UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2020


o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐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			77-0467272
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

100 Winchester Circle,	Los Gatos,	California	95032
(Address of principal executive offices)			(Zip Code)

~~100 Winchester Circle, Los Gatos, California 95032~~

(~~Address and zip code of principal executive offices)~~

~~(408)~~ 408) 540-3700

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	NFLX	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. Yesx☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yesx☒ No o☐

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 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~~Accelerated Filer	x☒		Accelerated filer	o☐
Non-accelerated filer	o☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o☐
			Emerging growth company	o☐

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. o☐

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

As of ~~September 30, 2017,~~March 31, 2020, there were ~~432,731,130~~439,780,618 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents



		Page
	Part I. Financial Information
Item 1.	Consolidated Financial Statements

	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Consolidated Balance Sheets	6
	~~Notes to~~ Consolidated ~~Financial~~ Statements of Stockholders' Equity	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3229
Item 4.	Controls and Procedures	3229
	Part II. Other Information	33
Item 1.	Legal Proceedings	3329
Item 1A.	Risk Factors	3330
Item 6.	Exhibits	3330
~~Signatures~~Exhibit Index		3431
~~Exhibit Index~~Signatures		3531

NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2020			March 31, 2019
Revenues	$	2,984,859		$	2,290,188		$	8,406,958		$	6,353,128		$	5,767,691		$	4,520,992
Cost of revenues	1,992,980			1,532,844			5,552,312			4,375,482			3,599,701			2,870,614
Marketing	312,490			282,043			858,083			706,082			503,830			616,578
Technology and development	255,236			216,099			779,427			626,907			453,817			372,764
General and administrative	215,526			153,166			623,760			418,798			252,087			201,952
Operating income	208,627			106,036			593,376			225,859			958,256			459,084
Other income (expense):
Interest expense	(60,688		)	(35,536		)	(162,912		)	(106,528		)	(184,083		)	(135,529		)
Interest and other income (expense)	(31,702		)	8,627			(76,473		)	50,907			21,697			76,104
Income before income taxes	116,237			79,127			353,991			170,238			795,870			399,659
Provision for (benefit from) income taxes	(13,353		)	27,610			(19,421		)	50,308
Provision for income taxes													86,803			55,607
Net income	$	129,590		$	51,517		$	373,412		$	119,930		$	709,067		$	344,052

Earnings per share:
Basic	$	0.30		$	0.12		$	0.87		$	0.28		$	1.61		$	0.79
Diluted	$	0.29		$	0.12		$	0.84		$	0.27		$	1.57		$	0.76
Weighted-average common shares outstanding:
Basic	432,404			428,937			431,473			428,514			439,352			436,947
Diluted	447,362			438,389			446,367			438,180			452,494			451,922

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Comprehensive Income

Foreign currency translation adjustments

See accompanying notes to the consolidated financial statements.

Consolidated Balance Sheets

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Stockholders’ Equity

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements

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, ~~2016~~2019 filed with the Securities and Exchange Commission (the “SEC”) on January ~~27, 2017.~~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 ~~streaming~~ content asset amortization ~~policy;~~policy and the recognition and measurement of income tax assets and ~~liabilities; and the valuation of stock-based compensation.~~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, ~~2016.~~2019. Interim results are not necessarily indicative of the results for a full year.

The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD, all of which derive revenue from monthly membership fees. See Note 10 for further detail on the Company's segments.

There have been no material changes in the Company’s significant accounting policies ~~other than the adoption of Accounting Standards Update ("ASU") 2016-09 described below and in Note 9 and ASU 2017-01 described below,~~ as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Recently adopted accounting pronouncements

In ~~March~~June 2016, the Financial Accounting Standards Board ("FASB") issued ~~ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting, which amends~~ Accounting Standards ~~Codification~~Update ("~~ASC"~~ASU") ~~Topic 718, Compensation - Stock Compensation~~.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 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded as a component of the provision for income taxes in the reporting period in which they occur. Additionally, ASU 2016-092016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the ~~Company present excess tax benefits on the Statement~~incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of ~~Cash Flows as an operating activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016.~~a broader range of information to estimate credit losses. The Company adopted ASU ~~2016-09~~2016-13 in the first quarter of ~~2017 and elected to apply this adoption prospectively. Prior periods have not been adjusted. See Note 9 for information regarding the impact on the Company’s financial statements.~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805):Clarifying the Definition of a Business.~~ The standard provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. ASU 2017-01 is effective for fiscal periods beginning after December 15, 2017 (including interim periods within those periods) with early adoption permitted. The Company early adopted the standard in the third quarter of 2017 on a prospective basis2020 and the impact ~~on its~~of the adoption was not material to the Company's consolidated financial statements ~~was~~as credit losses are not ~~material.~~

~~Recently issued accounting pronouncements not yet adopted~~

~~In May 2014,~~expected to be significant based on historical collection trends, the ~~FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer~~financial condition of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective).payment partners, and external market factors. The Company will ~~adopt ASU 2014-09 in~~continue to actively monitor the ~~first quarter~~impact of ~~2018 using~~ the ~~modified retrospective approach. Because 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 which~~fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership ~~period,~~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 ~~does~~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, and paid memberships at end of period by region for the three months ended March 31, 2020 and March 31, 2019, respectively:

United States and Canada (UCAN)



	As of/ Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Revenues	$	2,702,776	$	2,256,851
Paid net membership additions	2,307		1,876
Paid memberships at end of period (1)	69,969		66,633

Europe, Middle East, and Africa (EMEA)



	As of/ Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Revenues	$	1,723,474	$	1,233,379
Paid net membership additions	6,956		4,724
Paid memberships at end of period (1)	58,734		42,542

Latin America (LATAM)



	As of/ Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Revenues	$	793,453	$	630,472
Paid net membership additions	2,901		1,470
Paid memberships at end of period (1)	34,318		27,547



	As of/ Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Revenues	$	483,660	$	319,602
Paid net membership additions	3,602		1,534
Paid memberships at end of period (1)	19,835		12,141

(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or other promotional offering by the Company to certain new and rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, becomes effective immediately. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company’s internal systems, which utilize industry standard geo-location technology.

Total U.S. revenues, inclusive of DVD revenues not ~~expect~~reported in the ~~impact on its consolidated financial statements~~tables above, were $2.5 billion and $2.2 billion for the three months ended March 31, 2020 and 2019, respectively. DVD revenues were $64 million and $81 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

Deferred revenue consists of membership fees billed that have not been recognized, as well as gift cards and other prepaid memberships that have not been fully redeemed. As of March 31, 2020, total deferred revenue was $987 million, the vast majority of which was related to membership fees billed that are expected to be ~~material.~~

~~In February 2016,~~recognized as revenue within the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $62 million increase in ~~order~~deferred revenue as compared to ~~increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on~~ the balance ~~sheet~~of $925 million for ~~those leases classified as operating leases under previous~~the year ended December 31, 2019 is a result of the increase in membership fees billed due to increased memberships.

GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company currently believes the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash~~, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 (including interim periods within those periods) using a retrospective transition method to each period presented and early adoption is permitted. The Company will adopt ASU 2016-18 in the first quarter of 2018 and does not expect the impact on its consolidated financial statements to be material.

2.3. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	709,067	$	344,052
Shares used in computation:
Weighted-average common shares outstanding	439,352		436,947
Basic earnings per share	$	1.61	$	0.79

Diluted earnings per share:
Net income	$	709,067	$	344,052
Shares used in computation:
Weighted-average common shares outstanding	439,352		436,947
Employee stock options	13,142		14,975
Weighted-average number of shares	452,494		451,922
Diluted earnings per share	$	1.57	$	0.76

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
(in thousands, except per share data)
Basic earnings per share:
Net income $ 129,590
$ 51,517
$ 373,412
$ 119,930
Shares used in computation:
Weighted-average common shares outstanding 432,404
428,937
431,473
428,514
Basic earnings per share $ 0.30
$ 0.12
$ 0.87
$ 0.28

Diluted earnings per share:
Net income $ 129,590
$ 51,517
$ 373,412
$ 119,930
Shares used in computation:
Weighted-average common shares outstanding 432,404
428,937
431,473
428,514
Employee stock options 14,958
9,452
14,894
9,666
Weighted-average number of shares 447,362
438,389
446,367
438,180
Diluted earnings per share $ 0.29
$ 0.12
$ 0.84
$ 0.27

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:



	Three Months Ended
	March 31, 2020	March 31, 2019
	(in thousands)
Employee stock options	1,516	652

Three Months Ended Nine months ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
(in thousands)
Employee stock options 187
2,559
213
1,942

4. Cash, Cash Equivalents and Restricted Cash

~~3. Short-term Investments~~

~~In July 2017,~~The following tables summarize the ~~Company sold all short-term investments. As of September 30, 2017, $13.9 million and $1.3 million of money market funds, classified as Level 1 securities, were included in Cash and~~Company's cash, cash equivalents, and ~~Non-current assets, respectively, on the Company's Consolidated Balance Sheet. Additionally, $3.6 million of~~ restricted cash ~~is included in Non-current assets on the Company's Consolidated Balance Sheet.~~

~~The following table summarizes, by major security type, the Company’s assets at~~as of March 31, 2020 and December 31, ~~2016 that were measured at fair value, the category using the fair value hierarchy and where they are classified on the Consolidated Balance Sheets:~~2019:



	As of December 31, 2019
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	3,103,525	$	1,863	$	22,161	$	3,127,549
Level 1 securities:
Money market funds	1,614,912		—		1,325		1,616,237
Level 2 securities:
Foreign Time Deposits	300,000		—		—		300,000

	$	5,018,437	$	1,863	$	23,486	$	5,043,786

Other current assets include restricted cash ~~that is~~for self insurance. Non-current assets include restricted cash related to workers compensation deposits and letter of credit agreements.

Fair value is a market-based measurement that is determined based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy level assigned to each security in the Company’s available-for-sale portfolio and cash equivalents is based on its assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The fair value of ~~available-for-sale securities and~~ cash equivalents ~~included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. The fair value of available-for-sale securities~~ included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from an independent pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. The Company's procedures include controls to ensure that appropriate fair values are recorded, such as comparing prices obtained from multiple independent sources.

See Note 56 to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.

There were no material gross realized gains or losses in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively.

5. Balance Sheet Components

Content Assets, Net

Content assets consisted of the following:



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Licensed content, net	$	14,637,502	$	14,703,352

Produced content, net
Released, less amortization	4,638,736		4,382,685
In production	5,282,350		4,750,664
In development and pre-production	708,301		667,866
	10,629,387		9,801,215

Total	$	25,266,889	$	24,504,567

As of
September 30,
2017 December 31,
2016
(in thousands)
Licensed content, net $ 11,462,217
$ 9,595,315

Produced content, net

Released, less amortization 984,945
335,400
In production 1,338,208
1,010,463
In development and pre-production 163,393
34,215
2,486,546
1,380,078
DVD, net 14,328
25,415
Total $ 13,963,091
$ 11,000,808

Current content assets, net $ 4,223,387
$ 3,726,307
Non-current content assets, net $ 9,739,704
$ 7,274,501

~~Produced~~As of March 31, 2020, approximately $5,736 million, $3,760 million, and $2,478 million of the $14,638 million unamortized cost of the licensed content is ~~included~~expected to be amortized in ~~"Non-current content assets, net" on~~each of the ~~Consolidated Balance Sheets. Certain original content is licensed~~next three years. As of March 31, 2020, approximately $1,645 million, $1,276 million, and ~~therefore not included in produced content. Of~~$941 million of the $4,639 million unamortized cost of the produced content that has been released ~~approximately 29%, 79% and over 80% of the unamortized cost~~ is expected to be amortized ~~over~~in each of the next ~~twelve, thirty-six and forty-eight months, respectively. The~~three years.

As of March 31, 2020, the amount of accrued participations and residuals iswas not material.

