Form 8-K NETFLIX INC For: Jan 17

January 17, 2019 4:09 PM

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):

January 17, 2019

__________________________________

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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02 Results of Operations and Financial Condition.

On January 17, 2019 Netflix, Inc. (the “Company”) announced its financial results for the quarter ended December 31, 2018. 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 free cash flow and EBITDA. 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 free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. 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 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:	January 17, 2019

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:	January 17, 2019
		/s/ Spencer Neumann
		Spencer Neumann
		Chief Financial Officer

EXHIBIT INDEX



Exhibit No.		Description of Exhibit
99.1*		Letter to Shareholders dated: December 17, 2018


*	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

January 17, 2019

Fellow shareholders,

We grew annual revenue 35% to $16 billion in 2018, and nearly doubled operating profits to $1.6 billion. Fueling this growth was our high member satisfaction, which propelled us to finish 2018 with 139 million paying memberships, up 9 million from quarter start and up 29 million from the beginning of the year.



(in millions except per share data and Streaming Content Obligations)	Q4'17			Q1'18			Q2'18			Q3'18			Q4'18			Q1'19 Forecast
Revenue	$	3,286		$	3,701		$	3,907		$	3,999		$	4,187		$	4,494
Y/Y % Growth	32.6		%	40.4		%	40.3		%	34.0		%	27.4		%	21.4		%
Operating Income	$	245		$	447		$	462		$	481		$	216		$	400
Operating Margin	7.5		%	12.1		%	11.8		%	12.0		%	5.2		%	8.9		%
Net Income	$	186		$	290		$	384		$	403		$	134		$	253
Diluted EPS	$	0.41		$	0.64		$	0.85		$	0.89		$	0.30		$	0.56

Global Streaming Paid Memberships	110.64			118.90			124.35			130.42			139.26			148.16
Y/Y % Growth	24.2		%	26.0		%	25.6		%	25.4		%	25.9		%	24.6		%
Global Streaming Paid Net Additions	6.62			8.26			5.45			6.07			8.84			8.90

Net cash (used in) operating activities	$	(488	)	$	(237	)	$	(518	)	$	(690	)	$	(1,235	)
Free Cash Flow	$	(524	)	$	(287	)	$	(559	)	$	(859	)	$	(1,315	)
EBITDA	$	313		$	534		$	563		$	584		$	328
Shares (FD)	448.1			450.4			451.6			451.9			451.1
Streaming Content Obligations* ($B)	17.7			17.9			18.4			18.6			19.3
Note: Figures are consolidated, including DVD.
*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

Q4 Results and Q1 Forecast

Average paid memberships and ASP rose 26% and 3% year over year, respectively. Excluding the impact of F/X, international ASP increased 6% year over year and 1% sequentially. Foreign exchange headwinds continued to move against us in the quarter, similar to the trend we saw in Q3’18.

As expected, Q4 operating margin dipped to 5.2% vs. 7.5% prior year due to so many titles launching in the quarter. Our full year 2018 operating margin of 10% was in-line with our target. EPS of $0.30 vs. $0.41 included a $22 million non-cash unrealized gain from F/X remeasurement on our Euro denominated debt.

We added a record 8.8m paid memberships (1.5m in the US and 7.3m internationally), higher than our beginning-of-quarter expectation for 7.6m paid net adds and up 33% year over year. For the full year, paid net adds grew 33% to 29m vs. the 22m we added in 2017.

As discussed in our last letter, we reclassified¹ certain personnel costs from G&A to Cost of Revenues and Marketing, and from Technology & Development to Other Cost of Revenues. This change has no impact on operating profit or margin or total operating expenses and historical quarterly pro forma financial statements for 2016-2018 can be found here².

The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy. For Q1’19, we forecast global paid net additions of 8.9m, +8% year over year, with 1.6m in the US and 7.3m internationally. Our Q1’19 revenue forecast represents 21% year over year growth (27% FX neutral). Our paid member growth is fairly consistent. Quarter to quarter, revenue growth varies due to factors like FX changes and timing of price changes across different markets. For example, we forecast Q1’19 international ASP will be up year over year, excluding FX.

