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Form 8-K NETFLIX INC For: Apr 15

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April 15, 2015 4:10 PM EDT


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 8-K
__________________________________

Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 15, 2015
__________________________________
NETFLIX, INC.
(Exact name of registrant as specified in its charter)
__________________________________
 
Delaware
001-35727
77-0467272
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(I.R.S. Employer
Identification No.)
100 Winchester Circle
Los Gatos, CA
95032
(Address of principal executive offices)
(Zip Code)
(408) 540-3700
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
__________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02 Results of Operations and Financial Condition.
On April 15, 2015, Netflix, Inc. (the “Company”) announced its financial results for the quarter ended March 31, 2015. The Letter to Shareholders, which is attached hereto as Exhibit 99.1 and is incorporated herein by reference, includes reference to the non-GAAP financial measures of net income on a pro forma basis excluding the impact of foreign currency, the release of tax reserves and to free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States. Management believes that the non-GAAP measures of net income on a pro forma basis excluding foreign currency and the release of tax reserves provides useful information as these measures exclude effects that are not indicative of our core operating results. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities.  However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of the non-GAAP measures are contained in tabular form in Exhibit 99.1.
The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly stated by specific reference in such filing.
Item 9.01 Financial Statement and Exhibits.
(d)   Exhibit
 
99.1

Letter to Shareholders dated April 15, 2015.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
NETFLIX, INC.
Date: April 15, 2015
 
 
/s/ David Wells
 
David Wells
 
Chief Financial Officer




EXHIBIT INDEX
Exhibit No.
 
Description of Exhibit
99.1*
 
Letter to Shareholders dated April 15, 2015
*
This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934.
The Letter to Shareholders will be attached as Exhibit 99.1.




Exhibit 99.1
April 15th, 2015
Fellow Shareholders,
We achieved several major milestones in Q1: surpassing 40 million members in the US; 20 million internationally; and 60 million in total. Our original series, documentaries and comedy specials are being enthusiastically received, and member engagement is at an all-time high. Members streamed 10 billion hours in Q1, more evidence that consumers around the world are embracing the Internet TV revolution.
 (in millions except per share data and Streaming Content Obligations)
Q1 '14
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15 Forecast
Total Streaming:
 
 
 
 
 
 
Revenue
$
1,066

$
1,146

$
1,223

$
1,305

$
1,400

$
1,474

Contribution Profit
$
166

$
212

$
220

$
178

$
247

$
227

Contribution Margin
15.6
 %
18.5
 %
18.0
 %
13.6
 %
17.7
 %
15.4
 %
Paid Members
46.14

47.99

50.65

54.48

59.62

62.47

Total Members
48.35

50.05

53.06

57.39

62.27

64.77

Net Additions
4.00

1.69

3.02

4.33

4.88

2.50

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
799

$
838

$
877

$
917

$
985

$
1,024

Contribution Profit
$
201

$
227

$
251

$
257

$
312

$
328

Contribution Margin
25.2
 %
27.1
 %
28.6
 %
28.0
 %
31.7
 %
32.0
 %
Paid Members
34.38

35.09

36.27

37.70

40.32

40.97

Total Members
35.67

36.24

37.22

39.11

41.40

42.00

Net Additions
2.25

0.57

0.98

1.90

2.28

0.60

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
267

$
307

$
346

$
388

$
415

$
450

Contribution Profit (Loss)
$
(35
)
$
(15
)
$
(31
)
$
(79
)
$
(65
)
$
(101
)
Contribution Margin
-13.1
 %
-5.0
 %
-8.9
 %
-20.3
 %
-15.6
 %
-22.4
 %
Paid Members
11.76

12.91

14.39

16.78

19.30

21.50

Total Members
12.68

13.80

15.84

18.28

20.88

22.78

Net Additions
1.75

1.12

2.04

2.43

2.60

1.90

 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Operating Income
$
98

$
130

$
110

$
65

$
97

$
59

Net Income*
$
53

$
71

$
59

$
83

$
24

$
16

EPS*
$
0.86

$
1.15

$
0.96

$
1.35

$
0.38

$
0.26

 
 