The following table represents the amortization of content assets:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Licensed content	$	1,860,170	$	1,774,289
Produced content	623,215		350,397
Total	$	2,483,385	$	2,124,686

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:



	As of
	March 31, 2020			December 31, 2019			Estimated Useful Lives
	(in thousands)
Land	$	6,125		$	6,125
Buildings	34,459			33,141			30 years
Leasehold improvements	361,648			354,999			Over life of lease
Furniture and fixtures	87,925			87,465			3-15 years
Information technology	249,440			243,565			3 years
Corporate aircraft	109,619			108,995			8 years
Machinery and equipment	43,776			46,415			3-5 years
Capital work-in-progress	194,019			100,521
Property and equipment, gross	1,087,011			981,226
Less: Accumulated depreciation	(436,556		)	(416,005		)
Property and equipment, net	$	650,455		$	565,221

As of
September 30,
2017 December 31,
2016
Estimated Useful Lives

(in thousands)
Information technology assets $ 225,988
$ 185,345
3 years
Furniture and fixtures 47,312
32,185
3 years
Buildings 40,681
40,681
30 years
Leasehold improvements 218,242
107,945
Over life of lease
DVD operations equipment 68,196
70,152
5 years
Corporate aircraft 29,391
—
8 years
Capital work-in-progress 14,412
108,296

Property and equipment, gross 644,222
544,604

Less: Accumulated depreciation (321,801 ) (294,209 )
Property and equipment, net $ 322,421
$ 250,395

Leases

The Company has entered into operating leases primarily for real estate. These operating leases are included in "Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's Consolidated Balance Sheets. As of March 31, 2020, total right-of-use assets were approximately $1,502 million and total operating lease liabilities were approximately $1,596 million, of which $196 million and $1,400 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. As of December 31, 2019, total right-of-use assets were approximately $1,532 million and total operating lease liabilities were approximately $1,613 million, of which $190 million and $1,423 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's Consolidated Balance Sheets. All operating lease expense is recognized on a straight-line basis over the lease term.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Information related to the Company's right-of-use assets and related lease liabilities were as follows:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Cash paid for operating lease liabilities	$	57,490	$	37,653
Right-of-use assets obtained in exchange for new operating lease obligations (1)	51,824		842,395

(1) In the three months ended March 31, 2019, the balance includes $743 million for operating leases existing on January 1, 2019.

~~The decrease in capital work-in-progress from December 31, 2016 is primarily due to leasehold improvements for~~Other Current Assets

Other current assets consisted of the ~~Company's expanded Los Gatos, California headquarters and the Company's new Los Angeles, California facility, both of which were placed into operation in the first quarter of 2017.~~following:



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Trade receivables	$	539,916	$	454,399
Prepaid expenses	214,350		180,999
Other receivables	541,631		524,669
Total other current assets	$	1,295,897	$	1,160,067

~~5. Long-term~~

6. Debt

As of ~~September 30, 2017,~~March 31, 2020, the Company had aggregate outstanding ~~long-term debt~~notes of ~~$4,888.8~~$14,670 million, net of ~~$46.8~~$110 million of issuance costs, with varying maturities (the "Notes"). Of the outstanding balance, $499 million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets. As of December 31, 2019, the Company had aggregate outstanding long-term notes of $14,759 million, net of $114 million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding notes is denominated in foreign currency (comprised of €4,700 million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement gain totaling $93 million for the quarter ended March 31, 2020).

The following table provides a summary of the Company's ~~Notes~~outstanding debt and the fair values based on quoted market prices in less active markets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019:



	Principal Amount at Par						Level 2 Fair Value as of
	March 31, 2020		December 31, 2019		Issuance Date	Maturity	March 31, 2020		December 31, 2019
	(in millions)						(in millions)
5.375% Senior Notes	$	500	$	500	February 2013	February 2021	$	507	$	518
5.500% Senior Notes	700		700		February 2015	February 2022	722		744
5.750% Senior Notes	400		400		February 2014	March 2024	426		444
5.875% Senior Notes	800		800		February 2015	February 2025	847		896
4.375% Senior Notes	1,000		1,000		October 2016	November 2026	1,018		1,026
3.625% Senior Notes (1)	1,433		1,459		May 2017	May 2027	1,433		1,565
4.875% Senior Notes	1,600		1,600		October 2017	April 2028	1,632		1,670
5.875% Senior Notes	1,900		1,900		April 2018	November 2028	2,047		2,111
4.625% Senior Notes (1)	1,212		1,234		October 2018	May 2029	1,246		1,378
6.375% Senior Notes	800		800		October 2018	May 2029	883		916
3.875% Senior Notes (1)	1,323		1,346		April 2019	November 2029	1,303		1,429
5.375% Senior Notes	900		900		April 2019	November 2029	942		960
3.625% Senior Notes (1)	1,212		1,234		October 2019	June 2030	1,191		1,273
4.875% Senior Notes	1,000		1,000		October 2019	June 2030	1,024		1,019
	$	14,780	$	14,873

Level 2 Fair Value as of
Principal Amount at Par Issuance Date Maturity Interest Payment Dates September 30, 2017 December 31, 2016
(in millions) (in millions)
3.625% Senior Notes (1) $ 1,535.6
May 2017 2027 May 15 and November 15 $ 1,563
$ —
4.375% Senior Notes 1,000.0
October 2016 2026 May 15 and November 15 1,006
975
5.50% Senior Notes 700.0
February 2015 2022 April 15 and October 15 765
758
5.875% Senior Notes 800.0
February 2015 2025 April 15 and October 15 879
868
5.750% Senior Notes 400.0
February 2014 2024 March 1 and September 1 436
431
5.375% Senior Notes 500.0
February 2013 2021 February 1 and August 1 539
539
$ 4,935.6

(1) ~~Debt is~~The following Senior Notes have a principal amount denominated in ~~euro with a~~euro: 3.625% Senior Notes for €1,300 million, ~~aggregate principal amount and is remeasured into U.S. dollars at each balance sheet date. Total proceeds were $1,420.5~~4.625% Senior Notes for €1,100 million, 3.875% Senior Notes for €1,200 million, and ~~remeasurement loss on long-term debt was $50.8 million~~3.625% Senior Notes for €1,100 million.

The expected timing of principal and ~~$115.1 million~~interest payments for ~~the three and nine months ending September 30, 2017, respectively.~~these Notes are as follows:



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Less than one year	$	1,233,206	$	736,969
Due after one year and through three years	2,060,732		2,581,471
Due after three years and through five years	2,502,066		1,705,201
Due after five years	14,791,650		15,699,800
Total debt obligations	$	20,587,654	$	20,723,441

Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company was in compliance with all related covenants.

Revolving Credit Facility

~~In July 2017,~~As of March 31, 2020, the Company ~~entered into~~has a ~~$500.0~~$750 million unsecured revolving credit facility (“("Revolving Credit ~~Agreement”~~Agreement")~~, with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million, subject to certain terms and conditions.~~ which matures on March 29, 2024. Revolving loans may be borrowed, repaid and reborrowed until ~~July 27, 2022,~~March 29, 2024, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of ~~September 30, 2017,~~March 31, 2020, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum.

Regulatory authorities that oversee financial markets have announced that after the end of 2021, they would no longer compel banks currently reporting information used to set the LIBO Rate to continue to make rate submissions. As a result, it is possible that beginning in 2022, the LIBO Rate will no longer be available as a reference rate. Under the terms of the Company's Revolving Credit Agreement, in the event of the discontinuance of the LIBO Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. The Company and Lenders shall in good faith establish an alternate benchmark rate which places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of the LIBO Rate. The Company does not anticipate that the discontinuance of the LIBO Rate will materially impact its liquidity or financial position.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at aan annual rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of ~~September 30, 2017,~~March 31, 2020 and December 31, 2019, the Company was in compliance with all related covenants.

7. Commitments and Contingencies

~~Streaming~~ Content

As of ~~September 30, 2017,~~March 31, 2020, the Company had ~~$17.0~~$19.2 billion of obligations comprised of ~~$4.1~~$4.8 billion included in "Current content liabilities" and ~~$3.3~~$3.2 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$9.6~~$11.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

As of December 31, ~~2016,~~2019, the Company had ~~$14.5~~$19.5 billion of obligations comprised of ~~$3.6~~$4.4 billion included in "Current content liabilities" and ~~$2.9~~$3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$8.0~~$11.8 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

The expected timing of payments for these ~~streaming~~ content obligations is as follows:



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Less than one year	$	8,618,185	$	8,477,367
Due after one year and through three years	8,064,206		8,352,731
Due after three years and through five years	1,974,855		2,041,340
Due after five years	516,792		618,644
Total content obligations	$	19,174,038	$	19,490,082

As of
September 30,
2017 December 31,
2016
(in thousands)
Less than one year $ 6,984,360
$ 6,200,611
Due after one year and through three years 7,918,009
6,731,336
Due after three years and through five years 1,918,123
1,386,934
Due after five years 171,438
160,606
Total streaming content obligations $ 16,991,930
$ 14,479,487

Content obligations include amounts related to the acquisition, licensing and production of ~~streaming~~ content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment ~~agreements.~~agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.

Legal Proceedings

From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.

Indemnification

In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. NoNaN amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

8. Stockholders’ Equity

Stock Option Plan

In June 2011, the Company adopted the 2011 Stock Plan. The 2011 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. ~~As of September 30, 2017, 11.3 million shares were reserved for future grants under the 2011 Stock Plan.~~

A summary of the activities related to the Company’s stock option plans is as follows:



			Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price (per share)
Balances as of December 31, 2019	6,111,561		20,859,326		$	124.28
Granted	(581,455	)	581,455		354.55
Exercised	—		(973,969	)	45.77
Expired	—		(48	)	9.96
Balances as of March 31, 2020	5,530,106		20,466,764		$	134.56
Vested and exercisable as of March 31, 2020			20,466,764		$	134.56

Options Outstanding
Shares
Available
for Grant Number of
Shares
Weighted-
Average
Exercise Price
(per share)
Weighted-Average Remaining
Contractual Term
(in years) Aggregate
Intrinsic Value
(in thousands)
Balances as of December 31, 2016 13,289,953
22,437,347
$ 44.83

Granted (1,988,266 ) 1,988,266
151.82

Exercised —
(2,676,918 ) 27.53

Expired —
(1,561 ) 3.25

Balances as of September 30, 2017 11,301,687
21,747,134
$ 56.74
6.04 $ 2,709,943
Vested and exercisable as of September 30, 2017 21,747,134
$ 56.74
6.04 $ 2,709,943

The aggregate intrinsic value inof the ~~table above~~Company's outstanding stock options as of March 31, 2020 was $4,937 million and represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the ~~third~~first quarter of ~~2017~~2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the ~~third~~first quarter of ~~2017.~~2020. This amount changes based on the fair market value of the Company’s common stock. The weighted-average remaining contractual term of the Company's outstanding stock options as of March 31, 2020 included in the table above was 5.57 years.

A summary of the amounts related to option exercises, is as follows:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Total intrinsic value of options exercised	$	303,226	$	180,842
Cash received from options exercised	43,694		22,972

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
(in thousands)
Total intrinsic value of options exercised $ 142,664
$ 35,443
$ 351,488
$ 104,168
Cash received from options exercised 34,669
3,819
73,673
11,587

Stock-based Compensation

Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:



	Three Months Ended
	March 31, 2020			March 31, 2019
Dividend yield	—		%	—		%
Expected volatility	37		%	41		%
Risk-free interest rate	1.71		%	2.74		%
Suboptimal exercise factor	3.34			3.07
Weighted-average fair value (per share)	$	167		$	163
Total stock-based compensation expense (in thousands)	$	97,019		$	101,200
Total income tax impact on provision (in thousands)	$	21,309		$	21,628

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
Dividend yield — % — % — % — %
Expected volatility 34 % 41 % 34% - 37%
41% - 50%
Risk-free interest rate 2.24 % 1.57 % 2.24% - 2.45%
1.57% - 2.04%
Suboptimal exercise factor 2.58
2.48
2.48 - 2.58
2.48
Weighted-average fair value (per share) $ 72.98
$ 44.68
$ 67.23
$ 47.79
Total stock-based compensation expense (in thousands) $ 44,763
$ 43,495
$ 133,679
$ 130,029
Total income tax impact on provision (in thousands) $ 14,428
$ 16,294
$ 43,606
$ 48,828

The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.

