandemic and resulting mitigation efforts by governments around the world to contain or slow its spread have negatively impacted the global economy, disrupted business, sales activities, global supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets.

Our contract manufacturers and suppliers have experienced delays in component sourcing, production and export of their products, which have negatively impacted our supply chain and could negatively impact our business in the future. In addition, COVID-19 related disruptions may have a negative impact on demand from our customers in future periods. However, the extent of the impact of COVID-19 on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, and the impact of any initiatives and programs we may undertake to address financial and operational challenges, will depend on future developments, including the duration and spread of the pandemic and related mitigation efforts, the impact to our customers, partners, contract manufacturers and supply chain, as well as restrictions on travel and transport, all of which are uncertain and cannot be predicted. Management is actively monitoring the impact of the pandemic on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Table of Contents

Recently Adopted Accounting Pronouncements

Income Taxes

In ~~March 2016, the Financial Accounting Standards Board (the “FASB”) amended the existing accounting standard for stock-based compensation, issuing Accounting Standards Update (“ASU”) 2016-09,~~ ~~Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~, which impacts several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted this standard during our first fiscal quarter of 2017. The impact of the adoption was as follows:

~~Income tax accounting~~ - The standard eliminates additional paid-in-capital (“APIC”) pools and requires excess tax benefits and tax deficiencies on share-based awards to be recognized in the income statement prospectively as discrete items upon exercise or vesting of such awards. The standard also requires excess tax benefits to be recognized regardless of whether the benefit reduces taxes payable. We adopted the guidance related to the timing of previously unrecognized excess tax benefits on a modified retrospective basis, which resulted in the recognition of a cumulative

~~effect adjustment of $1.8 million that increased retained earnings and increased our long-term deferred income tax as of January 1, 2017.~~

~~Earnings per share~~ - Because excess benefits are no longer recognized in APIC, the assumed proceeds from applying the treasury stock method when calculating dilutive shares was amended to exclude the amount of excess tax benefits that would be recognized upon exercise or vesting of such awards. As a result, this reduces the assumed shares to be repurchased under the treasury stock method, thereby increasing the amount of dilutive shares used to compute earnings per share. We adopted the guidance related to the exclusion of excess tax benefits in calculating earnings per share on a prospective basis.

~~Forfeitures of stock options and awards~~ - Under the new standard, we can make an accounting policy election to either estimate the number of share-based awards that are expected to vest, or account for forfeitures when they occur. We elected to account for forfeitures when they occur and adopted this change on a modified retrospective basis. As a result, we recorded the cumulative effect of the change as a $1.0 million decrease to retained earnings as of January 1, 2017.

~~Cash flow presentation of excess tax benefits~~ - Prior to the new standard, we were required to present excess tax benefits on share-based awards as a cash inflow from financing activities with a corresponding cash outflow from operating activities. The new standard required that these excess tax benefits be classified with other income tax cash flows as an operating activity. We elected to adopt the guidance related to the presentation of excess tax benefits in our condensed consolidated statements of cash flows on a retrospective basis.

~~In April 2015,~~December 2019, the FASB issued ASU ~~2015-05,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)~~2019-12, Income Taxes (Topic 740): ~~Customer’s~~Simplifying the Accounting for ~~Fees Paid in a Cloud Computing Arrangement~~, providing guidance on fees paid in a cloud computing arrangement. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.

~~In July 2015, the FASB issued ASU No, 2015-11,~~ ~~Inventory: Simplifying the Measurement of Inventory~~,Income Taxes, which simplifies the measurement of inventory to be measured at the lower of cost or net realizable value. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted this standard in our first quarter of fiscal 2017 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers (Topic 606), (as amended in June 2016, by ASU No. 2016-12-Revenue-Narrow-Scope Improvements and Practical Expedients,~~ ~~and in December 2016, by ASU No. 2016-20-Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers),~~ ~~which outlines a single comprehensive model for entities to use in~~ accounting for revenue arising from contracts with customers. The new standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly expanded disclosures about revenue recognition.

~~In July 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date of the new revenue standard~~incomes taxes by ~~one year. In March 2016, the FASB issued ASU No. 2016-08,~~ ~~Revenue From Contracts With Customers-Principal versus Agent Considerations (Reporting Revenue Gross versus Net),~~ ~~and ASU No. 2016-10,~~ ~~Revenue From Contracts With Customers-Identifying Performance Obligations and Licensing.~~ ASU No. 2016-08 clarifies the implementation guidance regarding principal versus agent identification and related considerations. Specifically, the guidance provides clarification around performance obligations for goods or services provided by another entity, assisting in determining whether the entity is the provider of the goods or services, the principal, or whether the entity is providing for the arrangement of the goods or services, the agent. ASU No. 2016-10 provides guidance around identifying whether promised goods or services are distinct and separately identifiable, whether promised goods or services are material or immaterialremoving certain exceptions to the ~~contract,~~general principles in Topic 740 and ~~whether shipping and handling is considered an activity~~amending existing guidance to fulfill a promise or an additional promised service. ASU No. 2016-10 also provides guidance around an entity's promise to grant a license providing a customer with either a right to use or a right to access the license, which then determines whether the obligation is satisfied at a point in time or over time, respectively.

~~In May 2016, the FASB issued ASU No. 2016-11,~~ ~~Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)") ("ASU 2016-11"), which rescinds various standards codified~~

as part of Topic 605, Revenue Recognition in relation to the future adoption of Topic 606. These rescissions include changes to topics pertaining to revenue and expense recognition including accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer.

The above standards are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The guidance is effective for us beginning in our first quarter of fiscal 2018. Early adoption would be permitted for all entities but not until the fiscal year beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The retrospective method requires a retrospective approach to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance. The cumulative approach requires a retrospective approach with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance.

The standards are expected to impact the amount and timing of revenue recognized and the related disclosures on our consolidated financial statements. The standard will also require that we defer all incremental commission costs to obtain a customer contract. We are currently evaluating the accounting, transition and disclosure requirements of the standard and are in the process of assessing the financial statement impact upon adoption. We will adopt ASU 2014-09 during the first quarter of 2018, and expect to adopt the guidance under the modified retrospective method which we anticipate will result in a cumulative effect adjustment as of the date of adoption.

~~In January 2016, the FASB issued ASU No, 2016-01,~~ ~~Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities,~~ which enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The guidance will address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Theimprove consistent application. This new standard is effective for ~~us for~~ our ~~first quarter of fiscal 2018,~~interim and ~~may be early adopted under early application guidance. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we expect the adoption of~~annual periods beginning January 1, 2021. Most amendments within this standard ~~to increase the variability of other income (expense), net on our consolidated financial statements as a result of changes in the fair value of our marketable equity securities.~~

~~In February 2016, the FASB issued ASU No, 2016-02,~~ ~~Leases,~~ which addresses the classification and recognition of lease assets and liabilities formerly classified as operating leases under GAAP. The guidance will address certain aspects of recognition and measurement, and quantitative and qualitative aspects of presentation and disclosure. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is effective for us for our first quarter of fiscal 2019. The guidance will be applied to the earliest period presented using a modified retrospective approach. The guidance includes practical expedients that relate to identification, classification, and initial direct costs associated with leases commencing prior to the effective date, and the ability to apply hindsight in evaluating lease options related to extensions, terminations or asset purchases. A practical expedient also exists to treat leases entered into prior effective date under existing GAAP unless the lease has been modified. The guidance may be early adopted. We are ~~currently assessing the impact this guidance may have on our consolidated financial statements as well as the transition method that we will use~~required to ~~adopt the guidance.~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This standard is effective for us for our first quarter of 2020. We are currently assessing the impact this guidance may have on our consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Task Force),~~ which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The guidance may be adopted early as of the beginning of an annual reporting period. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. While we are currently assessing the impact this guidance may have on our consolidated financial statements, we do not expect the guidance to have a material impact on our consolidated financial statements.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,~~ which addresses recognition of current and deferred income taxes for intra-entity asset transfers when assets are sold to an outside party. Current GAAP prohibits the recognition of current and deferred income taxes until the asset has been sold to an outside party. This prohibition on recognition is considered an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The new guidance requires an entity to recognize the income tax consequences when the transfer occurs eliminating the exception. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The standard is effective for us for our first quarter of fiscal 2018. We are currently assessing the impact this guidance may have on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force~~ which requires that amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a material impact on our consolidated financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting~~ which addresses providing clarity to reduce diversity in practice, cost and complexity in the application of modification accounting when there is a change in terms or conditions of a share-based payment award. The guidance will be applied on a prospective basis, ~~to awards~~while certain amendments must be applied on a retrospective or modified retrospective basis. We adopted this new standard on ~~or after the adoption date. This standard is effective for us for our first quarter of fiscal 2018, and may be early adopted. We do not anticipate this standard will have a~~January 1, 2021 with no material impact on our ~~consolidated financial statements.~~


2.	~~Fair Value Measurements~~

Our assets and liabilities which require fair value measurement consist of cash and cash equivalents, marketable securities, accounts receivable, investments, accounts payable, and accrued liabilities. Cash equivalents, accounts receivable, accounts payable and accrued liabilities are stated at carrying amounts as reported in the condensed consolidated financial ~~statements, which approximates fair value due to their short-term nature.~~statements.