 
 
 
 
 
Free Cash Flow
$
8

$
16

$
(74
)
$
(78
)
$
(163
)
 
Shares (FD)
61.5

61.6

61.8

61.8

62.0

 
Streaming Content Obligations** ($B)
$
7.1

$
7.7

$
8.9

$
9.5

$
9.8

 
*Q1'15 EPS would have been $0.77 excluding a F/X loss. Q4'14 Net Income/EPS includes a $39m / $0.63 benefit from a tax accrual release related to resolution of tax audit
**Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K

                                                                                                                                                    1

Q1 Results and Q2 Forecast
We added a record 4.9 million new members globally in Q1, against our forecast of 4.1 million and prior year of 4.0 million, bringing our total global streaming membership to 62.3 million. In the US, we gained 2.3 million new members, well above our expectation of 1.8 million due to both acquiring and retaining more members than forecast. Internationally, we added 2.6 million members versus a forecast of 2.25 million due to stronger growth than expected across a number of markets. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report.
We think strong US growth benefited from our ever-improving content, including the launch of the third season of House of Cards and new shows Unbreakable Kimmy Schmidt and Bloodline. In addition, retention continued to improve due to the growing value of our service overall. We are forecasting Q2 US net adds of 0.6 million, similar to the year ago quarter.
During Q1, higher-than-forecast net adds and US revenue, coupled with lower-than-forecast content spending, resulted in a US contribution margin of 31.7%, ahead of our 30.1% estimate. In 2015, we expect to run ahead of our US contribution margin growth target of 200 bps/year on average because a greater share of global and original content costs will be absorbed by existing and new international territories as we continue to expand globally (since we allocate global content costs by geography).
In addition, starting in Q2 we intend to shift some of our US marketing budget to international to take advantage of the substantial available growth opportunities. This, in the short term, drives down international contribution profits and drives up US contribution profits. We are still targeting 40% contribution margin in the US in 2020.
Our international segment was fueled by continued strong growth across our 50+ countries as well as a successful March 24 launch in Australia and New Zealand, which adds about 8 million1 broadband households to our addressable market. In ANZ, Netflix benefited from high consumer awareness, a fervent fan base for original series like House of Cards and Orange Is The New Black and operator relationships with Optus and iiNet, the second and third largest broadband providers. We expect international Q2 net adds of 1.90 million, up 70% vs. last year. Later in 2015, we will launch additional markets, starting with Japan.
The strong dollar hurt financial results during the quarter, negatively affecting International segment revenue (lower by $48 million y/y using Q1 2014 forex rates) which carried through into a $15M negative forex impact on international contribution loss. These forex headwinds offset better than expected subscriber growth to result in contribution losses close to our expectations. As a reminder, we absorbed on average 5% higher VAT rates across our European markets starting January 1. We’ll have a full quarter of content expenses in ANZ in Q2 and expect the international segment loss to grow to $101 million, increasing throughout the back half of 2015 as we expand to additional markets (consistent with what we’ve said).
Our strong performance led to overall operating income that exceeded our projections ($97m actual versus $79m forecast). Net income was negatively affected by currency-related transaction losses included in other expense; excluding these forex losses, Q1 EPS would have been $0.77 vs. our $0.60 forecast and our actual EPS of $0.38.



