EX-99.1 2 nflx-063018xex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
July 16, 2018

Fellow shareholders,

We had a strong but not stellar Q2, ending with 130 million memberships. Membership growth was 5.2m, the same as Q2 last year, but lower than our 6.2m forecast. Earnings, margins, and revenue were all in-line with forecast and way up from prior year. Internet video is growing globally and we are fortunate to be one of the leaders. In addition to succeeding commercially, we are starting to lead artistically in some categories, with our creators earning enough Emmy nominations this year to collectively break HBO’s amazing 17-year run.1 
 (in millions except per share data and Streaming Content Obligations)
Q2'17
Q3'17
Q4'17
Q1'18
Q2'18
Q3'18 Forecast
Total (Including DVD):
 
 
 
 
 
 
Revenue
$
2,785

$
2,985

$
3,286

$
3,701

$
3,907

$
3,988

Y/Y % Growth
32.3
 %
30.3
%
32.6
%
40.4
%
40.3
%
33.6
%
Operating Income
$
128

$
209

$
245

$
447

$
462

$
420

Operating Margin
4.6
 %
7.0
%
7.5
%
12.1
%
11.8
%
10.5
%
Net Income
$
66

$
130

$
186

$
290

$
384

$
307

Diluted EPS
$
0.15

$
0.29

$
0.41

$
0.64

$
0.85

$
0.68

 
 
 
 
 
 
 
Total Streaming:
 
 
 
 
 
 
Revenue
$
2,671

$
2,875

$
3,181

$
3,602

$
3,814

$
3,900

Y/Y % Growth
35.8
 %
33.2
%
35.3
%
43.2
%
42.8
%
35.7
%
Paid Memberships
99.04

104.02

110.64

118.90

124.35

129.50

Paid Net Additions
4.67

4.99

6.62

8.26

5.45

5.15

Total Memberships
103.95

109.25

117.58

125.00

130.14

135.14

Net Additions
5.20

5.30

8.33

7.41

5.15

5.00

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
1,505

$
1,547

$
1,630

$
1,820

$
1,893

$
1,930

Contribution Profit
$
560

$
554

$
561

$
697

$
740

$
730

Contribution Margin
37.2
 %
35.8
%
34.4
%
38.3
%
39.1
%
37.8
%
Paid Memberships
50.32

51.35

52.81

55.09

55.96

56.66

Paid Net Additions
0.95

1.02

1.47

2.28

0.87

0.70

Total Memberships
51.92

52.77

54.75

56.71

57.38

58.03

Net Additions
1.07

0.85

1.98

1.96

0.67

0.65

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
1,165

$
1,327

$
1,550

$
1,782

$
1,921

$
1,970

Contribution Profit (Loss)
$
(13
)
$
62

$
135

$
272

$
298

$
290

Contribution Margin
(1.1
)%
4.7
%
8.7
%
15.3
%
15.5
%
14.7
%
Paid Memberships
48.71

52.68

57.83

63.82

68.39

72.85

Paid Net Additions
3.73

3.97

5.16

5.98

4.58

4.45

Total Memberships
52.03

56.48

62.83

68.29

72.76

77.11

Net Additions
4.14

4.45

6.36

5.46

4.47

4.35

 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
Net cash (used in) operating activities
$
(535
)
$
(420
)
$
(488
)
$
(237
)
$
(518
)
 
Free Cash Flow
$
(608
)
$
(465
)
$
(524
)
$
(287
)
$
(559
)
 
EBITDA
$
190

$
273

$
313

$
534

$
563

 
Shares (FD)
446.3

447.4

448.1

450.4

451.6

 
Streaming Content Obligations* ($B)
15.7

17.0

17.7

17.9

18.4

 
*Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K
1 http://www.vulture.com/2018/07/emmys-2018-nominations-netflix-hbo.html

