Subscribers - 10.6 million Revenue - $408.5 million GAAP Net Income
- $32.4 million GAAP EPS - $0.54 per diluted share LOS GATOS,
Calif., July 23 /PRNewswire-FirstCall/ -- Netflix, Inc.
(NASDAQ:NFLX) today reported results for the second quarter ended
June 30, 2009. "We continued to execute very well in the second
quarter and are on track to deliver a record 2009," said Reed
Hastings, Netflix co-founder and chief executive officer. "As our
subscriber base and disc shipments continue to expand, and as we
offer more opportunities to watch instantly via the Internet, we
believe we are striking the right balance between growth,
investment and earnings." Second-Quarter 2009 Financial Highlights
Subscribers. Netflix ended the second quarter of 2009 with
approximately 10,599,000 total subscribers, representing 26 percent
year-over-year growth from 8,411,000 total subscribers at the end
of the second quarter of 2008 and 3 percent sequential growth from
10,310,000 subscribers at the end of the first quarter of 2009. Net
subscriber change in the quarter was an increase of 289,000
compared to an increase of 168,000 for the same period of 2008 and
an increase of 920,000 for the first quarter of 2009. Gross
subscriber additions for the quarter totaled 1,936,000,
representing 40 percent year-over-year growth from 1,384,000 gross
subscriber additions in the second quarter of 2008 and 20 percent
quarter-over-quarter decline from 2,413,000 gross subscriber
additions in the first quarter of 2009. Of the 10,599,000 total
subscribers at quarter end, 98 percent, or 10,375,000, were paid
subscribers. The other 2 percent, or 224,000, were free
subscribers. Paid subscribers represented 98 percent of total
subscribers at the end of the second quarter of 2008 and at the end
of the first quarter of 2009. Revenue for the second quarter of
2009 was $408.5 million, representing 21 percent year-over-year
growth from $337.6 million for the second quarter of 2008, and a 4
percent sequential increase from $394.1 million for the first
quarter of 2009. Gross margin(1) for the second quarter of 2009 was
34.1 percent compared to 31.8 percent for the second quarter of
2008 and 34.2 percent for the first quarter of 2009. GAAP net
income for the second quarter of 2009 was $32.4 million, or $0.54
per diluted share compared to GAAP net income of $26.6 million, or
$0.42 per diluted share, for the second quarter of 2008 and GAAP
net income of $22.4 million, or $0.37 per diluted share, for the
first quarter of 2009. GAAP net income grew 22 percent on a
year-over-year basis and GAAP EPS grew 29 percent on a
year-over-year basis. Non-GAAP net income was $34.4 million, or
$0.58 per diluted share, for the second quarter of 2009 compared to
non-GAAP net income of $28.7 million, or $0.45 per diluted share,
for the second quarter of 2008 and non-GAAP net income of $24.2
million, or $0.40 per diluted share, for the first quarter of 2009.
Non-GAAP net income grew 20 percent on a year-over-year basis and
non-GAAP EPS grew 29 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
$3.3 million for the second quarter of 2009, compared to $2.9
million for the second quarter of 2008 and $3.1 million for the
first 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 second quarter of 2009 was $23.88 per gross
subscriber addition compared to $28.89 for the same period of 2008
and $25.79 for the first quarter of 2009. Churn(3) for the second
quarter of 2009 was 4.5 percent compared to 4.2 percent for the
second quarter of 2008 and for the first 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 second quarter of 2009 was $26.3 million
compared to $12.7 million in the second quarter of 2008 and $15.1
million for the first quarter of 2009. Cash provided by operating
activities for the second quarter of 2009 was $75.3 million
compared to $67.4 million for the second quarter of 2008 and $65.6
million for the first 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. Business Outlook The
Company's performance expectations for the third and fourth
