Subscribers - 11.1 million Revenue - $423.1 million GAAP Net Income
- $30.1 million GAAP EPS - $0.52 per diluted share LOS GATOS,
Calif., Oct. 22 /PRNewswire-FirstCall/ -- 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 margin(1) 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 cost(2) 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.
Churn(3) 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 flow(4) 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. 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 . 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) 540-3947or . 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. 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. 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.
Netflix, Inc. Consolidated Statements of Operations (unaudited) (in
thousands, except per share data) Three Months Ended Nine Months
Ended ------------------ ----------------- Sept. 30, June 30, Sept.
30, Sept. 30, Sept. 30, 2009 2009** 2008 2009** 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. Netflix, Inc. Consolidated
Balance Sheets (unaudited) (in thousands, except share and par
value data) As of ------ September 30, December 31, 2009 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 ======== ======== Netflix, Inc. Consolidated Statements of
Cash Flows (unaudited) (in thousands) Three Months Ended Nine
Months Ended ------------------ ----------------- Sept. 30, June
30, Sept. 30, Sept. 30, Sept. 30, 2009 2009 2008 2009 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 =======
======= ======= ======= ======= 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, June 30,
September 30, 2009 2009 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% DATASOURCE: Netflix, Inc. CONTACT: IR, Deborah Crawford, VP,
Investor Relations, +1-408-540-3712, or PR, Steve Swasey, VP,
Corporate Communications, +1-408-540-3947, both of Netflix, Inc.
Web Site: http://www.netflix.com/
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