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Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 For the quarterly period ended March 31, 2003

 

OR

 

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                         to                         

 

Commission File Number: 000-49802

 

 

Netflix, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

   

77-0467272

(State or other jurisdiction of

incorporation or organization)

   

(I.R.S. Employer

Identification Number)

 

970 University Avenue Los Gatos, California 95032

(Address and zip code of principal executive offices)

 

(408) 399-3700

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x  NO  ¨.

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) ..    YES  ¨  NO  x .

 

As of May 2, 2003, there were 23,729,845 shares of the registrant’s common stock, par value $0.001, outstanding.

 

Table of Contents

 

Table of Contents

 

Part I.

   

Financial Information

     
    

Item 1.     Financial Statements

  

3

    

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

14

    

Item 3.     Quantitative and Qualitative Disclosure About Market Risk

  

20

    

Item 4.     Controls and Procedures

  

21

Part II.

   

Other Information

     
    

Item 1.     Legal Proceedings

  

21

    

Item 2.     Changes in Securities and Use of Proceeds

  

21

    

Item 6.     Exhibits and Reports on Form 8-K

   

22

Signatures

  

24

Exhibit Index

  

27

 

 

2

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Netflix, Inc.

 

Index to Financial Statements

 

    

Page

Statements of Operations for the three months ended March 31, 2002 and 2003 (Unaudited)

   

4

Balance Sheets as of December 31, 2002 and March 31, 2003 (Unaudited)

   

5

Statements of Cash Flows for the three months ended March 31, 2002 and 2003 (Unaudited)

   

6

Notes to Financial Statements

   

7

 

 

3

Table of Contents

 

Netflix, Inc.

 

Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

    

Three Months Ended

  
    

Mar 31, 2002

     

Mar 31, 2003

  

Revenues:

                  

Subscription

   

$

30,069

 

   

$

55,281

 

Sales

   

 

458

 

   

 

388

 

    
  

Total revenues

   

 

30,527

 

   

 

55,669

 

Cost of revenues:

                  

Subscription

   

 

14,872

 

   

 

29,928

 

Sales

   

 

286

 

   

 

79

 

    
  

Total cost of revenues

   

 

15,158

 

   

 

30,007

 

    
  

Gross profit

   

 

15,369

 

   

 

25,662

 

Operating expenses:

                  

Fulfillment *

   

 

4,155

 

   

 

6,383

 

Technology and development *

   

 

3,181

 

   

 

4,183

 

Marketing *

   

 

7,938

 

   

 

13,207

 

General and administrative *

   

 

1,309

 

   

 

2,248

 

Stock-based compensation *

   

 

2,840

 

   

 

4,552

 

    
  

Total operating expenses

   

 

19,423

 

   

 

30,573

 

    
  

Operating loss

   

 

(4,054

)

   

 

(4,911

)

Other income (expense):

                  

Interest and other income

   

 

74

 

   

 

581

 

Interest and other expense

   

 

(528

)

   

 

(191

)

    
  

Net loss

   

$

(4,508

)

   

$

(4,521

)

    
  

Net loss per share:

                  

Basic and diluted

   

$

(2.20

)

   

$

(.20

)

    
  

Weighted average common shares outstanding:

                  

Basic and diluted

   

 

2,047

 

   

 

22,737

 

    
  

* Amortization of stock-based compensation not included in expense line item:

                  

Fulfillment

   

$

392

 

   

$

805

 

Technology and development

   

 

1,208

 

   

 

1,450

 

Marketing

   

 

842

 

   

 

1,389

 

General and administrative

   

 

398

 

   

 

908

 

    
  
    

$

2,840

 

   

$

4,552

 

    
  

 

 

 

See accompanying notes to financial statements.

 

 

4

Table of Contents

 

Netflix, Inc.

 

Balance Sheets

(Unaudited)

(in thousands, except share data)

 

    

As of

  
    

Dec 31, 2002

     

Mar 31, 2003

  

Assets

                  

Current assets:

                  

Cash and cash equivalents

   

$

59,814

 

   

$

66,028

 

Short-term investments

   

 

43,796

 

   

 

44,304

 

Prepaid expenses

   

 

2,753

 

   

 

2,066

 

Prepaid revenue sharing expenses

   

 

303

 

   

 

622

 

Other current assets

   

 

409

 

   

 

174

 

    
  

Total current assets

   

 

107,075

 

   

 

113,194

 

DVD library, net

   

 

9,972

 

   

 

9,740

 

Intangible assets, net

   

 

6,094

 

   

 

5,285

 

Property and equipment, net

   

 

5,620

 

   

 

4,848

 

Deposits

   

 

1,690

 

   

 

1,694

 

Other assets

   

 

79

 

   

 

868

 

    
  

Total assets

   

$

130,530

 

   

$

135,629

 

    
  

Liabilities and Stockholders’ Equity

                  

Current liabilities:

                  

Accounts payable

   

$

20,350

 

   

$

22,218

 

Accrued expenses

   

 

9,102

 

   

 

9,525

 

Deferred revenue

   

 

9,743

 

   

 

11,227

 

Current portion of capital lease obligations

   

 

1,231

 

   

 

940

 

    
  

Total current liabilities

   

 

40,426

 

   

 

43,910

 

Deferred rent

   

 

288

 

   

 

279

 

Capital lease obligations, less current portion

   

 

460

 

   

 

376

 

    
  

Total liabilities

   

 

41,174

 

   

 

44,565

 

Commitments and contingencies

                  

Stockholders’ equity:

                  

Common stock, $0.001 par value; 150,000,000 shares authorized at December 31, 2002 and March 31, 2003; 22,445,795 and 22,977,497 issued and outstanding at December 31, 2002 and March 31, 2003, respectively

   

 

22

 

   

 

23

 

Additional paid-in capital

   

 

259,172

 

   

 

264,765

 

Deferred stock-based compensation

   

 

(11,399

)

   

 

(10,892

)

Accumulated other comprehensive income

   

 

774

 

   

 

902

 

Accumulated deficit

   

 

(159,213

)

   

 

(163,734

)

    
  

Total stockholders’ equity

   

 

89,356

 

   

 

91,064

 

    
  

Total liabilities and stockholders’ equity

   

$

130,530

 

   

$

135,629

 

    
  

 

 

 

See accompanying notes to financial statements.

 

 

5

Table of Contents

 

Netflix, Inc.

 

Statements of Cash Flows

(Unaudited)

(in thousands)

 

    

Three Months Ended

  
    

Mar 31, 2002

     

Mar 31, 2003

  

Cash flows from operating activities:

                  

Net loss

   

$

(4,508

)

   

$

(4,521

)

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

                  

Depreciation of property and equipment

   

 

1,457

 

   

 

1,333

 

Amortization of DVD library

   

 

2,917

 

   

 

6,620

 

Amortization of intangible assets

   

 

706

 

   

 

809

 

Stock-based compensation expense

   

 

2,840

 

   

 

4,552

 

Gain on disposal of DVDs

   

 

(283

)

   

 

(367

)

Noncash interest expense

   

 

395

 

   

 

32

 

Changes in operating assets and liabilities:

                  

Prepaid expenses and other current assets

   

 

(773

)

   

 

603

 

Accounts payable

   

 

2,577

 

   

 

1,868

 

Accrued expenses

   

 

(186