EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

 

FOR IMMEDIATE RELEASE

Thursday, October 22, 2009

    IR CONTACT:    Deborah Crawford

VP, Investor Relations

408 540-3712

   PR CONTACT:    Steve Swasey
      VP, Corporate Communications
      408 540-3947

Netflix Announces Q3 2009 Financial Results

Subscribers – 11.1 million

Revenue – $423.1 million

GAAP Net Income – $30.1 million

GAAP EPS – $0.52 per diluted share

LOS GATOS, Calif., October 22, 2009 – Netflix, Inc. (Nasdaq: NFLX) today reported results for the third quarter ended September 30, 2009.

“Our business momentum is strong and our third quarter performance keeps us solidly on course for a record 2009,” said Reed Hastings, Netflix co-founder and chief executive officer. “Our differentiated service, which combines DVDs delivered quickly by mail and movies streamed instantly over the Internet, is a key element driving our growth.”

Third-Quarter 2009 Financial Highlights

Subscribers. Netflix ended the third quarter of 2009 with approximately 11,109,000 total subscribers, representing 28 percent year-over-year growth from 8,672,000 total subscribers at the end of the third quarter of 2008 and 5 percent sequential growth from 10,599,000 subscribers at the end of the second quarter of 2009.

Net subscriber change in the quarter was an increase of 510,000 compared to an increase of 261,000 for the same period of 2008 and an increase of 289,000 for the second quarter of 2009.

Gross subscriber additions for the quarter totaled 2,180,000, representing 43 percent year-over-year growth from 1,528,000 gross subscriber additions in the third quarter of 2008 and 13 percent quarter-over-quarter growth from 1,936,000 gross subscriber additions in the second quarter of 2009.

Of the 11,109,000 total subscribers at quarter end, 98 percent, or 10,835,000, were paid subscribers. The other 2 percent, or 274,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the third quarter of 2008 and at the end of the second quarter of 2009.

Revenue for the third quarter of 2009 was $423.1 million, representing 24 percent year-over-year growth from $341.3 million for the third quarter of 2008, and a 4 percent sequential increase from $408.5 million for the second quarter of 2009.

Gross margin1 for the third quarter of 2009 was 34.9 percent compared to 34.2 percent for the third quarter of 2008 and 34.1 percent for the second quarter of 2009.

GAAP net income for the third quarter of 2009 was $30.1 million, or $0.52 per diluted share compared to GAAP net income of $20.4 million, or $0.33 per diluted share, for the third quarter of 2008 and GAAP net income of $32.4 million, or $0.54 per diluted share, for the second quarter of 2009. GAAP net income grew 48 percent on a year-over-year basis and GAAP EPS grew 58 percent on a year-over-year basis.

Non-GAAP net income was $32.1 million, or $0.55 per diluted share, for the third quarter of 2009 compared to non-GAAP net income of $22.1 million, or $0.36 per diluted share, for the third quarter of 2008 and non-GAAP net income of $34.4 million, or $0.58 per diluted share, for the second quarter of 2009. Non-GAAP net income grew 45 percent on a year-over-year basis and non-GAAP EPS grew 53 percent on a year-over-year basis.

Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.

Stock-based compensation was $3.2 million for the third quarter of 2009, compared to $3.0 million for the third quarter of 2008 and $3.3 million for the second quarter of 2009. Stock-based compensation is presented in the same lines of the Consolidated Statements of Operations as cash compensation paid to the same individuals.

Subscriber acquisition cost2 for the third quarter of 2009 was $26.86 per gross subscriber addition compared to $32.21 for the same period of 2008 and $23.88 for the second quarter of 2009.

Churn3 for the third quarter of 2009 was 4.4 percent compared to 4.2 percent for the third quarter of 2008 and 4.5 percent for the second 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 third quarter of 2009 was $25.5 million compared to $26.2 million in the third quarter of 2008 and $26.3 million for the second quarter of 2009.

