Arista Networks, Inc. (ANET) Wells Fargo 7th Annual TMT Conference (Transcript)

Arista Networks, Inc. (NYSE:ANET) Wells Fargo 7th Annual TMT Conference November 29, 2023 1:15 PM ET

Company Participants

Ita Brennan – CFO

Conference Call Participants

Aaron Rakers – Wells Fargo

Aaron Rakers

Let’s get started. So, I’m Aaron Rakers. I’m the IT Hardware and Semi Analyst here at Wells Fargo. Thank you all for joining us this afternoon. Pleased to have Ita Brennan, the CFO of Arista on stage. I should refer, you announced earlier this year, plans to retire. So, hopefully, you’re doing much more enjoyable things and seeing places, not coming to conferences next year, but congrats on a fantastic tenure at Arista.

Ita Brennan

Thank you.

Question-and-Answer Session

Q – Aaron Rakers

So why don’t I — why don’t I kind of just start the discussion, you guys just recently had an Analyst Day. You unpacked the longer term kind of growth, story for the company. I think you talked about a 2022 to 2027 CAGR of around 15%. Maybe just help us grasp how you frame that? Do we think about double-digit growth, out in the, later years of that framework? Just kind of unpack that kind of thought process in that growth profile.

Ita Brennan

Yeah. I mean. I think we started with, just kind of stepping back and looking at the business and we’ve grown so fast over the last couple of years that we grew almost 50%, 2022. We’re on-track for admire a 33% growth rate this year. We’ve essentially doubled the size of the business in two years from 2021 to 2023. So even internally, we are thinking about kind of, what is — what does this business look admire over time because it is becoming larger and you have — you almost have two different growth drivers inside of the company with the cloud, which tends to be more of a kind of cyclical grower.

And then you have enterprise, which has been a much more steady kind of, we’re taking share and we’re executing on a more kind of consistent gradual basis. So trying to take all of those inputs and think about what would be a reasonable, growth rate, again, not trying to pick the slope of the curve, right, because I think that’s — we just don’t have the knowledge to be able to do that yet, but kind of looking at kind of that time period. And we have a very kind of serious focus internally around this idea of double-digit growth because we think that makes the model very powerful from an earnings perspective, et cetera.

So looking at that and thinking through some of the initiatives that we have looking at kind of how the market thinks about growth in those two pieces of the business, if you look at the market growth for kind of some of the cloud piece of the business that kind of lines up with that. And then thinking about kind of what we could continue to do in Enterprise and Campus over time and kind of taking all of that and say, okay, is it reasonable to think that you could accomplish kind of that double-digit growth over that time period, again, without trying to pick the slope of the curve, because I don’t think we have the fidelity to try to do that yet at this point.

Aaron Rakers

Yeah. That’s a good overview. And just to kind of think about that overview and I’ll touch on Campus here in a minute and some of the other adjacent opportunities that you’ve talked about, but clearly, you and I will talk deeper about the AI opportunity as you’d visualize, but you talked about $750 million target, 2025. That growth rate would embed that expectations, so I guess the question is admire, is there conservatism embedded in the non-AI piece of the business, to hit that double-digit because, it starts to become a big number if you look out to ’25.

Ita Brennan

Yeah. I think, this idea of AI, non-AI, it’s really important right now, because it’s kind of [Technical Difficulty] a way to see how the technology is kind of proven and it will show us kind of how AI, what’s non-AI, it’s got to be a lot of the same products go into the same customers. Butin the near term, we kind of grasp that it’s important to everybody to see kind of the progress that we’re making, right. As we started to make some progress, particularly on that back-end kind of opportunity and that’s what we’re trying to do. It’s a tops down number. It’s not that we have perfect knowledge of what that number is going to be. But it is something that we’re going to attempt to measure and furnish you with some, kind of milestones on just at least as a timeframe to give some understanding of what’s happening. But eventually, I think we’re not going to care, right?