___________________________________

¹https://d18rn0p25nwr6d.cloudfront.net/CIK-0001065280/d11fdb4f-97b7-4ff1-b3b0-9ddc7df9e73c.pdf

² https://www.netflixinvestor.com/financials/financial-statements/default.aspx



	2

We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience. We want to ensure that Netflix is a good value for the money and that our entry price is affordable. We just increased our US prices for new members, as we did in Q4 in Canada and Argentina, and in Japan in Q3. The new pricing in the US will be phased in for existing members over Q1 and Q2, which we anticipate will lift ASP.

Our multi-year plan is to keep significantly growing our content while increasing our revenue faster to expand our operating margins. We’re targeting a 9% operating margin in Q1’19, which we expect will grow over the course of the year and our full year operating margin target for 2019 remains 13% vs. 10% in 2018. A majority of our revenue is not in dollars, so when there are material FX moves, investors know to expect proportionate top line changes. In such FX cases, we’ll seek to adjust our prices and costs over time, but since that will lag the revenue changes, and since we don’t hedge FX, this would lead to short-term margin variations from our steady progression.

Content

In its first 4 weeks on Netflix, we estimate that Bird Box from director Susanne Bier will be enjoyed by over 80 million member households, and we are seeing high repeat viewing. In combination with our other movie hits such as: Dumplin’ from director Anne Fletcher, Chris Columbus-produced The Christmas Chronicles,³ Alfonso Cuarón’s critically acclaimed ROMA,⁴ Paul Greengrass’ 22 July, Tamara Jenkins’ Private Life⁵ and the Coen brothers’ The Ballad of Buster Scruggs,⁶ we are beginning to have our original movie⁷ offering mirror the success of our series offering for consumer enjoyment. The global reach of our audience and the quality of the experience producing for Netflix continues to attract the world’s top directors. We are expanding the film market: while our films drew bigger and bigger audiences in Q4, the North American box office also set records. Today, five weeks after its Netflix debut, ROMA is still being exhibited in theaters and has played on over 900 unique screens around the world, including some special 70mm format presentations. People love films...at home and in theaters.

Around the world, our titles are not only pleasing consumers, but they are transforming the careers of our talent. Elite, our Spanish original, has been a huge success with over 20 million member households around the world enjoying the series in its first four weeks on service.⁸ In addition to being highly watched, social engagement has been phenomenal and the cast’s popularity on social media skyrocketed, continuing to demonstrate our ability to be a launching pad for talent.

___________________________________

³https://www.hollywoodreporter.com/news/christmas-chronicles-director-chris-columbus-kurt-russell-santa-1163161

⁴ https://www.rollingstone.com/movies/movie-reviews/roma-movie-review-758113/

⁵ https://www.rottentomatoes.com/m/private_life_2018

⁶https://www.vanityfair.com/hollywood/2018/11/ballad-of-buster-scruggs-movie-review-coen-brothers-netflix

⁷ https://variety.com/2019/film/opinion/top-10-best-netflix-original-films-of-2018-1203097500/

⁸For series, due to their highly variable length, we count a viewer if they substantially complete at least one episode (70%). For a film, it is if they substantially complete the film (70%).



	3

We’re making significant investments in productions all over the world because we have seen that great stories transcend borders. For example, Bodyguard (co-produced with BBC One, from ITV Studios) ranks as one of our most enjoyed co-productions. Baby, our second original series from Italy, and The Protector, our first Turkish original series, both saw strong viewing both inside and outside their home countries. All three of these debut seasons from around the world were each enjoyed by over 10 million member households in their first four weeks.

From Hollywood, in Q4 we launched new global scripted series like The Haunting of Hill House,⁹ Chilling Adventures of Sabrina, and The Kominsky Method (from Chuck Lorre, starring Michael Douglas and Alan Arkin), as well as new seasons of returning shows like adult animation Big Mouth and Narcos: Mexico, the latest installment in the Narcos franchise. We were very pleased with our launch of You¹⁰ three weeks ago; we estimate it will be watched by over 40 million member households in its first 4 weeks on Netflix. This binge-worthy show started as a Lifetime linear series in the US, but is now a full Netflix global original. A week ago, we launched Sex Education from the UK and it is also tracking to be a huge hit (estimated over 40 million households watching the title within the first 4 weeks).