Assets and liabilities recorded at fair value on a recurring basis in the accompanying consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. We use a fair value hierarchy to measure fair value, maximizing the use of observable inputs and minimizing the use of unobservable inputs. The three-tiers of the fair value hierarchy are as follows:

~~Level I-Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;~~2. Fair Value Measurements

~~Level II~~-Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

~~Level III~~-Unobservable inputs that are supported by little or no market data for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

We measure and report our cash equivalents, restricted cash, and available-for-sale marketable securities at fair ~~value.~~value on a recurring basis. The following ~~table sets forth~~tables summarize the ~~fair value of our financial assets by level within the fair value hierarchy (in thousands):~~

September 30, 2017
Level I Level II Level III Total
Financial Assets:
Money market funds $ 319,584
$ —
$ —
$ 319,584
Money market funds-restricted 5,502
—
—
5,502
Commercial paper 11,879
—
—
11,879
U.S. government notes 104,722
—
—
104,722
Corporate bonds —
372,034
—
372,034
Total financial assets $ 441,687
$ 372,034
$ —

$ 813,721

December 31, 2016
Level I Level II Level III Total
Financial Assets:
Money market funds $ 305,182
$ —
$ —
$ 305,182
Money market funds-restricted 4,245
—
—
4,245
Commercial paper 5,962
—
—
5,962
U.S. government notes 110,756
—
—
110,756
Corporate bonds —
183,192
—
183,192
Total financial assets $ 426,145
$ 183,192
$ —
$ 609,337

~~3. Balance Sheet Components~~

~~Marketable Securities~~

~~The following table summarizes the~~amortized costs, unrealized gains and losses and fair value of ~~our short term available-for-sale securities~~these financial assets by significant investment category and their levels within the fair value hierarchy (in thousands):


	March 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Level I		Level II		Level III
Financial Assets:
Cash Equivalents:
Money market funds	$	379,345	$	—	$	—	$	379,345	$	379,345	$	0	$	0



Marketable Securities:
Commercial paper	46,658		0		0		46,658		0		46,658		0
Certificate of deposits(1)	80,069		0		0		80,069		0		80,069		0
U.S. government notes	661,366		190		(38)		661,518		661,518		0		0
Corporate bonds	972,063		709		(522)		972,250		0		972,250		0
Agency securities	423,551		287		(3)		423,835		0		423,835		0
	2,183,707		1,186		(563)		2,184,330		661,518		1,522,812		0
Other Assets:
Money market funds - restricted	4,236		—		—		4,236		4,236		0		0
Total Financial Assets	$	2,567,288	$	1,186	$	(563)	$	2,567,911	$	1,045,099	$	1,522,812	$	0

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											December 31, 2020
	September 30, 2017										Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Level I		Level II		Level III
Financial Assets:										Financial Assets:
Cash Equivalents:										Cash Equivalents:
Money market funds										Money market funds	$	438,854	$	—	$	—	$	438,854	$	438,854	$	0	$	0
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value

Marketable Securities:										Marketable Securities:
Commercial paper	$	11,879	$	—	$	—		$	11,879	Commercial paper	51,211		0		0		51,211		0		51,211		0
Certificate of deposits(1)										Certificate of deposits(1)	50,136		3		0		50,139		0		50,139		0
U.S. government notes	104,955		—		(233		)	104,722		U.S. government notes	523,320		187		(1)		523,506		523,506		0		0
Corporate bonds	372,354		77		(397		)	372,034		Corporate bonds	878,484		1,167		(330)		879,321		0		879,321		0
Total marketable securities	$	489,188	$	77	$	(630	)	$	488,635
Agency securities										Agency securities	475,132		343		(3)		475,472		0		475,472		0
											1,978,283		1,700		(334)		1,979,649		523,506		1,456,143		0
Other Assets:										Other Assets:
Money market funds - restricted										Money market funds - restricted	4,235		—		—		4,235		4,235		0		0
Total Financial Assets										Total Financial Assets	$	2,421,372	$	1,700	$	(334)	$	2,422,738	$	966,595	$	1,456,143	$	0

______________________

December 31, 2016
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Commercial paper $ 5,962
$ —
$ —
$ 5,962
U.S. government notes 110,945
5
(194 ) 110,756
Corporate bonds 183,455
109
(372 ) 183,192
Total marketable securities $ 300,362
$ 114
$ (566 ) $ 299,910

(1) As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016, there have been no other-than-temporary~~2020, all of our certificates of deposits were domestic deposits.

As of March 31, 2021 and December 31, 2020, total unrealized losses ~~on our marketable securities. None~~ of our marketable securities ~~have been in continuous unrealized loss positions for greater than twelve months as of September 30, 2017.~~

were immaterial. We invest in marketable securities that have maximum maturities of up to two years and are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those marketable securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We expect to realize the full value of these investments upon maturity or ~~sale.~~sale and therefore, we do not consider any of our marketable securities to be impaired as of March 31, 2021. We did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable securities for the quarter ended March 31, 2021.

As of ~~September 30, 2017,~~March 31, 2021, the contractual maturities of our investments did not exceed 24 months. The fair values of available-for-sale ~~investments,~~marketable securities, by remaining contractual maturity, are as follows (in thousands):


	March 31, 2021
Due in 1 year or less	$	1,246,986
Due in 1 to 2 years	937,344
Total marketable securities	$	2,184,330

September 30, 2017
Due in 1 year or less $ 300,957
Due in 1 year through 2 years 187,678
Total marketable securities $ 488,635

The ~~weighted average~~weighted-average remaining duration of our current marketable securities is approximately ~~0.8~~0.9 years as of September 30, 2017. As we view these securities as available to support current operations, we classify securities with maturities beyond 12 months as current assets under the caption marketable securitiesMarch 31, 2021.

3. Financial Statements Details

Cash, Cash Equivalents and Restricted Cash

The reconciliation of cash, cash equivalents and restricted cash reported in the accompanying unaudited condensed consolidated balance ~~sheets.~~sheets to the total of the same such amounts in the accompanying unaudited condensed consolidated statements of cash flows is as follows (in thousands):


	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	843,336	$	893,219
Restricted cash included in other assets	4,236		4,235
Total cash, cash equivalents and restricted cash	$	847,572	$	897,454

Accounts Receivable, net

Accounts receivable, net consists of the following (in thousands):

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	September 30, 2017			December 31, 2016				March 31, 2021		December 31, 2020
Accounts receivable	$	220,106		$	254,640		Accounts receivable	$	385,204	$	394,037
Allowance for doubtful accounts	(81		)	(204		)	Allowance for doubtful accounts	(549)		(659)
Sales return reserve	(7,414		)	(1,317		)
Product sales rebate and returns reserve							Product sales rebate and returns reserve	(4,189)		(3,838)
Accounts receivable, net	$	212,611		$	253,119		Accounts receivable, net	$	380,466	$	389,540

Inventories

Inventories consist of the following (in thousands):


	September 30, 2017		December 31, 2016			March 31, 2021		December 31, 2020
Raw materials	$	99,640	$	99,190	Raw materials	$	234,941	$	219,218
Finished goods	233,517		137,300		Finished goods	248,227		260,450
Total inventories	$	333,157	$	236,490	Total inventories	$	483,168	$	479,668

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	September 30, 2017		December 31, 2016			March 31, 2021		December 31, 2020
Inventory deposit	$	31,957	$	60,315	Inventory deposit	$	21,478	$	18,783
Prepaid income taxes	14,583		17,383		Prepaid income taxes	3,612		267
Other current assets	126,190		79,140		Other current assets	69,790		60,556
Other prepaid expenses and deposits	13,927		11,846		Other prepaid expenses and deposits	16,715		15,316
Total prepaid expenses and other current assets	$	186,657	$	168,684	Total prepaid expenses and other current assets	$	111,595	$	94,922

Property and Equipment, net

Property and equipment, net consists of the following (in thousands):


	March 31, 2021		December 31, 2020
Equipment and machinery	$	74,401	$	70,655
Computer hardware and software	42,201		40,081
Furniture and fixtures	3,793		3,787
Leasehold improvements	31,499		31,448

Construction-in-process	470		1,441
Property and equipment, gross	152,364		147,412
Less: accumulated depreciation	(119,902)		(115,181)
Property and equipment, net	$	32,462	$	32,231

September 30,
2017 December 31,
2016
Equipment and machinery $ 46,550
$ 40,721
Computer hardware and software 21,527
17,420
Furniture and fixtures 2,993
2,879
Leasehold improvements 30,491
29,498
Building 35,154
35,154
Construction-in-process 135
421
Property and equipment, gross 136,850
126,093
Less: accumulated depreciation (63,789 ) (49,132 )
Property and equipment, net $ 73,061
$ 76,961

Depreciation ~~and amortization~~ expense was ~~$5.2~~$4.9 million and ~~$5.1~~$5.2 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively, and $15.0 million and $14.8 million for the nine months ended September 30, 2017 and 2016,~~2020, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	March 31, 2021		December 31, 2020
Accrued payroll related costs	$	42,670	$	73,634
Accrued manufacturing costs	43,420		43,181
Accrued product development costs	15,084		6,733
Accrued warranty costs	10,043		9,314
Other	11,249		10,495


Total accrued liabilities	$	122,466	$	143,357

September 30,
2017 December 31,
2016
Accrued compensation costs $ 44,477
$ 52,854
Accrued warranty costs 8,286
6,744
Accrued manufacturing costs 25,592
14,824
Accrued professional fees 6,666
6,829
Accrued taxes 1,315
1,098
Other 8,123
8,602
Total accrued liabilities $ 94,459
$ 90,951

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Warranty Accrual

We offer a one-year warranty on all of our hardware products and a 90-day warranty against defects in the software embedded in the products. The accrued warranty liability is recorded in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):


	Three Months Ended March 31,
	2021		2020
Warranty accrual, beginning of period	$	9,314	$	6,742
Liabilities accrued for warranties issued during the period	3,456		1,070
Warranty costs incurred during the period	(2,727)		(1,471)
Warranty accrual, end of period	$	10,043	$	6,341

Contract Assets

The following table summarizes the beginning and ending balances of our contract assets (in thousands):


	Three Months Ended March 31,
	2021		2020
Contract assets, beginning balance	$	16,380	$	25,565
Contract assets, ending balance	9,762		9,636

Contract Liabilities, Deferred Revenue and Other Performance Obligations

A contract liability is recognized when we have received customer payments in advance of our satisfaction of a performance obligation under a cancellable contract. The following table summarizes the activity related to our contract liabilities (in thousands):


	Three Months Ended March 31,
	2021		2020
Contract liabilities, beginning balance	$	85,957	$	61,050
Less: Revenue recognized from beginning balance	(7,913)		(4,847)
Less: Beginning balance reclassified to deferred revenue	(12,492)		(2,433)
Add: Contract liabilities recognized	14,913		10,555
Contract liabilities, ending balance	$	80,465	$	64,325

As of March 31, 2021 and December 31, 2020, $35.9 million and $34.5 million, respectively, of our contract liabilities were recorded within other current liabilities with the remaining balance recorded within other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

Deferred revenue is comprised mainly of unearned revenue related to multi-year post-contract support ("PCS") contracts, services and product deferrals related to acceptance clauses. The following table summarizes the activity related to our deferred revenue (in thousands):


	Three Months Ended March 31,
	2021		2020
Deferred revenue, beginning balance	$	650,827	$	575,288
Less: Revenue recognized from beginning balance	(107,442)		(100,377)
Add: Deferral of revenue in current period, excluding amounts recognized during the period	176,646		121,864
Deferred revenue, ending balance	$	720,031	$	596,775

As of March 31, 2021, other performance obligations of $171.7 million were comprised mainly of unbilled multi-year PCS contract amounts that will be recognized as revenue in future periods.