The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.

In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of ~~zero~~0 in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

~~8. Accumulated Other Comprehensive Loss~~

~~The following table summarizes the changes in the accumulated balance of other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2017:~~

Foreign currency Change in unrealized gains on available-for-sale securities Total
(in thousands)
Balance as of June 30, 2017 $ (31,040 ) $ (328 ) $ (31,368 )
Other comprehensive income before reclassifications 5,678
328
6,006
Net decrease in other comprehensive loss 5,678
328
6,006
Balances as of September 30, 2017 $ (25,362 ) $ —
$ (25,362 )

Foreign currency Change in unrealized gains on available-for-sale securities Total
(in thousands)
Balances as of December 31, 2016 $ (47,966 ) $ (599 ) $ (48,565 )
Other comprehensive income before reclassifications 22,604
599
23,203
Net decrease in other comprehensive loss 22,604
599
23,203
Balances as of September 30, 2017 $ (25,362 ) $ —
$ (25,362 )

~~The amounts reclassified from accumulated other comprehensive loss were immaterial for the three and nine months ended September 30, 2017.~~

9. Income Taxes



	Three Months Ended
	March 31, 2020			March 31, 2019
	(in thousands, except percentages)
Provision for income taxes	$	86,803		$	55,607
Effective tax rate	11		%	14		%

In connection with the Tax Cuts and Jobs Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax ~~rates~~rate for the three months ended September 30, 2017 and 2016 were (11)% and 35%, respectively. The effective tax rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively. The effective tax rates for the three and nine months ended September 30, 2017March 31, 2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits ~~as a component~~ of ~~the provision for income taxes attributable to the adoption of ASU 2016-09 and~~stock-based compensation, Federal and California research and development ("(“R~~&D"~~&D”) credits, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax ~~rates~~rate for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2019 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation, Federal and California R&D credits, and effects of the international tax provisions from U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses.

The decrease in effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020, as compared to the same period in ~~2016~~2019 was primarily due ~~primarily~~ to changes from the ~~recognition of~~global corporate structure simplification, offset by a lower benefit on a percentage basis for excess tax benefits ~~attributable~~of stock-based compensation and Federal and California R&D credits due to higher pre-tax income. For the three months ended March 31, 2020, the Company recognized a discrete tax benefit related to the ~~adoption~~excess tax benefits from stock-based compensation of ~~ASU 2016-09 and an increase in foreign income taxed at rates lower than~~$65 million, compared to the ~~US statutory rate.~~three months ended March 31, 2019 of $41 million.

Gross unrecognized tax benefits were ~~$37.2~~$71 million and ~~$19.7~~$67 million as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately ~~$33.3~~$60 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of ~~September 30, 2017,~~March 31, 2020, gross unrecognized tax benefits of ~~$15.8~~$19 million ~~was~~were classified as “Other non-current liabilities” and ~~$21.4~~$52 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision ~~(benefit)~~ for income taxes" on the Consolidated Statements of Operations and “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company’s “Provision ~~(benefit)~~ for income taxes” were not material in any of the periods presented.

Deferred tax assets of ~~$374.0~~$612 million and ~~$227.2~~$658 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. ~~As of September 30, 2017, the~~The Company has a valuation allowance of ~~$33.1~~$132 million and $135 million as of March 31, 2020 and December 31, 2019, respectively. The valuation allowance is primarily ~~due~~related to certain foreign tax ~~credit carryovers. As of December 31, 2016, it was considered more~~credits that are not likely ~~than not that substantially all deferred tax assets would~~to be realized.

As a result of the adoption of ASU 2016-09 in the first quarter of 2017, the Company recorded a cumulative effect adjustment to increase retained earnings by $43.6 million with a corresponding increase to deferred tax assets for the Federal and state net operating losses attributable to excess tax benefits from stock-based compensation which had not been previously recognized. All excess tax benefits and deficiencies in the current and future periods will be recognized as income tax expense in the Company’s Consolidated Statement of Operations in the reporting period in which they occur. This will result in increased volatility in the Company’s effective tax rate. For the three and nine months ended September 30, 2017, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $41.7 million and $110.5 million, respectively.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for ~~2014~~2016, 2017, and ~~2015.~~2018. The ~~2008~~2011 through ~~2015~~2018 state tax returns are subject to examination by state tax authorities. The Company is also currently under examination in the U.K. for 2018 and 2019. The Company has no other significant foreign jurisdiction audits underway. The years ~~2011~~2014 through ~~2016~~2019 remain subject to examination by foreign tax authorities.

Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

10. Segment and Geographic Information

The Company ~~has three reportable segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented in the same manner that the Company’s~~operates as 1 operating segment. The Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews ~~the~~financial information presented on a consolidated basis for purposes of making operating ~~results in~~decisions, assessing financial performance and allocating resources. ~~The Company’s CODM reviews~~

Total U.S. revenues were $2.5 billion and ~~contribution profit (loss)~~$2.2 billion for ~~each of~~ the ~~reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues~~three months ended March 31, 2020 and ~~marketing expenses incurred~~March 31, 2019, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by the segment. The Company has aggregated the results of the International operating segments into one reportable segment because these operating segments share similar long-term economic and other qualitative characteristics.

The Domestic streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members in the United States. The International streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members outside the United States. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating segment based on the nature of the underlying membership (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s segments.

The vast majority of the cost of revenues relate to content expenses, which include the amortization of streaming content assets and other costs associated with the licensing and acquisition of streaming content. In connection with the Company's global expansion, content acquired, licensed, and produced increasingly includes global rights. The Company allocates this content between the International and Domestic streaming segments based on estimated fair market value. Content expenses for each streaming segment thus include both expenses directly incurred by the segment as well as an allocation of expenses incurred for global or multi-territory rights. Other costs of revenues such as

delivery costs are primarily attributed to the operating segment based on amounts directly incurred by the segment. Marketing expenses consist primarily of advertising expenses and certain payments made to marketing partners, including consumer electronics ("CE") manufacturers, multichannel video programming distributors ("MVPDs"), mobile operators and internet service providers ("ISPs"), which are generally included in the segment in which the expenditures are directly incurred.region.

The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, were located as follows:



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
United States	$	1,573,683	$	1,503,459
International	579,092		594,047

As of
September 30,
2017 December 31, 2016
(in thousands)
United States $ 293,733
$ 236,977
International 28,688
13,418

~~The following tables represent segment information for the three and nine months ended September 30, 2017:~~

As of/ Three Months Ended September 30, 2017
Domestic
Streaming International
Streaming Domestic
DVD Consolidated
(in thousands)
Total memberships at end of period (1) 52,772
56,476
3,569

Revenues $ 1,547,210
$ 1,327,435
$ 110,214
$ 2,984,859
Cost of revenues 864,408
1,081,485
47,087
1,992,980
Marketing 128,901
183,589
—
312,490
Contribution profit $ 553,901
$ 62,361
$ 63,127
$ 679,389
Other operating expenses 470,762
Operating income 208,627
Other income (expense) (92,390 )
Benefit from income taxes (13,353 )
Net income $ 129,590

As of/ Nine Months Ended September 30, 2017
Domestic
Streaming International
Streaming Domestic
DVD Consolidated
(in thousands)
Total memberships at end of period (1) 52,772
56,476
3,569

Revenues $ 4,522,751
$ 3,538,862
$ 345,345
$ 8,406,958
Cost of revenues 2,445,858
2,946,414
160,040
5,552,312
Marketing 357,547
500,536
—
858,083
Contribution profit $ 1,719,346
$ 91,912
$ 185,305
$ 1,996,563
Other operating expenses 1,403,187
Operating income 593,376
Other income (expense) (239,385 )
Benefit from income taxes (19,421 )
Net income $ 373,412

~~The following tables represent segment information for the three and nine months ended September 30, 2016:~~

As of/ Three Months Ended September 30, 2016
Domestic
Streaming International
Streaming Domestic
DVD Consolidated
(in thousands)
Total memberships at end of period (1) 47,497
39,246
4,273

Revenues $ 1,304,333
$ 853,480
$ 132,375
$ 2,290,188
Cost of revenues 720,658
748,515
63,671
1,532,844
Marketing 108,495
173,548
—
282,043
Contribution profit (loss) $ 475,180
$ (68,583 ) $ 68,704
$ 475,301
Other operating expenses 369,265
Operating income 106,036
Other income (expense) (26,909 )
Provision for income taxes 27,610
Net income $ 51,517

As of/ Nine Months Ended September 30, 2016
Domestic
Streaming International
Streaming Domestic
DVD Consolidated
(in thousands)
Total memberships at end of period (1) 47,497
39,246
4,273

Revenues $ 3,673,845
$ 2,263,429
$ 415,854
$ 6,353,128
Cost of revenues 2,094,310
2,076,576
204,596
4,375,482
Marketing 277,243
428,839
—
706,082
Contribution profit (loss) $ 1,302,292
$ (241,986 ) $ 211,258
$ 1,271,564
Other operating expenses 1,045,705
Operating income 225,859
Other income (expense) (55,621 )
Provision for income taxes 50,308
Net income $ 119,930

~~The following table represents the amortization of content assets:~~

Domestic
Streaming

International
Streaming

Domestic
DVD
Consolidated
(in thousands)
Three months ended September 30,
2017 $ 727,832
$ 899,645
$ 13,259
$ 1,640,736
2016 597,039
627,069
19,284
1,243,392
Nine months ended September 30,
2017 2,033,268
2,450,686
48,368
4,532,322
2016 1,709,168
1,748,822
59,746
3,517,736

~~(1)~~

A membership (also referred to as a subscription) is defined as the right to receive Netflix service following sign-up and a method of payment being provided. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to certain new and rejoining members. Total members include those who are on a free-trial as long as a method of payment has been provided. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to statements regarding: our core strategy; ~~the~~content amortization; impact of recently adopted accounting pronouncements; price changes and ~~the Company’s response to, new accounting standards; content amortization; pricing changes;~~testing; dividends; impact of foreign currency and exchange rate fluctuations, including on net income, revenues and average revenues per paying member; deferred revenue; investments in global ~~streaming,~~content, including original content; impact of content on membership growth; the impact of the discontinuance of the LIBO Rate; liquidity, including cash ~~use in connection with the acquisition, licensing~~flows from operations, available funds and ~~production of content; liquidity~~access to financing sources; net cash provided by (used in) operating activities and free cash flow; unrecognized tax benefits; deferred tax assets; ~~effective tax rate;~~ accessing and obtaining additional capital, including ~~future~~use of the debt ~~financing;~~market; accounting treatment for changes related to content assets; ~~and~~net income; future contractual obligations, including unknown ~~streaming~~ content obligations and timing of ~~payments.~~payments; membership growth for the remainder of the fiscal year; and the impact of the recent coronavirus (COVID-19) pandemic and our response to it. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission (“SEC”) on January ~~27, 2017,~~29, 2020, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item IA.

We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.

Investors and others should note that we announce material financial information to our investors using our investor relations ~~Web site (http://ir.netflix.com)~~website (netflixinvestor.com), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the United States ("U.S.") social media channels listed on our investor relations ~~Web site.~~website.

Overview

We are the world’s leading ~~internet television network~~subscription streaming entertainment service with over ~~109~~182 million paid streaming ~~members~~memberships in over 190 countries enjoying ~~more than 125 million hours of~~ TV ~~shows and movies per day, including original~~ series, documentaries and feature ~~films.~~films across a wide variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on ~~nearly~~ any internet-connected screen. Members can play, pause and resume watching, all without ~~commercials or commitments.~~commercials. Additionally, we continue to offer our legacy DVD-by-mail service in the ~~U.S., our members can receive DVDs delivered quickly to their homes.~~United States.