Cash provided by operating activities for the third quarter of 2009 was $78.3 million compared to $60.5 million for the third quarter of 2008 and $75.3 million for the second quarter of 2009.

 

 

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 Consolidated Statements of Operations divided by total gross subscriber additions during the quarter.

3

Churn is defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, 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

Business Outlook

The Company’s performance expectations for the fourth quarter of 2009 and full-year 2009 are as follows:

Fourth-Quarter 2009

 

•  

Ending subscribers of 12 million to 12.3 million, up from 11.6 million to 12 million

 

•  

Revenue of $440 million to $446 million, up from $431 million to $445 million

 

•  

GAAP net income of $21 million to $26 million, unchanged from prior guidance

 

•  

GAAP EPS of $0.38 to $0.47 per diluted share, up from $0.36 to $0.44 per diluted share

Full-Year 2009

 

•  

Ending subscribers of 12 million to 12.3 million, up from 11.6 million to 12 million

 

•  

Revenue of $1.666 billion to $1.672 billion, up from $1.65 billion to $1.67 billion

 

•  

GAAP net income of $106 million to $111 million, up from $99 million to $109 million

 

•  

GAAP EPS of $1.82 to $1.90 per diluted share, up from $1.65 to $1.82 per diluted share

Earnings Call

The Netflix earnings call will be webcast today at 6:00 p.m. Eastern Time / 3:00 p.m. Pacific Time, and may be accessed at http://ir.netflix.com. The call will consist of prepared remarks, followed by a Q&A with questions submitted via email. Please email your questions to dcrawford@netflix.com. 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.

Following completion of the call, a replay of the webcast will be available at http://ir.netflix.com. The telephone replay of the call will be available from approximately 6:00 p.m. Pacific Time on October 22, 2009 through midnight on October 26, 2009. To listen to a replay, call (719) 457-0820, access code 6312456.

Use of Non-GAAP Measures

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.

 

3

About Netflix

Netflix, Inc. is the world’s largest online movie rental service, with more than 11 million subscribers. For only $8.99 a month, Netflix members can instantly watch unlimited movies and TV episodes streamed to their TVs and computers and can receive unlimited DVDs delivered quickly to their homes. There are never any due dates or late fees. Netflix members can exchange DVDs as often as they want using a postage-paid return envelope. Members can choose from a vast selection of DVD titles and a growing library of movies and TV episodes that can be watched instantly. Netflix is partnering with leaders in consumer electronics to bring to market a range of devices that can instantly stream movies and TV episodes from Netflix directly to members’ TVs. These devices currently include Blu-ray disc players and new Internet TVs from LG Electronics; Blu-ray disc players from Samsung; the Roku digital video player; Microsoft’s Xbox 360 game console; TiVo digital video recorders; and, soon, Internet TVs from Sony and VIZIO. For more information, visit http://www.netflix.com/.

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 fourth quarter of 2009 and the full-year 2009. 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, especially in the current uncertain economic environment; 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; the deterioration of 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 25, 2009. 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     Nine Months Ended  
     September 30,
2009		     June 30,
2009**		     September 30,
2008		     September 30,
2009**		     September 30,
2008		  

Revenues

    $ 423,120      $ 408,509      $ 341,269      $ 1,225,727      $ 1,005,066   

Cost of revenues:

           

Subscription

      233,091        227,316        186,573        677,863        567,498   

Fulfillment expenses *

      42,183        41,927        37,923        125,922        109,890   
                                        

Total cost of revenues

      275,274        269,243        224,496        803,785        677,388   
                                        

Gross profit

      147,846        139,266        116,773        421,942        327,678   

Operating expenses:

           

Technology and development *

      30,014        27,119        23,368        81,333        65,821   

Marketing *

      58,556        46,231        49,217        167,029        144,096   

General and administrative *

      11,543        13,252        11,742        37,809        38,900   

Gain on disposal of DVDs

      (1,604 )      (118 )      (1,628 )      (2,819 )      (4,724 ) 
                                        