So that the — right now, is there a shift towards more of the AI-related spending on the part of customers, I think part of our framework for a while now we’ve been talking about it for a while that we thought ’24 would be a cyclically kind of moderated cloud year. I think that’s still the case, right. There are definitely dollars that are going towards GPUs and AI. They have spent a lot on kind of call it Classic, et cetera., over the last couple of years. Do we expect that we’ll start to see some investment come back on that — on this classic stuff as we go through the year. You hear Microsoft certainly talk about investing in both sides of that infrastructure. So — but yeah, we had kind of built-in this idea that, there is probably a slowing in call it Classic, if you want and that some of these dollars maybe get redirected to AI and then you start to have some new products that are addressing both at some ways in the longer time — time frame.

Aaron Rakers

Perfect. Campus. Maybe talk a little bit about, the success you’ve seen there. That — you talked about a $400 million target. How do you think about that progression on the Campus opportunity for Arista?

Ita Brennan

Yeah. I think we’re making good progress against our $750 million target. We had — we were kind of somewhat light on revenue last year.

Aaron Rakers

Yeah.

Ita Brennan

Mainly because of supply. I think we’ve helped overcome for that as we’ve gone through this year. You saw that kind of in the overall kind of enterprise growth numbers for the year. I mean, there is a piece of that, that is kind of addressing that supply issue and then, some continued kind of share gains and progress as well this year. The Campus opportunity is big, right? It’s large. And it’s, — there is a — about 50% of it that is large enterprise, which even from a go-to-market is right, kind of in our sweet-spot and that’s obviously the targets.

The first target for us, right, is to continue to execute against large enterprise Campus opportunity. Sometimes they’ll have data centers. Sometimes don’t. But gaining kind of that an opportunity and then expanding within those accounts, is definitely a part of the progress that we’re making there. Over time, we are focused on expanding the channel. But that’s a — that has to be a very methodical kind of incremental thing, right, where we’ll find new partners, we’ll, evolve business models with new partners, et cetera., but it’s not something that you can expedite overnight. It does have to be methodical and the more successful we are broadly in the Campus or in the Enterprise than, the easier that channel will become, right, because there’ll be more interest in kind of carrying Arista as part of the channel as well.

Aaron Rakers

Is it fair to say admire, I don’t know you might look at the numbers, have any thought around, you went on Campus, it pulls data center in the Enterprise. Have you seen that or is it vice versa, admire, hey, we’ve got a footprint in data center. We’re really starting to see the Campus piece of the business get pulled from that.

Ita Brennan

Yeah. I mean, we had come into this thinking, it would be mostly the latter, right, and that we would see, because that’s how we got there in the first place.

Aaron Rakers

Yeah.

Ita Brennan

Right, as we’d see kind of data center customers kind of pull us to the Campus. But we’ve been surprised at how many kind of Campus first or Campus only opportunities there has been, right? So there is kind of a — there is an interest in from customers in kind of improving those Campus footprints and part of it is admire a Campus is no longer just an office, right, although offices are part of that, right, but you’ve got all sorts of other campuses as well, right? I mean, we hadn’t really played in kind of education or healthcare or manufacturing. Those types of many verticals prior to COVID, but with some of the changes and the more reliance on IT that kind of came out of that period, I think we see more of that now, right?

Aaron Rakers

Yeah.

Ita Brennan

And your Campus network operator has a lot of pressure to, preserve that IT infrastructure and improve that IT infrastructure now and that’s kind of, you saw Ken’s presentation at the Analyst Day, but Ken is passioned more-and-more as we get more engaged with these enterprise customers is, how do you make the running of these Enterprise networks so there is Campus, or data center more efficient, right.

How do you automate more? How do you give them tools that, have been deployed in the cloud for a long time now? How do you make that available? How do you better kind of the service that they can furnish? And so he spent quite a bit of time and we’ll continue to spend quite a bit of time looking at how we kind of tweak some of the software offerings, et cetera., to improve that, right, for them.

Aaron Rakers

And that kind of intertwining of that strategy is CloudVision.

Ita Brennan

That’s right.

Aaron Rakers

How that portfolio fits together? And then kind of segueing from there into some of the other opportunities routed WAN, security, observability, how do I think about success in those other adjacencies as we look forward?