Netflix films and TV shows picked up five 2019 Golden Globe wins,¹¹ including Best Comedy Series for The Kominsky Method and Best Actor in a Comedy Series for Michael Douglas and Best Actor in a Drama Series for Richard Madden from Bodyguard. Alfonso Cuarón won the Golden Globe for Best Feature Director and Best Foreign Language Feature for ROMA.

___________________________________

⁹https://www.rollingstone.com/tv/tv-features/the-haunting-of-hill-house-review-737658/

¹⁰ https://www.theringer.com/tv/2019/1/11/18177643/you-netflix-effect

¹¹ https://variety.com/2019/film/awards/golden-globes-2019-winners-recap-1203100429/



	4

As a result of our success with original content, we’re becoming less focused on 2nd run programming. For example, we launched our originals strategy for the unscripted genre only two years ago. Today, Netflix originals, like Tidying Up with Marie Kondo,¹² account for a majority of total unscripted view share on Netflix, while viewing of all unscripted programming has increased meaningfully during that time. We are ready to pay top-of-market prices for second run content when the studios, networks and producers are willing to sell, but we are also prepared to keep our members ecstatic with our incredible original content if others choose to retain their content for their own services.

Looking forward in 2019, we will be launching many new highly-anticipated titles including The Umbrella Academy (February 15th); Triple Frontier from J.C. Chandor (March); The Irishman from Martin Scorsese; 6 Underground from Michael Bay; and The Politician from Ryan Murphy; as well as returning seasons of The Crown led by a new cast including Olivia Colman, Ben Daniels, and Helena Bonham Carter; 13 Reasons Why, La Casa de Papel, Elite, and, of course, Season 3 of the epic Stranger Things, coming to members all around the world on July 4th.

Product and Partnerships

We test many different approaches to our business in order to learn how to grow quickly. We continue to test new plan options (both below and above our existing offers) in certain markets. We are also expanding our bundled offerings which now include: Telefonica in Spain, Comcast and T-Mobile in the US, Sky in the UK and Germany, Free in France, and KDDI in Japan. As discussed in our Q1’18 investor letter, in the case of these hard bundles, we report revenue net of economics we share with our partners.

On December 28, we released Black Mirror: Bandersnatch, our first interactive movie for adults, allowing viewers to make decisions on behalf of the lead character. We’ve created thousands of different pathways to make it through the story, including multiple endings. This level of complexity necessitated the creation of a system to make such storytelling manageable. “Branch Manager” helped series creator and writer Charlie Brooker and our internal teams produce this popular multi-branched movie. We’ll be using Branch Manager to construct additional interactive projects going forward. We’re thrilled with the global excitement that Bandersnatch has created and it serves as a strong example of how we can marry technology and entertainment to evolve video storytelling.

Competition

In the US, we earn around 10% of television screen time¹³ and less than that of mobile screen time. In other countries, we earn a lower percentage of screen time due to lower penetration of our service. We earn consumer screen time, both mobile and television, away from a very broad set of competitors. We compete with (and lose to) Fortnite more than HBO. When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time. Hulu is small compared to YouTube for viewing time, and they are successful in the US, but non-existent in Canada, which creates a comparison point: our penetration in the two countries is pretty similar. There are thousands of competitors in this highly-fragmented market vying to entertain consumers and low barriers to entry for those with great experiences. Our growth is based on how good our experience is, compared to all the other screen time experiences from which consumers choose. Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for our members.

___________________________________

¹²https://www.theringer.com/tv/2019/1/15/18182690/marie-kondo-tidying-up-netflix-instagram-social-media-phenomenon

¹³We serve on average about 100 million hours a day to television screens in the US, and we estimate television screens in the US are on about a billion hours daily (120m homes x 2 TVs x 4 hours, plus hotels, bars, etc).



