Netflix, Inc.

[Pages:49]UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021 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: 001-35727

Netflix, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

100 Winchester Circle, Los Gatos, California

(Address of principal executive offices)

(408) 540-3700

(Registrant's telephone number, including area code)

77-0467272

(I.R.S. Employer Identification Number)

95032

(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common stock, par value $0.001 per share

Trading Symbol(s)

NFLX

Name of each exchange on which registered

NASDAQ Global Select Market

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (?232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

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.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes No

As of March 31, 2021, there were 443,383,732 shares of the registrant's common stock, par value $0.001, outstanding.

Item 1.

Item 2. Item 3. Item 4. Item 1. Item 1A. Item 2. Item 6. Exhibit Index Signatures

Table of Contents

Consolidated Financial Statements

Part I. Financial Information

Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Cash Flows Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures

Part II. Other Information Legal Proceedings Risk Factors Unregistered Sales of Equity Securities and Use of Proceeds Exhibits

2

Page

3 4 5 6 7 8 19 30 30

30 31 31 31 32 32

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NETFLIX, INC.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

Revenues Cost of revenues Marketing Technology and development General and administrative

Operating income Other income (expense):

Interest expense Interest and other income Income before income taxes Provision for income taxes Net income

Earnings per share: Basic Diluted

Weighted-average common shares outstanding: Basic Diluted

Three Months Ended

March 31, 2021

March 31, 2020

$ 7,163,282 $ 5,767,691

3,868,511

3,599,701

512,512

503,830

525,207

453,817

297,196

252,087

1,959,856

958,256

(194,440) 269,086 2,034,502 (327,787) $ 1,706,715 $

(184,083) 21,697

795,870 (86,803) 709,067

$

3.85 $

1.61

$

3.75 $

1.57

443,224 455,641

439,352 452,494

See accompanying notes to the consolidated financial statements. 3

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NETFLIX, INC.

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

Net income Other comprehensive loss:

Foreign currency translation adjustments Comprehensive income

Three Months Ended

March 31, 2021

March 31, 2020

$

1,706,715 $

709,067

(40,261)

$

1,666,454 $

(23,533) 685,534

See accompanying notes to the consolidated financial statements. 4

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NETFLIX, INC.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities:

Additions to content assets Change in content liabilities Amortization of content assets Depreciation and amortization of property, equipment and intangibles Stock-based compensation expense Foreign currency remeasurement gain on debt Other non-cash items Deferred income taxes Changes in operating assets and liabilities:

Other current assets Accounts payable Accrued expenses and other liabilities Deferred revenue Other non-current assets and liabilities

Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Change in other assets

Net cash used in investing activities Cash flows from financing activities: Repayments of debt Proceeds from issuance of common stock

Net cash provided by (used in) financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period Cash, cash equivalents and restricted cash at end of period

See accompanying notes to the consolidated financial statements.

5

Three Months Ended

March 31, 2021

March 31, 2020

$ 1,706,715 $

709,067

(3,284,576) (266,040) 2,719,196 35,741 107,230 (253,330) 72,657 159,733

(3,294,275) 258,945

2,483,385 28,517 97,019 (93,060) 65,448 46,619

(221,555) (137,313) 177,897

22,279 (61,368) 777,266

(127,353) (149,153) 214,191

62,008 (41,446) 259,912

(81,001) (4,615)

(85,616)

(98,015) (288)

(98,303)

(500,000)

--

48,071

43,694

(451,929)

43,694

(42,138)

(70,902)

197,583

134,401

8,238,870

5,043,786

$ 8,436,453 $ 5,178,187

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NETFLIX, INC.

Consolidated Balance Sheets (in thousands, except share and par value data)

Assets Current assets:

Cash and cash equivalents Other current assets

Total current assets Content assets, net Property and equipment, net Other non-current assets

Total assets

Liabilities and Stockholders' Equity Current liabilities:

Current content liabilities Accounts payable Accrued expenses and other liabilities Deferred revenue Short-term debt

Total current liabilities Non-current content liabilities Long-term debt Other non-current liabilities

Total liabilities Commitments and contingencies (Note 7) Stockholders' equity:

Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2021 and December 31, 2020; 443,383,732 and 442,895,261 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Accumulated other comprehensive income Retained earnings

Total stockholders' equity Total liabilities and stockholders' equity

March 31, 2021

(unaudited)

As of

December 31, 2020

$

8,403,705 $

8,205,550

1,703,803

1,556,030

10,107,508

9,761,580

26,043,991

25,383,950

1,015,419

960,183

2,956,096

3,174,646

$

40,123,014 $

39,280,359

$

4,297,957 $

4,429,536

532,942

656,183

1,291,812

1,102,196

1,140,271

1,117,992

698,788

499,878

7,961,770

7,805,785

2,465,626

2,618,084

14,860,552

15,809,095

1,950,986

1,982,155

27,238,934

28,215,119

3,600,084

3,447,698

4,137

44,398

9,279,859

7,573,144

12,884,080

11,065,240

$

40,123,014 $

39,280,359

See accompanying notes to the consolidated financial statements. 6

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NETFLIX, INC.

Consolidated Statements of Stockholders' Equity (unaudited)

(in thousands)

Total stockholders' equity, beginning balances

Common stock and additional paid-in capital: Beginning balances Issuance of common stock upon exercise of options Stock-based compensation expense Ending balances

Accumulated other comprehensive income (loss): Beginning balances Other comprehensive loss Ending balances

Retained earnings: Beginning balances Net income Ending balances

Total stockholders' equity, ending balances

Three Months Ended

March 31, 2021

March 31, 2020

$ 11,065,240 $ 7,582,157

$ 3,447,698 $ 2,793,929

45,156

44,584

107,230

97,019

$ 3,600,084 $ 2,935,532

$

44,398 $ (23,521)

(40,261)

(23,533)

$

4,137 $ (47,054)

$ 7,573,144 $ 4,811,749

1,706,715

709,067

$ 9,279,859 $ 5,520,816

$ 12,884,080 $ 8,409,294

See accompanying notes to the consolidated financial statements. 7

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NETFLIX, INC.

Notes to Consolidated Financial Statements (unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S.") and are consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the "SEC") on January 28, 2021. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Interim results are not necessarily indicative of the results for a full year.

There have been no material changes in the Company's significant accounting policies as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Recently adopted accounting pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. The Company adopted ASU 2019-12 in the first quarter of 2021 and the adoption had no material impact to the Company's consolidated financial statements.

2. Revenue Recognition

The Company's primary source of revenues is from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics ("CE") manufacturers, multichannel video programming distributors ("MVPDs"), mobile operators and internet service providers ("ISPs"), provide access to the service as the Company retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed. However, if there is no distinct service provided in exchange for the payments made to the partners or if the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

The following tables summarize streaming revenue, paid net membership additions, and paid memberships at end of period by region for the three months ended March 31, 2021 and March 31, 2020, respectively:

United States and Canada (UCAN)

Revenues Paid net membership additions Paid memberships at end of period (1)

As of/ Three Months Ended

March 31, 2021

March 31, 2020

(in thousands)

$

3,170,972 $

2,702,776

448

2,307

74,384

69,969

8

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