Revenue from Total Remaining Performance Obligations

Revenue from total remaining performance obligations represents contract liabilities, deferred revenue and unbilled contract revenue that will be recognized in future periods. As of March 31, 2021, approximately $972.2 million of revenue is

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Nine Months Ended September 30,
2017 2016
Warranty accrual, beginning of period $ 6,744
$ 4,718
Liabilities accrued for warranties issued during the period 5,020
3,420
Warranty costs incurred during the period (3,478 ) (2,541 )
Warranty accrual, end of period $ 8,286
$ 5,597
expected to be recognized from total remaining performance obligations. We expect to recognize revenue on approximately 80% of these remaining performance obligations over the next two years and 20% during years 3 to 5.

Other Income, net

Other income, net consists of the following (in thousands):


	Three Months Ended March 31,
	2021		2020
Interest income	$	2,045	$	11,662


Other income (expense), net	(470)		495
Total	$	1,575	$	12,157

4. Investments

Investments in ~~Privately-held~~Privately-Held Companies

As Our investments in privately-held companies do not have readily determinable fair values. Their initial cost is adjusted to fair value on a non-recurring basis based on observable price changes from orderly transactions of ~~September 30, 2017~~identical or similar securities of the same issuer, or for impairment. These investments are classified within Level III of the fair value hierarchy as we estimate the value based on valuation methods using the observable transaction price at the transaction date and other significant unobservable inputs, such as volatility, rights, and obligations related to these securities. In addition, the valuation requires management judgment due to the absence of market price and lack of liquidity. The following table summarizes the activity related to our investments in privately-held companies as of March 31, 2021 and December 31, ~~2016, we held non-marketable equity investments of approximately $36.1 million in privately-held companies which are accounted for under~~2020 (in thousands):


	March 31, 2021		December 31, 2020
Cost of investments	$	5,000	$	3,000
Cumulative impairment	0		0
Cumulative upward adjustment	5,314		5,314
Carrying amount of investments	$	10,314	$	8,314

During the ~~cost method. To date, we have not recognized any impairment~~current quarter and the quarter ended March 31, 2020, there were 0 realized or unrealized gains or losses recorded on our investments.

5. Commitments and Contingencies

~~Operating Leases~~

We lease various operating spaces in North America, Europe, Asia and Australia under non-cancelable operating lease arrangements that expire on various dates through 2025. We recognize rent expense under these arrangements on a straight-line basis over the term of the lease. Rent expense for all operating leases amounted to $2.5 million and $2.3 million for the three months ended September 30, 2017 and 2016, respectively, and $7.5 million and $7.0 million for the nine months ended September 30, 2017 and 2016, respectively. There have been no material changes in our operating lease commitments under contractual obligation, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Financing Obligation—Build-to-Suit Lease~~

In August 2012, we executed a lease for a building then under construction in Santa Clara, California to serve as our headquarters. The lease term is 120 months and commenced in August 2013. The underlying building asset is depreciated over the building’s estimated useful life of 30 years. At the conclusion of the initial lease term, we will de-recognize both the net book values of the asset and the remaining financing obligation. There have been no material changes in our operating lease commitments under contractual obligation, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

As of September 30, 2017 and December 31, 2016, we have recorded assets of $53.4 million, representing the total costs of the building and improvements incurred, including the costs paid by the lessor (the legal owner of the building) and additional improvement costs paid by us, and a corresponding financing obligation of $40.0 million and $41.2 million, respectively. As of September 30, 2017, $1.8 million and $38.2 million were recorded as short-term and long-term financing obligations, respectively.

Land lease expense related to our lease financing obligation is classified as rent expense in our unaudited condensed consolidated statements of income, and amounted to $0.3 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2016, respectively.

Purchase Commitments

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 based on~~behalf. A significant portion of our ~~forecasts in order to reduce manufacturing lead times and ensure adequate component supply. We issue~~ purchase orders to our contract manufacturers for finished ~~product and a significant portion~~products consists of ~~these orders consist of firm non-cancelable~~non-cancellable purchase commitments. In addition, we purchase strategic component inventory from certain suppliers under non-cancellable purchase commitments, ~~that in some cases are non-cancelable,~~ including integrated circuits, which are consigned to our contract manufacturers.As of ~~September 30, 2017,~~March 31, 2021, we had ~~non-cancelable~~non-cancellable purchase commitments of ~~$131.8 million.~~$747.6 million, of which $712.7 million were to our contract manufacturers and suppliers. In addition, we ~~have provided~~had deposits to our contract manufacturers to secure our ~~obligations to~~ purchase ~~inventory. We had $34.7~~commitments in the amount of $24.2 million and ~~$63.1~~$21.5 million ~~in deposits~~ as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016, respectively. These deposits are classified in~~2020, respectively, which were included within prepaid expenses and other current assets and ~~long term~~other assets ~~in our accompanying~~on the unaudited condensed consolidated balance sheets.

Guarantees

We have entered into agreements with some of our direct customers and channel partners that contain indemnification provisions relating to potential situations where claims could be alleged that our products infringe the intellectual property rights of a third party. We have, at our option and expense, the ability to repair any infringement, replace product with a non-infringing equivalent-in-function product or refund our customers all or a portion of the value of the product. Other guarantees or indemnification agreements include guarantees of product and service performance and standby letters of credit for ~~lease~~leased facilities and corporate credit cards. We have not recorded a liability related to these indemnification and guarantee provisions and our guarantee and indemnification arrangements have not had ~~any~~a significant impact on our consolidated financial statements to date.

Legal Proceedings

~~OptumSoft, Inc. Matters~~WSOU Investments, LLC

Table of Contents

On ~~April 4, 2014, OptumSoft~~November 25, 2020, WSOU Investments LLC ("WSOU") filed a lawsuit against us in the ~~Superior Court~~Western District of ~~California, Santa Clara County titled~~ ~~OptumSoft, Inc. v. Arista Networks, Inc., in which it asserts (i) ownership of~~Texas asserting that certain ~~components~~ of our ~~EOS network operating system pursuant~~products infringe three WSOU patents. WSOU's allegations are directed to ~~the terms~~certain features of ~~a 2004 agreement between the companies;~~our wireless and (ii) breaches of certain confidentiality and use restrictions in that agreement. Under the terms of the 2004 agreement, OptumSoft provided us with a non-exclusive, irrevocable, royalty-free license to software delivered by OptumSoft comprising a software tool used to develop certain components of EOS and a runtime library that is incorporated into EOS. The 2004 agreement places certain restrictions on our use and disclosure of the OptumSoft software and gives OptumSoft ownership of improvements, modifications and corrections to, and derivative works of, the OptumSoft software that we develop.

In its lawsuit, OptumSoft has asked the Court to order us to (i) give OptumSoft access to our software for evaluation by OptumSoft; (ii) cease all conduct constituting the alleged confidentiality and use restriction breaches; (iii) secure the return or deletion of OptumSoft’s alleged intellectual property provided to third parties,switching products. WSOU seeks remedies including ~~our customers; (iv) assign ownership to OptumSoft of OptumSoft’s alleged intellectual property currently owned by us; and (v) pay OptumSoft’s alleged~~monetary damages, ~~attorney’s~~attorney's fees and costs of the lawsuit. David Cheriton, one of our founders and a former member of our board of directors, who resigned from our board of directors on March 1, 2014 and has no continuing role with us, is a founder and,costs. On February 4, 2021, we believe, the largest stockholder and director of OptumSoft. The 2010 David R. Cheriton Irrevocable Trust dtd July 28, 2010, a trust for the benefit of the minor children of Mr. Cheriton, is one of our largest stockholders.

On April 14, 2014, we filed a cross-complaint against OptumSoft, in which we assert our ownership of the software components at issue and our interpretation of the 2004 agreement. Among other things, we assert that the language of the 2004 agreement and the parties’ long course of conduct support our ownership of the disputed software components. We ask the Court to declare our ownership of those software components, all similarly-situated software components developed in the future and all related intellectual property. We also assert that, even if we are found not to own certain components, such components are licensed to us under the terms of the 2004 agreement. However, there can be no assurance that our assertions will ultimately prevail in litigation. On the same day, we also filed an answer to OptumSoft’s claims, as well as affirmative defenses based in part on OptumSoft’s failure to maintain the confidentiality of its claimed trade secrets, its authorization of the disclosures it asserts and its delay in claiming ownership of the software components at issue. We have also taken additional steps to respond to OptumSoft’s allegations that we improperly used and/or disclosed OptumSoft confidential information. While we believe we have meritorious defenses to these allegations, we believe we have (i) revised our software to remove the elements we understand to be the subject of the claims relating to improper use and disclosure of OptumSoft confidential information and made the revised software available to our customers and (ii) removed information from our website that OptumSoft asserted disclosed OptumSoft confidential information.denying WSOU's allegations.