	5

Free Cash Flow and Capital Structure

Free cash flow in Q4’18 was -$1.3 billion vs. -$0.5 billion in Q4’17, totalling -$3 billion for 2018 (compared to our original forecasted range of -$3 to -$4 billion for the full year). We expect 2019 FCF will be similar to 2018 and then will improve each year thereafter (assuming, as we do, no material transactions). This FCF improvement will be driven by growing operating margin, which will allow us to fund more of our investment needs internally.

During Q4, we raised €1.1 billion 4.625% senior notes and $800 million 6.375% senior notes (weighted average coupon of 5.3%). As long as we judge our marginal after-tax cost of debt to be lower than our marginal cost of equity, we’ll continue to finance our working capital needs through the high yield market. We finished the year with cash of $3.8 billion and our $500 million unsecured credit facility remains undrawn.

Spence Neumann joins as CFO

We’re pleased that Spence Neumann has joined Netflix as our new CFO and we thank David Wells for his many contributions to Netflix. Spence is a veteran entertainment executive who brings a wealth of experience and new perspectives to the company as we expand our original content around the world.



	6

Reference

For quick reference, our eight most recent investor letters are: October 2018,¹⁴ July 2018,¹⁵ April 2018,¹⁶ January 2018,¹⁷ October 2017,¹⁸ July 2017,¹⁹ April 2017,²⁰ January 2017.²¹

Appendix



(in millions)	Q4'17			Q1'18			Q2'18			Q3'18			Q4'18			Q1'19 Forecast
US Streaming:
Revenue	$	1,630		$	1,820		$	1,893		$	1,937		$	1,996		$	2,064
Contribution Profit*	$	503		$	633		$	672		$	688		$	590		$	705
Contribution Margin*	30.9		%	34.8		%	35.5		%	35.5		%	29.6		%	34.2		%
Paid Memberships	52.81			55.09			55.96			56.96			58.49			60.09
Paid Net Additions	1.47			2.28			0.87			1.00			1.53			1.60
Free Trials	1.94			1.62			1.42			1.51			2.07

International Streaming:
Revenue	$	1,550		$	1,782		$	1,921		$	1,973		$	2,106		$	2,350
Contribution Profit*	$	39		$	174		$	188		$	218		$	82		$	230
Contribution Margin*	2.5		%	9.8		%	9.8		%	11.0		%	3.9		%	9.8		%
Paid Memberships	57.83			63.82			68.39			73.46			80.77			88.07
Paid Net Additions	5.16			5.98			4.58			5.07			7.31			7.30
Free Trials	5.00			4.48			4.37			5.17			7.13

*Certain prior period amounts have been reclassified from G&A to Cost of revenues and Marketing and from Tech & Dev to Cost of revenues to conform to current period presentation

___________________________________

¹⁴https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q3/FINAL-Q3-18-Shareholder-Letter.pdf

¹⁵ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q2/FINAL-Q2-18-Shareholder-Letter.pdf

¹⁶ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q1/FINAL-Q1-18-Shareholder-Letter.pdf

¹⁷ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q4/COMBINED-Q4-17-Shareholder-Letter-FINAL.pdf

¹⁸ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q3/Q3_17_Shareholder_Letter_COMBINED.pdf

¹⁹ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q2/Q2_17_Shareholder_Letter.pdf

²⁰ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q1/Q117ShareholderLetterV2FINAL.pdf

²¹ https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2016/q4/Q416ShareholderLetter.pdf



	7

January 17, 2019 Earnings Interview, 3pm PST

Our video interview with Eric Sheridan of UBS will be on youtube/netflixir at 3pm PST today. Questions that investors would like to see asked should be sent to [email protected]. Reed Hastings, CEO, Spence Neumann, CFO, Ted Sarandos, Chief Content Officer, Greg Peters, Chief Product Officer and Spencer Wang, VP of IR/Corporate Development will all be on the video to answer Eric’s questions.