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1


Q2 Results and Q3 Forecast

Streaming revenue in Q2 rose 43% year over year, driven by a 26% and 14% increase in average paid memberships and ASP, respectively. Operating margin of 11.8% expanded 720 bps year over year, resulting in 262% growth in operating income. EPS of $0.85 vs. $0.15 included an $85 million non-cash unrealized gain from F/X remeasurement on our Eurobond.
As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy, meaning in some quarters we will be high and other quarters low relative to our guidance. This Q2, we over-forecasted global net additions which amounted to 5.2m vs. a forecast of 6.2m and flat compared to Q2 a year ago, as acquisition growth was slightly lower than we projected. Paid net adds totaled 5.5m in Q2, compared with 4.7m last year and forecast of 6.1m.
globalnetaddsbyquartera01.jpg
US net adds of 0.7m (vs. guidance of 1.2m) were down vs. last year’s Q2-record 1.1m, but consistent with previous Q2 performance (0.5m in Q2’12, 0.6m in Q2’13, 0.6m in Q2’14, 0.9m in Q2’15, and 0.2m in Q2’16). Through the first six months of the year, our US net adds are slightly ahead of last year.
Internationally, 4.5m net additions grew 8% year over year on broad market growth. Currency had a +$65 million impact on international revenue year over year (+13% international ASP growth on a FX neutral basis), but this positive impact was smaller than we had forecast 90 days ago as the US dollar strengthened meaningfully2 against many currencies since our Q1’18 earnings report in April. As a reminder, we do not hedge our revenue with derivatives.
Faster growth in international markets relative to the US creates a net revenue exposure to non-USD currencies. With the growth of our content production in 80 countries and expanding, we’ll move more of our operating costs to non-USD to provide a little more natural hedging but we anticipate we’ll still continue to have much more expense in USD than revenue. We slowly adjust pricing over time to mitigate forex moves over the longer term, but when currency movements are rapid, they will affect our
___________________________________
2 https://fred.stlouisfed.org/graph/fredgraph.png?g=ktJq

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2


 
near term operating margin. We’ll tend to outperform our near term operating margin targets on dollar weakness and underperform on dollar strength. For the full year 2018, current F/X rates have pushed our expectations on operating margin to be near the lower end of our 10-11% target range. We continue to expect steady growth in operating margin in 2019 and beyond.
For Q3, we forecast global net adds of 5.0m (compared with 5.3m in Q3’17), with 0.65m and 4.35m in the US and international segment, respectively. Paid net adds are forecast to be 5.2m, up from 5.0m in Q3’17.
Content

Our broad slate of programming in Q2 highlights the diversity of programming we are providing. We debuted sci-fi action series Lost in Space, which we’ve renewed for another season. In addition, we released the second season of one of our biggest originals 13 Reasons Why, as well as Santa Clarita Diet, A Series of Unfortunate Events, Marvel’s Jessica Jones, La Casa de Papel (Money Heist), GLOW and Marvel’s Luke Cage. In original kids programming, Boss Baby: Back in Business became one of our biggest kids series ever.
We continue to ramp up our production of non-English originals. In Q2, we debuted season 2 of 3%, our sci-fi original from Brazil and premiered The Rain, our Danish original thriller which became one of our biggest non-English original productions yet, with viewing all over the world. This serves as another data point that our international originals can be important to specific countries and regions and also play well outside of their home markets. Late in the quarter, we launched Lust Stories, a new Indian original film, which has been a major success as our largest watched original in percentage terms in any individual market in its first month. Sacred Games,3 our first Indian original series, launched on July 6 and is off to a similarly strong start. We will follow Sacred Games up in India with Ghoul4 on August 24.
We were honored last week with the most Emmy nominations of any network. The 112 Netflix nominations include five best series and best limited series nominations and are spread across 40 different scripted and unscripted series, TV movies, limited series, documentaries, talk shows, comedy specials and series for kids. This is a testament to the fantastic creators we work with across all forms of television.
We are making good progress with our original feature films. As traditional exhibition focuses increasingly on superheroes and sequels, our on demand service allows us to serve a wide variety of tastes. For example, in Q2, we had success with several romantic comedies5 such as Set It Up,6 starring Lucy Liu, Zoey Deutch, Taye Diggs and Glen Powell and The Kissing Booth,7 which peaked at #4 on IMDB’s chart of most popular movies, behind only Deadpool 2, The Avengers: Infinity War and Solo: A Star Wars Story. Kissing Booth and Set it Up have been watched and loved by tens of millions of Netflix members and the young stars of these films have seen their social media followings grow from a few thousand into the millions in the weeks following release. Of course, we also produce big event movies as well and we recently announced that Michael Bay, one of the most commercially successful action directors, will make his next film, Six Underground8 (starring Ryan Reynolds) for Netflix. Bay joins Martin Scorsese, Alfonso Cuaron, Susanne Bier, Paul Greengrass, Chris Columbus and many other top directors who are making their next feature films for Netflix.
___________________________________
3 https://www.rottentomatoes.com/tv/sacred_games/s01/
4 https://www.youtube.com/watch?v=zg0N4L4mwFk
5 https://www.refinery29.com/2018/06/202326/netflix-is-bringing-back-romantic-comedies
6 https://www.youtube.com/watch?v=X-eRc9PF3TU&feature=youtu.be
7 https://www.nytimes.com/2018/07/13/movies/the-kissing-booth-joey-king-jacob-elordi.html
8 https://deadline.com/2018/05/ryan-reynolds-michael-bay-netflix-six-underground-skydance-film-franchise-1202394010/

