EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

 

FOR IMMEDIATE RELEASE

   IR CONTACT:    Deborah Crawford

Wednesday, April 21, 2010

      VP, Investor Relations
      (408) 540-3712
   PR CONTACT:    Steve Swasey
      VP, Corporate Communications
      (408) 540-3947

Netflix Announces Q1 2010 Financial Results

Subscribers – 14.0 million

Revenue – $493.7 million

GAAP Net Income – $32.3 million

GAAP EPS – $0.59 per diluted share

LOS GATOS, Calif., April 21, 2010 – Netflix, Inc. (Nasdaq: NFLX) today reported results for the first quarter ended March 31, 2010.

“Our growth continued to accelerate in the first quarter, with record net subscriber additions and record-low subscriber acquisition cost,” said Netflix co-founder and CEO Reed Hastings. “It is clear that our performance, and the overall appeal of the Netflix service, is being driven by subscribers watching instantly. On that score, we reached a milestone in the quarter as more than half of all members – 55 percent and growing – enjoyed movies and TV episodes streamed from Netflix over the Internet.”

First-Quarter 2010 Financial Highlights

Subscribers. Netflix ended the first quarter of 2010 with approximately 13,967,000 total subscribers, representing 35 percent year-over-year growth from 10,310,000 total subscribers at the end of the first quarter of 2009 and 14 percent sequential growth from 12,268,000 subscribers at the end of the fourth quarter of 2009.

Net subscriber change in the quarter was an increase of 1,699,000 compared to an increase of 920,000 for the same period of 2009 and an increase of 1,159,000 for the fourth quarter of 2009.

Gross subscriber additions for the quarter totaled 3,492,000, representing 45 percent year-over-year growth from 2,413,000 gross subscriber additions in the first quarter of 2009 and 25 percent quarter-over-quarter growth from 2,803,000 gross subscriber additions in the fourth quarter of 2009.

Of the 13,967,000 total subscribers at quarter end, 98 percent, or 13,622,000, were paid subscribers. The other 2 percent, or 345,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the first quarter of 2009 and 97 percent at the end of the fourth quarter of 2009.

Revenue for the first quarter of 2010 was $493.7 million, representing 25 percent year-over-year growth from $394.1 million for the first quarter of 2009, and 11 percent sequential growth from $444.5 million for the fourth quarter of 2009.


Gross margin1 for the first quarter of 2010 was 37.8 percent compared to 34.2 percent for the first quarter of 2009 and 38.0 percent for the fourth quarter of 2009.

GAAP net income for the first quarter of 2010 was $32.3 million, or $0.59 per diluted share compared to GAAP net income of $22.4 million, or $0.37 per diluted share, for the first quarter of 2009 and GAAP net income of $30.9 million, or $0.56 per diluted share, for the fourth quarter of 2009. GAAP net income grew 44 percent on a year-over-year basis and GAAP EPS grew 59 percent on a year-over-year basis.

Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the first quarter of 2010 was 55 percent compared to 36 percent for the same period of 2009 and 48 percent for the fourth quarter of 2009.

Subscriber acquisition cost2 for the first quarter of 2010 was $21.54 per gross subscriber addition compared to $25.79 for the same period of 2009 and $25.23 for the fourth quarter of 2009.

Churn3 for the first quarter of 2010 was 3.8 percent compared to 4.2 percent for the first quarter of 2009 and 3.9 percent for the fourth quarter of 2009. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Free cash flow4 for the first quarter of 2010 was $35.8 million compared to $15.1 million for the first quarter of 2009 and $30.2 million for the fourth quarter of 2009.

Last twelve-month free cash flow for the first quarter of 2010 was $117.8 million compared to $105.0 million for the first quarter of 2009 and $97.1 million for the fourth quarter of 2009.

Cash provided by operating activities for the first quarter of 2010 was $75.4 million compared to $65.6 million for the first quarter of 2009 and $105.8 million for the fourth quarter of 2009.

Business Outlook

The Company’s performance expectations for the second quarter of 2010 and full-year 2010 are as follows:

Second-Quarter 2010

 

   

Ending subscribers of 14.7 million to 15.0 million

   

Revenue of $517 million to $525 million

   

GAAP net income of $34 million to $40 million

   

GAAP EPS of $0.62 to $0.73 per diluted share

Full-Year 2010

 

   

Ending subscribers of 16.5 million to 17.3 million, up from 15.5 million to 16.3 million

   

Revenue of $2.11 billion to $2.16 billion, up from $2.05 billion to $2.11 billion

   

GAAP net income of $132 million to $144 million, up from $125 million to $137 million

   

GAAP EPS of $2.41 to $2.63 per diluted share, up from $2.28 to $2.50 per diluted share

 

1

Gross margin is defined as revenues less cost of subscription and fulfillment expenses divided by revenues.