IR Contact:	PR Contact:
Spencer Wang	Richard Siklos
VP, Finance/IR & Corporate Development	VP, Corporate Communications
408 809-5360	408 540-2629



	8

Use of Non-GAAP Measures

This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow and EBITDA. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. 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 content investment; multi-year business plan; content performance; price changes; reliance on 2^nd run programming; future content offerings, including interactive projects; partnerships; effect of competition on growth; free cash flow; future capital raises; domestic and international net and paid subscribers; revenue; contribution profit (loss) and contribution margin for both domestic international operations, as well as consolidated operating income, operating margin; 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; changes in government regulation; 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, as amended by Form 10-K/A, filed with the Securities and Exchange Commission on February 5, 2018. 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, as amended by Form 10-K/A. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.



	9

Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)



	Three Months Ended									Twelve Months Ended
	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Revenues	$	4,186,841		$	3,999,374		$	3,285,755		$	15,794,341		$	11,692,713
Cost of revenues	2,733,400			2,531,128			2,214,334			9,967,538			8,033,000
Marketing	730,355			510,330			466,527			2,369,469			1,436,281
Technology and development	331,789			308,620			247,132			1,221,814			953,710
General and administrative	175,530			168,628			112,459			630,294			431,043
Operating income	215,767			480,668			245,303			1,605,226			838,679
Other income (expense):
Interest expense	(128,807		)	(108,862		)	(75,292		)	(420,493		)	(238,204		)
Interest and other income (expense)	32,436			7,004			(38,681		)	41,725			(115,154		)
Income before income taxes	119,396			378,810			131,330			1,226,458			485,321
Provision for (benefit from) income taxes	(14,538		)	(24,025		)	(54,187		)	15,216			(73,608		)
Net income	$	133,934		$	402,835		$	185,517		$	1,211,242		$	558,929
Earnings per share:
Basic	$	0.31		$	0.92		$	0.43		$	2.78		$	1.29
Diluted	$	0.30		$	0.89		$	0.41		$	2.68		$	1.25
Weighted-average common shares outstanding:
Basic	436,385			435,809			433,108			435,374			431,885
Diluted	451,116			451,919			448,142			451,244			446,814



	10

Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands)



	As of
	December 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	3,794,483		$	2,822,795
Current content assets, net	5,151,186			4,310,934
Other current assets	748,466			536,245
Total current assets	9,694,135			7,669,974
Non-current content assets, net	14,960,954			10,371,055
Property and equipment, net	418,281			319,404
Other non-current assets	901,030			652,309
Total assets	$	25,974,400		$	19,012,742
Liabilities and Stockholders' Equity
Current liabilities:
Current content liabilities	$	4,686,019		$	4,173,041
Accounts payable	562,985			359,555
Accrued expenses	477,417			315,094
Deferred revenue	760,899			618,622
Total current liabilities	6,487,320			5,466,312
Non-current content liabilities	3,759,026			3,329,796
Long-term debt	10,360,058			6,499,432
Other non-current liabilities	129,231			135,246
Total liabilities	20,735,635			15,430,786
Stockholders' equity:
Common stock	2,315,988			1,871,396
Accumulated other comprehensive loss	(19,582		)	(20,557		)
Retained earnings	2,942,359			1,731,117
Total stockholders' equity	5,238,765			3,581,956
Total liabilities and stockholders' equity	$	25,974,400		$	19,012,742



	11

Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)



