Netflix, Inc.
[Pages:41]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 June 30, 2020 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 June 30, 2020, there were 441,015,443 shares of the registrant's common stock, par value $0.001, outstanding.
Table of Contents
Item 1.
Consolidated Financial Statements
Part I. Financial Information
Item 2. Item 3. Item 4.
Item 1. Item 1A. Item 6. Exhibit Index Signatures
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 Exhibits
2
Page
3 4 5 6 7 8 19 34 34
34 35 35 36 36
Table of Contents
Revenues Cost of revenues Marketing Technology and development General and administrative
Operating income Other income (expense):
Interest expense Interest and other income (expense) Income before income taxes Provision for income taxes Net income
Earnings per share: Basic Diluted
Weighted-average common shares outstanding: Basic Diluted
NETFLIX, INC.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended
June 30, 2020
June 30, 2019
$ 6,148,286 $ 4,923,116
3,643,707
3,005,657
434,370
603,150
435,045
383,233
277,236
224,657
1,357,928
706,419
Six Months Ended
June 30, 2020
June 30, 2019
$ 11,915,977 $ 9,444,108
7,243,408
5,876,271
938,200
1,219,728
888,862
755,997
529,323
426,609
2,316,184
1,165,503
(189,151) (133,175) 1,035,602 315,406 $ 720,196 $
(152,033)
(373,234)
(53,470)
(111,478)
500,916
1,831,472
230,266
402,209
270,650 $ 1,429,263 $
(287,562) 22,634
900,575 285,873 614,702
$
1.63 $
0.62 $
3.25 $
1.41
$
1.59 $
0.60 $
3.15 $
1.36
440,569 453,945
437,587 452,195
439,961 453,220
437,271 452,063
See accompanying notes to the consolidated financial statements. 3
Table of Contents
Net income Other comprehensive income (loss):
Foreign currency translation adjustments Comprehensive income
NETFLIX, INC.
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
Three Months Ended
Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
$
720,196 $
270,650 $ 1,429,263 $ 614,702
12,982
5,248
(10,551)
(770)
$
733,178 $
275,898 $ 1,418,712 $ 613,932
See accompanying notes to the consolidated financial statements. 4
Table of Contents
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 (used in) 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 Other non-cash items Foreign currency remeasurement loss on debt Deferred 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 (used in) 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:
Proceeds from issuance of debt
Debt issuance costs Proceeds from issuance of common stock
Net cash provided by 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
Three Months Ended
June 30, 2020
June 30, 2019
Six Months Ended
June 30, 2020
June 30, 2019
$
720,196 $
270,650 $ 1,429,263 $ 614,702
(2,510,782) (108,432) 2,607,159 26,661 104,210 70,301 119,161 223,308
3,066 (112,027) (105,450)
42,508 (38,803) 1,041,076
(141,741) (260)
(142,001)
(3,325,103) (12,414)
2,231,915 25,496 103,848 60,695 61,284 35,519
(5,805,057) 150,513
5,090,544 55,178 201,229 135,749 26,101 269,927
(6,322,849) (27,112)
4,356,601 49,057
205,048 106,403
3,684 42,146
(24,231) (2,674) (26,705) 84,085 (26,119) (543,754)
(124,287) (261,180) 108,741 104,516
(80,249) 1,300,988
(56,307) (127,141) 130,942 131,878
(30,605) (923,553)
(39,584) (10,452) (50,036)
(239,756) (548)
(240,304)
(99,965) (30,174) (130,139)
1,009,464
2,243,196
1,009,464
2,243,196
(7,559)
(18,192)
(7,559)
(18,192)
89,060
21,896
132,754
44,868
1,090,965
2,246,900
1,134,659
2,269,872
11,819
4,998
(59,083)
(16)
2,001,859
1,658,108
2,136,260
1,216,164
5,178,187
3,370,097
5,043,786
3,812,041
$ 7,180,046 $ 5,028,205 $ 7,180,046 $ 5,028,205
See accompanying notes to the consolidated financial statements. 5
Table of Contents
NETFLIX, INC.