Ita Brennan

Yeah. I think the goal is to kind of take the — if you have a data center then data center all the way through the Campus. But even within the campus universe, how do we kind of encapsulate as much of that as we can, in an — on an Arista platform, so that we can manage it with CloudVision and furnish visibility, et cetera., leveraging kind of that end-to-end solution, right? So what you’re seeing us do is kind of fill in, some of the pieces where, we didn’t have a solution. You can always look at that and say, are you better kind of partnering or are you better, buying or are you better making and there’s core kind of networking things that obviously we believe we should do. SD-WAN is one of those, right. We feel admire by — it’s doing it as part of EOS and part of that solution you can deliver something that’s differentiators.

Wi-Fi was a good example of where our starting point was to buy and then blend kind of the management scheme of that into CloudVision. So we’ll continue to do that, right. The NAC solution Agni, that we just announced, is just — it was one other piece that was a pain point for customers to be handing off to somebody else to see a solution there. So, I think we’ll continue to the security piece is really interesting just because we have this data trove of data from EOS. And then what can you do with that and we’re still figuring some of that out, right? But we are starting to use that in conjunction with some of the visibility and AVA and the solution that we acquired with Awake, right. So you’ll see us continue to, kind of tweak and add to that end-to-end solution, trying to — always trying to stay true to leveraging something that we believe is really a differentiator, which is that the EOS, the data, that EOS is collecting.

Aaron Rakers

So when I roll out all the way back and go back to kind of 15% CAGR, what you outlined, not this Analyst Day, but two Analyst days ago is really this Arista 2.0 kind of the platform story. A lot of those other things routed WAN, security, observability, et cetera. Are they kind of embedded in the expectation as you look out at the company or admire — but if — or it’s more admire if we’re successful here, that’s kind of additive to the expectations.

Ita Brennan

Yeah. I mean I think all of this is what’s going to allow us to be successful and continue to kind of, I mean, why are — because it’s not trivial what we’re trying to do, right? We just go into a large kind of established market and drive share gains and target share gains. So you’re going to have to be delivering something that’s incrementally better to be able to do that, right. So, I think these are all contributors to kind of why you win customers, why you win new footprint, why you win ports if you admire — part of it, you’ll get paid- for by winning, right, and winning those ports and that — these kind of management tools, et cetera., are a big part of the discussion that starts with the customer and just making — and driving kind of cost-out of just operating those footprints, right.

And then the other piece about is, I mean, we are driving some software-only monetization out of this. Some of these are value-add features that we can sell as a subscription license and we are doing that and we’ll continue to do that, but it’s both, right? I mean both of those are valuable and kind of allowing us to continue to gain share in that Campus Enterprise market.

Aaron Rakers

Perfect. So I’m going to kind of fine-tune on kind of the growth expected — 10% to 12% was the growth guidance for 2024. I guess, obviously, always a lot of people have a hyper-focused on the hyperscale cloud guys, your contributions from Microsoft and Meta. I think you’ve talked about kind of large cloud plus AI now that vertical being 40% to 45%. Does that embed? Does your 10% to 12% embed in the expectation that Microsoft and Meta or 10% plus customers or the total aggregate is 40% to 45% in ’24?

Ita Brennan

Yeah. We haven’t at this point, tried to break down 2024 between the verticals, I mean, the greater than 40% was a 2023 comments. We haven’t talked about whether those customers individually yet, probably won’t do that for a while, right? I think we typically kind of start to get to that level of granularity is where moving through the year.

Aaron Rakers

Yeah.

Ita Brennan

But they are important, very important customers. We’re assuming they’ll continue to be important customers, but we haven’t kind of broken that out at this point yet.

Aaron Rakers

I have to try. I want to talk about the AI — I’m going to bounce around here a little bit. I want to talk about the AI opportunity. I think you’ve done a good job, a quarter or two ago, kind of just helping levels that people, the cadence of how we should think about these, larger scale deployments and the debate of the Ethernet and InfiniBand and how that’s going to play out. This Analyst Day, if anybody hasn’t seen it, I definitely go back and look at, I mean, you talked extensively about the portfolio and what’s going to happening next year. Just remind us again that cadence, pilot trial, large scale deployments, how are risk to see that playing out at this point?

Ita Brennan

Yeah. And I think what we’ve talked about is kind of, some trials and technology trials this year, some pilots next year and then production kind of deployments in 2025, right? And I think that there is a lot of technology work that’s been done. I think we tried to expose some of that with Hugh Holbrook and Andy’s presentations at the Analyst Day. So we believe that as these technologies get delivered, get established, that’s kind of what’s going to drive some of these shifts in terms of deployments of networking.