	Three Months Ended									Twelve Months Ended
	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Cash flows from operating activities:
Net income	$	133,934		$	402,835		$	185,517		$	1,211,242		$	558,929
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(3,784,252		)	(3,238,717		)	(2,477,659		)	(13,043,437		)	(9,805,763		)
Change in streaming content liabilities	266,653			65,868			53,446			999,880			900,006
Amortization of streaming content assets	2,053,660			1,911,767			1,713,863			7,532,088			6,197,817
Amortization of DVD content assets	8,965			9,959			12,289			41,212			60,657
Depreciation and amortization of property, equipment and intangibles	23,219			21,161			19,073			83,157			71,911
Stock-based compensation expense	88,714			82,316			48,530			320,657			182,209
Other non-cash items	9,336			8,962			14,126			40,428			57,207
Foreign currency remeasurement loss (gain) on long-term debt	(21,953		)	(7,670		)	25,740			(73,953		)	140,790
Deferred taxes	(14,479		)	(39,453		)	(104,132		)	(85,520		)	(208,688		)
Changes in operating assets and liabilities:
Other current assets	(88,359		)	(30,364		)	(87,090		)	(200,192		)	(234,090		)
Accounts payable	121,831			(4,449		)	63,969			199,198			74,559
Accrued expenses	(49,776		)	134,000			(5,169		)	150,422			114,337
Deferred revenue	44,176			18,983			83,197			142,277			177,974
Other non-current assets and liabilities	(26,741		)	(25,609		)	(33,657		)	2,062			(73,803		)
Net cash used in operating activities	(1,235,072		)	(690,411		)	(487,957		)	(2,680,479		)	(1,785,948		)
Cash flows from investing activities:
Acquisition of DVD content assets	(7,507		)	(7,731		)	(10,507		)	(38,586		)	(53,720		)
Purchases of property and equipment	(70,120		)	(39,333		)	(21,585		)	(173,946		)	(173,302		)
Change in other assets	(2,731		)	(121,630		)	(3,749		)	(126,588		)	(6,689		)
Purchases of short-term investments	—			—			—			—			(74,819		)
Proceeds from sale of short-term investments	—			—			—			—			320,154
Proceeds from maturities of short-term investments	—			—			—			—			22,705
Net cash provided by (used in) investing activities	(80,358		)	(168,694		)	(35,841		)	(339,120		)	34,329
Cash flows from financing activities:
Proceeds from issuance of debt	2,061,852			—			1,600,000			3,961,852			3,020,510
Debt issuance costs	(18,879		)	—			(16,828		)	(35,871		)	(32,153		)
Proceeds from issuance of common stock	11,450			29,781			14,705			124,502			88,378
Other financing activities	(559		)	(544		)	66			(1,956		)	255
Net cash provided by financing activities	2,053,864			29,237			1,597,943			4,048,527			3,076,990
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(4,957		)	(5,562		)	2,181			(39,682		)	29,848
Net increase (decrease) in cash, cash equivalents, and restricted cash	733,477			(835,430		)	1,076,326			989,246			1,355,219
Cash, cash equivalents, and restricted cash at beginning of period	3,078,564			3,913,994			1,746,469			2,822,795			1,467,576
Cash, cash equivalents, and restricted cash at end of period	$	3,812,041		$	3,078,564		$	2,822,795		$	3,812,041		$	2,822,795

	Three Months Ended									Twelve Months Ended
	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Non-GAAP free cash flow reconciliation:
Net cash used in operating activities	$	(1,235,072	)	$	(690,411	)	$	(487,957	)	$	(2,680,479	)	$	(1,785,948	)
Acquisition of DVD content assets	(7,507		)	(7,731		)	(10,507		)	(38,586		)	(53,720		)
Purchases of property and equipment	(70,120		)	(39,333		)	(21,585		)	(173,946		)	(173,302		)
Change in other assets	(2,731		)	(121,630		)	(3,749		)	(126,588		)	(6,689		)
Non-GAAP free cash flow	$	(1,315,430	)	$	(859,105	)	$	(523,798	)	$	(3,019,599	)	$	(2,019,659	)



	12

Netflix, Inc.