2

Subscriber acquisition cost is defined as the total marketing expense, which includes stock-based compensation for marketing personnel, on the Company’s Condensed Consolidated Statements of Operations divided by total gross subscriber additions during the quarter.

3

Churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by three months.

4

Free cash flow is defined as cash provided by operating activities and investing activities excluding the non-operational cash flows from purchases and sales of short-term investments and cash flows from investment in business.

 

2


Earnings Q&A Session

In conjunction with this earnings press release, the Company has posted management’s commentary to its Web site at http://ir.netflix.com. Netflix management will host a live Q&A session at 3:00 p.m. Pacific Time to discuss the Company’s financial results and business outlook, with questions submitted via email. Please email your questions to ir@netflix.com. (Please note this new email address). The company will read the questions aloud on the call and respond to as many questions as possible. All media inquiries should be directed to Steve Swasey at (408) 540-3947 or sswasey@netflix.com.

A live webcast and the replay of the earnings Q&A session can be accessed on the investor relations section of the Netflix website at http://ir.netflix.com. For those without access to the Internet, a replay of the call will be available from 6:00 p.m. Pacific Time on April 21, 2010 through midnight on April 24, 2010. To listen to the replay, call (706) 645-9291, conference ID 67441533.

Use of Non-GAAP Measures

This press release and its attachments include reference to non-GAAP financial measures of free cash flow and non-GAAP net income. Management believes that non-GAAP net income is a useful measure of operating performance because it excludes the non-cash impact of stock option accounting. In addition, management believes that free cash flow is a useful measure of liquidity because it excludes the non-operational cash flows from purchases and sales of short-term investments, cash flows from investment in business and cash flows from financing activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited financial statements.

About Netflix

With more than 13 million members, Netflix, Inc. (Nasdaq: NFLX) is the world’s largest subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail. For $8.99 a month, Netflix members can instantly watch unlimited TV episodes and movies streamed to their TVs and computers and can receive unlimited DVDs delivered quickly to their homes. With Netflix, there are never any due dates or late fees. Members can select from a growing library of titles that can be watched instantly and a vast array of titles on DVD. Among the large and expanding base of devices that can stream movies and TV episodes from Netflix right to members’ TVs are Microsoft’s Xbox 360 and Sony’s PS3 game consoles and Nintendo’s Wii console; Blu-ray disc players from Samsung, LG and Insignia; Internet TVs from LG, Sony and VIZIO; the Roku digital video player and TiVo digital video recorders; and Apple’s iPad tablet. For more information, visit http://www.netflix.com.

 

3


Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our subscriber growth, revenue, GAAP net income and earnings per share for the second quarter of 2010 and the full-year 2010. The forward-looking statements in this release are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new subscribers and retain existing subscribers; our ability to manage our subscriber acquisition cost as well as the cost of content delivered to our subscribers; fluctuations in consumer usage of our service; the continued availability of content on terms and conditions acceptable to us; maintenance and expansion of device platforms for instant streaming; continued weakness in the U.S. economy and its affect on online commerce or the filmed entertainment industry; conditions that effect our delivery through the U.S. Postal Service, including regulatory changes and postal rate increases; changes in the costs of acquiring DVDs or electronic content; consumer spending on DVDs and related products; disruption in service on our website or with our computer systems; competition and widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2010. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

 

4


Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

 

     Three Months Ended  
     March 31,
2010
    December 31,
2009
    March 31,
2009
 

Revenues

   $ 493,665      $ 444,542      $ 394,098   

Cost of revenues:

      

Subscription

     259,560        231,598        217,456   

Fulfillment expenses *

     47,602        43,888        41,812   
                        

Total cost of revenues

     307,162        275,486        259,268   
                        

Gross profit

     186,503        169,056        134,830   

Operating expenses:

      

Technology and development *

     37,399        33,209        24,200   

Marketing *

     75,219        70,715        62,242   

General and administrative *

     17,193        13,524        13,014   

Gain on disposal of DVDs

     (1,653     (1,741     (1,097
                        

Total operating expenses

     128,158        115,707        98,359   
                        

Operating income

     58,345        53,349        36,471   

Other income (expense):

      

Interest expense

     (4,959     (4,457     (670

Interest and other income

     972        2,444        1,610   
                        

Income before income taxes

     54,358        51,336        37,411   

Provision for income taxes

     22,086        20,423        15,048   
                        

Net income

   $ 32,272      $ 30,913      $ 22,363   
                        

Net income per share:

      

Basic

   $ 0.61      $ 0.58      $ 0.38   

Diluted

   $ 0.59      $ 0.56      $ 0.37   

Weighted average common shares outstanding:

      