We are a pioneer in the ~~internet~~ delivery of ~~TV shows and movies,~~streaming entertainment, launching our streaming service in 2007. Since this launch, we have developed an ecosystem for internet-connected screens and have added increasing amounts of content that enable consumers to enjoy ~~TV shows and movies~~entertainment directly on their internet-connected screens. As a result of these efforts, we have experienced growing consumer acceptance of, and interest in, the delivery of ~~TV shows and movies directly over the internet. Historically, the first and fourth quarters (October through March) represent our greatest membership growth across our Domestic and International~~ streaming segments. Our membership growth may be impacted by the release of certain high-profile original content, which may affect historical seasonal patterns. Internationally, we expect each market to demonstrate more predictable seasonal patterns as our service offering in each market becomes more established and we have a longer history to assess such patterns.entertainment.

Our core strategy is to grow our streaming membership business globally within the parameters of our ~~profit~~operating margin ~~targets.~~target. We are continuously improving our members' experience by expanding our ~~streaming~~ content with a focus on a programming mix of content that delights our

members and attracts new members. In addition, we are ~~perpetually~~continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can ~~also~~ download a selection of titles for offline viewing.

Our membership growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected screens and when they tend to increase their viewing. Historically, the first and fourth quarters (October through March) represent our greatest streaming membership growth. In addition, our membership growth can be impacted by our content release schedule and changes to pricing.

Results of Operations

The following represents our consolidated performance highlights:

As of/ Three Months Ended Change
September 30,
2017 September 30,
2016 Q3'17 vs. Q3'16

(in thousands, except revenue per membership and percentages)

Global streaming memberships at end of period 109,248
86,743
22,505
26 %
Global streaming average monthly revenue per paying membership $ 9.44
$ 8.82
$ 0.62
7 %
Revenues 2,984,859
2,290,188
694,671
30 %
Global operating income 208,627
106,036
102,591
97 %
Global operating margin 7.0 % 4.6 % 2.4 % 52 %
Net income 129,590
51,517
78,073
152 %



	As of/ Three Months Ended						Change
	March 31, 2020			March 31, 2019			Q1'20 vs. Q1'19
	(in thousands, except revenue per membership and percentages)
Global Streaming Memberships:
Paid net membership additions	15,766			9,604			6,162			64	%
Paid memberships at end of period	182,856			148,863			33,993			23	%
Average paying memberships	174,973			144,061			30,912			21	%
Average monthly revenue per paying membership	$	10.87		$	10.27		$	0.60		6	%

Financial Results:
Streaming revenues	$	5,703,363		$	4,440,304		$	1,263,059		28	%
DVD revenues	64,328			80,688			(16,360		)	(20	)%
Total revenues	$	5,767,691		$	4,520,992		$	1,246,699		28	%

Operating income	$	958,256		$	459,084		$	499,172		109	%
Operating margin	16.6		%	10.2		%	6.4		%	63	%

Paid net membership additions for the three months ended March 31, 2020 increased 64% as compared to the three months ended March 31, 2019, as a result of the long term trend toward streaming on demand entertainment and in large extent due to the COVID-19 pandemic and resulting local government mandates of home confinement. While we are unable to accurately predict the impact of the pandemic on paid net membership additions in subsequent quarters, the pandemic resulted in significant paid net membership additions in the first quarter of 2020 and may result in slower membership growth for the remainder of the fiscal year.

Consolidated revenues for the three months ended ~~September 30, 2017~~March 31, 2020 increased ~~$694.7 million~~28% as compared to the three months ended ~~September 30, 2016~~March 31, 2019. The increase in our consolidated revenues was due to the 21% growth in ~~the~~ average ~~number of paid streaming~~paying memberships ~~globally, the majority of which was growth~~and a 6% increase in ~~our international memberships. In addition, the~~ average monthly revenue per paying ~~streaming~~membership. The increase in average monthly revenue per paying membership ~~increased primarily due to~~resulted from our price changes and plan ~~mix.~~ mix and was partially offset by the timing of paid net membership additions. As the majority of paid net membership additions occurred in the last month of the quarter, the full revenue impact will be reflected in average monthly revenue per paying membership in the second quarter of 2020. The increase in average monthly revenue per paying membership was further offset by the strengthening of the U.S. dollar relative to certain foreign currencies partially due to volatile market conditions arising from the pandemic, which resulted in a reduction to revenue.

The increase in operating ~~income for the three months ended September 30, 2017 as compared to the same period in 2016 was~~margin is primarily due ~~primarily~~ to increased revenues partially offset by increased headcount costs and increased content expenses as we continue to acquire, license and produce content, including more Netflix ~~originals, as well as increased headcount~~originals. We additionally incurred $218 million in incremental content costs to support continued improvements in our streaming service, our international expansion, and increased content production activities. The increase in net income was comprised of an increase in operating income and an increase in the tax benefit primarily due to the adoption of ASU 2016-09 in the first quarter of ~~2017, partially offset by an increase in interest expense primarily~~2020 due to paused productions and the ~~higher principal~~establishment of ~~notes outstanding~~a hardship fund to provide relief payments to workers impacted by the pandemic.

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A: "Risk Factors" for additional details. In an ~~increase in foreign exchange losses primarily due~~effort to protect the ~~remeasurement~~health and safety of our ~~euro denominated senior notes.~~employees, our workforce has had to spend a significant amount of time working from home, international travel has been severely curtailed and virtually all of our productions are paused, as are the productions of our third-party content suppliers. Our other partners have similarly had their operations altered or temporarily suspended, including those partners that we use for our operations as well as development, production, and post-production of content. We had to temporarily reduce the network traffic of our members in some countries and have seen significant disruption in customer support operations and have increased headcount to meet the growing demand. We additionally have not been able to provide the same level of product features, such as language dubbing, on some new content releases.

In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. While we have observed demand increases for our streaming entertainment service in the past fiscal quarter, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

Streaming Revenues

We derive revenues from monthly membership fees for services related to streaming content to our members. We offer ~~three types~~a variety of streaming membership ~~plans. In~~plans, the ~~U.S.~~price of which varies by country and the features of the plan. As of March 31, 2020, pricing on our "basic" plan is priced at $7.99 per month and includes access to standard definition quality streaming on a single screen at a time. Our "standard" plan is our most popular streaming plan and is priced at $10.99 per month and includes access to high definition quality streaming on two screens concurrently. Our "premium" plan is priced at $13.99 per month and includes access to high definition and ultra-high definition quality content on four screens concurrently. Internationally, the membership plans ~~are structured similarly to the U.S. and range in price~~ranged from the U.S. dollar equivalent of ~~approximately $5.00~~$3 to $22 per ~~month to $21.00 per~~ month.

We expect that from time to time the prices of our membership plans in each country may ~~change. For instance, in May 2014, in the U.S.,~~change and we ~~increased the~~may test other plan and price of our standard plan from $7.99 per month to $8.99 per month with existing memberships grandfathered for a two year period. In October 2015, in the U.S., we increased the price of this same standard plan from $8.99 per month to $9.99 per month with existing memberships grandfathered for a one year period. In 2016, we phased out grandfathered pricing, giving members the option of electing the basic streaming plan at $7.99 per month, continuing on the standard streaming plan at the higher price of $9.99 per month, or electing the premium plan at $11.99 per month. In October 2017, in the U.S., we increased the price of our standard streaming plan from $9.99 to $10.99 per month and our premium plan from $11.99 to $13.99 per month.variations.

The following ~~represents~~tables summarize streaming revenue and other streaming membership information by region for the ~~key elements to our segment results of operations:~~three months ended March 31, 2020 and March 31, 2019.

~~We define contribution profit (loss) as revenues less cost of revenues~~

United States and ~~marketing expenses incurred by the segment.~~Canada (UCAN)



	As of/ Three Months Ended				Change
	March 31, 2020		March 31, 2019		Q1'20 vs. Q1'19
	(in thousands, except revenue per membership and percentages)
Revenues	$	2,702,776	$	2,256,851	$	445,925	20	%
Paid net membership additions	2,307		1,876		431		23	%
Paid memberships at end of period	69,969		66,633		3,336		5	%
Average paying memberships	68,816		65,695		3,121		5	%
Average monthly revenue per paying membership	$	13.09	$	11.45	$	1.64	14	%
Constant currency change (1)							14	%

Europe, Middle East, and Africa (EMEA)



	As of/ Three Months Ended				Change
	March 31, 2020		March 31, 2019		Q1'20 vs. Q1'19
	(in thousands, except revenue per membership and percentages)
Revenues	$	1,723,474	$	1,233,379	$	490,095	40	%
Paid net membership additions	6,956		4,724		2,232		47	%
Paid memberships at end of period	58,734		42,542		16,192		38	%
Average paying memberships	55,256		40,180		15,076		38	%
Average monthly revenue per paying membership	$	10.40	$	10.23	$	0.17	2	%
Constant currency change (1)							4	%

Latin America (LATAM)



	As of/ Three Months Ended				Change
	March 31, 2020		March 31, 2019		Q1'20 vs. Q1'19
	(in thousands, except revenue per membership and percentages)
Revenues	$	793,453	$	630,472	$	162,981	26	%
Paid net membership additions	2,901		1,470		1,431		97	%
Paid memberships at end of period	34,318		27,547		6,771		25	%
Average paying memberships	32,868		26,812		6,056		23	%
Average monthly revenue per paying membership	$	8.05	$	7.84	$	0.21	3	%
Constant currency change (1)							12	%

Asia-Pacific (APAC)



	As of/ Three Months Ended				Change
	March 31, 2020		March 31, 2019		Q1'20 vs. Q1'19
	(in thousands, except revenue per membership and percentages)
Revenues	$	483,660	$	319,602	$	164,058		51	%
Paid net membership additions	3,602		1,534		2,068			135	%
Paid memberships at end of period	19,835		12,141		7,694			63	%
Average paying memberships	18,034		11,374		6,660			59	%
Average monthly revenue per paying membership	$	8.94	$	9.37	$	(0.43	)	(5	)%
Constant currency change (1)								(3	)%

(1) We believe ~~this~~constant currency information is ~~an important measure~~useful in analyzing the underlying trends in average monthly revenue per paying membership. In order to exclude the effect of ~~our operating segment performance as it represents~~foreign currency rate fluctuations on average monthly revenue per paying membership, we estimate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each ~~segment's performance before global corporate costs.~~

of the corresponding months of the prior-year period. For the ~~Domestic and International streaming segments, content expenses, which include~~three months ended March 31, 2020, our revenues would have been approximately $115 million higher had foreign currency exchange rates remained constant with those for the ~~amortization~~three months ended March 31, 2019.

Cost of ~~the streaming~~Revenues

Amortization of content assets ~~and other expenses associated with~~makes up the ~~licensing and acquisition of streaming content, represent the vast~~ majority of cost of revenues. ~~Streaming~~Expenses associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights ~~were generally obtained for~~to music included in our current geographic regions. As we expanded internationally, we obtained additional rights for new geographies. With our global expansion, we now aspire to obtain global rights for our content. We allocate this content, ~~between the Domestic~~overall deals with talent, miscellaneous production related costs and ~~International streaming segments based on estimated fair market value. Other cost of revenues such as~~participations and residuals), streaming delivery ~~expenses, customer service~~costs and ~~payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentage~~other operations costs make up the remainder of ~~total~~ cost of revenues. We have built our own global content delivery network ("(“Open ~~Connect"~~Connect”) to help us efficiently stream a high volume of content to our members over the internet. ~~Streaming delivery~~Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering ~~streaming~~ content over the internet. ~~Cost~~Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.



