Ita Brennan
Chief Financial Officer at Arista Networks
Thanks, Jayshree, and good afternoon. This analysis of our Q3 results and our guidance for Q4 2021 is based on non-GAAP and excludes our non-cash stock-based compensation impacts, certain acquisition-related charges and other non-recurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release.
Total revenues in Q3 were $748.7 million, up 23.7% year-over-year and above the upper end of our guidance of $725 million to $745 million. Shipments remained constrained in the period as we continue to carefully navigate industry-wide supply chain shortages and COVID-related disruptions. Services and subscription software contributed approximately 21.5% of revenue in the third quarter, down from 22.3% in Q2. International revenues for the quarter came in at $191 million or 25% of total revenue, down from 27% in the second quarter. This shift in geographical mix on a quarter-over-quarter basis reflect a continued healthy performance from our Cloud Titan and in region businesses in EMEA, with some volatility in our APAC business. Overall gross margin in Q3 was 64.9% at the upper end of our guidance range of approximately 63% to 65%. We continue to recognize some incremental supply chain costs in the period, and these were offset by a healthy mix of revenue from our enterprise customers in the quarter.
Operating expenses for the quarter were $192.4 million or 25.7% of revenue, up from last quarter at $189.8 million. R&D spending came in at $125 million or 16.7% of revenue, up from last quarter at $119.6 million. This reflected increased headcount and employee-related costs and higher new product introduction spending in the period. Sales and marketing expense was $55.8 million or 7.4% of revenue, down from $57.9 million last quarter with lower demo and other variable expenses in the period. As a reminder, we continue to benefit from lower COVID-related travel and marketing expenses.
Our G&A costs came in at $11.6 million or 1.5% of revenue, down slightly from last quarter, but in line with normal quarter seasonality. Our operating income for the quarter was $293.7 million or 39.2% of revenue. Other income and expense for the quarter was a favorable $1.3 million and our effective tax rate was approximately 19.7%. This resulted in net income for the quarter of $236.9 million or 31.6% of revenue. Our diluted share number was 79.9 million shares, resulting in a diluted earnings per share number for the quarter of $2.96, up approximately 22.5% from the prior year.
Now turning to the balance sheet. Cash, cash equivalents and investments into the quarter at approximately $3.4 billion. We repurchased $134 million of our common stock during the third quarter at an average price of $357 per share. As a recap, at the end of Q3 2021, we had repurchased $897 million or 3.9 million shares against our board authorization to repurchase $1 billion worth of shares over three years beginning in April 2019. In October 2021, Arista's Board of Directors increased the authorization by adding an additional $1 billion to the repurchase amount. The actual timing and amount of future repurchases will be dependent on market and business conditions, business requirements, stock price, acquisition opportunities and other factors.
Now turning to the operating cash performance for the third quarter. We generated $273 million of cash from operations in the period, reflecting strong net income performance and continued investments in inventory and supply chain. DSOs came in at 49 days, up slightly from 47 in Q2, reflecting the linearity of billings in the period. Inventory turns were 1.7 times consistent with last quarter, inventory increased $575.7 million in the quarter, up from $543.2 million in the prior period as we continue to profit certain components and products.
Our purchase commitments number for the quarter increased to $2.1 billion, up from $1.1 billion in Q2. This reflects a combination of increased lead times for many components and improved demand visibility. We continue to prioritize newer, early life cycle products for inclusion in this strategy to help mitigate the risk of obsolescence. Our total deferred revenue balance was $800 million, up from $746 million in Q2. The majority of the deferred revenue balance and services related and directly linked to the timing and term of service contracts, which can vary on a quarter-by-quarter basis. Approximately $113 million of the balance, up from $90 million last quarter represents product deferred revenue largely related to acceptance clauses for new products, most recently with our larger Cloud Titan customers.
As a reminder, we are currently in a period of significant new product introductions, combined with a healthy new customer acquisition rate and expanded use cases with existing customers. These trends in conjunction with reduced levels of upfront, in-person testing have resulted in increased customer specific acceptance clauses and higher product deferred revenue amounts. Accounts payable days were 47 days, down from 54 days in Q2, reflecting the timing of inventory receipts and payments. Capital expenditures for the quarter were $45.9 million, including approximately 40 million of capex related to the purchase of land to construct a new data center and hardware engineering building in Santa Clara. We will provide more details in this project over coming quarters.
Now turning to our guidance for the fourth quarter and beyond. As outlined in our guidance, we now expect to achieve year-over-year revenue growth for the full-year 2021 of approximately 25%. This reflects continued healthy demand across all market sectors tempered by the impact of the difficult supply environment. On the gross margin front, industry supply constraints and elevated logistics cost continue to pressure gross margins with customer price increases as a potential offset. Based on our current outlook, we continue to reiterate our overall gross margin outlook of 63% to 65% with customer mix remaining the key driver of volatility on a quarter-by-quarter basis.
Turning to spending an investments, we remain committed to growing our investments in R&D to support innovation across the business and sales and marketing to support our go-to-market expansion. So finally, we also announced today that Arista's Board of Directors has approved a 4-for-one stock split. Each Arista shareholder of record at the close of business on November 11, 2021 will receive three additional shares for every share held and trading will begin on a split-adjusted basis on November 18, 2021. With all of this is a backdrop, our guidance for the fourth quarter, which is based on non-GAAP results and excludes any non-cash, stock-based compensation impacts and other non-recurring items is as follows. Revenues of approximately $775 million to $795 million, gross margins of 63% to 65%, operating margin of approximately 37%. Our effective tax rate is expected to be approximately 20.5% with diluted shares on our pre-split basis of approximately 80 million shares.
I will now turn the call back to, Liz. Liz?