I think you’re starting to see customers, publish the white papers, et cetera., to talk about the ethernet and how they see ethernet kind of as a networking solution for AI as we proceed through these product transitions and it’s performing well and I think, our expectation obviously is this work to do, but we do believe that once you get to large scale multi-tenances footprints, then ethernet has brings advantages there.

Aaron Rakers

Yeah.

Ita Brennan

It’s just native to everything that’s already been done in these large footprints as well. So there’s just a natural kind of, you have the expertise, you have the capabilities, et cetera. So I think that’s the — but there’s work to do, right? So that’s why we think trials, admire lots of discussions around, what’s the right way to evolve these architectures. Andy likes to say, whatever we think today probably won’t be exactly how it’s going to play out, right? You will see shifts in the architecture. And again, the network is going to underpin that and building the best, most flexible network you can is really what’s important for us. And then as long as there’s traffic being generators, we should be able to transport that traffic and that’s kind of how we play in all of this.

Aaron Rakers

So when I try and conceptualize what trials — pilot the trials, I mean, am I thinking about trials into next year being more admire a 1,000, 10,000 GPU kind of clusters? And then I know at the Analyst Day, one of the things that stood out to me was admire, you were talking admire not just 30,000, but 100,000 plus GPU clusters, even I think there was a slide that showed admire 512,000 GPUs in a single Ethernet network. I mean, is that the size and scale we should be thinking about once these things really start full ramp deployments in ’25?

Ita Brennan

Yeah. I mean, if everything progresses with AI in the way that we think it will and it becomes so impactful across, all of these services and for these customers, then yeah, I mean, that’s what it’s going to be, right? If you think about the scale of their footprints today at their massive scale, and this is only going to kind of compound that. So I think, you will see these very large clusters and very large deployments. And what the timing of that is, we’ll have to see, but that’s assuming that this is really transforming business models across the board as we think it will, right, then it’s going to bring about those customers to need to have those deployments, right?

Again, timing, it’s difficult to tell exactly what that timing will be, but over time there is this progression. And it’s been part of their thinking for some time that this is the — a encourage evolution of kind of their footprints and their services. Some of the generative AI stuff is more prevalent now, but there’s always been this proceed toward AI kind of embedded in some of those infrastructure deployments anyway.

Aaron Rakers

So would it be fair to assume admire, characterizing your visibility into these opportunities if we’re talking that size and scale of footprint deployments that you would start to — I mean, what are you messaging today? admire you’re getting line of sight into some of that already because power envelope, getting the GPUs, it’s not admire this stuff happens in a quarter, right? You’d start to see that visibility certainly ramp up as we proceed through the next year.

Ita Brennan

I think the technology comes first always, right? I mean, if we were sitting here today just talking about 800 gig, essentially the same discussion, right? We have to align on technology and then deliver technology. Customers have to evaluate it. And then you’ll start to see kind of what you can expect from dollars, et cetera., right? That execution on product always comes first, right? I mean, it’s not different to think back to the last cycle or the cycle before that, right? You have to earn, right, by delivery of products. And I think the alignment on technologies, et cetera., is happening now, right? Then there’ll be more product delivery. There’ll be trials, and then it’ll go from there. So I don’t know that we — I mean, we don’t have a perfect line of sight to kind of, what’s going to happen in 2025 at this point, but we’re executing on the building blocks.

Aaron Rakers

Yeah. I appreciate that. And I think one of the things that’s been somewhat eye-opening to me is when you’re talking about these big GPU clusters, and you’re talking about, particularly in the training side, having to work in conjunction, kind of cohesive, have cohesive performance across all these GPUs, that just the natural networking spend intensity is higher relative to your triton (ph). How do you characterize the spent, admire, I used to think in the past, admire, high-single digit percent spend on network versus compute? How does that look in AI?

Ita Brennan

Yeah. I mean, it may be a little bit more in more intensity, but I don’t know that it’s a huge shift. I mean, Jayshree had talked about 10% to 15%, but that was kind of including, some of the optics spent.

Aaron Rakers

Right.

Ita Brennan

So I think there’s some boost in intensity, but I don’t know that there’s a major shift as we go through this.