______________
1SNL Kagan

                                                                                                                                                    2

Content
Our original content strategy is playing out as we hoped, driving lots of viewing in an economic way for Netflix while bolstering the positive perception of our brand and service around the world.
House of Cards, in its third season, had its biggest launch yet in terms of viewers. Unbreakable Kimmy Schmidt, Tina Fey’s return to television, has been a hit, winning Rotten Tomatoes scores of 90%+ from both critics and viewers and our drama thriller, Bloodline starring Kyle Chandler, Ben Mendelsohn and Sissy Spacek, is performing on par with the first seasons of our other big drama shows. During the quarter, we announced new seasons for all three shows, as well as three new Netflix original films, Pee-Wee’s Big Holiday from Judd Apatow and Paul Reubens, Jadotville, from Irish director Richie Smyth and starring Jamie Dornan, and Beasts of No Nation from director Cary Fukunaga and starring Idris Elba. Beasts will premiere on Netflix later this year.
We are delighted by the fan excitement and critical response around last Friday’s launch of Marvel’s Daredevil, the first of four series and a mini-series from our deal with Marvel Entertainment. The current quarter will also see the debut of Grace and Frankie starring legendary comedians Jane Fonda and Lily Tomlin, Sense8, an unbelievably cinematic and entertaining global dramatic thriller from the Wachowski siblings, and the third season of our groundbreaking Orange is The New Black. To track our future originals slate, click here2.
Marketing
We are increasingly spending on the promotion of our original content rather than emphasizing attributes of the Netflix brand and service that are now more familiar to consumers. Early tests in international markets suggest this content focus is aiding member acquisition.
We are also spending a bigger proportion of our marketing dollars online. This allows us to more finely target audiences and to deliver the right marketing message to the right person at the right time, particularly on mobile devices.
Product
We plan to roll out an improvement to our TV UI in the second half of 2015. The enhancement will bring video playback forward into the browse experience. We are also developing improved ways to promote Netflix originals to our members, using our data to help identify which members would be most likely to enjoy each original title. Given our international rollout, we continue to add subtitles and UI languages for much of our content.
Over the next year we’ll evolve from using HTTP to using Secure HTTP (HTTPS) while browsing and viewing content on our service. This helps protect member privacy, particularly when the network is insecure, such as public wifi, and it helps protect members from eavesdropping by their ISP or employer, who may want to record our members’ viewing for other reasons.


______________
2https://pr.netflix.com/WebClient/loginPageSalesNetWorksAction.do?contentGroupId=10571&contentGroup=Premiere%20Dates

                                                                                                                                                    3


Strong Net Neutrality
We support strong net neutrality across the globe, allowing all consumers to enjoy the Internet access they pay for, without ISPs blocking, throttling, or influencing content in the last mile or at interconnection points. In the US, we have been vocal advocates for, and are pleased with, recent action by the FCC to assure an open and neutral Internet under its Title II authority. In particular, we applaud the FCC for specifically addressing interconnection points. We hope this action serves as an example to regulators around the world looking to strengthen the innovative force of the Internet.
Data caps inhibit Internet innovation and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing.
Competition
In the US, HBO began offering its $15 per month “HBO Now” service last week. As we have said in the past, Netflix and HBO are not substitutes for one another given differing content. We think both will continue to be successful in the marketplace, as illustrated by the fact that HBO has continued to grow globally and domestically as we have rapidly grown over the past 5 years.
We view “Internet MVPD” offerings like the rumored Apple offering, Sony’s Playstation Vue and Dish’s Sling TV as more competitive to the current pay TV bundle than to Netflix which is lower cost, has exclusive and original content, and is not focused on live television.
Piracy remains a considerable long-term threat, mostly outside the US.
DVD
Our DVD-by-mail business in the US continues to delight more than 5.5 million members and provided $85 million in contribution profit in Q1. The broad selection of titles, including new release movies and TV shows, remains appealing to a core user base and means that the tail on this business should be quite long.
Free Cash Flow & Capital
During the quarter, free cash flow totaled -$163 million, a step up from Q4 reflecting our growing original content investment. In February, we issued $1.5 billion in debt at a weighted average interest rate of 5.7%, split between 7 and 10 year notes. We ended Q1 with $3.0 billion in cash & equivalents and short term investments. We will continue to invest aggressively in original content which is cash intensive.
As we’ve said, our plan is to run around break-even globally through 2016, and to then deliver material global profits in 2017 and beyond.


