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 June 30, 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 x NO ¨.
As of July 23, 2003, there were 24,004,351 shares of the registrant’s common stock, par value $0.001, outstanding.
| Page | ||||||
| Part I. Financial Information |
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| Item 1. |
3 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||||
| Item 3. |
20 | |||||
| Item 4. |
20 | |||||
| Part II. Other Information |
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| Item 1. |
21 | |||||
| Item 2. |
21 | |||||
| Item 4. |
21 | |||||
| Item 6. |
22 | |||||
| 24 | ||||||
| 25 | ||||||
2
PART I. FINANCIAL INFORMATION
Index to Financial Statements
| Page | ||
| Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2003 |
4 | |
| 5 | ||
| Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2003 |
6 | |
| 7 | ||
3
Netflix, Inc.
(unaudited)
(in thousands, except per share data)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, 2002 |
June 30, 2003 |
June 30, 2002 |
June 30, 2003 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Subscription |
$ | 35,608 | $ | 63,071 | $ | 65,677 | $ | 118,352 | ||||||||
| Sales |
752 | 116 | 1,210 | 504 | ||||||||||||
| Total revenues |
36,360 | 63,187 | 66,887 | 118,856 | ||||||||||||
| Cost of revenues: |
||||||||||||||||
| Subscription |
17,779 | 35,148 | 32,651 | 65,076 | ||||||||||||
| Sales |
313 | 93 | 599 | 172 | ||||||||||||
| Total cost of revenues |
18,092 | 35,241 | 33,250 | 65,248 | ||||||||||||
| Gross profit |
18,268 | 27,946 | 33,637 | 53,608 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Fulfillment* |
4,854 | 7,221 | 9,009 | 13,604 | ||||||||||||
| Technology and development* |
3,518 | 4,123 | 6,699 | 8,306 | ||||||||||||
| Marketing* |
8,054 | 9,957 | 15,992 | 23,164 | ||||||||||||
| General and administrative* |
1,638 | 2,093 | 2,947 | 4,341 | ||||||||||||
| Stock-based compensation* |
2,432 | 1,704 | 3,493 | 4,110 | ||||||||||||
| Total operating expenses |
20,496 | 25,098 | 38,140 | 53,525 | ||||||||||||
| Operating income (loss) |
(2,228 | ) | 2,848 | (4,503 | ) | 83 | ||||||||||
| Other income (expense): |
||||||||||||||||
| Interest and other income |
275 | 560 | 349 | 1,141 | ||||||||||||
| Interest and other expense |
(11,162 | ) | (95 | ) | (11,690 | ) | (286 | ) | ||||||||
| Net income (loss) |
$ | (13,115 | ) | $ | 3,313 | $ | (15,844 | ) | $ | 938 | ||||||
| Net income (loss) per share: |
||||||||||||||||
| Basic |
$ | (1.28 | ) | $ | 0.14 | $ | (2.58 | ) | $ | 0.04 | ||||||
| Diluted |
$ | (1.28 | ) | $ | 0.11 | $ | (2.58 | ) | $ | 0.03 | ||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
10,216 | 23,648 | 6,132 | 23,193 | ||||||||||||
| Diluted |
10,216 | 30,812 | 6,132 | 30,136 | ||||||||||||
| * Amortization of stock-based compensation not included in expense line item: |
||||||||||||||||
| Fulfillment |
$ | 276 | $ | 207 | $ | 408 | $ | 540 | ||||||||
| Technology and development |
796 | 654 | 1,170 | 1,489 | ||||||||||||
| Marketing |
471 | 269 | 648 | 697 | ||||||||||||
| General and administrative |
889 | 574 | 1,267 | 1,384 | ||||||||||||
| Total stock-based compensation |
$ | 2,432 | $ | 1,704 | $ | 3,493 | $ | 4,110 | ||||||||
See accompanying notes to financial statements.
4
Netflix, Inc.
(unaudited)
(in thousands, except share and par value data)
| As of |
||||||||
| December 31, 2002 |
June 30, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 59,814 | $ | 71,229 | ||||
| Short-term investments |
43,796 | 45,096 | ||||||
| Prepaid expenses |
2,753 | 2,569 | ||||||
| Prepaid revenue sharing expenses |
303 | 459 | ||||||
| Other current assets |
409 | 232 | ||||||
| Total current assets |
107,075 | 119,585 | ||||||
| DVD library, net |
9,972 | 17,353 | ||||||
| Intangible assets, net |
6,094 | 4,477 | ||||||
| Property and equipment, net |
5,620 | 6,108 | ||||||
| Deposits |
1,690 | 1,684 | ||||||
| Other assets |
79 | 858 | ||||||
| Total assets |
$ | 130,530 | $ | 150,065 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 20,350 | $ | 28,009 | ||||
| Accrued expenses |
9,102 | 10,294 | ||||||
| Deferred revenue |
9,743 | 12,394 | ||||||
| Current portion of capital lease obligations |
1,231 | 835 | ||||||
| Total current liabilities |
40,426 | 51,532 | ||||||
| Deferred rent |
288 | 271 | ||||||
| Capital lease obligations, less current portion |
460 | 256 | ||||||
| Total liabilities |
41,174 | 52,059 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value; 150,000,000 and 80,000,000 shares authorized at December 31, 2002 and June 30, 2003, respectively; 22,445,795 and 23,958,679 issued and outstanding at December 31, 2002 and June 30, 2003, respectively |
22 | 24 | ||||||
| Additional paid-in capital |
260,067 | 263,761 | ||||||
| Deferred stock-based compensation |
(11,702 | ) | (8,243 | ) | ||||
| Accumulated other comprehensive income |
774 | 1,331 | ||||||
| Accumulated deficit |
(159,805 | ) | (158,867 | ) | ||||
| Total stockholders’ equity |
89,356 | 98,006 | ||||||
| Total liabilities and stockholders’ equity |
$ | 130,530 | $ | 150,065 | ||||
See accompanying notes to financial statements.
5
Netflix, Inc.
(unaudited)
(in thousands)
| Six Months Ended |
||||||||
| June 30, 2002 |
June 30, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (15,844 | ) | $ | 938 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation of property and equipment |
2,905 | 2,473 | ||||||
| Amortization of DVD library |
6,905 | 16,012 | ||||||
| Amortization of intangible assets |
1,525 | 1,617 | ||||||
| Stock-based compensation expense |
3,493 | 4,110 | ||||||
| Gain on disposal of DVDs |
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