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3


Product and Partnerships

We continue to invest in our mobile experience. Last week, we unveiled our “Smart Downloads” feature on Android for members that use our offline mode, which is particularly popular in emerging markets. Now, when members finish watching a downloaded episode, it will be automatically deleted and the next episode will be automatically downloaded. Smart Downloads works only when the device is connected to WiFi so cellular data plans won’t be used and device storage won’t be affected since the last watched episode will always be deleted first before the next episode is downloaded. Members also have the option to toggle this feature on and off.
We are expanding our partner-based bundle offerings, announcing deals with Telefonica in Spain and Latin America as well as KDDI in Japan. While the majority of our acquisition happens by consumers signing up with us directly, bundles continue to be a high-performing additional acquisition channel. We expect to continue to add such deals with partners around the world.
Competition

YouTube and Netflix are two leading global (ex-China) internet entertainment services. HBO and Disney are evolving to focus on internet entertainment services. Amazon and Apple are investing in content as part of larger ecosystem subscriptions. Each of these firms has unique content and is striving to find the best creators from around the world to entertain its viewers. There has never been a better time to be a creator or consumer of content.
We believe that consumer appetite for great content is broad and that there is room for multiple parties to have attractive offerings. We anticipate more competition from the combined AT&T/Warner Media, from the combined Fox/Disney or Fox/Comcast as well as from international players like Germany’s ProSieben and Salto9 in France. Our strategy is to simply keep improving, as we’ve been doing every year in the past.
Free Cash Flow and Capital Structure

Free cash flow in Q2 totaled -$559 million vs. -$608 million in the year ago quarter. We continue to anticipate FCF of -$3 to -$4 billion for the full year 2018, which implies that our content cash spending will be weighted to the second half of 2018. During Q2, we completed our latest bond deal, raising $1.9 billion. At the end of Q2, our gross debt balance stood at $8.4 billion and we had a cash balance of $3.9 billion and a $500 million undrawn credit facility. Our debt-to-EV is currently about 5%.
While interest rates have risen and the federal tax rate is now lower (reducing the tax shield on interest costs), we judge that our after-tax cost of debt continues to be lower than our cost of equity, so we anticipate that we’ll continue to finance our capital needs in the high yield market.




___________________________________
9 https://deadline.com/2018/06/french-broadcasters-france-televisions-tf1-m6-launch-svod-platform-salto-to-take-on-netflix-amazon-1202411217/

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Reference

For quick reference, our eight most recent investor letters are: April 2018,10 January 2018,11 October 2017,12 July 2017,13 April 2017,14 January 2017,15 October 2016,16 July 2016.17 
Earnings Video Interview, 3pm PST, July 16, 2018
Our video interview with Todd Juenger of Bernstein will be on youtube/netflixir at 3pm PST today. Questions that investors would like to see asked should be sent to todd.juenger@bernstein.com. Reed Hastings, CEO, David Wells, CFO, Ted Sarandos, Chief Content Officer, Greg Peters, Chief Product Officer and Spencer Wang, VP of IR/Corporate Development will answer Todd’s questions.