The parties tried Phase I of the case, relating to contract interpretation and application of the contract to certain claimed source code, in September 2015. On December 16, 2015, the Court issued a Proposed Statement of Decision Following Phase 1 Trial, and on January 8, 2016, OptumSoft filed objections to that Proposed Statement of Decision. On March 23, 2016, the Court issued a Final Statement of Decision Following Phase I Trial, in which it agreed with and adopted our interpretation of the 2004 agreement and held that we, and not OptumSoft, own all the software at issue in Phase I. The remaining issues that were not addressed in the Phase I trial are set to be tried in Phase II including the application of the Court’s interpretation of the 2004 agreement as set forth in the Final Statement of Decision Following Phase I Trial to any other source code that OptumSoft claims to own following a review. Phase II was previously scheduled to be tried in April 2016; however, that trial date has been vacated and a new trial date has not yet been set.

We intend to vigorously defend against ~~any~~the claims brought against us by ~~OptumSoft.~~WSOU. However, we cannot be certain that ~~if litigated,~~ any of WSOU's claims ~~by OptumSoft would~~will be resolved in our ~~favor. For example, if it were determined that OptumSoft owned components~~favor, regardless of ~~our EOS network operating system, we would be required to transfer ownership~~the merits of those components and any related intellectual property to OptumSoft. If OptumSoft were the owner of those components, it could make them available to our competitors, such as through a sale or license. Anclaims. Any adverse litigation ruling could result in a significant damages award

against us and injunctive relief. ~~In addition, OptumSoft could assert additional or different claims against us, including claims that our license from OptumSoft is invalid.~~

With respect to the legal proceedings described above, it is our belief that while a loss is not probable, it may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be estimated. However, the outcome of litigation is inherently uncertain. Therefore, if ~~one or more of these~~this legal ~~matters~~matter were resolved against us in a reporting period for a material amount, our consolidated financial statements for that reporting period could be materially adversely affected.

~~Cisco Systems, Inc. (“Cisco”) Matters~~Other matters

~~We are currently involved in several litigation matters with Cisco Systems, Inc. These matters are summarized below.~~

~~Cisco Systems, Inc. v. Arista Networks, Inc. (Case No. 4:14-cv-05343) (“’43 Case”)~~

On December 5, 2014, Cisco filed a complaint against us in the District Court for the Northern District of California alleging that we infringe U.S. Patent Nos. 6,377,577; 6,741,592; 7,023,853; 7,061,875; 7,162,537; 7,200,145; 7,224,668; 7,290,164; 7,340,597; 7,460,492; 8,051,211; and 8,356,296 (respectively, “the ’577 patent,” “the ’592 patent,” “the ’853 patent,” “the 875 patent,” “the ’537 patent,” “the ’145 patent,” “the ’668 patent,” “the ’164 patent,” “the ’597 patent,” “the ’492 patent,” “the ’211 patent,” and “the ’296 patent”). Cisco seeks, as relief for our alleged infringement in the ’43 Case, lost profits and/or reasonable royalty damages in an unspecified amount, including treble damages, attorney’s fees, and associated costs. Cisco also seeks injunctive relief in the ’43 Case. On February 10, 2015, the Court granted our unopposed motion to stay the ’43 Case until the proceedings before the United States International Trade Commission (“USITC”) pertaining to the same patents (as discussed below) became final. Trial has not been scheduled in the ’43 Case.

~~Cisco Systems, Inc. v. Arista Networks, Inc. (Case No. 5:14-cv-05344) (“’44 Case”)~~

On December 5, 2014, Cisco filed a complaint against us in the District Court for the Northern District of California alleging that we infringe numerous copyrights pertaining to Cisco’s “Command Line Interface” or “CLI” and U.S. Patent Nos. 7,047,526 and 7,953,886 (respectively, “the ’526 patent” and “the ’886 patent”). As relief for our alleged patent infringement in the ’44 Case, Cisco seeks lost profits and/or reasonable royalty damages in an unspecified amount including treble damages, attorney’s fees, and associated costs as well as injunctive relief. As relief for our alleged copyright infringement, Cisco seeks monetary damages for alleged lost profits, profits from our alleged infringement, statutory damages, attorney’s fees, and associated costs.

As described below, on May 25, 2016, our petition for Inter Partes Review (“IPR”) of the ’886 patent was instituted by the United States Patent Trial and Appeal Board (“PTAB”). Cisco subsequently agreed to dismiss its claims as to the ‘886 patent with prejudice.

~~On December 14, 2016, following a two-week trial, the jury found that we had proven our copyright defense of~~ ~~scenes a faire~~ ~~and that Cisco had failed to prove infringement of the ’526 patent, and on that basis judgment was entered in our favor on all claims on December 19, 2016.~~

~~On January 17, 2017, Cisco filed a motion for judgment as a matter of law, challenging the sufficiency of the evidence in support of our~~ ~~scenes a faire~~ defense. Cisco did not file any post-trial motion regarding the ’526 patent, nor did it file a motion for a new trial. We also filed a conditional motion for judgment as a matter of law and/or for a new trial on several grounds, which would be at issue only if the court granted Cisco’s motion. The hearing on both parties’ motions was held on April 27, 2017. On May 10, 2017, the court denied Cisco’s motion and denied our motions as moot.

~~Cisco filed a notice of appeal on June 6, 2017, and the parties are in the process of submitting their appeal briefs.~~

~~Arista Networks, Inc. v. Cisco Systems, Inc. (Case No. 5:16-cv-00923) (“’23 Case”)~~

On February 24, 2016, we filed a complaint against Cisco in the District Court for the Northern District of California alleging antitrust violations and unfair competition. On August 23, 2016, the Court granted Cisco’s motion to stay the ’23 Case until judgment was entered on Cisco’s copyright claims in the ’44 Case. On March 2, 2017, the Court lifted the stay and trial is set for August 3, 2018.

On March 23, 2017, Cisco filed a motion to dismiss our complaint in the ’23 Case. On October 10, 2017, the Court issued an order granting in part and denying in part Cisco’s motion to dismiss, with leave for us to amend to cure any deficiencies as to the claims that were dismissed.

~~Certain Network Devices, Related Software, and Components Thereof (Inv. No. 337-TA-944) (“944 Investigation”)~~

On December 19, 2014, Cisco filed a complaint against us in the USITC alleging that we violated 19 U.S.C. § 1337 (“Section 337”). The USITC instituted Cisco’s complaint as Investigation No. 337-TA-944. Cisco initially alleged that certain of our switching products infringe the ’592, ’537, ’145, ’164, ’597, and ’296 patents. Cisco subsequently dropped the ’296 patent

from the 944 Investigation. Cisco sought, among other things, a limited exclusion order barring entry into the United States of accused switch products (including our 7000 Series of switches) and components and software therein and a cease and desist order against us restricting our activities with respect to our imported accused switch products and components and software therein.

On February 2, 2016, the Administrative Law Judge (“ALJ”) issued his initial determination finding a violation of Section 337. More specifically, the ALJ found that a violation has occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation, of certain network devices, related software, and components thereof that the ALJ found infringed asserted claims 1, 2, 8-11, and 17-19 of the ’537 patent; asserted claims 6, 7, 20, and 21 of the ’592 patent; and asserted claims 5, 7, 45, and 46 of the ’145 patent. The ALJ did not find a violation of Section 337 with respect to any asserted claims of the ’597 and ’164 patents. On June 23, 2016, the Commission issued its Final Determination, which found a violation with respect to the ’537, ’592, and ’145 patents, and found no violation with respect to the ’597 and ’164 patents. The Commission also issued a limited exclusion order and a cease and desist order pertaining to network devices, related software and components thereof that infringe one or more of claims 1, 2, 8-11, and 17-19 of the ’537 patent; claims 6, 7, 20, and 21 of the ’592 patent; and claims 5, 7, 45, and 46 of the ’145 patent. On August 22, 2016, the Presidential review period for the 944 Investigation expired. The USITC orders will be in effect until the expiration of the ’537, ’592, and ’145 patents.

Both we and Cisco filed petitions for review of the USITC’s Final Determination to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). The appeal was fully briefed and oral argument was held on June 6, 2017. On September 27, 2017, the Federal Circuit affirmed the USITC’s Final Determination.

On August 26, 2016, Cisco filed an enforcement complaint under Section 337 with the USITC. Cisco alleges that we are violating the cease and desist and limited exclusion orders issued in the 944 Investigation by engaging in the “marketing, distribution, offering for sale, selling, advertising, and/or aiding or abetting other entities in the sale and/or distribution of products that Cisco alleges continue to infringe claims 1-2, 8-11, and 17-19 of the ’537 patent,” despite the design changes we have made to those products. Cisco asks the USITC to (1) enforce the cease and desist order; (2) modify the Commission’s limited exclusion order and/or cease and desist order “in any manner that would assist in the prevention of the unfair practices that were originally the basis for issuing such Order or assist in the detection of violations of such Order”; (3) impose the maximum statutory civil penalties for violation of the cease and desist order “including monetary sanctions for each day’s violation of the cease and desist order of the greater of $100,000 or twice the domestic value of the articles entered or sold, whichever is higher”; (4) bring a civil action in U.S. district court “requesting collection of such civil penalties and the issuance of a mandatory injunction preventing further violation of Cease and Desist Order”; and (5) impose “such other remedies and sanctions as are appropriate and within the Commission’s authority.” On September 28, 2016, the Commission instituted the enforcement proceeding. The proceeding has been assigned to ALJ Judge Shaw, who presided over the underlying investigation. The target date for the investigation was initially set for September 20, 2017. On June 20, 2017, the ALJ issued his initial determination finding that we did not violate the June 23, 2016 cease and desist order. The initial determination also recommended a civil penalty of $307 million if the Commission decided to overturn the finding of no violation. On July 3, 2017, the parties filed petitions for review of certain findings in the initial determination.