Basic

     52,911        53,609        58,734   

Diluted

     54,775        55,479        60,709   
*Stock-based compensation included in expense line items:       

Fulfillment expenses

   $ 176      $ 59      $ 120   

Technology and development

     1,869        1,023        1,071   

Marketing

     643        433        443   

General and administrative

     2,814        1,461        1,498   

Reconciliation of Non-GAAP Financial Measures

      
(unaudited)       

Non-GAAP net income reconciliation:

      

GAAP net income

   $ 32,272      $ 30,913      $ 22,363   

Stock-based compensation

     5,502        2,976        3,132   

Income tax effect of stock-based compensation

     (2,234     (1,184     (1,259
                        

Non-GAAP net income

   $ 35,540      $ 32,705      $ 24,236   
                        

Non-GAAP net income per share:

      

Basic

   $ 0.67      $ 0.61      $ 0.41   

Diluted

   $ 0.65      $ 0.59      $ 0.40   

Weighted average common shares outstanding:

      

Basic

     52,911        53,609        58,734   

Diluted

     54,775        55,479        60,709   

 

5


Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)

 

     As of
     March 31,
2010
   December 31,
2009

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 79,861    $ 134,224

Short-term investments

     186,469      186,018

Current content library, net

     55,566      37,329

Prepaid content

     31,704      26,741

Prepaid and other current assets

     25,938      26,701
             

Total current assets

     379,538      411,013

Content library, net

     109,431      108,810

Property and equipment, net

     127,165      131,653

Deferred tax assets

     18,791      15,958

Other non-current assets

     13,368      12,300
             

Total assets

   $ 648,293    $ 679,734
             

Liabilities and Stockholders' Equity

     

Current liabilities:

     

Accounts payable

   $ 102,703    $ 91,475

Accrued expenses

     38,718      33,387

Current portion of lease financing obligations

     1,917      1,410

Deferred revenue

     100,109      100,097
             

Total current liabilities

     243,447      226,369

Long-term debt

     200,000      200,000

Lease financing obligations, excluding current portion

     35,704      36,572

Other non-current liabilities

     22,407      17,650
             

Total liabilities

     501,558      480,591

Stockholders' equity:

     

Common stock, $0.001 par value; 160,000,000 shares authorized at March 31, 2010 and December 31, 2009; 52,261,855 and 53,440,073 issued and outstanding at March 31, 2010 and December 31, 2009, respectively

     52      53

Accumulated other comprehensive income, net

     487      273

Retained earnings

     146,196      198,817
             

Total stockholders' equity

     146,735      199,143
             

Total liabilities and stockholders' equity

   $ 648,293    $ 679,734
             

 

6


Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended  
     March 31,
2010
    December 31,
2009
    March 31,
2009
 

Cash flows from operating activities:

      

Net income

   $ 32,272      $ 30,913      $ 22,363   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization of property, equipment and intangibles

     10,859        10,238        9,175   

Amortization of content library

     62,292        60,261        49,304   

Amortization of discounts and premiums on investments

     234        168        194   

Amortization of debt issuance costs

     98        1,124        —     

Stock-based compensation expense

     5,502        2,976        3,132   

Excess tax benefits from stock-based compensation

     (7,424     (3,584     (3,684

Loss on disposal of property and equipment

     —          —          144   

Gain on sale of short-term investments

     (264     (54     (572

Gain on disposal of DVDs

     (3,228     (2,607     (2,033

Gain on sale of investment in business

     —          (1,783     —     

Deferred taxes

     (2,761     1,789        (1,344

Changes in operating assets and liabilities:

      

Prepaid content and other current assets

     (4,415     (9,390     (391

Content library

     (50,475     (22,785     (22,091

Accounts payable

     16,878        8,894        8,572   

Accrued expenses

     11,953        7,506        2,945   

Deferred revenue

     12        20,974        (2,504

Other assets and liabilities

     3,879        1,177        2,423   
                        

Net cash provided by operating activities

     75,412        105,817        65,633   
                        

Cash flows from investing activities:

      

Purchases of short-term investments

     (34,202     (125,841     (52,384

Proceeds from sale of short-term investments

     30,770        36,037        36,933   

Proceeds from maturities of short-term investments

     4,013        4,688        1,330   

Purchases of property and equipment

     (6,393     (22,433     (6,572

Acquisitions of intangible asset

     (130     —          (200

Acquisitions of content library

     (36,902     (57,048     (46,499

Proceeds from sale of DVDs

     3,984        3,934        2,726   

Proceeds from sale of investment in business

     —          7,483        —     

Other assets

     (172     (72     (2
                        

Net cash used in investing activities

     (39,032     (153,252     (64,668
                        

Cash flows from financing activities:

      