 
IR Contact: 
PR Contact: 
Spencer Wang
Richard Siklos
Vice President, Finance/IR & Corporate Development
VP, Corporate Communications
408 809-5360
408 540-2629

























___________________________________
10 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q1/FINAL-Q1-18-Shareholder-Letter.pdf
11 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q4/COMBINED-Q4-17-Shareholder-Letter-FINAL.pdf
12 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q3/Q3_17_Shareholder_Letter_COMBINED.pdf
13 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q2/Q2_17_Shareholder_Letter.pdf
14 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q1/Q117ShareholderLetterV2FINAL.pdf
15 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2016/q4/Q416ShareholderLetter.pdf
16 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2016/q3/FINAL_Q3_Letter.pdf
17 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2016/q2/Q216LettertoShareholders_FINAL_w_Tables.pdf

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Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow and EBITDA. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal
securities laws, including statements regarding foreign exchange rate fluctuations and impact on revenue; growth of content production; accuracy of guidance; paid net adds; operating cost currency; operating margin; seasonality; profitability; content strategy, including future content launches; partner based bundled offerings; impact of competition; mergers and acquisitions involving competitors; free cash flow; future capital raises; our credit rating and its impact on interest rates for capital raises; domestic and international net, total and paid subscribers; revenue; contribution profit (loss) and contribution margin for both domestic international operations, as well as consolidated operating income, operating margin; net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including 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, as amended by Form 10-K/A, filed with the Securities and Exchange Commission on February 5, 2018. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K, as amended by Form 10-K/A. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.


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Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Revenues
$
3,907,270

 
$
3,700,856

 
$
2,785,464

 
$
7,608,126

 
$
5,422,099

Cost of revenues
2,289,867

 
2,196,075

 
1,902,308

 
4,485,942

 
3,559,332

Marketing
526,780

 
479,222

 
274,323

 
1,006,002

 
545,593

Technology and development
317,213

 
300,730

 
267,083

 
617,943

 
524,191

General and administrative
311,197

 
278,251

 
213,943

 
589,448

 
408,234

Operating income
462,213

 
446,578

 
127,807

 
908,791

 
384,749

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(101,605
)
 
(81,219
)
 
(55,482
)
 
(182,824
)
 
(102,224
)
Interest and other income (expense)
68,028

 
(65,743
)
 
(58,363
)
 
2,285

 
(44,771
)
Income before income taxes
428,636

 
299,616

 
13,962

 
728,252

 
237,754

Provision for (benefit from) income taxes
44,287

 
9,492

 
(51,638
)
 
53,779

 
(6,068
)
Net income
$
384,349

 
$
290,124

 
$
65,600

 
$
674,473

 
$
243,822

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.88

 
$
0.67

 
$
0.15

 
$
1.55

 
$
0.57

Diluted
$
0.85

 
$
0.64

 
$
0.15

 
$
1.50

 
$
0.55

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
435,097

 
434,174

 
431,396

 
434,638

 
431,000

Diluted
451,552

 
450,359

 
446,262

 
450,958

 
445,862




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7



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands)
 
 
As of
 
June 30,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,906,357

 
$
2,822,795

Current content assets, net
4,803,663

 
4,310,934

Other current assets
636,869

 
536,245

Total current assets
9,346,889

 
7,669,974

Non-current content assets, net
12,292,070

 
10,371,055

Property and equipment, net
349,646

 
319,404

Other non-current assets
674,932

 
652,309

Total assets
$
22,663,537

 
$
19,012,742

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
4,541,087

 
$
4,173,041

Accounts payable
448,219

 
359,555

Accrued expenses
392,595

 
315,094

Deferred revenue
697,740

 
618,622

Total current liabilities
6,079,641

 
5,466,312

Non-current content liabilities
3,604,158

 
3,329,796

Long-term debt
8,342,067

 
6,499,432

Other non-current liabilities
141,071

 
135,246

Total liabilities
18,166,937

 
15,430,786

Stockholders' equity:
 
 
 
Common stock
2,103,437

 
1,871,396

Accumulated other comprehensive loss
(12,427
)
 