Total operating expenses

      98,509        86,484        82,699        283,352        244,093   
                                        

Operating income

      49,337        52,782        34,074        138,590        83,585   

Other income (expense):

           

Interest expense on lease financing obligations

      (674 )      (674 )      (677 )      (2,018 )      (1,781 ) 

Interest and other income (expense)

      1,808        866        1,536        4,284        11,600   
                                        

Income before income taxes

      50,471        52,974        34,933        140,856        93,404   

Provision for income taxes

      20,330        20,531        14,562        55,909        33,110   
                                        

Net income

    $ 30,141      $ 32,443      $ 20,371      $ 84,947      $ 60,294   
                                        

Net income per share:

           

Basic

    $ 0.54      $ 0.56      $ 0.34      $ 1.48      $ 0.98   

Diluted

    $ 0.52      $ 0.54      $ 0.33      $ 1.43      $ 0.95   

Weighted average common shares outstanding:

           

Basic

      56,146        57,872        60,408        57,576        61,651   

Diluted

      57,938        59,660        62,272        59,427        63,658   

 

*  Stock-based compensation included in expense line items:

     

Fulfillment expenses

    $ 99      $ 102      $ 126      $ 321      $ 340   

Technology and development

      1,169        1,190        950        3,430        2,795   

Marketing

      452        458        460        1,353        1,424   

General and administrative

      1,512        1,528        1,499        4,538        4,511   

Reconciliation of Non-GAAP Financial Measures

           

(unaudited)

           

Non-GAAP net income reconciliation:

           

GAAP net income

    $ 30,141      $ 32,443      $ 20,371      $ 84,947      $ 60,294   

Stock-based compensation

      3,232        3,278        3,035        9,642        9,070   

Income tax effect of stock-based compensation

      (1,302 )      (1,272 )      (1,266 )      (3,833 )      (3,298 ) 
                                        

Non-GAAP net income

    $ 32,071      $ 34,449      $ 22,140      $ 90,756      $ 66,066   
                                        

Non-GAAP net income per share:

           

Basic

    $ 0.57      $ 0.60      $ 0.37      $ 1.58      $ 1.07   

Diluted

    $ 0.55      $ 0.58      $ 0.36      $ 1.53      $ 1.04   

Weighted average common shares outstanding:

           

Basic

      56,146        57,872        60,408        57,576        61,651   

Diluted

      57,938        59,660        62,272        59,427        63,658   

 

** Certain prior period amounts have been reclassified to conform to current period presentation.

 

5

Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)

 

     As of  
     September 30,
2009		     December 31,
2008		  

Assets

    

Current assets:

     

Cash and cash equivalents

    $ 55,717      $ 139,881   

Short-term investments

      99,745        157,390   

Prepaid expenses

      11,947        8,122   

Prepaid revenue sharing expenses

      10,671        18,417   

Current content library, net

      32,937        18,691   

Deferred tax assets

      5,706        5,617   

Other current assets

      18,239        13,329   
                

Total current assets

      234,962        361,447   

Content library, net

      104,539        98,547   

Property and equipment, net

      122,119        124,948   

Deferred tax assets

      17,244        22,409   

Other assets

      13,267        10,595   
                

Total assets

    $ 492,131      $ 617,946   
                

Liabilities and Stockholders’ Equity

     

Current liabilities:

     

Accounts payable

    $ 93,451      $ 100,344   

Accrued expenses

      29,606        31,394   

Current portion of lease financing obligations

      1,342        1,152   

Deferred revenue

      79,123        83,127   
                

Total current liabilities

      203,522        216,017   

Lease financing obligations, excluding current portion

      36,940        37,988   

Other liabilities

      19,467        16,786   
                

Total liabilities

      259,929        270,791   

Stockholders’ equity:

     

Common stock, $0.001 par value; 160,000,000 shares authorized at September 30, 2009 and December 31, 2008; 54,642,694 and 58,862,478 issued and outstanding at September 30, 2009 and December 31, 2008, respectively