                                                                                                                                                    4

Stock Split
As highlighted in our preliminary proxy, we are seeking shareholder approval for an increase in our authorized shares. If approved, we expect to recommend to our Board a stock split to make our stock more accessible.
Reference
For quick reference, our eight most recent investor letters are: January 20153, October 20144,July 20145,April 20146, January 20147, October 20138, July 20139, April 201310.

Summary

We are excited to see Internet TV catch hold across the world. We are at one of those wonderful moments when technology intersects with storytelling to create more choice and value for consumers. It’s great to be at the vanguard and we appreciate your support.

Sincerely,
Reed Hastings, CEO
David Wells, CFO
________________________
3http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf
4http://files.shareholder.com/downloads/NFLX/3754169286x0x786677/6974d8e9-5cb3-4009-97b1-9d4a5953a6a5/Q3_14_Letter_to_shareholders.pdf
5http://files.shareholder.com/downloads/NFLX/3527949458x0x769748/9b21df7f-743c-4f0f-94da-9f13e384a3d2/July2014EarningsLetter_7.21.14_final.pdf
6http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf
7http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf
8http://files.shareholder.com/downloads/NFLX/2531040512x0x698481/ecfe1ab4-66f5-4e23-a64a-1ca025216e5e/Q313%20Earnings%20Letter%2010.21.13%2010.30am.pdf
9http://files.shareholder.com/downloads/NFLX/2531040512x0x678215/a9076739-bc08-421e-8dba-52570f4e489e/Q213%20Investor%20Letter.pdf
10http://ir.netflix.com/common/download/download.cfm?companyid=NFLX&fileid=655293&filekey=5c1951a4-e79c-49c8-bb83-1595635bf934&filename=Investor_Letter_Q12013.pdf


                                                                                                                                                    5


April 15th, 2015 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 3 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Mark Mahaney, RBC Capital Markets and Michael Nathanson, MoffettNathanson Research. Questions that investors would like to see asked should be sent to [email protected] or [email protected].

IR Contact:
PR Contact:
Spencer Wang
Jonathan Friedland
Vice President, Finance & Investor Relations
Chief Communications Officer
408 540-3700
310 734-2958


                                                                                                                                                    6


Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measures of net income on a pro forma basis excluding the impact of foreign currency, the release of tax reserves, and to free cash flow. Management believes that the non-GAAP measures of net income on a pro forma basis excluding foreign currency and the release of tax reserves provides useful information as these measures exclude effects that are not indicative of our core operating results. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form on the attached unaudited financial statements.
Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding US contribution margin growth; international expansion, deployment of marketing funds; content launches; product improvements; agreements with ISPs; impact of competition; stock split; member growth domestically and internationally, including net, total and paid; revenue; contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including 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 January 29, 2015. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.










                                                                                                                                                    7


Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
March 31,
2015
 
December 31,
2014
 
March 31,
2014
Revenues
$
1,573,129

 
$
1,484,728

 
$
1,270,089

Cost of revenues
1,046,401

 
1,014,332

 
869,186

Marketing
194,677

 
203,671

 
137,098

Technology and development
143,106

 
125,876

 
110,310

General and administrative
91,489

 
75,803

 
55,900

Operating income
97,456

 
65,046

 
97,595

Other income (expense):
 
 
 
 
 
Interest expense
(26,737
)
 
(13,353
)
 
(10,052
)
Interest and other income (expense)
(32,293
)
 
(6,177
)
 
1,401

Income before income taxes
38,426

 
45,516

 
88,944

Provision (benefit) for income taxes
14,730

 
(37,855
)
 
35,829

Net income
$
23,696

 
$
83,371

 
$
53,115

Earnings per share:
 
 
 
 
 
Basic
$
0.39

 
$
1.38

 
$
0.89

Diluted
$
0.38

 
$
1.35

 
$
0.86

Weighted-average common shares outstanding:
 
 
 
 
 
Basic
60,518

 
60,321

 
59,817

Diluted
61,973

 
61,788

 
61,548

 
 