Aaron Rakers

Okay. And then I’ll wrap up on maybe the AI stuff with this question is, one of the things that I arguably still need to unpack and maybe appreciate a little bit more is, you mentioned two things at the Analyst Day, distributed ETHERLINK spine and linear pluggable optics. To me, it sounded admire those were core building blocks of differentiation for a risk as we get into next year. I know you’re the CFO, but I’m kind of putting you on the spot. Why are those important? What are — what’s differentiate about those?

Ita Brennan

Yeah, I think the DES is going to be a very efficient fabric for AI, large-scale AI deployments, right? And obviously, the goal is lossless transport and using kind of, creating a fabric that can handle very large AI clusters. On the optic side, I think it’s not necessarily a revenue driver for us per se. It’s a solution to the power envelope, and it’s a contributor to solving the power envelope, right?

So we’ve kind of played a role in optics where we don’t resell a ton of optics, but we’re very vested in making sure that kind of, the optics ecosystem is evolving at pace with everything else, and that the overall kind of solution can be deployed successfully, and that’s a lot of focus on power in that, and I think it is potentially a big advantage from a power perspective, and it would be deployed in conjunction with the WAGO and their solutions, but really the key there for us is that it helps to kind of overcome for the overall power envelope of what a deployment would look admire.

Aaron Rakers

I guess I was thinking about it, admire, if you can have a platform that supports that and you can reduce power consumption by, I neglect if it was 30% or even 50%, relative to traditional optics, and I think importantly it’s backwards compatible, right? admire, you will be able to deploy and say, hey, Mr. Customer, once these linear pluggable optics, I mean, that is a difference here. Would you argue that Arista’s taken a leadership position on?

Ita Brennan

I mean, I think it certainly enables us to deploy the overall solution.

Aaron Rakers

Yeah.

Ita Brennan

Right. And make the overall solution better. I mean, again, it’s not that we’re necessarily looking to resell that in volume, right? It’s more, again, create an overall architectural design that solves the problem for the customer, and you’ll get deployed more, right? I think that’s always been kind of our approach to that.

Aaron Rakers

All right. So I’m going to bounce maybe a little bit more to, the financial model and some of the puts and takes on that front. So one of the things that obviously I think a lot of investors have asked you about is just this normalization process of purchase commitment, supply chain. I guess how are you seeing that right now? And ultimately what I’m going to ask you is, what’s the right days of inventory for Arista? How do I think about how much you’ve had to lean in on the supply chain and how much inventory you carry? What’s the right normal for you now as we proceed forward?

Ita Brennan

Yes. There’s two pieces, obviously, there’s purchase commitment, and then there’s kind of the inventory that we’re carrying ourselves on the books, right? Stage one was kind of overcome and push on purchase commitments as supplier guide time start to better, right? And I think we’ve been doing that, we’ve been doing a good job of that. A big piece of that, of what’s remaining is going to be related to some of the key components that still have an extended guide time, right? We still have suppliers, significant suppliers out at 52 weeks plus or minus guide time. That’s going to bring about that number to, we still have some work to do.

I think we can still bring it down as we go through ’24, but it’s going to hit a point where if the, if those key components preserve that long guide time, it’s going to be more elevated than where it was before, right? So we’re continuing to drive that. I mean, we want to step out of the, the contract manufacturing supply chain because they should run that. We’re making good progress to being at that point, and then obviously the key components will continue to be engaged in.

On the inventory side, it’s something of the same. If you look at kind of, you can see in the filings the split between raw materials and finished goods. The raw materials is obviously more — much higher than what it used to be. Again, that’s linked to kind of just how much inventory we need to carry because of guide times. As guide times better, we’ll have the opportunity to better that.

On the finished good side, I mean, we’re carrying probably certainly more than we were more recently just because that was very tight. I think we still have some room where we can better that as well. But it doesn’t — I don’t know that it changes that much if you look at it on a turn basis, so I think we’ll better turn slightly as we go through the year and then, probably bottoms out there unless we get some improvement on guide times on key components.

That will help us to kind of better that encourage, but that’s going to become kind of the bottleneck if you admire to driving it back to anything admire where it used to be before. Because we think back those key components were 13 to 26 weeks in the old days, right? And we thought that was long at that stage, but if it stays at 52 weeks, then it’s going to get harder to kind of drive that back to anything admire what it used to be.

