UNITED STATES
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 September 30, 2004
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) 317-3700
(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 October 20, 2004, there were 52,360,857 shares of the registrant’s common stock, par value $0.001, outstanding.
| Page | ||
| Part I. Financial Information |
3 | |
| 3 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
24 | |
| Item 4. Controls and Procedures |
24 | |
| Part II. Other Information |
25 | |
| Item 1. Legal Proceedings |
25 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
25 | |
| Item 6. Exhibits |
26 | |
| 27 | ||
| 28 | ||
2
Index to Consolidated Financial Statements
| Page | ||
| 4 | ||
| Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004 |
5 | |
| 6 | ||
| 7 | ||
3
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, 2003 |
September 30, 2004 |
September 30, 2003 |
September 30, 2004 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Subscription |
$ | 71,278 | $ | 140,414 | $ | 189,630 | $ | 359,947 | ||||||||
| Sales |
924 | 1,230 | 1,428 | 2,388 | ||||||||||||
| Total revenues |
72,202 | 141,644 | 191,058 | 362,335 | ||||||||||||
| Cost of revenues: |
||||||||||||||||
| Subscription |
38,326 | 71,130 | 103,402 | 197,178 | ||||||||||||
| Sales |
322 | 471 | 494 | 838 | ||||||||||||
| Total cost of revenues |
38,648 | 71,601 | 103,896 | 198,016 | ||||||||||||
| Gross profit |
33,554 | 70,043 | 87,162 | 164,319 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Fulfillment * |
8,322 | 15,013 | 21,926 | 40,176 | ||||||||||||
| Technology and development * |
4,738 | 6,325 | 13,044 | 17,016 | ||||||||||||
| Marketing * |
12,183 | 22,525 | 35,347 | 69,695 | ||||||||||||
| General and administrative * |
2,678 | 4,122 | 7,019 | 10,538 | ||||||||||||
| Stock-based compensation * |
2,777 | 3,660 | 6,887 | 12,229 | ||||||||||||
| Total operating expenses |
30,698 | 51,645 | 84,223 | 149,654 | ||||||||||||
| Operating income |
2,856 | 18,398 | 2,939 | 14,665 | ||||||||||||
| Other income (expense): |
||||||||||||||||
| Interest and other income |
534 | 579 | 1,675 | 1,474 | ||||||||||||
| Interest and other expense |
(87 | ) | (52 | ) | (373 | ) | (113 | ) | ||||||||
| Net income |
$ | 3,303 | $ | 18,925 | $ | 4,241 | $ | 16,026 | ||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | .07 | $ | .36 | $ | .09 | $ | .31 | ||||||||
| Diluted |
$ | .05 | $ | .29 | $ | .07 | $ | .25 | ||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
48,172 | 52,211 | 46,990 | 51,798 | ||||||||||||
| Diluted |
62,920 | 64,449 | 61,368 | 64,797 | ||||||||||||
* Amortization of stock-based compensation not included in expense line items: |
| |||||||||||||||
| Fulfillment |
$ | 348 | $ | 317 | $ | 888 | $ | 1,293 | ||||||||
| Technology and development |
1,110 | 1,672 | 2,599 | 5,164 | ||||||||||||
| Marketing |
395 | 516 | 1,092 | 1,662 | ||||||||||||
| General and administrative |
924 | 1,155 | 2,308 | 4,110 | ||||||||||||
| $ | 2,777 | $ | 3,660 | $ | 6,887 | $ | 12,229 | |||||||||
See accompanying notes to consolidated financial statements.
4
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
| As of |
||||||||
| December 31, 2003 |
September 30, 2004 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 89,894 | $ | 167,814 | ||||
| Short-term investments |
45,297 | — | ||||||
| Prepaid expenses |
2,231 | 3,644 | ||||||
| Prepaid revenue sharing expenses |
905 | 3,777 | ||||||
| Other current assets |
619 | 1,334 | ||||||
| Total current assets |
138,946 | 176,569 | ||||||
| DVD library, net |
22,238 | 41,503 | ||||||
| Intangible assets, net |
2,948 | 1,415 | ||||||
| Property and equipment, net |
9,772 | 13,649 | ||||||
| Deposits |
1,272 | 1,539 | ||||||
| Other assets |
836 | 962 | ||||||
| Total assets |
$ | 176,012 | $ | 235,637 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 32,654 | $ | 47,668 | ||||
| Accrued expenses |
11,625 | 15,840 | ||||||
| Deferred revenue |
18,324 | 26,658 | ||||||
| Current portion of capital lease obligations |
416 | 164 | ||||||
| Total current liabilities |
63,019 | 90,330 | ||||||
| Deferred rent |
241 | 487 | ||||||
| Capital lease obligations, less current portion |
44 | — | ||||||
| Total liabilities |
63,304 | 90,817 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value; 80,000,000 and 160,000,000 shares authorized at December 31, 2003 and September 30, 2004, respectively; 50,849,370 and 52,303,438 issued and outstanding at December 31, 2003 and September 30, 2004, respectively |
51 | 52 | ||||||
| Additional paid-in capital |
270,836 | 285,182 | ||||||
| Deferred stock-based compensation |
(5,482 | ) | (3,103 | ) | ||||
| Accumulated other comprehensive income (loss) |
596 | (44 | ) | |||||
| Accumulated deficit |
(153,293 | ) | (137,267 | ) | ||||
| Total stockholders’ equity |
112,708 | 144,820 | ||||||
| Total liabilities and stockholders’ equity |
$ | 176,012 | $ | 235,637 | ||||
See accompanying notes to consolidated financial statements.
5
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, 2003 |
September 30, 2004 |
September 30, 2003 |
September 30, 2004 |
|||||||||||||
| Cash flows from operating activities: |
||||||||||||||||
| Net income |
$ | 3,303 | $ | 18,925 | $ | 4,241 | $ | 16,026 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||
| Depreciation of property and equipment |
1,118 | 1,569 | 3,591 | 4,144 | ||||||||||||
| Amortization of DVD library |
12,323 | 20,450 | 28,335 | 59,718 | ||||||||||||
| Amortization of intangible assets |
773 | 453 | 2,390 | 1,533 | ||||||||||||
| Stock-based compensation expense |
2,777 | 3,660 | 6,887 | 12,229 | ||||||||||||
| Loss on disposal of short-term investments |
— | — | — | 274 | ||||||||||||
| Gain on disposal of DVDs |
(868 | ) | (941 | ) | (1,329 | ) | (1,732 | ) | ||||||||
| Noncash interest expense |
16 | 11 | 84 | 33 | ||||||||||||
| Changes in operating assets and liabilities: |
||||||||||||||||
| Prepaid expenses and other current assets |
65 | (3,478 | ) | |||||||||||||