	Three Months Ended						Change
	March 31, 2020			March 31, 2019			Q1'20 vs. Q1'19
	(in thousands, except percentages)
Cost of revenues	$	3,599,701		$	2,870,614		$	729,087	25	%
As a percentage of revenues	62		%	63		%

The increase in cost of revenues was primarily due to a $359 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. We also incurred $218 million in incremental content costs due to paused productions and hardship fund commitments due to the ~~Domestic DVD segment consist~~COVID-19 pandemic and expect to continue to incur additional incremental costs in

future periods. Other content costs increased $152 million primarily ~~of delivery expenses, content expenses, including amortization of DVD content assets and revenue sharing expenses, and other~~due to increases in expenses associated with the acquisition, licensing and production of content as well as increased payment processing fees driven by our DVD processing and customer service centers. Delivery expenses for the Domestic DVD segment consist of the postage costs to mail DVDs to and from our members and the packaging and label costs for the mailers.growing member base.

~~For the Domestic and International streaming segments, marketing~~

Marketing

Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including CEconsumer electronics ("CE") manufacturers, ~~MVPDs,~~multichannel video programming distributors ("MVPDs"), mobile operators and ~~ISPs.~~internet service providers ("ISPs"). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses ~~are incurred by our Domestic~~also include payroll and related expenses for personnel that support marketing activities.

International streaming segments given our focus on building consumer awareness of the streaming offerings, and in particular our original content. Marketing expenses incurred by our International streaming segment have been significant and fluctuate dependent upon the number of international territories in which our streaming service is offered, the timing of the launch of new territories and the timing of content releases.

We have demonstrated our ability to grow domestic streaming contribution margin as evidenced by the increase in contribution margin from 17% in 2012 to 36% in the third quarter of 2017. As a result of our focus on growing the streaming segments, contribution margins for the Domestic and International streaming segments are lower than for our Domestic DVD segment.

~~Domestic Streaming Segment~~

~~Three months ended September 30, 2017 as compared to the three months ended September 30, 2016~~

As of/ Three Months Ended Change
September 30,
2017 September 30,
2016 Q3'17 vs. Q3'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net additions 851
368
483
131 %
Memberships at end of period 52,772
47,497
5,275
11 %
Paid memberships at end of period 51,345
46,479
4,866
10 %
Average monthly revenue per paying membership $ 10.15
$ 9.40
$ 0.75
8 %

Contribution profit:
Revenues $ 1,547,210
$ 1,304,333
$ 242,877
19 %
Cost of revenues 864,408
720,658
143,750
20 %
Marketing 128,901
108,495
20,406
19 %
Contribution profit 553,901
475,180
78,721
17 %
Contribution margin 36 % 36 %



	Three Months Ended						Change
	March 31, 2020			March 31, 2019			Q1'20 vs. Q1'19
	(in thousands, except percentages)
Marketing	$	503,830		$	616,578		$	(112,748	)	(18	)%
As a percentage of revenues	9		%	14		%

In the Domestic streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members in the United States. The increase in our domestic streaming revenues was primarily due to the 10% growth in the average number of paid memberships, as well as an 8% increase in the average monthly revenue per paying membership, resulting from our price changes and plan mix. In the second half of 2016, we phased out grandfathered pricing and cancellations by members whose grandfathered pricing expired were not material. Our standard plan continues to be the most popular plan choice for new memberships.

The ~~increase~~decrease in ~~domestic streaming cost of revenues~~marketing expenses was primarily due to a ~~$136.5~~$126 million ~~increase~~decrease in ~~content~~advertising expenses, ~~relating to our existing and new streaming content, including more exclusive and original programming.~~

~~Domestic marketing expenses increased primarily due to increased advertising and public relations.~~

Our Domestic streaming segment had a contribution margin of 36% for the three months ended September 30, 2017, which is flat compared to the contribution margin of 36% for the three months ended September 30, 2016.

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

As of/ Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net additions 3,341
2,759
582
21 %
Memberships at end of period 52,772
47,497
5,275
11 %
Paid memberships at end of period 51,345
46,479
4,866
10 %
Average monthly revenue per paying membership $ 10.10
$ 8.96
$ 1.14
13 %

Contribution profit:
Revenues $ 4,522,751
$ 3,673,845
$ 848,906
23 %
Cost of revenues 2,445,858
2,094,310
351,548
17 %
Marketing 357,547
277,243
80,304
29 %
Contribution profit 1,719,346
1,302,292
417,054
32 %
Contribution margin 38 % 35 %

The increase in our domestic streaming revenues was primarily due to the 9% growth in the average number of paid memberships, as well as a 13% increase in average monthly revenue per paying membership, resulting from our price changes and plan mix.

The increase in domestic streaming cost of revenues was primarily due to a $331.5 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming.

~~Domestic marketing expenses increased primarily due to increased advertising and public relations.~~

Our Domestic streaming segment had a contribution margin of 38% for the nine months ended September 30, 2017, which increased as compared to the contribution margin of 35% for the nine months ended September 30, 2016 due to growth in paid memberships and revenue which continued to outpace content spending.

~~International Streaming Segment~~

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~

As of/ Three Months Ended Change
September 30,
2017 September 30,
2016 Q3'17 vs. Q3'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net additions 4,445
3,198
1,247
39 %
Memberships at end of period 56,476
39,246
17,230
44 %
Paid memberships at end of period 52,678
36,799
15,879
43 %
Average monthly revenue per paying membership $ 8.73
$ 8.05
$ 0.68
8 %

Contribution profit (loss):
Revenues $ 1,327,435
$ 853,480
$ 473,955
56 %
Cost of revenues 1,081,485
748,515
332,970
44 %
Marketing 183,589
173,548
10,041
6 %
Contribution profit (loss) 62,361
(68,583 ) 130,944
191 %
Contribution margin 5 % (8 )%

In the International streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States. We launched our streaming service in Canada in September 2010 and have expanded our services internationally as shown below.

The increase in our international revenues was due to the 43% growth in the average number of paid international memberships, in addition to an 8% increase in the average monthly revenue per paying membership. The increase in the average monthly revenue per paying membership was due to price changes and plan mix coupled with favorable fluctuations in foreign exchange rates. We estimate that international revenues in the third quarter of 2017 would have been approximately $13.3 million lower if foreign exchange rates had remained consistent with the foreign exchange rates from the third quarter of 2016. If foreign currency exchange rates fluctuate more than expected, revenues and average revenue per paying membership may differ from our expectations. Average paid international streaming memberships accounted for 50% of global average paid streaming memberships for the three months ended September 30, 2017, as compared to 43% of global average paid streaming memberships for the same period in 2016.

The increase in international cost of revenues was primarily due to a $298.3 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $34.7 million primarily due to increases in our streaming delivery expenses, costs associated with our customer service call centers and payment processing fees, all drivenpartially offset by ~~our growing member base.~~

~~International marketing expenses increased mainly due to increased advertising and public relations as well as~~ increased payments to our marketing partners.

International contribution profit for the three months ended September 30, 2017 was $62.4 million as compared to a contribution loss of $68.6 million for the three months ended September 30, 2016 as profit growth in our more mature markets offset investments in newer markets.

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

As of/ Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net additions 12,111
9,222
2,889
31 %
Memberships at end of period 56,476
39,246
17,230
44 %
Paid memberships at end of period 52,678
36,799
15,879
43 %
Average monthly revenue per paying membership $ 8.39
$ 7.70
$ 0.69
9 %

Contribution profit (loss):
Revenues $ 3,538,862
$ 2,263,429
$ 1,275,433
56 %
Cost of revenues 2,946,414
2,076,576
869,838
42 %
Marketing 500,536
428,839
71,697
17 %
Contribution profit (loss) 91,912
(241,986 ) 333,898
138 %
Contribution margin 3 % (11 )%

The increase in our international revenues was due to the 44% growth in our average number of paid international memberships, in addition to a 9% increase in the average monthly revenue per paying membership. The increase in the average monthly revenue per paying membership was due to price changes and plan mix, partially offset by unfavorable fluctuations in foreign exchange rates. We estimate that international revenues in the nine months ended September 30, 2017 would have been approximately $21.0 million higher if foreign exchange rates had remained consistent with the foreign exchange rates for the nine months ended September 30, 2016.

The increase in international cost of revenues was primarily due to a $769.7 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $100.2 million primarily due to

increases in our streaming delivery expenses, costs associated with our customer service call centers and payment processing fees, all driven by our growing member base, partially offset by decreases resulting from exchange rate fluctuations.

~~International marketing expenses for the nine months ended September 30, 2017 increased mainly due to increased advertising and public relations, as well as increased payments to our partners.~~

International contribution profit grew to $91.9 million as opposed to a $242.0 million loss for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 as profit growth in our more mature markets offset investments in newer markets.

~~Domestic DVD Segment~~

~~Three months ended September 30, 2017 as compared to the three months ended September 30, 2016~~

As of/ Three Months Ended Change
September 30,
2017 September 30,
2016 Q3'17 vs. Q3'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net losses (189 ) (257 ) 68
26 %
Memberships at end of period 3,569
4,273
(704 ) (16 )%
Paid memberships at end of period 3,520
4,194
(674 ) (16 )%
Average monthly revenue per paying membership $ 10.19
$ 10.23
$ (0.04 ) — %

Contribution profit:
Revenues $ 110,214
$ 132,375
$ (22,161 ) (17 )%
Cost of revenues 47,087
63,671
(16,584 ) (26 )%
Contribution profit 63,127
68,704
(5,577 ) (8 )%
Contribution margin 57 % 52 %

In the Domestic DVD segment, we derive revenues from our DVD-by-mail membership services. The price per plan for DVD-by-mail varies from $4.99 to $14.99 per month according to the plan chosen by the member. DVD-by-mail plans differ by the number of DVDs that a member may have out at any given point. Members electing access to high definition Blu-ray discs, in addition to standard definition DVDs, pay a surcharge ranging from $2 to $3 per month for our most popular plans.

Our Domestic DVD segment contribution margin was 57% for the three months ended September 30, 2017, as compared to 52% for the three months ended September 30, 2016, due to the decreased DVD usage by paying members and decreased DVD content expenses.

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

As of/ Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except revenue per membership and percentages)
Memberships:
Net losses (545 ) (631 ) 86
14 %
Memberships at end of period 3,569
4,273
(704 ) (16 )%
Paid memberships at end of period 3,520
4,194
(674 ) (16 )%
Average monthly revenue per paying membership $ 10.16
$ 10.21
$ (0.05 ) — %

Contribution profit:
Revenues $ 345,345
$ 415,854
$ (70,509 ) (17 )%
Cost of revenues 160,040
204,596
(44,556 ) (22 )%
Contribution profit 185,305
211,258
(25,953 ) (12 )%
Contribution margin 54 % 51 %

Our Domestic DVD segment contribution margin was 54% for the nine months ended September 30, 2017, as compared to 51% for the nine months ended September 30, 2016, due to the decreased DVD usage by paying members and decreased DVD content expenses.

~~Consolidated Operating Expenses~~

Technology and Development

Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendation, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software.

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~


	Three Months Ended						Change				Three Months Ended						Change
	September 30, 2017			September 30, 2016			Q3'17 vs. Q3'16				March 31, 2020			March 31, 2019			Q1'20 vs. Q1'19
	(in thousands, except percentages)										(in thousands, except percentages)
Technology and development	$	255,236		$	216,099		$	39,137	18	%	$	453,817		$	372,764		$	81,053	22	%
As a percentage of revenues	9		%	9		%					8		%	8		%

The increase in technology and development expenses was primarily due to a ~~$22.9~~$78 million increase in personnel-related costs, including ~~stock-based compensation expense, resulting from an increase~~increases in compensation for existing employees and ~~a 2%~~ growth in average headcount ~~supporting~~to support the increase in our production activity and continued improvements in our streaming ~~service and our international expansion. In addition, third party expenses, including costs associated with cloud computing, increased $8.7 million.~~service.

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except percentages)
Technology and development $ 779,427
$ 626,907
$ 152,520
24 %
As a percentage of revenues 9 % 10 %

The increase in technology and development expenses was primarily due to a $101.2 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in compensation for existing employees and a 3% growth in average headcount supporting continued improvements in our streaming service and our international expansion. In addition, third party expenses, including costs associated with cloud computing, increased $30.6 million.