quarters of 2009 and full-year 2009 are as follows: Third-Quarter
2009 -- Ending subscribers of 10.9 million to 11.1 million --
Revenue of $416 million to $422 million -- GAAP net income of $23
million to $28 million -- GAAP EPS of $0.39 to $0.47 per diluted
share Fourth-Quarter 2009 -- Ending subscribers of 11.6 million to
12 million -- Revenue of $431 million to $445 million -- GAAP net
income of $21 million to $26 million -- GAAP EPS of $0.36 to $0.44
per diluted share Full-Year 2009 -- Ending subscribers of 11.6
million to 12 million, up from 11.2 million to 11.8 million --
Revenue of $1.65 billion to $1.67 billion, up from $1.63 billion to
$1.67 billion -- GAAP net income of $99 million to $109 million, up
from $96 million to $106 million -- GAAP EPS of $1.65 to $1.82 per
diluted share, up from $1.56 to $1.72 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. 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 July 23,
2009 through midnight on July 27, 2009. To listen to a replay, call
(719) 457-0820, access code 4688984. 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. (NASDAQ:NFLX) is the
world's largest online movie rental service, with more than ten
million subscribers. For one low monthly price, Netflix members can
get DVDs delivered to their homes and can instantly watch movies
and TV episodes streamed to their TVs and PCs, all in unlimited
amounts. Members can choose from over 100,000 DVD titles and a
growing library of more than 12,000 choices that can be watched
instantly. There are never any due dates or late fees. DVDs are
delivered free to members by first class mail, with a postage-paid
return envelope, from 58 distribution centers. More than 97 percent
of Netflix members live in areas that generally receive shipments
in one business day. Netflix is also partnering with leading
consumer electronics companies to offer a range of devices that can
instantly stream movies and TV episodes to members' TVs from
Netflix. 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
third and fourth quarters 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; 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. Netflix, Inc. Consolidated Statements of Operations
(unaudited) (in thousands, except per share data) Three Months
Ended Six Months Ended ------------------ ---------------- June 30,
March 31, June 30, June 30, June 30, 2009 2009 2008 2009 2008 ----
---- ---- ---- ---- Revenues $408,509 $394,098 $337,614 $802,607
$663,797 Cost of revenues: Subscription 224,858 215,299 193,769
440,157 380,925 Fulfillment expenses * 44,385 43,969 36,318 88,354
71,967 ------ ------ ------ ------ ------ Total cost of revenues
269,243 259,268 230,087 528,511 452,892 ------- ------- -------
------- ------- Gross profit 139,266 134,830 107,527 274,096
210,905 Operating expenses: Technology and development * 27,119
24,200 22,186 51,319 42,453 Marketing * 46,231 62,242 39,984
108,473 94,879 General and administrative * 13,252 13,014 13,419
26,266 27,158 Gain on disposal of DVDs (118) (1,097) (2,263)
(1,215) (3,096) ---- ------ ------ ------ ------ Total operating
expenses 86,484 98,359 73,326 184,843 161,394 ------ ------ ------
------- ------- Operating income 52,782 36,471 34,201 89,253 49,511
Other income (expense): Interest expense on lease financing
obligations (674) (670) (681) (1,344) (1,104) Interest and other
Income (expense) 866 1,610 2,404 2,476 10,064 --- ----- ----- -----
------ Income before income taxes 52,974 37,411 35,924 90,385
58,471 Provision for income taxes 20,531 15,048 9,345 35,579 18,548
------ ------ ----- ------ ------ Net income $32,443 $22,363
$26,579 $54,806 $39,923 ======= ======= ======= ======= ======= Net
income per share: Basic $0.56 $0.38 $0.43 $0.94 $0.64 Diluted $0.54
$0.37 $0.42 $0.91 $0.62 Weighted average common shares outstanding:
Basic 57,872 58,734 61,782 58,301 62,262 Diluted 59,660 60,709
63,857 60,182 64,341 *Stock-based compensation included in expense
line items: Fulfillment expenses $102 $120 $108 $222 $214
Technology and development 1,190 1,071 849 2,261 1,845 Marketing