Three Months Ended
 
 
March 31,
2015
Non-GAAP net income reconciliation:
 
 
GAAP net income
 
$
23,696

Add: Foreign exchange impact
 
33,696

Less: Income tax effect
 
(9,383
)
Non-GAAP net income
 
$
48,009

Non-GAAP earnings per share:
 
 
Basic
 
0.79

Diluted
 
0.77

Weighted-average common shares outstanding:
 
 
Basic
 
60,518

Diluted
 
61,973

 
 
Three Months Ended
 
 
December 31,
2014
Non-GAAP net income reconciliation:
 
 
GAAP net income
 
$
83,371

Less: Release of tax accrual
 
(38,612
)
Non-GAAP net income
 
$
44,759

Non-GAAP earnings per share:
 
 
Basic
 
0.74

Diluted
 
0.72

Weighted-average common shares outstanding:
 
 
Basic
 
60,321

Diluted
 
61,788



                                                                                                                                                    8



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
March 31,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,454,777

 
$
1,113,608

Short-term investments
502,931

 
494,888

Current content library, net
2,370,447

 
2,125,702

Other current assets
210,901

 
206,271

Total current assets
5,539,056

 
3,940,469

Non-current content library, net
3,312,353

 
2,773,326

Property and equipment, net
145,816

 
149,875

Other non-current assets
243,401

 
192,981

Total assets
$
9,240,626

 
$
7,056,651

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
2,425,619

 
$
2,117,241

Accounts payable
190,567

 
201,581

Accrued expenses
107,323

 
69,746

Deferred revenue
285,340

 
274,586

Total current liabilities
3,008,849

 
2,663,154

Non-current content liabilities
1,861,791

 
1,575,832

Long-term debt
2,400,000

 
900,000

Other non-current liabilities
60,772

 
59,957

Total liabilities
7,331,412

 
5,198,943

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 160,000,000 shares authorized at March 31, 2015 and December 31, 2014; 60,620,721 and 60,415,841 issued and outstanding at March 31, 2015 and December 31, 2014, respectively
61

 
60

Additional paid-in capital
1,109,327

 
1,042,810

Accumulated other comprehensive loss
(43,154
)
 
(4,446
)
Retained earnings
842,980

 
819,284

Total stockholders' equity
1,909,214

 
1,857,708

Total liabilities and stockholders' equity
$
9,240,626

 
$
7,056,651

 

                                                                                                                                                    9


Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
March 31,
2015
 
December 31,
2014
 
March 31,
2014
Cash flows from operating activities:
 
 
 
 
 
Net income
$
23,696

 
$
83,371

 
$
53,115

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
Additions to streaming content library
(1,611,925
)
 
(1,008,262
)
 
(749,399
)
Change in streaming content liabilities
626,325

 
125,770

 
42,244

Amortization of streaming content library
749,518

 
730,353

 
600,735

Amortization of DVD content library
21,185

 
20,178

 
16,121

Depreciation and amortization of property, equipment and intangibles
15,167

 
14,312

 
12,382

Stock-based compensation expense
27,441

 
30,251

 
25,825

Excess tax benefits from stock-based compensation
(29,001
)
 
(20,921
)
 
(32,732
)
Other non-cash items
6,306

 
6,475

 
2,196

Deferred taxes
(37,042
)
 
7,501

 
(13,103
)
Changes in operating assets and liabilities:
 
 
 
 
 
Other current assets
23,109

 
(36,099
)
 
35,066

Accounts payable
(10,625
)
 
51,083

 
22,812

Accrued expenses
35,922

 
4,050

 
(442
)
Deferred revenue
10,754

 
21,630

 
14,248

Other non-current assets and liabilities
21,788

 
(68,153
)
 
7,291

Net cash (used in) provided by operating activities
(127,382
)
 
(38,461
)
 
36,359

Cash flows from investing activities:
 
 
 
 
 
Acquisition of DVD content library
(22,906
)
 