Aaron Rakers

And you’re still in that 52-week range on some of it?

Ita Brennan

We’re still in 52 weeks, roughly.

Aaron Rakers

Well. So it’s hard to put a defined number out there. I guess it’s what I’m hearing.

Ita Brennan

Yeah, I think…

Aaron Rakers

You were 335 days of inventory last quarter.

Ita Brennan

Right,

Aaron Rakers

If my math is right.

Ita Brennan

Right, which is, not something from a financial perspective that I admire, but then when you start to look at the pieces, I think you can better it from there. But I don’t think we get to your — I think you had suggested 200 or something in one of the questions. I don’t think it goes back to that, right? I think you get kind of held up by the key components and until that changes, then if that improves, we’ll have an opportunity to kind of drive it encourage.

Aaron Rakers

So one of the other questions I was going to ask you about is the 10-Q and you mentioned, the inventory breakdown. It’s interesting that the purchase commitment color and stuff admire that. But one of the other things I think I’ve asked you this offline a couple of times, what I’m going to ask you again here is that, one of the disclosures is this idea of binding contractual agreements related to future product shipments. And I think that balance was $507 million exiting this last quarter and exiting ’22, it was admire $960 million. What is that? I mean, is that that’s obviously future deliveries of products?

Ita Brennan

Yeah. So we had largely our orders — customer orders are not contractually non-cancelable, right? I mean, we’ve — when we — as we went through the supply chain, we agreed with customers, we vetted kind of their — what they were trying to buy, et cetera., et cetera. We got to a pretty good place, but contracts pure, literally contractually binding. We didn’t go and reform at all the contracts to try to do that. There were though some new opportunities, new projects, et cetera., where we did because we were doing new paper and we had an opportunity to do new paper. So that number will kind of go to zero eventually.

Aaron Rakers

Okay.

Ita Brennan

Right. It’s just as we continue to kind of process through those and some of the newer deals won’t be on kind of contractual — on a contractual basis. So that number should eventually kind of head towards zero.

Aaron Rakers

Okay. That’s helpful. 800 gig, and one of the things that we’ve been thinking about in Broadcom, I think made a comment last quarter that, their Jericho3AI and Tomahawk 5 Silicon would ship over the next, I think, that was six months or something. Have we seen any shipments of those platforms for risk at this point, or is that admire 800 gig, that 51.2 silicon, that’s really a ’24 dynamic?

Ita Brennan

Yeah. We haven’t announced any of those products yet, right? So that — but that’s obviously underpinning a lot of the, when we talk about new products in 2024 and beyond, it’s a — that’s what you look at that.

Aaron Rakers

Okay. In a couple minutes, we got left. I’ve got a couple other quick questions. So Services and uphold, 16.8% of revenue last quarter, I think you guys reported the P&L admire, services revenue, 14.8%. The delta between that is basically software. I mean, we started to see, you mentioned earlier, software is there software monetization dynamic to maybe start to think about?

Ita Brennan

Yeah. And it’s probably even a little bit more than that, just because there is some software offerings that end up in the product on the P&L, right? Yeah, so it’s a little bit more than that spread. Yeah, I think, the software revenue kind of, it gets dwarfed when the product grows the way it’s been growing, but it’s been keeping pace, right? Which is not nothing given how fast we’ve been growing, right? So there is — I mean, there are this set of value ads, software subscriptions admire CloudVision, some of the visibility tools, some of the Awake capabilities — ex — old Awake capabilities, the new that have now been incorporated into CloudVision, et cetera., AVA, that all kind of gets sold as a software subscription license. And that’s, — it’s, again, it gets dwarfed by the product sometimes, but it’s a nice growing kind of software revenue stream, and it is contributing kind of to growth margin, et cetera. And it’s helping kind of, drive that Enterprise Campus piece of business as well.

Aaron Rakers

That’s perfect. So the other quick questions in a few minutes I got left. So last quarter, there was no share repurchases, right? You guys produce a tremendous amount of cash. I think you had $4.5 billion total cash. So should I read anything into that? How do you — how are you thinking about capital allocation? And ultimately, I’m also going to ask you about M&A, admire, how are you thinking about the strategy for Arista on that front?