458 443 455 901 964 General and administrative 1,528 1,498 1,493
3,026 3,012 Reconciliation of Non-GAAP Financial Measures
(unaudited) Non-GAAP net income reconciliation: GAAP net income
$32,443 $22,363 $26,579 $54,806 $39,923 Stock-based compensation
3,278 3,132 2,905 6,410 6,035 Income tax effect of stock-based
compensation (1,272) (1,259) (755) (2,531) (2,032) ------ ------
---- ------ ------ Non-GAAP net income $34,449 $24,236 $28,729
$58,685 $43,926 ======= ======= ======= ======= ======= Non-GAAP
net income per share: Basic $0.60 $0.41 $0.47 $1.01 $0.71 Diluted
$0.58 $0.40 $0.45 $0.98 $0.68 Weighted average common shares
outstanding: Basic 57,872 58,734 61,782 58,301 62,262 Diluted
59,660 60,709 63,857 60,182 64,341 Netflix, Inc. Consolidated
Balance Sheets (unaudited) (in thousands, except share and par
value data) As of ------ June 30, December 31, 2009 2008 ---- ----
Assets Current assets: Cash and cash equivalents $87,471 $139,881
Short-term investments 167,498 157,390 Prepaid expenses 11,430
8,122 Prepaid revenue sharing expenses 14,671 18,417 Current
content library, net 33,519 18,691 Deferred tax assets 5,594 5,617
Other current assets 22,381 13,329 ------ ------ Total current
assets 342,564 361,447 Content library, net 100,316 98,547 Property
and equipment, net 120,346 124,948 Deferred tax assets 17,225
22,409 Other assets 11,542 10,595 ------ ------ Total assets
$591,993 $617,946 ======== ======== Liabilities and Stockholders'
Equity Current liabilities: Accounts payable $101,634 $100,344
Accrued expenses 27,782 31,394 Current portion of lease financing
obligations 1,275 1,152 Deferred revenue 80,495 83,127 ------
------ Total current liabilities 211,186 216,017 Lease financing
obligations, excluding current portion 37,301 37,988 Other
liabilities 19,135 16,786 ------ ------ Total liabilities 267,622
270,791 Stockholders' equity: Common stock, $0.001 par value;
160,000,000 shares authorized at June 30, 2009 and December 31,
2008; 57,415,726 and 58,862,478 issued and outstanding at June 30,
2009 and December 31, 2008, respectively 64 62 Additional paid-in
capital 375,574 338,577 Treasury stock at cost (6,295,073 and
3,491,084 shares at June 30, 2009 and December 31, 2008,
respectively) (215,250) (100,020) Accumulated other comprehensive
income 725 84 Retained earnings 163,258 108,452 ------- -------
Total stockholders' equity 324,371 347,155 ------- ------- Total
liabilities and stockholders' equity $591,993 $617,946 ========
======== Netflix, Inc. Consolidated Statements of Cash Flows
(unaudited) (in thousands) Three Months Ended Six Months Ended
------------------ ---------------- June 30, March 31, June 30,
June 30, June 30, 2009 2009 2008 2009 2008 ---- ---- ---- ---- ----
Cash flows from operating activities: Net income $32,443 $22,363
$26,579 $54,806 $39,923 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization of property, equipment and intangibles 9,013 9,175
8,188 18,188 14,772 Amortization of content library 53,235 49,304
57,012 102,539 114,582 Amortization of discounts and premiums on
investments 119 194 177 313 316 Stock-based compensation expense
3,278 3,132 2,905 6,410 6,035 Excess tax benefits from stock-based
compensation (3,815) (3,684) (2,554) (7,499) (3,374) Loss on
disposal of property and equipment 110 144 - 254 - Loss (gain) on
sale of short-term investments 101 (572) 78 (471) (4,242) Gain on
disposal of DVDs (506) (2,033) (4,059) (2,539) (6,651) Deferred
taxes 5,404 (623) (2,502) 4,781 (3,361) Changes in operating assets
and liabilities: Prepaid expenses and other current assets (8,845)
(391) (10,947) (9,236) (8,197) Content library (9,343) (22,091)
(7,982) (31,434) (31,394) Accounts payable (6,549) 8,572 7,092
2,023 15,772 Accrued expenses (234) 4,331 (14,551) 4,097 (6,724)
Deferred revenue (128) (2,504) (489) (2,632) (3,779) Other assets
and liabilities 1,019 316 8,433 1,335 7,764 ----- --- ----- -----
----- Net cash provided by operating activities 75,302 65,633
67,380 140,935 131,442 ------ ------ ------ ------- ------- Cash