Segment Information

(unaudited)

(in thousands)



	As of / Three Months Ended									As of/ Twelve Months Ended
	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Domestic Streaming
Paid memberships at end of period	58,486			56,957			52,810			58,486			52,810
Paid net membership additions	1,529			998			1,465			5,676			4,905
Free trials	2,065			1,507			1,940			2,065			1,940

Revenues	$	1,996,092		$	1,937,314		$	1,630,274		$	7,646,647		$	6,153,025
Cost of revenues	1,093,446			1,038,473			916,100			4,038,394			3,470,859
Marketing	312,739			210,595			211,057			1,025,351			603,746
Contribution profit	589,907			688,246			503,117			2,582,902			2,078,420

International Streaming
Paid memberships at end of period	80,773			73,465			57,834			80,773			57,834
Paid net membership additions	7,308			5,070			5,156			22,939			16,649
Free trials	7,131			5,170			4,998			7,131			4,998

Revenues	$	2,105,592		$	1,973,283		$	1,550,329		$	7,782,105		$	5,089,191
Cost of revenues	1,606,275			1,455,554			1,255,749			5,776,047			4,359,616
Marketing	417,616			299,735			255,470			1,344,118			832,535
Contribution profit (loss)	81,701			217,994			39,110			661,940			(102,960		)

Domestic DVD
Paid memberships at end of period	2,706			2,828			3,330			2,706			3,330
Free trials	25			24			53			25			53

Revenues	$	85,157		$	88,777		$	105,152		$	365,589		$	450,497
Cost of revenues	33,679			37,101			42,485			153,097			202,525
Contribution profit	51,478			51,676			62,667			212,492			247,972

Consolidated

Revenues	$	4,186,841		$	3,999,374		$	3,285,755		$	15,794,341		$	11,692,713
Cost of revenues	2,733,400			2,531,128			2,214,334			9,967,538			8,033,000
Marketing	730,355			510,330			466,527			2,369,469			1,436,281
Contribution profit	723,086			957,916			604,894			3,457,334			2,223,432
Other operating expenses	507,319			477,248			359,591			1,852,108			1,384,753
Operating income	215,767			480,668			245,303			1,605,226			838,679
Other expense	(96,371		)	(101,858		)	(113,973		)	(378,768		)	(353,358		)
Provision for (benefit from) income taxes	(14,538		)	(24,025		)	(54,187		)	15,216			(73,608		)
Net income	$	133,934		$	402,835		$	185,517		$	1,211,242		$	558,929



	13

Netflix, Inc.

Reclassification Reconciliation

(unaudited)

(in thousands)



	Three Months Ended December 31, 2018
	Per Previous Classification			Reclassifications			As Reported
Consolidated
Revenues	$	4,186,841		$	—		$	4,186,841
Cost of revenues	2,599,089			134,311			2,733,400
Marketing	646,938			83,417			730,355
Technology and development	350,283			(18,494		)	331,789
General and administrative	374,764			(199,234		)	175,530
Operating Income	215,767			—			215,767
Operating Margin	5.2		%	—		%	5.2		%

Domestic Streaming
Revenues	$	1,996,092		$	—		$	1,996,092
Cost of revenues	1,041,126			52,320			1,093,446
Marketing	282,228			30,511			312,739
Contribution Profit	672,738			(82,831		)	589,907
Contribution Margin	33.7		%	(4.1		)%	29.6		%

International Streaming
Revenues	$	2,105,592		$	—		$	2,105,592
Cost of revenues	1,524,284			81,991			1,606,275
Marketing	364,710			52,906			417,616
Contribution Profit	216,598			(134,897		)	81,701
Contribution Margin	10.3		%	(6.4		)%	3.9		%



	14

Netflix, Inc.

Non-GAAP Information

(unaudited)

(in thousands)




	December 31, 2017			March 31, 2018		June 30, 2018		September 30, 2018			December 31, 2018
Non-GAAP Adjusted EBITDA reconciliation:
GAAP net income	$	185,517		$	290,124	$	384,349	$	402,835		$	133,934
Add:
Other expense	113,973			146,962		33,577		101,858			96,371
Provision for (benefit from) income taxes	(54,187		)	9,492		44,287		(24,025		)	(14,538		)
Depreciation and amortization of property, equipment and intangibles	19,073			19,041		19,736		21,161			23,219
Stock-based compensation expense	48,530			68,395		81,232		82,316			88,714
Adjusted EBITDA	$	312,906		$	534,014	$	563,181	$	584,145		$	327,700



	15

StreetInsider

Log in to your account:

Form 8-K NETFLIX INC For: Jan 17

Categories

Next Articles