On August 4, 2017, the Commission issued an order remanding the investigation to the ALJ to make additional findings on certain issues and issue a remand initial determination. The Commission ordered the ALJ to set a schedule for completion of any necessary remand proceedings and a new target date for the enforcement action. On August 25, 2017 the ALJ issued an Initial Determination setting a June 4, 2018 deadline for the remand initial determination and September 4, 2018 as the new target date for the enforcement action. The ALJ also set a briefing schedule and a February 1, 2018 hearing. On September 18, 2017, the Commission determined not to review the Initial Determination setting the target date.

~~Certain Network Devices, Related Software, and Components Thereof (Inv. No. 337-TA-945) (“945 Investigation”)~~

On December 19, 2014, Cisco filed a complaint against us in the USITC alleging that we violated Section 337. The USITC instituted Cisco’s complaint as Investigation No. 337-TA-945. Cisco alleges that certain of our switching products infringe the ’577, ’853, ’875, ’668, ’492, and ’211 patents. Cisco seeks, among other things, a limited exclusion order barring entry into the United States of accused switch products (including our 7000 Series of switches) related software, and components thereof and a cease and desist order against us restricting our activities with respect to our imported accused switch products, related software, and components thereof.

On December 9, 2016, the ALJ issued her initial determination finding a violation of Section 337. More specifically, the ALJ found that a violation has occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation, of certain network devices, related software, and components thereof that the ALJ found infringe asserted claims 1, 7, 9, 10, and 15 of the ’577 patent and asserted claims 1, 2, 4, 5, 7, 8, 10, 13, 19, 56, and 64 of the ’668 patent. The ALJ did not find a violation of Section 337 with respect to asserted claim 2 of the ’577 patent or any asserted claims of the ’853, ’492, ’875, and ’211 patents. On December 29, 2016, we, Cisco and the Office of Unfair Import Investigation (“OUII”) filed petitions for review of certain findings contained in the initial determination. On March 1, 2017, the Commission issued a notice that it was reviewing the final initial determination in part on certain issues.

On May 4, 2017, the Commission issued its Final Determination, which found a violation with respect to the ’577 and ’668 patents, and found no violation with respect to the ’211, ’853, ’875 and ’492 patents. The Commission also issued a limited exclusion order and a cease and desist order pertaining to network devices, related software and components thereof that infringe one or more of claims 1, 7, 9, 10, and 15 of the ’577 patent and 1, 2, 4, 5, 7, 8, 10, 13, 18, 56, and 64 of the ’668 patent. The 60-day Presidential review period for the 945 Investigation expired on July 4, 2017. During the 60-day Presidential review period, the USITC Orders permitted Arista to continue importing and selling products covered by the orders so long as we paid a 5% bond. Because the United States Trade Representative did not disapprove the USITC’s final determination, the limited exclusion order and cease and desist order are now in full effect.

On May 25, 2017 and June 1, 2017, the PTAB issued final written decisions finding all claims of the ’577 and ’668 patents that we were found to have infringed in the 945 Investigation unpatentable. On June 1, 2017 and June 2, 2017, we filed emergency petitions to suspend the remedial orders in the 945 Investigation. On July 20, 2017, the Commission issued a notice denying our petition to suspend the remedial orders. On July 21, 2017, we filed a motion to stay the remedial orders in the 945 Investigation pending disposition of the relevant appeals and sought expedited consideration of our motion. On September 11, 2017, the Commission denied our motion to stay.

On June 30, 2017, Cisco filed a petition for review of the USITC’s Final Determination to the Federal Circuit regarding the ’853, ’492, ’875 and ’211 patents. On July 21, 2017, we filed a petition for review of the Final Determination to the Federal Circuit.

On August 25, 2017 we filed a motion with the U.S. Court of Appeals for the Federal Circuit requesting that the Federal Circuit stay the remedial orders pending the completion of the appeal of the 945 Investigation. On September 22, 2017, the Federal Circuit issued an order denying our motion to stay, but ordered that our redesigned products be allowed to enter the country “unless and until Commission proceedings are initiated and completed to produce an enforceable determination that such a redesign is barred” by a Commission remedial order.

On September 27, 2017, Cisco filed a petition with the USITC requesting that the Commission institute a modification proceeding to determine whether our redesigned products infringe the patent claims underlying the remedial orders in the 945 Investigation. On October 27, 2017, the Commission instituted the modification proceeding. The USITC has assigned Mary Joan McNamara as the ALJ to oversee the proceeding. The Commission has set a deadline of five months for the ALJ to issue a recommended determination on what, if any, modifications to the remedial orders issued in the 945 Investigation are appropriate. This deadline may be extended by one month upon a showing of good cause. The recommended determination will be subject to review by the Commission after which the Commission will issue a final determination. The Commission has not set a target date for the final determination. On November 1, 2017, Cisco filed a request for an expedited “limited recommended determination” on certain issues relating to the ’577 patent. Cisco’s request seeks completion of briefing by December 11, 2017 and a recommended determination “as soon as practicable” after that.

~~Inter Partes Reviews~~

We have filed petitions for Inter Partes Review of the ’597, ’211, ’668, ’853, ’537, ’577, ’886, and ’526 patents. IPRs relating to the ’597 (IPR No. 2015-00978) and ’211 (IPR No. 2015-00975) patents were instituted in October 2015 and hearings on these IPRs were completed in July 2016. On September 28, 2016, the PTAB issued a final written decision finding claims 1, 14, 39-42, 71, 72, 84, and 85 of the ’597 patent unpatentable. The PTAB also found that claims 29, 63, 64, 73, and 86 of the ’597 patent had not been shown to be unpatentable. On October 5, 2016, the PTAB issued a final written decision finding claims 1 and 12 of the ’211 patent unpatentable. The PTAB also found that claims 2, 6-9, 13, 17-20 of the ’211 patent had not been shown to be unpatentable. Both parties have appealed the final written decisions on the ’211 and ’537 patent IPRs.

The IPR relating to the ’886 patent was instituted on May 25, 2016. Following that decision, Cisco agreed to dismiss its claims as to the ʼ886 patent with prejudice, and we dismissed our counterclaims as to the ʼ886 patent without prejudice.

IPRs relating to the ’668 (IPR No. 2016-00309), ’577 (IPR No. 2016-00303), ’853 (IPR No. 2016-0306), and ’537 (IPR No. 2016-0308) patents were instituted in June 2016 and hearings were held on March 7, 2017. On May 25, 2017, the PTAB issued final written decisions finding claims 1, 7-10, 12-16, 18-22, 25, and 28-31 of ’577 patent unpatentable, and that claim 2 of the ’577 patent, claim 63 of the ’853 patent, and claims 1, 10, 19, and 21 of the ’537 patent had not been shown to be unpatentable. On June 1, 2017, the PTAB issued a final written decision finding claims 1-10, 12-13, 15-28, 30-31, 33-36, 55-64, 66-67, and 69-72 of the ’668 patent unpatentable. We filed a Notice of Appeal concerning the ’577 patent on July 21, 2017, and Notices of Appeal concerning the ‘853 and ’537 patents on July 26, 2017. Cisco cross-appealed concerning the ’577 patent on July 26, 2017 and filed a Notice of Appeal concerning the ’668 patent on August 1, 2017. For the appeals of the IPRs on the ’668 and ’577 patents, the Federal Circuit granted our motion for an expedited briefing schedule, and the briefing will be completed in November 2017.

~~* * * * *~~

We intend to vigorously defend against each of the Cisco lawsuits, as summarized in the preceding paragraphs. However, we cannot be certain that any claims by Cisco will be resolved in our favor regardless of the merit of the claims. Any adverse litigation ruling could result in injunctive relief, including the above described injunctive relief, could lead to significant penalties assessed or damages awarded against us or a requirement that we make substantial royalty payments to Cisco, and/or could require that we modify our products.

For example, in the 944 Investigation, the USITC issued a limited exclusion order barring entry into the United States of our network devices (including our 7000 Series of switches), related software, and components thereof that infringe one or more of the claims of the ’537, ʼ592, and ʼ145 patents specified above and a cease and desist order restricting our activities with respect to such imported products. In the 945 Investigation, the USITC issued a limited exclusion order barring entry into the United States of our network devices, related software, and components thereof that infringe one or more of the claims of the ’577 and ’668 patents specified above and a cease and desist order restricting our activities with respect to such imported products.

To comply with these orders, we have sought to develop technical redesigns that no longer infringe the patents that are the subject of the orders. In any efforts to develop these technical redesigns for our products, we may be unable to do so in a manner that does not continue to infringe the patents or that is acceptable to our customers. Our redesign efforts could be extremely costly and time consuming as well as disruptive to our other development activities and distracting to management. Moreover, our ability to import redesigned products into the United States is based on rulings from U.S. Customs and Border Protection (“CBP”) and the Federal Circuit. While these favorable rulings currently allow us to import our redesigned products into the United States, the USITC could determine in an enforcement action or modification proceeding that our redesigned products continue to infringe the patents that are the subject of any USITC orders. In addition, the Federal Circuit or CBP could decide to withdraw or alter their rulings based on a change in circumstances. Any failure to effectively redesign our products, obtain customer acceptance of those redesigned products, retain authorization to import those redesigned products, or address the USITC findings in a manner that complies with the USITC orders, may cause a disruption to our product shipments, a rejection or return of our redesigned products by (or a delay or loss of sales to) customers, subject us to penalties or damage awards, and materially and adversely affect our business, revenues, prospects, reputation, results of operations, and financial condition.