General and Administrative

General and administrative expenses consist of payroll and related expenses for corporate ~~personnel, as well as~~personnel. General and administrative expenses also include professional fees and other general corporate expenses.

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~

General and administrative expenses increased primarily due to a ~~$37.6~~$46 million increase in personnel-related costs, including ~~stock-based compensation expense, resulting from a 50% increase in average headcount primarily to support our international and original content expansion, and an increase~~increases in compensation for existing ~~employees. In addition, facilities-related costs increased $8.2 million, primarily driven by costs for our expanded Los Gatos, California headquarters~~employees and ~~new Los Angeles, California facility, both of which were placed into operation in the first quarter of 2017. In addition, third party expenses increased $14.1 million.~~

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except percentages)
General and administrative $ 623,760
$ 418,798
$ 204,962
49 %
As a percentage of revenues 7 % 7 %

~~General and administrative expenses increased primarily due to a $135.0 million increase in personnel-related costs, including stock-based compensation expense, resulting from a 54% increase~~growth in average headcount ~~primarily~~ to support ~~our international and original content expansion, and an~~the increase in ~~compensation for existing employees. In addition, facilities-related costs increased $36.2 million, primarily driven by costs for~~ our ~~expanded Los Gatos, California headquarters~~production activity and ~~new Los Angeles, California facility, both of which were placed into operation~~continued improvements in ~~the first quarter of 2017. In addition, third party expenses increased $31.0 million.~~our streaming service.

Interest expense consists primarily of the interest associated with our outstanding ~~long-term~~ debt obligations, including the amortization of debt issuance ~~costs, as well as interest~~costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our ~~lease financing~~debt obligations.

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except percentages)
Interest expense $ (162,912 ) $ (106,528 ) $ (56,384 ) (53 )%
As a percentage of revenues (2 )% (2 )%

Interest expense primarily ~~consisted~~consists of interest on our Notes of ~~$58.4 million and $156.5~~$180 million for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2020. The increase in interest expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 as compared to the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2019 was ~~primarily~~ due to the ~~higher average aggregate principal of interest bearing notes outstanding.~~increase in debt.

Interest and Other Income (Expense)

Interest and other income (expense) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash and cash ~~equivalents and short-term investments.~~

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~equivalents.

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

Nine Months Ended Change
September 30,
2017 September 30,
2016 YTD'17 vs. YTD'16
(in thousands, except percentages)
Interest and other income (expense) $ (76,473 ) $ 50,907
$ (127,380 ) (250 )%
As a percentage of revenues (1 )% 1 %

Interest and other income (expense) decreased ~~for~~in the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 primarily due to foreign exchange ~~losses~~gains of ~~$35.3~~$9 million, ~~and $84.7 million, respectively,~~ compared to gains of ~~$6.4~~$62 million ~~and $44.6 million, respectively,~~ for the corresponding ~~periods~~period in ~~2016.~~2019. In the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, the foreign exchange ~~losses~~gains were primarily driven by the ~~$50.8~~$93 million ~~and $115.1 million, respectively, loss~~gain from the remeasurement of our ~~€1,300.0~~€4,700 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional ~~currencies~~currencies. In the three months ended March 31, 2019, the foreign exchange gains were primarily driven by the $58 million gain from the remeasurement of our ~~European~~€2,400 million Senior Notes, coupled with the remeasurement of cash and ~~U.S. entities.~~content liability positions in currencies other than the functional currencies.

Provision for Income Taxes



	Three Months Ended
	March 31, 2020			March 31, 2019
	(in thousands, except percentages)
Provision for income taxes	$	86,803		$	55,607
Effective tax rate	11		%	14		%

In connection with the Tax Cuts and Jobs Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The ~~effective~~ tax ~~rates for~~impacts of such simplifications were not material to the ~~three months ended September 30, 2017 and 2016 were (11)% and 35%, respectively.~~ financial statements taken as a whole.

The effective tax rate for the three months ended ~~September 30, 2017~~March 31, 2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits ~~attributable to the adoption~~ of ~~ASU 2016-09 and~~stock-based compensation, Federal and California research and development ("(“R~~&D"~~&D”) credits, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax rate for the three months ended September 30, 2016, differed from the Federal statutory rate primarily due to the Federal and California R&D credits partially offset by state taxes, foreign taxes and non-deductible expenses.

The decrease in our effective tax rate for the three months ended ~~September 30, 2017,~~March 31, 2020, as compared to the same period in ~~2016~~2019 was primarily due ~~primarily~~ to changes from the ~~recognition of the~~global corporate structure simplification, offset by a lower benefit on a percentage basis for excess tax benefits ~~attributable to the adoption~~ of ~~ASU 2016-09 and an increase in foreign income taxed at rates lower than the U.S. statutory rate.~~

The effective tax rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively. The effective tax rates for the nine months ended September 30, 2017, differed from the Federal statutory rate primarily due to the recognition of excess tax benefits attributable to the adoption of ASU 2016-09stock-based compensation and Federal and California R&D credits ~~partially offset by state taxes, foreign taxes and non-deductible expenses. The effective tax rate for the nine months ended September 30, 2016, differed from the Federal statutory rate primarily~~ due to the Federal and California research and development credits partially offset by state taxes, foreign taxes and non-deductible expenses. The decrease in our effective tax rate for the nine months ended September 30, 2017 as compared to the same period in 2016 was attributable primarily due to the recognition of the excess tax benefits attributable to the adoption of ASU 2016-09 and an increase in foreign income taxed at rates lower than the U.S. statutory rate.higher pre-tax income.

Liquidity and Capital Resources



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Cash, cash equivalents and restricted cash	$	5,178,187	$	5,043,786
Debt	14,669,501		14,759,260

Cash, ~~and cash equivalents was $1,746.5 million as of September 30, 2017, which increased $12.7 million as compared to cash,~~ cash equivalents and ~~short-term investments of $1,733.8~~restricted cash increased $134 million ~~as of December 31, 2016. The increase~~ in the ~~nine~~three months ended ~~September 30, 2017 was~~March 31, 2020 primarily due to cash provided by operations.

Debt, net of debt issuance costs, decreased $90 million primarily due to the ~~proceeds from the issuance~~remeasurement of ~~debt partially offset by cash used~~our euro-denominated notes. The amount of principal and interest due in ~~operations.~~

Our primary uses of cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. We expect to significantly increase our investments in global streaming content, particularly in original content, which will impact our liquidity and result in future negative free cash flows for many years. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for at least the next twelve ~~months.~~

In July 2017, we entered into a $500.0 million unsecured revolving credit facility (“Revolving Credit Agreement”), with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million subject to certain terms and conditions.months is $1,233 million. As of ~~September 30, 2017,~~March 31, 2020, no amounts had been borrowed under the $750 million Revolving Credit Agreement. See Note 56 Debt in the accompanying notes to ~~the~~our consolidated financial ~~statements for additional information.~~

In May 2017, we issued €1,300.0 million of long-term debt. Long-term debt, net of debt issuance costs, was $4,888.8 million and $3,364.3 million as of September 30, 2017, and December 31, 2016, respectively. See Note 5 to the consolidated financial statements for additional information.statements. We anticipate ~~financing~~continuing to finance our future capital needs in the debt ~~market, as our after-tax cost of debt is lower than our cost of equity.~~market. Our ability to obtain this or any additional financing that we may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. WeIn addition, the recent COVID-19 pandemic has caused disruption in the capital markets. It could make financing more difficult and/or expensive and we may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt

securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

AsOur primary uses of ~~September 30, 2017,~~ cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash ~~equivalents held by our foreign subsidiaries amounted~~upfront relative to ~~$443.7 million. If these funds~~licensed content. For example, production costs are ~~needed for our operations~~paid as the content is created, well in advance of when the ~~U.S., we would be required to accrue and pay U.S. income taxes and foreign withholding taxes~~content is available on the ~~portion associated with undistributed earnings~~service and amortized. We expect to continue to significantly increase our investments in global content, particularly in original content, which will impact our liquidity and result in future net cash used in operating activities and negative free cash flow. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for ~~certain foreign subsidiaries.~~at least the next twelve months. During the period of uncertainty of volatility related to the COVID-19 pandemic, we will continue to monitor our liquidity.

We define free cash flow as cash provided by (used in) operating and investing ~~activities excluding the non-operational cash flows from purchases, maturities and sales of short-term investments.~~activities. We believe 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 or the amount of cash used in operations, including investments in global ~~streaming~~ content. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, cash flow provided by (used in) ~~provided by~~ operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.

In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the three major recurring differences are excess content payments over ~~expense,~~amortization, non-cash stock-based compensation expense and other working capital differences. The excess content payments over expense is variable based on the payment terms of our content agreements and is expected to increase as we enter into more agreements with upfront cash payments, such as licensing and production of original content. Working capital differences include deferred revenue, excess property and equipment purchases over depreciation, taxes and semi-annual interest payments on our outstanding debt. ~~Our receivables from members~~Membership fees due are generally ~~settle quickly and deferred revenue is a source of cash flow.~~collected quickly.

~~Three months ended September 30, 2017~~ ~~as compared to the~~ ~~three months ended September 30, 2016~~

Three Months Ended
September 30,
2017 September 30,
2016
(in thousands)
Net cash used in operating activities $ (419,607 ) $ (461,941 )
Net cash provided by investing activities 202,192
23,976
Net cash provided by financing activities 34,422
16,639

Non-GAAP free cash flow reconciliation:
Net cash used in operating activities (419,607 ) (461,941 )
Acquisition of DVD content assets (10,217 ) (17,249 )
Purchases of property and equipment (33,963 ) (27,366 )
Change in other assets (1,107 ) 125
Non-GAAP free cash flow $ (464,894 ) $ (506,431 )



	Three Months Ended
	March 31, 2020			March 31, 2019
	(in thousands)
Net cash provided by (used in) operating activities	$	259,912		$	(379,799	)
Net cash used in investing activities	(98,303		)	(80,103		)
Net cash provided by financing activities	43,694			22,972

Non-GAAP reconciliation of free cash flow:
Net cash provided by (used in) operating activities	259,912			(379,799		)
Net cash used in investing activities	(98,303		)	(80,103		)
Free cash flow	$	161,609		$	(459,902	)

~~Cash used in~~Net cash provided by operating activities ~~decreased $42.3~~increased $640 million to ~~$419.6~~$260 million for the three months ended ~~September 30, 2017, compared to the same period of 2016.~~March 31, 2020. The ~~decreased use of~~increase in cash provided by operating activities was ~~due~~ primarily todriven by a ~~$694.7~~$1,247 million or ~~30%~~28% increase in revenues, partially offset by ~~the~~an increase in investments in ~~streaming~~ content that ~~requires~~require more upfront cash payments. The payments for ~~streaming~~ content assets increased ~~$437.4~~$23 million, from $3,012 million to $3,035 million, or ~~23%~~1%, as compared to the increase in the amortization of content assets of $359 million, from $2,125 million to $2,483 million, or 17%. At the end of the three months ended March 31, 2020, due to the global COVID-19 pandemic, we have paused most of our productions in response to government lockdowns and guidance from local health officials. As a result, the timing of certain production payments will be delayed until productions can resume and may be shifted to future years. In addition, we had increased payments associated with higher operating ~~expenses.~~expenses, primarily related to increased headcount to support our continued improvements in our streaming service, our international expansion and increased content production activities.

~~Cash provided by~~Net cash used in investing activities increased ~~$178.2~~$18 million for the three months ended March 31, 2020, primarily due to ~~a $179.0~~the increase in purchases of property and equipment.