      64        62   

Additional paid-in capital

      378,549        338,577   

Treasury stock at cost (9,144,939 and 3,491,084 shares at September 30, 2009 and December 31, 2008, respectively)

      (340,362 )      (100,020 ) 

Accumulated other comprehensive income, net

      552        84   

Retained earnings

      193,399        108,452   
                

Total stockholders’ equity

      232,202        347,155   
                

Total liabilities and stockholders’ equity

    $ 492,131      $ 617,946   
                

 

6

Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Three Months Ended     Nine Months Ended  
     September 30,
2009		     June 30,
2009		     September 30,
2008		     September 30,
2009		     September 30,
2008		  
Cash flows from operating activities:           

Net income

    $ 30,141      $ 32,443      $ 20,371      $ 84,947      $ 60,294   

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

           

Depreciation and amortization of property, equipment and intangibles

      9,618        9,013        8,643        27,806        23,313   

Amortization of content library

      56,690        53,235        47,596        159,229        162,178   

Amortization of discounts and premiums on investments

      126        119        122        439        438   

Stock-based compensation expense

      3,232        3,278        3,035        9,642        9,070   

Excess tax benefits from stock-based compensation

      (1,600 )      (3,815 )      (1,093 )      (9,099 )      (4,467 ) 

Loss (gain) on disposal of property and equipment

      —          110        (1 )      254        101   

(Gain) loss on sale of short-term investments

      (984 )      101        494        (1,455 )      (3,748 ) 

Gain on disposal of DVDs

      (2,491 )      (506 )      (3,205 )      (5,030 )      (9,856 ) 

Deferred taxes

      (71 )      5,404        (3,894 )      4,710        (7,255 ) 

Changes in operating assets and liabilities:

           

Prepaid expenses and other current assets

      7,625        (8,845 )      (7,022 )      (1,611 )      (15,219 ) 

Content library

      (9,998 )      (9,343 )      (5,773 )      (41,432 )      (37,167 ) 

Accounts payable

      (13,173 )      (6,549 )      (744 )      (11,150 )      15,028   

Accrued expenses

      2,175        (234 )      4,730        6,272        (1,994 ) 

Deferred revenue

      (1,372 )      (128 )      (1,989 )      (4,004 )      (5,768 ) 

Other assets and liabilities

      (1,607 )      1,019        (775 )      (272 )      6,989   
                                        

Net cash provided by operating activities

      78,311        75,302        60,495        219,246        191,937   
                                        
Cash flows from investing activities:           

Purchases of short-term investments

      (21,006 )      (28,769 )      (22,950 )      (102,159 )      (180,841 ) 

Proceeds from sale of short-term investments

      85,904        7,832        50,004        130,669        245,440   

Proceeds from maturities of short-term investments

      3,480        26,175        605        30,985        2,170   

Purchases of property and equipment

      (9,994 )      (6,933 )      (9,226 )      (23,499 )      (36,319 ) 

Acquisitions of intangible asset

      —          —          (62 )      (200 )      (1,062 ) 

Acquisitions of content library

      (46,273 )      (43,224 )      (28,828 )      (135,996 )      (124,554 ) 

Proceeds from sale of DVDs

      3,345        1,159        3,787        7,230        13,673   

Investment in business

      —          —          —          —          (6,000 ) 

Other assets

      134        11        3        143        31   
                                        

Net cash provided by (used in) investing activities

      15,590        (43,749 )      (6,667 )      (92,827 )      (87,462 ) 
                                        
Cash flows from financing activities:           

Principal payments of lease financing obligations

      (294 )      (295 )      (234 )      (858 )      (586 ) 

Proceeds from issuance of common stock

      2,725        9,778        2,576        26,092        15,642   

Excess tax benefits from stock-based compensation

      1,600        3,815        1,093        9,099        4,467   

Repurchases of common stock

      (129,686 )      (72,511 )      (90,028 )      (244,916 )      (189,913 ) 
                                        

Net cash used in financing activities

      (125,655 )      (59,213 )      (86,593 )      (210,583 )      (170,390 ) 
                                        