Specifically, in response to the USITC’s findings in the 944 Investigation, we have made design changes to our products for sale in the United States to address the features that were found to infringe the ’537, ’592, and ’145 patents. Following the issuance of the final determination in the 944 Investigation, we submitted a Section 177 ruling request to CBP seeking approval to import these redesigned products into the United States. On November 18, 2016, we received a 177 ruling from CBP finding that our redesigned products did not infringe the relevant claims of the ʼ537, ’592, and ʼ145 patents, and approving the importation of those redesigned products into the United States. On January 13, 2017, at the request of Cisco and without our input, CBP issued a letter to us revoking its prior November 18 ruling. CBP subsequently conducted an ~~inter partes~~ ~~proceeding between Arista and Cisco to determine whether our redesigned products infringe and whether to approve them for importation into the United States. On April 7, 2017, following the~~ ~~inter partes~~ proceeding, CBP again ruled that our redesigned products do not infringe the relevant claims of the ’537, ’592, and ’145 patents and again approved those redesigns for importation into the United States. On September 12, 2017, Cisco filed a second request with CBP seeking to revoke our approval to import our redesigns relating to the 944 Investigation. We have opposed Cisco’s request, and CBP has not yet ruled on Cisco’s request.

Similarly, on May 4, 2017, the USITC issued a limited exclusion order and cease and desist order in the 945 Investigation with respect to the ’668 and ’577 patents. We have made design changes to our products for sale in the United States to address the features that were found to infringe the ’577 and ’668 patents. We are making ongoing modifications to our products to also ensure that they continue to meet customer requirements, and we are working with our customers to qualify those modified products for use in our customers’ networks. In particular, the ’577 patent was directed to a feature that is implemented in the merchant silicon chips that we purchase from third-party suppliers. Because we do not design, build or manufacture these merchant silicon chips, we are limited in further modifications that we can make to our products for this patent. We are deploying these additional modifications for a subset of our products, and for all of our products we will remove the features found to infringe until the ’577 patent expires on June 30, 2018. These redesign and qualification efforts could be extremely costly and time consuming for us and our customers as well as disruptive to our other development activities and distracting to management. We may not be able to complete, and our customers may not be able to qualify these redesigned products in a timely fashion, if at all. For example, some of our customers continue to test and qualify our redesigned products which address the ’577 and ’668 patents to ensure that they meet their network requirements. This could result in an inability to ship those redesigned products to our customers, a delay or cancellation of purchases by, some customers until those further modifications are completed and/or qualified or a rejection or return of our redesigned products or a delay or loss of sales to some customers, any of which could materially and adversely affect our business, revenues, deferred revenue balances, prospects, reputation, results of operations or financial condition.

Because the USITC did not suspend its orders in the 945 Investigation, despite a PTAB finding that every relevant claim of the ’668 and ’577 patents is unpatentable, we were previously barred from importing our redesigned products into the United States until we received approval from CBP. On July 21, 2017, we submitted a Part 177 request to CBP seeking approval to import our redesigned products into the United States. Following the Federal Circuit’s order on September 22,

2017, allowing us to import our redesigned products, we withdrew our request. On October 12, 2017, CBP, over Cisco’s objection, terminated the Part 177 proceedings, and confirmed that it will permit entry of our redesigns pursuant to the Federal Circuit’s September 22, 2017 order.

In either the 944 or 945 Investigations, if the USITC determines that our redesigned products infringe patents that are the subject of USITC remedial orders, those products will be barred from import into the United States, or sale after importation. In addition, the USITC may impose the maximum statutory civil penalties for violation of the cease and desist order “including monetary sanctions for each day’s violation of the cease and desist order of the greater of $100,000 or twice the domestic value of the articles entered or sold, whichever is higher,” bring a civil action in U.S. district court “requesting collection of such civil penalties and the issuance of a mandatory injunction preventing further violation of Cease and Desist Order,” or impose “such other remedies and sanctions as are appropriate and within the Commission’s authority.” In the 944 Investigation, the ALJ recommended a civil penalty of $307 million if the Commission were to reverse ALJ’s finding of no violation. Any such finding by the USITC could materially and adversely affect our business, prospects, reputation, results of operations and financial condition.

An adverse finding in an enforcement action or modification proceeding would take effect immediately upon USITC’s issuance of the final determination, without any Presidential review period. To address such a finding, we would have to further redesign our products to make them non-infringing, and until we made such changes we would not be able to import or ship our products to customers. In such a situation, we may not be able to do so in a manner that does not continue to infringe the patents or that is acceptable to customers. We may not be able to complete, and our customers may not be able to qualify, such redesigned products in a timely fashion, if at all, following the issuance of an adverse final determination, leading to an inability to sell or ship products to customers. Our redesign efforts could be extremely costly and time consuming as well as disruptive to our other development activities and distracting to management. For example, in the enforcement action for the 944 Investigation, although the ALJ issued an initial determination finding that our redesigned products did not violate the June 23, 2016 cease and desist order, if the ALJ modifies the initial determination during the remand proceeding, or if the Commission finds a violation in its final determination on September 4, 2018, we will no longer be able to import or ship our products in the U.S. until we make further changes to address those findings, which could materially and adversely affect our business, revenues, prospects, reputation, results of operations or financial condition. We would also need to obtain USITC or CBP approval to resume importation of such redesigned products into the United States. In addition, the USITC would not provide a service and support exception for our previously redesigned products, and customers may be required to upgrade to new products to obtain service and support. If we are unable to obtain such approvals or provide such service and support exception, our business, prospects, reputation, results of operations or financial condition could be materially and adversely affected.

In the 945 Investigation, while the USITC orders are based upon patent claims that the PTAB has found to be invalid, these orders will remain in effect unless and until the PTAB decisions are affirmed on appeal and the PTO cancels the patents. If the Commission finds a violation in its final determination for the modification proceeding, we will no longer be able to import or ship our products in the U.S. until we make further changes to address those findings and/or until the PTAB decisions are so affirmed and the PTO cancels the patents, which could materially and adversely affect our business, revenues, prospects, reputation, results of operations or financial condition. We would also need to obtain USITC or CBP approval to resume importation of any such redesigned products into the United States. In addition, the USITC would not provide a service and support exception for our previously redesigned products, and customers may be required to upgrade to new products to obtain service and support. If we are unable to obtain such approvals or provide such service and support exception, our business, revenues, prospects, reputation, results of operations or financial condition could be materially and adversely affected. In addition, even if the PTAB decisions are affirmed on appeal, and the patent claims are canceled, if we are found to have violated the USITC’s orders while those orders remain in effect, we may be subject to penalties.

To comply with the USITC’s remedial orders, we have also made certain changes to our manufacturing, importation and shipping workflows. These changes have included shifting manufacturing and integration of our products to be sold in the United States to U.S. facilities. Such changes may be extremely costly, time consuming, and we may not be able to implement such changes successfully. Any failure to successfully change our manufacturing and importation processes or shipping workflows in a manner that is compliant with the limited exclusion order and cease and desist order may cause a disruption in our product shipments and materially and adversely affect our business, prospects, reputation, results of operations, and financial condition.

In connection with these changes, to the extent that we are required to make further modifications to our supply chain to obtain alternative U.S. sources for subcomponents, we may be unable to obtain a sufficient quantity of these components on commercially reasonable terms or in a timely manner, if at all, which could delay or halt entirely production of our products or require us to make further modifications to our products to incorporate new components that are available in the United States. Any of these events could result in lost sales, reduced gross margins or damage to our end-customer relationships, which would materially and adversely impact our business, financial condition, results of operations and prospects.

Additionally, the existence of Ciscoʼs lawsuits against us could cause concern among our customers and partners and could adversely affect our business and results of operations. Many of our customers and partners require us to indemnify and defend them against third party infringement claims and pay damages in the case of adverse rulings. These claims could harm our relationships with our customers or channel partners, cause them to delay or defer purchasing decisions or deter them from doing business with us. From time to time, we may also be required to provide additional assurances beyond our standard terms. Whether or not we prevail in the lawsuit, we expect that the litigation will be expensive, time-consuming and a distraction to management in operating our business.

With respect to the various legal proceedings described above, it is our belief that while a loss is not probable, it may be reasonably possible. Further, at this stage in the litigation, any possible loss or range of loss cannot be estimated. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us in a reporting period for a material amount, our consolidated financial statements for that reporting period could be materially adversely affected.

In the Matter of Certain Semiconductor Devices, Semiconductor Device Packages, and Products Containing Same (U.S. International Trade Commission Investigation No. 337-TA-1010) (the “1010 Investigation”)

On May 23, 2016, Tessera Technologies, Inc., Tessera, Inc., and Invensas Corp. (“Tessera”) filed a complaint in the USITC alleging that Broadcom Limited, Broadcom Corporation, Avago Technologies Limited, and Avago Technologies U.S. Inc. (“Broadcom”) and certain of Broadcom's customers violated 19 U.S.C. § 1337 (“Section 337”). On June 20, 2016, the USITC instituted Tessera’s complaint as Investigation No. 337-TA-1010.

Tessera alleges that certain Broadcom semiconductor devices infringe U.S. Patent Nos. 6,856,007; 6,849,946; and 6,133,136. Tessera further alleges that Broadcom’s downstream customers, Arista Networks, Inc.; ARRIS International plc; ARRIS Group, Inc.; ARRIS Technology, Inc.; ARRIS Enterprises LLC; ARRIS Solutions, Inc.; Pace Ltd.; Pace Americas, LLC; Pace USA; LLC, ASUSteK Computer Inc.; ASUS Computer International; Comcast Cable Communications, LLC; Comcast Cable Communications Management, LLC; Comcast Business Communications, LLC; HTC Corporation; HTC America, Inc.; NETGEAR, Inc.; Technicolor S.A.; Technicolor USA, Inc.; and Technicolor Connected Home USA LLC (“Downstream Respondents”) are violating Section 337 by importing, selling after importation, or selling for importation products that incorporate the accused Broadcom semiconductor devices. The accused Company products include certain models of our switching products.