Net cash provided by financing activities increased $21 million for the three months ended March 31, 2020, due to an increase in the proceeds from the ~~sale of short-term investments. In July 2017, the Company sold all short-term investments.~~

~~Cash provided by financing activities increased $17.8 million in the quarter ended September 30, 2017, due to an increase in cash received from the~~ issuance of common ~~stock, partially offset by a decrease in excess tax benefits from stock-based compensation due to the adoption of ASU 2016-09 in the first quarter of 2017.~~stock.

Free cash flow was ~~$594.5~~$547 million lower than net income for the three months ended ~~September 30, 2017~~March 31, 2020 primarily due to ~~$722.1~~$552 million of cash payments for ~~streaming~~ content assets over ~~streaming~~ amortization expense and $92 million in other non-favorable working capital differences, partially offset by ~~$44.8~~$97 million of non-cash stock-based compensation ~~expense and $82.8 million of favorable other working capital differences.~~expense.

Free cash flow was ~~$557.9~~$804 million lower than net income for the three months ended ~~September 30, 2016,~~March 31, 2019, primarily due to ~~$688.1~~$888 million of cash payments for ~~streaming~~ content assets over ~~streaming~~ amortization expense ~~partially offset by $43.5 million of non-cash stock-based compensation expense~~ and ~~$86.7 million favorable other working capital differences.~~

~~Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016~~

Nine Months Ended
September 30,
2017 September 30,
2016
(in thousands)
Net cash used in operating activities $ (1,297,991 ) $ (916,824 )
Net cash provided by investing activities 70,170
25,343
Net cash provided by financing activities 1,479,047
49,158

Non-GAAP free cash flow reconciliation:
Net cash used in operating activities (1,297,991 ) (916,824 )
Acquisition of DVD content assets (43,213 ) (58,380 )
Purchases of property and equipment (151,717 ) (46,605 )
Change in other assets (2,940 ) 676
Non-GAAP free cash flow $ (1,495,861 ) $ (1,021,133 )

Cash used in operating activities increased $381.2 million to $1,298.0 million for the nine months ended September 30, 2017, compared to the same period of 2016. The significant net cash used in operations is due primarily to the increase in investments in streaming content that requires more upfront payments. The payments for streaming content assets increased $1,605.2 million or 33%. In addition, we had increased payments associated with higher operating expenses. The increased use of cash was partially offset by a $2,053.8 million or 32% increase in revenues.

Cash provided by investing activities increased $44.8 million, primarily due to an increase in the proceeds from the sale and maturities of short-term investments of $138.4 million, net of purchases, coupled with an increase in the purchases of property and equipment of $105.1 million, primarily related to the expansion of our Los Gatos, California headquarters and our new Los Angeles, California facility.

~~Cash provided by financing activities increased $1,429.9~~$17 million in ~~the nine months ended September 30, 2017, due to the proceeds from the issuance of debt of $1,405.2 million, net of $15.3 million of issuance costs.~~

Free cash flow was $1,869.3 million lower than net income for the nine months ended September 30, 2017 primarily due to $1,997.6 million of cash payments for streaming content assets over streaming amortization expense coupled with $5.4 millionother non-favorable ~~other~~ working capital differences, partially offset by ~~$133.7~~$101 million of non-cash stock-based compensation ~~expenses.~~expense.

Free cash flow was $1,141.1 million lower than net income for the nine months ended September 30, 2016, primarily due to $1,418.3 million of cash payments for streaming content assets over streaming amortization expense partially offset by $130.0 million of non-cash stock-based compensation expense and $147.2 million favorable other working capital differences.

Contractual Obligations

For the purpose of this table, contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of the payment of the obligations discussed below is estimated based on information available to us as of ~~September 30, 2017.~~March 31, 2020. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of ~~September 30, 2017:~~March 31, 2020:

Streaming content obligations increased $2.5 billion from $14.5 billion as of December 31, 2016 to $17.0 billion as of September 30, 2017, primarily due to multi-year commitments associated with the continued expansion of our exclusive and original programming.

~~Streaming content~~Content obligations include amounts related to the acquisition, licensing and production of ~~streaming~~ content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment ~~agreements.~~agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $3$1 billion to $5$4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.

As of ~~September 30, 2017,~~March 31, 2020, we had gross unrecognized tax benefits of ~~$37.2~~$71 million which was classified in “Other non-current liabilities” and a reduction to deferred tax assets which was classified as "Other non-current assets" in the ~~consolidated balance sheets.~~Consolidated Balance Sheets. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

Off-Balance Sheet Arrangements

We do not have transactions with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.

The information set forth under Note 67 to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. The ~~Securities and Exchange Commission ("SEC")~~SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

~~Streaming~~ Content

We acquire, license and produce content, including original programing, in order to offer our members unlimited viewing of ~~TV shows and films.~~entertainment. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to ~~streaming~~content assets and the changes in related liabilities, are classified within "Net cash ~~used in~~provided by (used in) operating activities" on the Consolidated Statements of Cash Flows.

We recognize content assets (licensed and produced) as "Content assets, net" on the Consolidated Balance Sheets. For ~~licenses~~licensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. ~~The portion available for streaming within one year is recognized as “Current~~For produced content, ~~assets, net” and the remaining portion as “Non-current content assets, net” on the Consolidated Balance Sheets.~~

~~For productions,~~ we capitalize costs associated with the production, including development cost, direct costs and production overhead. ~~We include these amounts in "Non-current content assets, net" on the Consolidated Balance Sheets.~~ Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in “Cost of revenues” on the Consolidated Statements of Operations over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization ~~period~~is on an accelerated basis, as we typically ~~ranges from six months to five years. For content where we~~ expect more upfront viewing, for instance due to ~~the~~ additional merchandising and marketing efforts, ~~we amortize on an~~and film amortization is more accelerated ~~basis.~~than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.

Our business model is subscription based as opposed to a model generating revenues at a specific title level. ~~Therefore, content~~Content assets ~~both licensed~~(licensed and ~~produced~~produced) are predominantly monetized as a group and therefore are reviewed ~~in aggregate~~ at ~~the operating segment~~a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than ~~amortized~~unamortized cost. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost ~~net realizable value~~ or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. ~~No material write-down from unamortized cost was recorded in any of the periods presented.~~

We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the ~~consolidated~~ financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. ~~As of September 30, 2017, there was a valuation allowance of $33.1 million primarily related to foreign tax credit carryovers. There was no valuation allowance as of September 30, 2016.~~

Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. ~~In the event~~However, we ~~were to determine~~believe that ~~we would~~it is more likely than not ~~be able to realize all or part~~that most of ~~our net deferred tax assets in the future, an adjustment to~~ the deferred tax assets ~~would~~recorded on our Consolidated Balance Sheets will ultimately be ~~charged~~realized. We record a valuation allowance to ~~earnings in~~reduce our deferred tax assets to the ~~period in which~~net amount that we ~~make such determination.~~believe is more likely than not to be realized. As of March 31, 2020, the valuation allowance of $132 million was related to foreign tax credits that we are not expected to realize.

We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the ~~consolidated~~ financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At ~~September 30, 2017,~~March 31, 2020, our estimated gross unrecognized tax benefits were ~~$37.2~~$71 million of which ~~$33.3~~$60 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. See Note 9 to the consolidated financial statements for further information regarding income taxes.

~~Stock-Based Compensation~~

We grant fully vested non-qualified stock options to our employees on a monthly basis. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. Stock-based compensation expense at the grant date is based on the total number of options granted and an estimate of the fair value of the awards.

We calculate the fair value of our stock option grants using a lattice-binomial model. This model requires the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the estimate of fair value of options granted and our results of operations could be impacted.

Recent Accounting Pronouncements

The information set forth under Note 1 to the consolidated financial statements under the caption “Basis of Presentation and Summary of Significant Accounting Policies” is incorporated herein by reference.

For financial market risks related to changes in interest rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. Our exposure to market risk has not changed significantly since December 31, ~~2016.~~2019.

Foreign Currency Risk

International revenues and cost of revenues account for 42% and 53%, respectively, of consolidated amounts for the nine months ended September 30, 2017. The majority of international revenues and a smaller portion of expenses areRevenues denominated in currencies other than the U.S. dollar ~~and we~~account for 53% of the consolidated amount for the three months ended March 31, 2020. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Canadian dollar, the Australian dollar, the Japanese yen, the Mexican Peso, the Argentine peso, and the Brazilian real.

~~Accordingly,~~Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and ~~contribution profit (loss) of our International streaming segment~~operating income as expressed in U.S. dollars. In the ~~nine~~three months ended ~~September 30, 2017, we believe~~March 31, 2020, our ~~international~~ revenues would have been approximately ~~$21.0~~$115 million higher had foreign currency exchange rates remained consistent with those in same period of ~~2016.~~2019.

We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, we recognized ~~an $84.7~~a $9 million foreign exchange ~~loss which resulted~~gain primarily ~~from~~due to the remeasurement of our ~~€1,300.0 million~~ Senior Notes ~~and was~~denominated in euros, partially offset by the remeasurement of cash and content ~~liability positions~~liabilities denominated in currencies other than the functional ~~currencies of our European and U.S. entities.~~currencies.

In addition, the effect of exchange rate changes on cash, ~~and~~ cash equivalents inand restricted cash as disclosed on the ~~nine~~Consolidated Statements of Cash Flow for the three months ended ~~September 30, 2017~~March 31, 2020 was ~~$27.7~~a decrease of $71 million.

We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a significant impact on our future results of operations.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2017,~~March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

The information set forth under Note 67 in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.

~~There have been no material changes from~~The following risk factor is provided to update the risk factors as previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

The recent coronavirus (COVID-19) pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise additional capital.

The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns, we have altered certain aspects of our operations. Our workforce has had to spend a significant amount of time working from home, which impacts their productivity. International travel has been severely curtailed and virtually all of our productions are paused, as are productions of third-parties who supply us with content. Other partners have similarly had their operations altered or temporarily suspended, including those partners that we use for our operations as well as development, production and post-production of content. To the extent the resulting economic disruption is severe, we could see some vendors go out of business, resulting in supply constraints and increased costs or delays to our productions. Such production pauses may cause us temporarily to have less new content available on our service in subsequent quarters, which could negatively impact consumer demand for and member retention to our service and the number of paid memberships. Temporary production pauses or permanent shutdowns in production could result in content asset impairments or other charges and will change the timing and amount of cash outflows associated with production activity.

The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the provision of streaming services over the internet, including impacts on content delivery networks and streaming quality; and any stoppages, disruptions or increased costs associated with our development, production, post-production, marketing and distribution of original programming. During the COVID-19 crisis, we may not be able to provide the same level of customer service and product features, such as dubbing, that our members are used to which could negatively impact their perception of our service resulting in an increase in cancellations. Furthermore, given increased government expenditures associated with their COVID-19 response, we could see increased government obligations which could negatively impact our results of operations. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

The COVID-19 pandemic has also led to an increase in our net paid membership additions relative to our quarterly forecast and historic trends. These results, as well as those of other metrics such as revenues, operating margins, net income and other financial and operating data, may not be indicative of results for future periods. Our increase in net paid membership additions may reflect the acceleration of growth that we would have seen in subsequent periods, and membership growth may slow or reverse, due to slower acquisition and/or higher cancellations, as government and other restrictions are relaxed. In addition to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions taken in response to COVID-19. To the extent that such a weakened global economy impacts consumers’ ability or willingness to pay for our service or vendors’ ability to provide services to us, especially those related to our content productions, we could see our business and results of operation negatively impacted.

See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

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 thereunto duly authorized.

Chief Executive Officer

(Principal executive officer)

~~David Wells~~Spencer Neumann

Chief Financial Officer

(Principal financial and accounting officer)

The following financial information from Netflix, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on October 18, 2017, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016, (ii) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (iii) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (iv) Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2017 and 2016 and (v) the Notes to the Consolidated Financial Statements.