Net decrease in cash and cash equivalents

      (31,754 )      (27,660 )      (32,765 )      (84,164 )      (65,915 ) 

Cash and cash equivalents, beginning of period

      87,471        115,131        144,289        139,881        177,439   
                                        

Cash and cash equivalents, end of period

    $ 55,717      $ 87,471      $ 111,524      $ 55,717      $ 111,524   
                                        
Non-GAAP free cash flow reconciliation:           

Net cash provided by operating activities

    $ 78,311      $ 75,302      $ 60,495      $ 219,246      $ 191,937   

Purchases of property and equipment

      (9,994 )      (6,933 )      (9,226 )      (23,499 )      (36,319 ) 

Acquisitions of intangible asset

      —          —          (62 )      (200 )      (1,062 ) 

Acquisitions of content library

      (46,273 )      (43,224 )      (28,828 )      (135,996 )      (124,554 ) 

Proceeds from sale of DVDs

      3,345        1,159        3,787        7,230        13,673   

Other assets

      134        11        3        143        31   
                                        

Non-GAAP free cash flow

    $ 25,523      $ 26,315      $ 26,169      $ 66,924      $ 43,706   
                                        

 

7

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  
     September 30,
2009		     June 30,
2009		     September 30,
2008		  

Subscriber information:

       

Subscribers: beginning of period

      10,599        10,310        8,411   

Gross subscriber additions: during period

      2,180        1,936        1,528   

Gross subscriber additions year-to-year change

      42.7 %      39.9 %      17.8 % 

Gross subscriber additions quarter-to-quarter sequential change

      12.6 %      (19.8 )%      10.4 % 

Less subscriber cancellations: during period

      (1,670 )      (1,647 )      (1,267 ) 

Subscribers: end of period

      11,109        10,599        8,672   

Subscribers year-to-year change

      28.1 %      26.0 %      23.4 % 

Subscribers quarter-to-quarter sequential change

      4.8 %      2.8 %      3.1 % 

Free subscribers: end of period

      274        224        182   

Free subscribers as percentage of ending subscribers

      2.5 %      2.1 %      2.1 % 

Paid subscribers: end of period

      10,835        10,375        8,490   

Paid subscribers year-to-year change

      27.6 %      26.0 %      24.0 % 

Paid subscribers quarter-to-quarter sequential change

      4.4 %      2.6 %      3.1 % 

Average monthly revenue per paying subscriber

    $ 13.30      $ 13.29      $ 13.60   

Average monthly gross profit per paying subscriber

    $ 4.65      $ 4.53      $ 4.65   

Churn

     4.4 %      4.5 %      4.2 % 

Subscriber acquisition cost

    $ 26.86      $ 23.88      $ 32.21   

Margins:

       

Gross margin

      34.9 %      34.1 %      34.2 % 

Operating margin

      11.6 %      13.0 %      10.0 % 

Net margin

      7.1 %      7.9 %      6.0 % 

Expenses as percentage of revenues:

       

Technology and development

      7.1 %      6.6 %      6.8 % 

Marketing

      13.8 %      11.3 %      14.4 % 

General and administrative

      2.7 %      3.2 %      3.4 % 

Gain on disposal of DVDs

      (0.3 )%      0.0 %      (0.4 )% 
                        

Total operating expenses

      23.3 %      21.1 %      24.2 % 

Year-to-year change:

       

Total revenues

      24.0 %      21.0 %      16.1 % 

Subscription

      24.9 %      17.3 %      14.0 % 

Fulfillment expenses

      11.2 %      15.4 %      23.3 % 

Technology and development

      28.4 %      22.2 %      29.0 % 

Marketing

      19.0 %      15.6 %      0.1 % 

General and administrative

      (1.7 )%      (1.2 )%      (8.7 )% 

Gain on disposal of DVDs

      (1.5 )%      (94.8 )%      (29.5 )% 

Total operating expenses

      19.1 %      17.9 %      6.3 % 
      

 

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