Tessera seeks the following relief: (1) a permanent limited exclusion order excluding from importation into the U.S. all of Broadcom’s semiconductor devices and semiconductor device packages, as well as Downstream Respondents’ products containing Broadcom’s semiconductor devices that infringe one or more of the three patents-in-suit and (2) a permanent cease and desist order prohibiting Broadcom and the Downstream Respondents and related companies from importing, marketing, advertising, demonstrating, warehousing inventory for distribution, offering for sale, selling, qualifying for use in the products of others, distributing, or using the accused Broadcom semiconductor devices and Downstream Respondents’ products containing Respondents’ semiconductor devices and semiconductor device packages that infringe one or more of the three patents subject to the USITC Investigation.

An evidentiary hearing was held from March 27-31, 2017. On June 30, 2017, the ALJ issued an initial determination that found a violation with respect to the ’946 patent and no violation with respect the ’136 and ’007 patents. The ALJ recommended that the Commission issue limited exclusion and cease and desist orders and recommended a 100% bond for imports during the Presidential review period. The Commission has indicated it will review the initial determination, and the target date for the final determination is December 1, 2017.

~~To the extent claims made by Tessera in the USITC Investigation against us are based solely on functionality residing in Broadcom’s products, Broadcom has agreed to defend us at no cost to us.~~

~~* * * * *~~

An adverse final determination from the Commission could result in issuance of remedial orders that could prevent Broadcom, Arista, and the other Downstream Respondents from selling infringing products for import into the United States, importing infringing products into the United States, or selling infringing products after importation into the United States. This could include both the infringing semiconductor devices as well as downstream products, including our Ethernet switches, that incorporate those devices. During the 60-day Presidential review period following the final determination, Broadcom, Arista, and the other Downstream Respondents could continue to import and sell infringing products by paying a bond. The ALJ’s recommended bond is 100% of the entered value of the product. Following the end of the Presidential review period, if the U.S. Trade Representative chooses not to disapprove the final determination, the remedial orders would go into full effect.

If the USITC orders go into full effect, to continue importing and selling products found to be infringing, Broadcom and its manufacturers would need to develop redesigned products that do not infringe, and we would have to integrate these devices into its own products, or Broadcom and/or the Downstream Respondents would need to obtain a license from Tessera. It may not be possible to do this in a timely fashion, if at all. Because the asserted patents are directed towards technology used

~~in the manufacture of the semiconductor devices not manufactured or designed by us, we would be dependent on Broadcom and its manufacturers to create such redesigned products.~~

Before Broadcom, Arista, or the other Downstream Respondents could import redesigned products into the United States, the products would have to be approved by CBP or the USITC. We may not be successful in any efforts to obtain such approvals in a timely manner, or at all. While a favorable ruling from CBP would allow Broadcom, Arista, and the other Downstream Respondents to resume importation of our redesigned products into the United States, the USITC could ultimately determine in an enforcement action that such redesigned products continue to infringe the patents that are the subject of the USITC orders.

Any failure to effectively redesign these products and obtain timely clearance from CBP or USITC to import such redesigned products or to obtain a license from Tessera may cause a disruption to our product shipments and materially and adversely affect our business, revenues, prospects, reputation, results of operations, and financial condition. However, it is our belief that at this stage of the legal proceedings, the likelihood of a loss is remote.

~~Other Matters~~

In the ordinary course of business, we are a party to other claims and legal proceedings including matters relating to commercial, employee relations, business practices and intellectual property.

We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of ~~September 30, 2017,~~March 31, 2021, provisions recorded for contingent losses related to other claims and matters have not been significant. Based on currently available information, management does not believe that any additional liabilities relating to other unresolved matters are probable or that the amount of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and our view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

6. Stockholders’ Equity and Stock-Based Compensation

Stock Repurchase Program

In April 2019, our board of directors authorized a $1.0 billion stock repurchase program (the "Repurchase Program"). This authorization allows us to repurchase shares of our common stock and is funded from working capital. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or a combination of the foregoing. The Repurchase Program, which expires in April 2022, does not obligate us to acquire any of our common stock, and may be suspended or discontinued by us at any time without prior notice. As of March 31, 2021, the remaining authorized amount for stock repurchases under this program was approximately $237.3 million.

A summary of the stock repurchase activity under the Repurchase Program is as follows (in thousands, except per share amounts):


	Three Months Ended
	March 31, 2021
Aggregate purchase price	$	101,355
Shares repurchased	367
Average price paid per share	$	275.88

The aggregate purchase price of repurchased shares of our common stock is recorded as a reduction to retained earnings and common stock in our condensed consolidated statements of stockholders' equity. All shares repurchased under the Repurchase Program have been retired.

Equity Award Plan Activities

Total stock-based compensation expense related to options, restricted stock awards, employee stock purchases, restricted stock units and stock purchase rights granted were allocated as follows (in thousands):2014 Equity Incentive Plan

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Cost of revenue $ 1,113
$ 955
$ 3,224
$ 2,616
Research and development 11,048
8,010
30,977
23,062
Sales and marketing 5,115
3,947
12,651
11,374
General and administrative 2,876
2,204
8,139
5,656
Total stock-based compensation $ 20,152
$ 15,116
$ 54,991
$ 42,708

The 2014 Equity Incentive Plan (the “2014 plan”) provides for the granting of Incentive Stock ~~Option Activities~~

~~On February 6, 2017, the board authorized an increase to~~Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) or Stock Appreciation Rights (“SARs”). The number of shares available for ~~future~~grant and issuance under the 2014 ~~Equity Incentive~~ Plan ~~(“EIP”). Per the EIP, the increase is determined based~~increases automatically on January 1 of each year by the lesser of (i) 12,500,000 shares, (ii) 3% of ~~total~~the outstanding shares ~~outstanding as~~ of our common stock on the ~~first~~last day of ~~each~~our immediately preceding fiscal year, ~~12,500,000 shares,~~ or (iii) such other amount as determined by our board of

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directors. ~~The approved~~Effective January 1, 2021, our board of directors authorized an increase of 2,285,228 shares to the shares available for ~~2017 amounted to 2,124,333 shares.~~issuance under the 2014 Plan. As of ~~September 30, 2017,~~March 31, 2021, there ~~remain 13.4~~remained approximately 23.4 million shares available for issuance under the ~~EIP.~~2014 Plan.

~~The following table summarizes~~2014 Employee Stock Purchase Plan

Effective January 1, 2021, our board of directors authorized an increase of 761,742 shares to the ~~option activity under our equity stock plans and related information:~~

Options Outstanding

Number of
Shares
Underlying
Outstanding Options (in thousands)
Weighted-
Average
Exercise
Price per Share Weighted-
Average
Remaining
Contractual
Term (Years) of
Stock Options
Aggregate
Intrinsic
Value
of Stock
Options
Outstanding
(in thousands)
Outstanding—December 31, 2016 9,509
$ 28.79
6.9 $ 646,394
Options granted 170
96.61

Options exercised (1,730 ) 16.97

Options canceled (322 ) 32.89

Outstanding—September 30, 2017 7,627
$ 32.81
6.4 $ 1,195,859
Vested and exercisable—September 30, 2017 3,035
$ 19.91
5.7 $ 515,111
Vested and expected to vest—September 30, 2017 7,627
$ 32.81
6.4 $ 1,195,859

As of September 30, 2017, the total unrecognized stock-based compensation expense related to unvested stock options was $75.0 million, which is expected to be recognized over a weighted-average period of 3.6 years.

~~Restricted Stock Unit (RSU) Activities~~

A summary of the RSU activity under our stock plans during the reporting period and a summary of information related to RSUs expected to vest are presented below (in thousands, except per share and year amounts):

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, 2016 1,375
$ 74.23
1.8 $ 133,081
       RSUs granted 666
137.26

       RSUs vested (339 ) 75.63

       RSUs forfeited (60 ) 77.21

Unvested and expected to vest balance—September 30, 2017 1,642
$ 99.41
1.8 $ 311,368

As of September 30, 2017, there was $152.4 million of unrecognized stock-based compensation cost related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of 3.3 years.

~~Equity Incentive Plan Shares Available for Grant~~

~~The following table presents EIP stock activity and the total number of~~ shares available for ~~future grant as of September 30, 2017 (in thousands):~~




	~~Number of Shares~~
~~Balance at December 31, 2016~~	~~11,754~~
~~Authorized~~	~~2,124~~
~~Options granted~~	~~(170~~	)
~~RSUs granted~~	~~(666~~	)
~~Options canceled~~	~~322~~
~~Options repurchased~~	2
~~RSUs forfeited~~	60
~~Shares traded for taxes~~	17
~~Balance at September 30, 2017~~	~~13,443~~

~~Employee Stock Purchase Plan Activities~~

~~During the nine months ended September 30, 2017, we issued 204,918 shares at a weighted average purchase price of $61.15~~issuance under ~~the~~our 2014 Employee Stock Purchase Plan ~~("ESPP"~~(the “ESPP”). ~~On February 6, 2017, the board authorized an increase~~Pursuant to ~~shares available for future issuance under the ESPP. Per~~ the ESPP, the 2021 share increase iswas determined based on the lesser of 1% of the total shares of common stock outstanding ~~as of the first day of each fiscal year,~~on December 31, 2020, 2,500,000 shares, or such amount as determined by our board of directors. ~~The approved increase for 2017 amounted to 708,111 shares.~~During the three months ended March 31, 2021, we issued 56,326 shares at a weighted-average purchase price of $182.76 per share under the ESPP. As of ~~September 30, 2017,~~March 31, 2021, there ~~remain 1,987,039~~remained 4.6 million shares available for issuance under the ESPP.