Consolidated Balance Sheets (in thousands, except share and par value data)
June 30, 2020
As of
December 31, 2019
Assets
(unaudited)
Current assets:
Cash and cash equivalents
$
7,153,248 $
5,018,437
Other current assets
1,410,891
1,160,067
Total current assets
8,564,139
6,178,504
Content assets, net
25,155,117
24,504,567
Property and equipment, net
751,941
565,221
Other non-current assets
2,704,084
2,727,420
Total assets
$
37,175,281 $
33,975,712
Liabilities and Stockholders' Equity
Current liabilities:
Current content liabilities
$
4,664,733 $
4,413,561
Accounts payable
446,668
674,347
Accrued expenses and other liabilities Deferred revenue
986,595 1,029,261
843,043 924,745
Short-term debt
499,161
--
Total current liabilities
7,626,418
6,855,696
Non-current content liabilities
3,208,164
3,334,323
Long-term debt
15,294,998
14,759,260
Other non-current liabilities Total liabilities
1,710,948 27,840,528
1,444,276 26,393,555
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2020 and December 31, 2019; 441,015,443 and 438,806,649 issued and outstanding at June 30, 2020 and December 31, 2019, respectively
3,127,813
2,793,929
Accumulated other comprehensive loss
(34,072)
(23,521)
Retained earnings
6,241,012
4,811,749
Total stockholders' equity
9,334,753
7,582,157
Total liabilities and stockholders' equity
$
37,175,281 $
33,975,712
See accompanying notes to the consolidated financial statements. 6
Table of Contents Total stockholders' equity, beginning balances
NETFLIX, INC.
Consolidated Statements of Stockholders' Equity (unaudited)
(in thousands)
Three Months Ended
June 30, 2020
June 30, 2019
$ 8,409,294 $ 5,703,058
Six Months Ended
June 30, 2020
June 30, 2019
$ 7,582,157 $ 5,238,765
Common stock and additional paid-in capital: Beginning balances Issuance of common stock upon exercise of options Stock-based compensation expense Ending balance
Accumulated other comprehensive loss: Beginning balances Other comprehensive income (loss) Ending balance
$ 2,935,532 $ 2,439,773 $ 2,793,929 $ 2,315,988
88,071
22,744
132,655
45,329
104,210
103,848
201,229
205,048
$ 3,127,813 $ 2,566,365 $ 3,127,813 $ 2,566,365
$ (47,054) $ (25,600) $ (23,521) $ (19,582)
12,982
5,248
(10,551)
(770)
$ (34,072) $ (20,352) $ (34,072) $ (20,352)
Retained earnings: Beginning balances Net income Adoption of ASU 2016-02, Leases (Topic 842) Ending balances
$ 5,520,816 $ 3,288,885 $ 4,811,749 $ 2,942,359
720,196
270,650
1,429,263
614,702
--
--
--
2,474
$ 6,241,012 $ 3,559,535 $ 6,241,012 $ 3,559,535
Total stockholders' equity, ending balances
$ 9,334,753 $ 6,105,548 $ 9,334,753 $ 6,105,548
See accompanying notes to the consolidated financial statements. 7
Table of Contents
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, 2019 filed with the Securities and Exchange Commission (the "SEC") on January 29, 2020. 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, 2019. 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, 2019.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 201613 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The Company adopted ASU 2016-13 in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. The Company will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.
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, but in the case where 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 (losses), and paid memberships at end of period by region for the three and six months ended June 30, 2020 and June 30, 2019, respectively:
United States and Canada (UCAN)
Revenues Paid net membership additions (losses) Paid memberships at end of period (1)
As of/ Three Months Ended
As of/ Six Months Ended
June 30, 2020
June 30, 2019
June 30, 2020
June 30, 2019
(in thousands)
$ 2,839,670 $ 2,501,199 $ 5,542,446 $ 4,758,050
2,935
(132)
5,242
1,744
72,904
66,501
72,904
66,501
8
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