Principal payments of lease financing obligations

     (361     (300     (269

Proceeds from issuance of common stock

     9,918        9,182        13,589   

Excess tax benefits from stock-based compensation

     7,424        3,584        3,684   

Borrowings on line of credit, net of issuance costs

     —          18,978        —     

Payments on line of credit

     —          (20,000     —     

Proceeds from issuance of debt, net of issuance costs

     —          193,917        —     

Repurchases of common stock

     (107,724     (79,419     (42,719
                        

Net cash provided by (used in) financing activities

     (90,743     125,942        (25,715
                        

Net increase (decrease) in cash and cash equivalents

     (54,363     78,507        (24,750

Cash and cash equivalents, beginning of period

     134,224        55,717        139,881   
                        

Cash and cash equivalents, end of period

   $ 79,861      $ 134,224      $ 115,131   
                        

 

7


     Three Months Ended  
     March 31,
2010
    December 31,
2009
    March 31,
2009
 

Non-GAAP free cash flow reconciliation:

      

Net cash provided by operating activities

   $ 75,412      $ 105,817      $ 65,633   

Purchases of property and equipment

     (6,393     (22,433     (6,572

Acquisitions of intangible asset

     (130     —          (200

Acquisitions of content library

     (36,902     (57,048     (46,499

Proceeds from sale of DVDs

     3,984        3,934        2,726   

Other assets

     (172     (72     (2
                        

Non-GAAP free cash flow

   $ 35,799      $ 30,198      $ 15,086   
                        
     Twelve Months Ended  
     March 31,
2010
    December 31,
2009
    March 31,
2009
 

Non-GAAP free cash flow reconciliation:

      

Net cash provided by operating activities

   $ 334,842      $ 325,063      $ 285,608   

Purchases of property and equipment

     (45,753     (45,932     (37,931

Acquisitions of intangible asset

     (130     (200     (1,262

Acquisitions of content library

     (183,447     (193,044     (158,032

Proceeds from sale of DVDs

     12,422        11,164        16,587   

Other assets

     (99     71        (11
                        

Non-GAAP free cash flow

   $ 117,835      $ 97,122      $ 104,959   
                        

 

8


Netflix, Inc.

Consolidated Other Data

(unaudited)

(in thousands, except percentages, average monthly revenue per paying subscriber, average monthly gross profit per paying subscriber and subscriber acquisition cost)      
    As of / Three Months Ended  
    March 31,
2010
    December 31,
2009
    March 31,
2009
 

Subscriber information:

     

Subscribers: beginning of period

    12,268        11,109        9,390   

Gross subscriber additions: during period

    3,492        2,803        2,413   

Gross subscriber additions year-to-year change

    44.7     34.4     29.6

Gross subscriber additions quarter-to-quarter sequential change

    24.6     28.6     15.7

Less subscriber cancellations: during period

    (1,793     (1,644     (1,493

Subscribers: end of period

    13,967        12,268        10,310   

Subscribers year-to-year change

    35.5     30.6     25.1

Subscribers quarter-to-quarter sequential change

    13.8     10.4     9.8

Free subscribers: end of period

    345        376        194   

Free subscribers as percentage of ending subscribers

    2.5     3.1     1.9

Paid subscribers: end of period

    13,622        11,892        10,116   

Paid subscribers year-to-year change

    34.7     29.8     24.9

Paid subscribers quarter-to-quarter sequential change

    14.5     9.8     10.4

Average monthly revenue per paying subscriber

  $ 12.90      $ 13.04      $ 13.63   

Average monthly gross profit per paying subscriber

  $ 4.87      $ 4.96      $ 4.66   

Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie

    55     48     36

Household penetration - Bay Area

    24     23     20

Household penetration - Rest of Country

    12     11     9

Churn

    3.8     3.9     4.2

Subscriber acquisition cost

  $ 21.54      $ 25.23      $ 25.79   

Margins:

     

Gross margin

    37.8     38.0     34.2

Operating margin

    11.8     12.0     9.2

Net margin

    6.5     7.0     5.7

Expenses as percentage of revenues:

     

Technology and development

    7.6     7.5     6.1

Marketing

    15.2     15.9     15.8

General and administrative

    3.5     3.0     3.3

Gain on disposal of DVDs

    (0.3 %)      (0.4 %)      (0.2 %) 
                       

Total operating expenses

    26.0     26.0     25.0

Year-to-year change:

     

Total revenues

    25.3     23.6     20.8

Cost of subscription

    19.4     19.6     16.2

Fulfillment expenses

    13.8     11.9     17.3

Technology and development

    54.5     38.1     19.4

Marketing

    20.8     27.1     13.4

General and administrative

    32.1     25.7     (5.3 %) 

Gain on disposal of DVDs

    50.7     8.6     31.7

Total operating expenses

    30.3     30.3     11.7

 

9