AsStock Option Activities

The following table summarizes the option activity under our stock plans and related information (in thousands, except years and per share amounts):


	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, 2020	3,430	$	45.17	3.6	$	841,659
Options granted	0	0
Options exercised	(263)	29.57
Options canceled	(12)	36.08
Balance—March 31, 2021	3,155	$	46.51	3.4	$	805,597
Vested and exercisable—March 31, 2021	2,169	$	34.55	3.0	$	579,805

Restricted Stock Unit (RSU) Activities

A summary of ~~September 30, 2017,~~ the ~~total unrecognized~~RSU activity is presented below (in thousands, except years and per share amounts):


	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, 2020	1,816	$	215.68	1.8	$	527,574
RSUs granted	176	310.32
RSUs vested	(139)	199.41
RSUs forfeited/canceled	(46)	225.87
Unvested balance—March 31, 2021	1,807	$	225.88	1.7	$	545,194

In the quarter ended March 31, 2021, we granted 69,620 performance-based RSUs (“PRSUs”) to our CEO and other key employees that include both service and performance-based conditions.

These PRSUs will vest over the next three to four years and the ultimate number of shares eligible to vest will vary between 0% and 200% of the amount granted based on the achievement of certain performance metrics over the vesting period and each holder’s continued employment with Arista.

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Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense related to our equity awards (in thousands):


	Three Months Ended March 31,
	2021		2020
Cost of revenue	$	1,400	$	1,327
Research and development	21,982		15,928
Sales and marketing	10,085		6,396
General and administrative	4,086		3,905
Total stock-based compensation	$	37,553	$	27,556

As of March 31, 2021, there were $414.5 million of unamortized compensation costs related to all unvested ~~ESPP options was $2.8 million, which is~~awards. The unamortized compensation costs are expected to be recognized over a weighted-average period of ~~1.4~~approximately 3.1 years.


7.	~~Net Income Per Share Available to Common Stock~~

7. Net Income Per Share

The following table sets forth the computation of our basic and diluted net income per share ~~available to common stock~~ (in thousands, except per share amounts):


	Three Months Ended March 31,
	2021		2020
Numerator:

Net income	$	180,366	$	138,431






Denominator:



Weighted-average shares used in computing net income per share, basic	76,306		76,264
Add weighted-average effect of dilutive securities:
Stock options and RSUs	3,279		3,675
Employee stock purchase plan	38		0
Weighted-average shares used in computing net income per share, diluted	79,623		79,939
Net income per share:
Basic	$	2.36	$	1.82
Diluted	$	2.27	$	1.73

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Numerator:
Basic:
Net income $ 133,722
$ 51,257
$ 319,368
$ 125,406
Less: undistributed earnings allocated to participating securities (182 ) (295 ) (725 ) (931 )
Net income available to common stockholders, basic $ 133,540
$ 50,962
$ 318,643
$ 124,475
Diluted:
Net income attributable to common stockholders, basic $ 133,540
$ 50,962
$ 318,643
$ 124,475
Add: undistributed earnings allocated to participating securities 15
18
61
56
Net income attributable to common stockholders, diluted $ 133,555
$ 50,980
$ 318,704
$ 124,531
Denominator:
Basic:
Weighted-average shares used in computing net income per share available to common stockholders, basic 72,588
69,076
71,903
68,365
Diluted:
Weighted-average shares used in computing net income per share available to common stockholders, basic 72,588
69,076
71,903
68,365
Add weighted-average effect of dilutive securities:
Stock options and RSUs 6,636
4,357
6,528
4,429
Employee stock purchase plan 98
20
97
17
Weighted-average shares used in computing net income per share available to common stockholders, diluted 79,322
73,453
78,528
72,811
Net income per share attributable to common stockholders:
Basic $ 1.84
$ 0.74
$ 4.43
$ 1.82
Diluted $ 1.68
$ 0.69
$ 4.06
$ 1.71

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share ~~available to common stockholders~~ for the periods presented because ~~including them~~their effect would have been anti-dilutive for the periods presented (in thousands):


	Three Months Ended March 31,
	2021	2020
Stock options and RSUs	130	601
Employee stock purchase plan	10	0
Total	140	601

8. Income Taxes


	Three Months Ended March 31,
	2021			2020
	(in thousands, except percentages)
Income before income taxes	$	207,867		$	161,819
Provision for income taxes	27,501			23,388
Effective tax rate	13.2		%	14.5		%

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Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Stock options and RSUs to purchase common stock 14
2,688
73
3,215


8.	~~Income Taxes~~

~~We had a provision for~~ The effective tax rates above reflect tax expense recorded on pre-tax income ~~taxes of $8.5 million and $13.8 million~~ in the three ~~and nine~~ months ended ~~September 30, 2017, respectively as compared to an income~~March 31, 2021 and March 31, 2020. The change in effective tax ~~provision of $11.7 million and $39.7 million~~rate in the three ~~and nine~~ months ended ~~September 30, 2016, respectively. For the three and nine months ended September 30, 2017, the change in our income taxes~~March 31, 2021, as compared to the same ~~periods~~period in ~~2016~~2020, was primarily due to ~~the recognition of excess tax benefits of $23.8 million and $71.7 million as a component of the provision for income taxes resulting from the adoption of ASU 2016-09, offset by~~ an increase in ~~the~~ tax ~~provision driven by higher profits before income taxes.~~benefits attributable to stock-based awards.

9. Geographical Information

We operate in a number of tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. As we expand internationally, our marginal tax rate may decrease; however, there can be no certainty that our marginal tax rate will decrease, and we may experience changes in tax rates that are not reflective of actual changes in our business or operations. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. Generally, the U.S. tax obligation is reduced by a credit for foreign income taxes paid on these earnings avoiding double taxation.

We have been selected for examination by the Internal Revenue Service ("IRS") for our 2014 tax year and the subsequent years remain open for audit. It is difficult to determine when the examinations will ultimately be settled. We believe that we have adequately provided reserves for any reasonably foreseeable adjustment to our tax returns. It is likely that within the next 12 months that either the IRS examination for tax year 2014 will be settled or the statute of limitations will run for jurisdictions in which we have unrecognized tax benefits recorded. The settlement or statute lapse would result in a reduction of the unrecognized tax benefit recorded. The reduction may range from no change up to approximately $2.2 million.

~~Our gross unrecognized tax benefits~~ as of September 30, 2017 were $34.4 million. If the gross unrecognized tax benefits as of September 30, 2017 were realized in future periods, this could result in a tax benefit of $21.3 million within our provision of income taxes.


9.	~~Segment Information~~

~~We have determined that we operate as one~~1 reportable segment. The following table represents revenue based on ~~the customer’s location, as determined by the customer’s~~customers’ shipping ~~address~~addresses (in thousands):


										Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,					2021		2020
	2017		2016		2017		2016
United States	$	306,637	$	233,018	$	869,383	$	612,852
Other Americas	2,681		4,081		8,818		8,205
Americas									Americas	$	501,872	$	400,660
Europe, Middle East and Africa	79,143		37,728		199,244		124,111		Europe, Middle East and Africa	96,274		72,624
Asia-Pacific	49,172		15,434		100,874		56,030		Asia-Pacific	69,416		49,745
Total revenue	$	437,633	$	290,261	$	1,178,319	$	801,198	Total revenue	$	667,562	$	523,029



~~Delaware~~Commission File Number:			~~20-1751121~~001-36468
Arista Networks, Inc.
(Exact Name of Registrant as Specified in its Charter)


Delaware						20-1751121
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation or ~~organization)~~Organization)						(I.R.S. Employer Identification ~~Number)~~No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	ANET	New York Stock Exchange



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(408)			547-5500
(Registrant’s telephone number, including area code)


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)



	December 31, 2016
	Level I		Level II		Level III		Total
Financial Assets:
Money market funds	$	305,182	$	—	$	—	$	305,182
Money market funds-restricted	4,245		—		—		4,245
Commercial paper	5,962		—		—		5,962
U.S. government notes	110,756		—		—		110,756
Corporate bonds	—		183,192		—		183,192
Total financial assets	$	426,145	$	183,192	$	—	$	609,337



	September 30, 2017
Due in 1 year or less	$	300,957
Due in 1 year through 2 years	187,678
Total marketable securities	$	488,635



	September 30, 2017		December 31, 2016
Accrued compensation costs	$	44,477	$	52,854
Accrued warranty costs	8,286		6,744
Accrued manufacturing costs	25,592		14,824
Accrued professional fees	6,666		6,829
Accrued taxes	1,315		1,098
Other	8,123		8,602
Total accrued liabilities	$	94,459	$	90,951



	Nine Months Ended September 30,
	2017			2016
Warranty accrual, beginning of period	$	6,744		$	4,718
Liabilities accrued for warranties issued during the period	5,020			3,420
Warranty costs incurred during the period	(3,478		)	(2,541		)
Warranty accrual, end of period	$	8,286		$	5,597


	Three Months Ended March 31,
	2021		% of Total		2020		% of Total
Americas	$	501,872	75.2	%	$	400,660	76.6	%
Europe, Middle East and Africa	96,274		14.4		72,624		13.9
Asia-Pacific	69,416		10.4		49,745		9.5
Total revenue	$	667,562	100.0	%	$	523,029	100.0	%


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
January 1, 2021 - January 31, 2021	—	$	—	—	$	338,685
February 1, 2021 - February 28, 2021	142	281.90		142	298,683
March 1, 2021 - March 31, 2021	225	272.09		225	237,329
	367			367



Exhibit Number		Description
~~Exhibit Number~~		~~Description of Document~~
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
~~32.1~~32.1*	*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104		Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)