(20,557
)
Retained earnings
2,405,590

 
1,731,117

Total stockholders' equity
4,496,600

 
3,581,956

Total liabilities and stockholders' equity
$
22,663,537

 
$
19,012,742

 


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Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018

March 31,
2018

June 30,
2017

June 30,
2018
 
June 30,
2017
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
384,349

 
$
290,124

 
$
65,600

 
$
674,473

 
$
243,822

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(3,033,721
)
 
(2,986,747
)
 
(2,664,421
)
 
(6,020,468
)
 
(5,013,087
)
Change in streaming content liabilities
288,474

 
378,885

 
514,890

 
667,359

 
881,147

Amortization of streaming content assets
1,817,817

 
1,748,844

 
1,550,794

 
3,566,661

 
2,856,477

Amortization of DVD content assets
11,154

 
11,134

 
16,511

 
22,288

 
35,109

Depreciation and amortization of property, equipment and intangibles
19,736

 
19,041

 
18,551

 
38,777

 
33,600

Stock-based compensation expense
81,232

 
68,395

 
44,028

 
149,627

 
88,916

Other non-cash items
13,921

 
8,209

 
11,519

 
22,130

 
33,185

Foreign currency remeasurement loss (gain) on long-term debt
(85,410
)
 
41,080

 
64,220

 
(44,330
)
 
64,220

Deferred taxes
(9,539
)
 
(22,049
)
 
(20,702
)
 
(31,588
)
 
(47,466
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(25,564
)
 
(55,905
)
 
(80,199
)
 
(81,469
)
 
(105,601
)
Accounts payable
7,733

 
74,083

 
(12,439
)
 
81,816

 
(23,439
)
Accrued expenses
(52,851
)
 
119,049

 
(48,042
)
 
66,198

 
45,500

Deferred revenue
23,848

 
55,270

 
46,609

 
79,118

 
61,830

Other non-current assets and liabilities
40,582

 
13,830

 
(41,447
)
 
54,412

 
(32,597
)
Net cash used in operating activities
(518,239
)
 
(236,757
)
 
(534,528
)
 
(754,996
)
 
(878,384
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content assets
(12,552
)
 
(10,796
)
 
(7,624
)
 
(23,348
)
 
(32,996
)
Purchases of property and equipment
(27,323
)
 
(37,170
)
 
(65,231
)
 
(64,493
)
 
(117,754
)
Change in other assets
(441
)
 
(1,786
)
 
(1,064
)
 
(2,227
)
 
(1,833
)
Purchases of short-term investments

 

 
(14,246
)
 

 
(72,020
)
Proceeds from sale of short-term investments

 

 
14,128

 

 
69,876

Proceeds from maturities of short-term investments

 

 
17,605

 

 
22,705

Net cash used in investing activities
(40,316
)
 
(49,752
)
 
(56,432
)
 
(90,068
)
 
(132,022
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debt
1,900,000

 

 
1,420,510

 
1,900,000

 
1,420,510

Debt issuance costs
(16,992
)
 

 
(15,013
)
 
(16,992
)
 
(15,013
)
Proceeds from issuance of common stock
26,936

 
56,335

 
14,826

 
83,271

 
39,004

Other financing activities
(532
)
 
(321
)
 
63

 
(853
)
 
124

Net cash provided by financing activities
1,909,412

 
56,014

 
1,420,386

 
1,965,426

 
1,444,625

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(36,340
)
 
7,177

 
11,527

 
(29,163
)
 
16,982

Net increase in cash, cash equivalents, and restricted cash
1,314,517

 
(223,318
)
 
840,953

 
1,091,199

 
451,201

Cash, cash equivalents, and restricted cash at beginning of period
2,599,477

 
2,822,795

 
1,077,824

 
2,822,795

 
1,467,576

Cash, cash equivalents, and restricted cash at end of period
$
3,913,994

 
$
2,599,477

 
$
1,918,777

 
$
3,913,994

 
$
1,918,777

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(518,239
)
 
$
(236,757
)
 
$
(534,528
)
 
$
(754,996
)
 
$
(878,384
)
Acquisition of DVD content assets
(12,552
)
 