Ita Brennan

Yeah. I mean, we talked about this a little bit at the Analyst Day. I mean, it will probably always carry more cash than maybe admire a strict financial model would imply just because for things admire the supply chain, right? It’s important for us to be able to kind of step into something admire the supply chain and carry as much weight as some of our much larger competitors, right? But that said, I mean, it is our intention to return cash. And we’ve talked about kind of offsetting dilution, returning, 50% kind of our, off the cash that we produce. That got a little — with all of the inventory stuff, et cetera., we kind of backed off that a little bit.

And then the other piece of this is just kind of how do you approach that? Are you, because the stock is volatile, even for — mostly for reasons beyond our control, actually, admire it just moves a lot? Do we try to kind of — do we try to improve for that as well, right? And I think you saw us do that last year, where I think it was Q2, we were very aggressive and active on the buyback because it was an opportunity to do that. I think we’ll continue to do that. So it is our intention to return cash. But we’ll probably remain pretty opportunistic in terms of when we do that. And if there is volatility, we’ll try to leverage the volatility.

Aaron Rakers

And on the M&A front, I mean, I don’t think about a risk as being kind of a platform acquire. It’s really got a fold under the umbrella of EOS, maybe CloudVision. It’s more just kind of tuck-in strategy from an M&A perspective. Are you seeing any change in that thought process as the companies evolve?

Ita Brennan

I mean, we look at stuff all the time and we’ll continue to, and everybody is very connected into the ecosystem. But because of the platform, because of kind of the, just the leverage that EOS brings and the opportunity that’s there to kind of just organically kind of capitalize on that, it tends to drive us towards kind of technology, people, teams smaller M&A, right? But again, we look at things all the time. I think the team is very well connected into, what’s happening in the industry. And we do look at opportunities all the time, but that is kind of something that you have to overcome for. You have to — it raises the level of conviction you need to have, right, in terms of doing something bigger.

Aaron Rakers

So, one of the other questions on, I feel admire a lot of times people don’t — people think of a risk and they think about, Microsoft, Meta, cloud, big type footprint deployments. But this Enterprise momentum that you’ve seen is, in my opinion, underappreciate us. One of the things, last quarter, you grew EMEA revenue, I think it was 56%, you grew Asia-Pac revenue, 72%. Are you starting to hit a different stride in some of the international markets? Are you investing more there? admire, is that starting to show up as a bigger growth driver for the company?

Ita Brennan

I mean, we are for sure investing internationally and sales headcount, et cetera., we’ve been — we are deploying internationally. I wouldn’t overfocus on that quarter, though, because some of that is still shipments

Aaron Rakers

Yeah.

Ita Brennan

Kind of supply chain-related, the patterns. I mean, it’s been kind of, our international percentage has just been kind of stuck at the 25%, but again, that’s — the overall is growing pretty aggressively, right? So, those — business in those regions is growing, too, right? And growing healthily, it just hasn’t shipped the mix. But I think the quarter over quarter that we saw is probably more just kind of — just shipment, as much shipment as anything else, I think in the short term.

Aaron Rakers

So the final question I was just going to ask you is kind of just an open-ended question. Is it, as you talk with investors, you talk with myself and others, is there any credit of the Arista story that you feel is not understood enough, or maybe asked about enough, because everybody’s focused on AI, but is there — in that context, some things that you just think people don’t pay enough attention to?

Ita Brennan

I mean, I think the story is pretty well understood. I think the power of having kind of these two pieces of the business, people focus on AI and on cloud, which is great, and it’s very important, and they’re very important customers to us, and we want to do as much as we possibly can with them. But then the offset of kind of having this Enterprise Campus business, I mean, it is very — over time, it can become a very healthy offset.

Those two pieces of the business, be it at gross margin line, be it at kind of a growth offsetting, some of the cyclicality. So I think that piece and we need to continue to execute on that and I think we’ve been making progress. But if we can really do that right, having those two pieces of the business kind of as an offset to each other really does help the model overall.

Aaron Rakers

Perfect. I think we’ll leave it at that. Ita, thank you so much for joining us.

Ita Brennan

Thank you. Thanks for having us.