	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Cash flows from operating activities:
Net income	$	129,590		$	51,517		$	373,412		$	119,930
Adjustments to reconcile net income to net cash used in operating activities:
Additions to streaming content assets	(2,315,017		)	(2,442,080		)	(7,328,104		)	(6,550,445		)
Change in streaming content liabilities	(34,587		)	529,885			846,560			1,674,125
Amortization of streaming content assets	1,627,477			1,224,108			4,483,954			3,457,990
Amortization of DVD content assets	13,259			19,284			48,368			59,746
Depreciation and amortization of property, equipment and intangibles	19,238			14,410			52,838			43,339
Stock-based compensation expense	44,763			43,495			133,679			130,029
Excess tax benefits from stock-based compensation	—			(12,762		)	—			(37,401		)
Other non-cash items	9,896			9,682			43,081			31,479
Foreign currency remeasurement loss on long-term debt	50,830			—			115,050			—
Deferred taxes	(57,090		)	14,338			(104,556		)	(20,141		)
Changes in operating assets and liabilities:
Other current assets	(41,399		)	10,250			(147,000		)	48,649
Accounts payable	34,029			27,810			10,590			16,707
Accrued expenses	74,006			28,957			119,506			72,288
Deferred revenue	32,947			30,230			94,777			80,485
Other non-current assets and liabilities	(7,549		)	(11,065		)	(40,146		)	(43,604		)
Net cash used in operating activities	(419,607		)	(461,941		)	(1,297,991		)	(916,824		)
Cash flows from investing activities:
Acquisitions of DVD content assets	(10,217		)	(17,249		)	(43,213		)	(58,380		)
Purchases of property and equipment	(33,963		)	(27,366		)	(151,717		)	(46,605		)
Change in other assets	(1,107		)	125			(2,940		)	676
Purchases of short-term investments	(2,799		)	(128,136		)	(74,819		)	(181,590		)
Proceeds from sale of short-term investments	250,278			171,747			320,154			198,687
Proceeds from maturities of short-term investments	—			24,855			22,705			112,555
Net cash provided by investing activities	202,192			23,976			70,170			25,343
Cash flows from financing activities:
Proceeds from issuance of debt	—			—			1,420,510			—
Issuance costs	(312		)	—			(15,325		)	—
Proceeds from issuance of common stock	34,669			3,819			73,673			11,587
Excess tax benefits from stock-based compensation	—			12,762			—			37,401
Other financing activities	65			58			189			170
Net cash provided by financing activities	34,422			16,639			1,479,047			49,158
Effect of exchange rate changes on cash and cash equivalents	10,685			(441		)	27,667			2,151
Net increase (decrease) in cash and cash equivalents	(172,308		)	(421,767		)	278,893			(840,172		)
Cash and cash equivalents, beginning of period	1,918,777			1,390,925			1,467,576			1,809,330
Cash and cash equivalents, end of period	$	1,746,469		$	969,158		$	1,746,469		$	969,158
Supplemental disclosure:
Change in investing activities included in liabilities	$	(6,876	)	$	17,243		$	(27,041	)	$	15,486



	Three Months Ended
	March 31, 2020			March 31, 2019
Cash flows from operating activities:
Net income	$	709,067		$	344,052
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Additions to content assets	(3,294,275		)	(2,997,746		)
Change in content liabilities	258,945			(14,698		)
Amortization of content assets	2,483,385			2,124,686
Depreciation and amortization of property, equipment and intangibles	28,517			23,561
Stock-based compensation expense	97,019			101,200
Other non-cash items	65,448			45,708
Foreign currency remeasurement gain on debt	(93,060		)	(57,600		)
Deferred taxes	46,619			6,627
Changes in operating assets and liabilities:
Other current assets	(127,353		)	(32,076		)
Accounts payable	(149,153		)	(124,467		)
Accrued expenses and other liabilities	214,191			157,647
Deferred revenue	62,008			47,793
Other non-current assets and liabilities	(41,446		)	(4,486		)
Net cash provided by (used in) operating activities	259,912			(379,799		)
Cash flows from investing activities:
Purchases of property and equipment	(98,015		)	(60,381		)
Change in other assets	(288		)	(19,722		)
Net cash used in investing activities	(98,303		)	(80,103		)
Cash flows from financing activities:
Proceeds from issuance of common stock	43,694			22,972
Net cash provided by financing activities	43,694			22,972
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(70,902		)	(5,014		)
Net increase (decrease) in cash, cash equivalents and restricted cash	134,401			(441,944		)
Cash, cash equivalents and restricted cash at beginning of period	5,043,786			3,812,041
Cash, cash equivalents and restricted cash at end of period	$	5,178,187		$	3,370,097


	As of						As of
	September 30, 2017			December 31, 2016			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,746,469		$	1,467,576		$	5,151,884		$	5,018,437
Short-term investments	—			266,206
Current content assets, net	4,223,387			3,726,307
Other current assets	415,492			260,202			1,295,897			1,160,067
Total current assets	6,385,348			5,720,291			6,447,781			6,178,504
Non-current content assets, net	9,739,704			7,274,501
Content assets, net							25,266,889			24,504,567
Property and equipment, net	322,421			250,395			650,455			565,221
Other non-current assets	504,067			341,423			2,694,785			2,727,420
Total assets	$	16,951,540		$	13,586,610		$	35,059,910		$	33,975,712
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,142,086		$	3,632,711		$	4,761,585		$	4,413,561
Accounts payable	301,443			312,842			545,488			674,347
Accrued expenses	331,723			197,632
Accrued expenses and other liabilities							1,061,090			843,043
Deferred revenue	535,425			443,472			986,753			924,745
Short-term debt							498,809			—
Total current liabilities	5,310,677			4,586,657			7,853,725			6,855,696
Non-current content liabilities	3,296,504			2,894,654			3,206,051			3,334,323
Long-term debt	4,888,783			3,364,311			14,170,692			14,759,260
Other non-current liabilities	128,215			61,188			1,420,148			1,444,276
Total liabilities	13,624,179			10,906,810			26,650,616			26,393,555
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at September 30, 2017 and December 31, 2016; 432,731,130 and 430,054,212 issued and outstanding at September 30, 2017 and December 31, 2016, respectively	1,807,123			1,599,762
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2020 and December 31, 2019; 439,780,618 and 438,806,649 issued and outstanding at March 31, 2020 and December 31, 2019, respectively							2,935,532			2,793,929
Accumulated other comprehensive loss	(25,362		)	(48,565		)	(47,054		)	(23,521		)
Retained earnings	1,545,600			1,128,603			5,520,816			4,811,749
Total stockholders’ equity	3,327,361			2,679,800			8,409,294			7,582,157
Total liabilities and stockholders’ equity	$	16,951,540		$	13,586,610		$	35,059,910		$	33,975,712



	Three Months Ended
	March 31, 2020			March 31, 2019
Total stockholders' equity, beginning balances	$	7,582,157		$	5,238,765

Common stock and additional paid-in capital:
Beginning balances	$	2,793,929		$	2,315,988
Issuance of common stock upon exercise of options	44,584			22,585
Stock-based compensation expense	97,019			101,200
Ending balance	$	2,935,532		$	2,439,773

Accumulated other comprehensive loss:
Beginning balances	$	(23,521	)	$	(19,582	)
Other comprehensive loss	(23,533		)	(6,018		)
Ending balance	$	(47,054	)	$	(25,600	)

Retained earnings:
Beginning balances	$	4,811,749		$	2,942,359
Net income	709,067			344,052
Adoption of ASU 2016-02, Leases (Topic 842)	—			2,474
Ending balances	$	5,520,816		$	3,288,885

Total stockholders' equity, ending balances	$	8,409,294		$	5,703,058



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Cash and cash equivalents		Short-term investments		Non-current assets (1)
	(in thousands)
Cash	$	1,267,523	$	—	$	—		$	1,267,523	$	1,264,126	$	—	$	3,397
Level 1 securities:
Money market funds	204,967		—		—			204,967		203,450		—		1,517
Level 2 securities:
Corporate debt securities	199,843		110		(731		)	199,222		—		199,222		—
Government securities	35,944		—		(128		)	35,816		—		35,816		—
Certificates of deposit	9,833		—		—			9,833		—		9,833		—
Agency securities	21,563		—		(228		)	21,335		—		21,335		—
Total	$	1,739,673	$	110	$	(1,087	)	$	1,738,696	$	1,467,576	$	266,206	$	4,914



	As of March 31, 2020
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	3,100,789	$	2,514	$	23,536	$	3,126,839
Level 1 securities:
Money market funds	1,751,095		—		253		1,751,348
Level 2 securities:
Foreign Time Deposits	300,000		—		—		300,000

	$	5,151,884	$	2,514	$	23,789	$	5,178,187



	Foreign currency			Change in unrealized gains on available-for-sale securities			Total
	(in thousands)
Balance as of June 30, 2017	$	(31,040	)	$	(328	)	$	(31,368	)
Other comprehensive income before reclassifications	5,678			328			6,006
Net decrease in other comprehensive loss	5,678			328			6,006
Balances as of September 30, 2017	$	(25,362	)	$	—		$	(25,362	)



	As of
	September 30, 2017		December 31, 2016
	(in thousands)
United States	$	293,733	$	236,977
International	28,688		13,418



	As of/ Three Months Ended September 30, 2017
	Domestic Streaming		International Streaming		Domestic DVD		Consolidated
	(in thousands)
Total memberships at end of period (1)	52,772		56,476		3,569
Revenues	$	1,547,210	$	1,327,435	$	110,214	$	2,984,859
Cost of revenues	864,408		1,081,485		47,087		1,992,980
Marketing	128,901		183,589		—		312,490
Contribution profit	$	553,901	$	62,361	$	63,127	$	679,389
Other operating expenses							470,762
Operating income							208,627
Other income (expense)							(92,390		)
Benefit from income taxes							(13,353		)
Net income							$	129,590



	As of/ Nine Months Ended						Change
	September 30, 2017			September 30, 2016			YTD'17 vs. YTD'16
	(in thousands, except revenue per membership and percentages)
Memberships:
Net additions	3,341			2,759			582		21	%
Memberships at end of period	52,772			47,497			5,275		11	%
Paid memberships at end of period	51,345			46,479			4,866		10	%
Average monthly revenue per paying membership	$	10.10		$	8.96		$	1.14	13	%

Contribution profit:
Revenues	$	4,522,751		$	3,673,845		$	848,906	23	%
Cost of revenues	2,445,858			2,094,310			351,548		17	%
Marketing	357,547			277,243			80,304		29	%
Contribution profit	1,719,346			1,302,292			417,054		32	%
Contribution margin	38		%	35		%


	Payments due by Period										Payments due by Period
Contractual obligations (in thousands):	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Streaming content obligations (1)	$	16,991,930	$	6,984,360	$	7,918,009	$	1,918,123	$	171,438
Content obligations (1)											$	19,174,038	$	8,618,185	$	8,064,206	$	1,974,855	$	516,792
Debt (2)	6,708,200		237,108		469,578		1,622,849		4,378,665		20,587,654		1,233,206		2,060,732		2,502,066		14,791,650
Lease obligations (3)	727,508		96,224		184,905		157,762		288,617
Operating lease obligations (3)											2,739,071		285,784		587,752		533,605		1,331,930
Other purchase obligations (4)	642,821		368,214		198,418		46,560		29,629		1,000,138		716,792		254,922		28,060		364
Total	$	25,070,459	$	7,685,906	$	8,770,910	$	3,745,294	$	4,868,349	$	43,500,901	$	10,853,967	$	10,967,612	$	5,038,586	$	16,640,736


(2)	Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 56 to the consolidated financial statements for further details.


(4)	Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery ~~DVD content acquisition,~~ and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods.


*	These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.



		NETFLIX, INC.
Dated:	~~October 18, 2017~~April 21, 2020	By:	/s/ ~~REED HASTINGS~~Reed Hastings
			Reed Hastings Chief Executive Officer (Principal executive officer)

Dated:	~~October 18, 2017~~April 21, 2020	By:	/s/ ~~DAVID WELLS~~Spencer Neumann
			~~David Wells~~Spencer Neumann Chief Financial Officer (Principal financial and accounting officer)