flows from investing activities: Purchases of short-term
investments (28,769) (52,384) (65,937) (81,153) (157,891) Proceeds
from sale of short-term investments 7,832 36,933 21,017 44,765
195,436 Proceeds from maturities of short-term investments 26,175
1,330 665 27,505 1,565 Purchases of property and equipment (6,933)
(6,572) (14,662) (13,505) (27,093) Acquisitions of intangible asset
- (200) (1,000) (200) (1,000) Acquisitions of content library
(43,224) (46,499) (44,410) (89,723) (95,726) Proceeds from sale of
DVDs 1,159 2,726 5,379 3,885 9,886 Investment in business - - - -
(6,000) Other assets 11 (2) 20 9 28 -- -- -- -- -- Net cash used in
investing activities (43,749) (64,668) (98,928) (108,417) (80,795)
------- ------- ------- -------- ------- Cash flows from financing
activities: Principal payments of lease financing obligations (295)
(269) (230) (564) (352) Proceeds from issuance of common stock
9,778 13,589 4,524 23,367 13,066 Excess tax benefits from
stock-based compensation 3,815 3,684 2,554 7,499 3,374 Repurchases
of common stock (72,511) (42,719) - (115,230) (99,885) -------
------- -- -------- ------- Net cash (used in) provided by
financing activities (59,213) (25,715) 6,848 (84,928) (83,797)
------- ------- ----- ------- ------- Net decrease in cash and cash
equivalents (27,660) (24,750) (24,700) (52,410) (33,150) Cash and
cash equivalents, beginning of period 115,131 139,881 168,989
139,881 177,439 ------- ------- ------- ------- ------- Cash and
cash equivalents, end of period $87,471 $115,131 $144,289 $87,471
$144,289 ======= ======== ======== ======= ======== Non-GAAP free
cash flow reconciliation: Net cash provided by operating activities
$75,302 $65,633 $67,380 $140,935 $131,442 Purchases of property and
equipment (6,933) (6,572) (14,662) (13,505) (27,093) Acquisitions
of intangible asset - (200) (1,000) (200) (1,000) Acquisitions of
content library (43,224) (46,499) (44,410) (89,723) (95,726)
Proceeds from sale of DVDs 1,159 2,726 5,379 3,885 9,886 Other
assets 11 (2) 20 9 28 -- -- -- -- -- Non-GAAP free cash flow
$26,315 $15,086 $12,707 $41,401 $17,537 ======= ======= =======
======= ======= 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 -------------------------- June 30, March 31, June 30, 2009
2009 2008 ---- ---- ---- Subscriber information: Subscribers:
beginning of period 10,310 9,390 8,243 Gross subscriber additions:
during period 1,936 2,413 1,384 Gross subscriber additions
year-to-year change 39.9% 29.6% 34.6% Gross subscriber additions
quarter-to- quarter sequential change (19.8%) 15.7% (25.7%) Less
subscriber cancellations: during period (1,647) (1,493) (1,216)
Subscribers: end of period 10,599 10,310 8,411 Subscribers
year-to-year change 26.0% 25.1% 24.8% Subscribers quarter-to-
quarter sequential change 2.8% 9.8% 2.0% Free subscribers: end of
period 224 194 176 Free subscribers as percentage of ending
subscribers 2.1% 1.9% 2.1% Paid subscribers: end of period 10,375
10,116 8,235 Paid subscribers year-to- year change 26.0% 24.9%
24.6% Paid subscribers quarter- to-quarter sequential change 2.6%
10.4% 1.6% Average monthly revenue per paying subscriber $13.29
$13.63 $13.78 Average monthly gross profit per paying subscriber
$4.53 $4.66 $4.39 Churn 4.5% 4.2% 4.2% Subscriber acquisition cost
$23.88 $25.79 $28.89 Margins: Gross margin 34.1% 34.2% 31.8%
Operating margin 12.9% 9.3% 10.1% Net margin 7.9% 5.7% 7.9%
Expenses as percentage of revenues: Technology and development 6.6%
6.1% 6.6% Marketing 11.3% 15.8% 11.8% General and administrative
3.2% 3.3% 4.0% Gain on disposal of DVDs 0.0% (0.2%) (0.7%) --- ----
---- Total operating expenses 21.1% 25.0% 21.7% Year-to-year
change: Total revenues 21.0% 20.8% 11.2% Subscription 16.0% 15.0%
16.1% Fulfillment expenses 22.2% 23.3% 21.6% Technology and
development 22.2% 19.4% 18.0% Marketing 15.6% 13.4% (11.6%) General
and administrative (1.2%) (5.3%) (2.9%) Gain on disposal of DVDs
(94.8%) 31.7% (0.8%) Total operating expenses 17.9% 11.7% 6.9%
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/
Copyright