(10,796
)
 
(7,624
)
 
(23,348
)
 
(32,996
)
Purchases of property and equipment
(27,323
)
 
(37,170
)
 
(65,231
)
 
(64,493
)
 
(117,754
)
Change in other assets
(441
)
 
(1,786
)
 
(1,064
)
 
(2,227
)
 
(1,833
)
Non-GAAP free cash flow
$
(558,555
)
 
$
(286,509
)
 
$
(608,447
)
 
$
(845,064
)
 
$
(1,030,967
)

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9



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Six Months Ended
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
57,379

 
56,705

 
51,921

 
57,379

 
51,921

Paid memberships at end of period
55,959

 
55,087

 
50,323

 
55,959

 
50,323

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,893,222

 
$
1,820,019

 
$
1,505,499

 
$
3,713,241

 
$
2,975,541

Cost of revenues
925,703

 
894,873

 
831,962

 
1,820,576

 
1,581,450

Marketing
227,961

 
228,022

 
113,608

 
455,983

 
228,646

Contribution profit
739,558

 
697,124

 
559,929

 
1,436,682

 
1,165,445

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
72,762

 
68,290

 
52,031

 
72,762

 
52,031

Paid memberships at end of period
68,395

 
63,815

 
48,713

 
68,395

 
48,713

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,921,144

 
$
1,782,086

 
$
1,165,228

 
$
3,703,230

 
$
2,211,427

Cost of revenues
1,324,240

 
1,258,809

 
1,017,612

 
2,583,049

 
1,864,929

Marketing
298,819

 
251,200

 
160,715

 
550,019

 
316,947

Contribution profit (loss)
298,085

 
272,077

 
(13,099
)
 
570,162

 
29,551

 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
2,999

 
3,167

 
3,758

 
2,999

 
3,758

Paid memberships at end of period
2,971

 
3,138

 
3,692

 
2,971

 
3,692

 
 
 
 
 
 
 
 
 
 
Revenues
$
92,904

 
$
98,751

 
$
114,737

 
$
191,655

 
$
235,131

Cost of revenues
39,924

 
42,393

 
52,734

 
82,317

 
112,953

Contribution profit
52,980

 
56,358

 
62,003

 
109,338

 
122,178

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
3,907,270

 
$
3,700,856

 
$
2,785,464

 
$
7,608,126

 
$
5,422,099

Cost of revenues
2,289,867

 
2,196,075

 
1,902,308

 
4,485,942

 
3,559,332

Marketing
526,780

 
479,222

 
274,323

 
1,006,002

 
545,593

Contribution profit
1,090,623

 
1,025,559

 
608,833

 
2,116,182

 
1,317,174

Other operating expenses
628,410

 
578,981

 
481,026

 
1,207,391

 
932,425

Operating income
462,213

 
446,578

 
127,807

 
908,791

 
384,749

Other expense
(33,577
)
 
(146,962
)
 
(113,845
)
 
(180,539
)
 
(146,995
)
Provision for (benefit from) income taxes
44,287

 
9,492

 
(51,638
)
 
53,779

 
(6,068
)
Net income
$
384,349

 
$
290,124

 
$
65,600

 
$
674,473

 
$
243,822







nflxlogo2015a15.jpg
10


Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands)

 
 
 
June 30,
2017
 
September 30,
2017
 
December 31,
2017
 
March 31,
2018
 
June 30,
2018
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
65,600

 
$
129,590

 
$
185,517

 
$
290,124

 
$
384,349

Add:
 
 
 
 
 
 
 
 
 
Other expense
113,845

 
92,390

 
113,973

 
146,962

 
33,577

Provision for (benefit from) income taxes
(51,638
)
 
(13,353
)
 
(54,187
)
 
9,492

 
44,287

Depreciation and amortization of property, equipment and intangibles
18,551

 
19,238

 
19,073

 
19,041

 
19,736

Stock-based compensation expense
44,028

 
44,763

 
48,530

 
68,395

 
81,232

Adjusted EBITDA
$
190,386

 
$
272,628

 
$
312,906

 
$
534,014

 
$
563,181










nflxlogo2015a15.jpg
11