(23,365
)
 
(14,914
)
Purchases of property and equipment
(13,036
)
 
(15,491
)
 
(13,334
)
Other assets
225

 
(431
)
 
295

Purchases of short-term investments
(90,940
)
 
(71,597
)
 
(60,546
)
Proceeds from sale of short-term investments
51,948

 
45,022

 
143,048

Proceeds from maturities of short-term investments
31,887

 
14,721

 
3,090

Net cash (used in) provided by investing activities
(42,822
)
 
(51,141
)
 
57,639

Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuance of common stock
10,916

 
3,750

 
32,448

Proceeds from issuance of debt
1,500,000

 
—

 
400,000

Issuance costs
(17,232
)
 
—

 
(6,727
)
Excess tax benefits from stock-based compensation
29,001

 
20,921

 
32,732

Principal payments of lease financing obligations
(251
)
 
(280
)
 
(267
)
Net cash provided by financing activities
1,522,434

 
24,391

 
458,186

 Effect of exchange rate changes on cash and cash equivalents
(11,061
)
 
(4,398
)
 
301

 Net increase (decrease) in cash and cash equivalents
1,341,169

 
(69,609
)
 
552,485

 Cash and cash equivalents, beginning of period
1,113,608

 
1,183,217

 
604,965

 Cash and cash equivalents, end of period
$
2,454,777

 
$
1,113,608

 
$
1,157,450

 
 
 
 
 
 
 
Three Months Ended
 
March 31,
2015
 
December 31,
2014
 
March 31,
2014
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(127,382
)
 
$
(38,461
)
 
$
36,359

Acquisition of DVD content library
(22,906
)
 
(23,365
)
 
(14,914
)
Purchases of property and equipment
(13,036
)
 
(15,491
)
 
(13,334
)
Other assets
225

 
(431
)
 
295

Non-GAAP free cash flow
$
(163,099
)
 
$
(77,748
)
 
$
8,406


                                                                                                                                                    10


Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
March 31, 2015
 
December 31,
2014
 
March 31, 2014
Domestic Streaming
 
 
 
 
 
Total members at end of period
41,397

 
39,114

 
35,674

Paid members at end of period
40,315

 
37,698

 
34,377

 
 
 
 
 
 
Revenues
$
984,532

 
$
917,442

 
$
798,617

Cost of revenues
582,529

 
573,193

 
517,094

Marketing
89,551

 
87,423

 
80,258

Contribution profit
312,452

 
256,826

 
201,265

 
 
 
 
 
 
International Streaming
 
 
 
 
 
Total members at end of period
20,877

 
18,277

 
12,683

Paid members at end of period
19,304

 
16,778

 
11,755

 
 
 
 
 
 
Revenues
$
415,397

 
$
387,797

 
$
267,118

Cost of revenues
375,278

 
350,211

 
245,267

Marketing
105,126

 
116,248

 
56,840

Contribution profit (loss)
(65,007
)
 
(78,662
)
 
(34,989
)
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
Total members at end of period
5,564

 
5,767

 
6,652

Paid members at end of period
5,470

 
5,668

 
6,509

 
 
 
 
 
 
Revenues
$
173,200

 
$
179,489

 
$
204,354

Cost of revenues
88,594

 
90,928

 
106,825

Contribution profit
84,606

 
88,561

 
97,529

 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,573,129

 
$
1,484,728

 
$
1,270,089

Cost of revenues
1,046,401

 
1,014,332

 
869,186

Marketing
194,677

 
203,671

 
137,098

Contribution profit
332,051

 
266,725

 
263,805

Other operating expenses
234,595

 
201,679

 
166,210

Operating income
97,456

 
65,046

 
97,595

Other income (expense)
(59,030
)
 
(19,530
)
 
(8,651
)
Provision (benefit) for income taxes
14,730

 
(37,855
)
 
35,829

Net income
$
23,696

 
$
83,371

 
$
53,115





                                                                                                                                                    11

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