Washington, D.C. 20549
Netflix, Inc.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
NETFLIX, INC.
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
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, 20162020 filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2017.28, 2021. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the 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, 2016.2020. Interim results are not necessarily indicative of the results for a full year.
There have been no material changes in the Company’s significant accounting policies 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, 2016.2020.
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:
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, 2017March 31, 2021 and December 31, 2016,2020, the Company was in compliance with all related covenants.
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.
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, 2021 and December 31, 2020, the Company was in compliance with all related covenants.
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.
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.
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.
A summary of the activities related to the Company’s stock option plans is as follows:
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 | | 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 zero0 in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.
Stock Repurchases
In March 2021, the Company’s Board of Directors authorized the repurchase of up to $5 billion of its common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. The Company is not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, general economic, business and market conditions, and alternative investment opportunities. The Company may discontinue any repurchases of its common stock at any time without prior notice. As of March 31, 2021, 0 stock has been repurchased under this program. 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, 2021 | | March 31, 2020 | | | | |
| | (in thousands, except percentages) |
Provision for income taxes | | $ | 327,787 | | | $ | 86,803 | | | | | |
Effective tax rate | | 16 | % | | 11 | % | | | | |
The effective tax ratesrate for the three months ended September 30, 2017March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and 2016 were (11)%Jobs Act and 35%, respectively.recognition of excess tax benefits of stock-based compensation. The effective tax rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively. The effective tax ratesrate 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 stock-based compensation and the provision for income taxes attributable to the adoption of ASU 2016-09 and Federal and California research and development ("R&D") credits, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax rates for the three and nine months ended September 30, 2016 differedchanges from the Federal statutory rate primarily due to Federal and California R&D credits partially offset by state taxes, foreign taxes and non-deductible expenses. global corporate structure simplification.
The decreaseincrease in effective tax rate for the three and nine months ended September 30, 2017March 31, 2021, as compared to the same period in 20162020 was primarily due primarily to the recognition ofrecognizing less excess tax benefits attributablerelated to stock-based compensation. For the three months ended March 31, 2021, the Company recognized a discrete tax benefit related to the adoptionexcess tax benefits from stock-based compensation of ASU 2016-09 and an increase in foreign income taxed at rates lower than$47 million, compared to the US statutory rate.three months ended March 31, 2020 of $65 million.
Gross unrecognized tax benefits were $37.2$160 million and $19.7$140 million as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $33.3$99 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of September 30, 2017,March 31, 2021, gross unrecognized tax benefits of $15.8$38 million waswere classified as “Other non-current liabilities” and $21.4$64 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$427 million and $227.2$589 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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, theThe Company has a valuation allowance of $33.1$298 million primarily due to foreign tax credit carryovers. Asand $250 million as of March 31, 2021 and December 31, 2016, it was considered more likely than not that substantially all deferred tax assets would 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 benefit2020, respectively. The valuation allowance is related to the excessCalifornia research and development credits and certain foreign tax benefits from stock-based compensation of $41.7 million and $110.5 million, respectively.attributes that the Company does not expect to realize.
The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 20142016 through 2018 and 2015.is subject to examination for 2019. The 20082015 through 20152019 state tax returns are subject to examination by various 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 20112015 through 20162020 generally 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’soperates as 1 operating segment. The Company's chief operating decision maker ("CODM") reviewsis its co-chief executive officers, who review financial information presented on a consolidated basis for the purposes of making operating results indecisions, assessing financial performance and allocating resources. The Company’s CODM reviews
Total U.S. revenues were $3.0 billion and contribution profit (loss)$2.5 billion for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenuesthree months ended March 31, 2021 and marketing expenses incurredMarch 31, 2020, 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, 2021 and December 31, 2020, were located as follows:
| | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
| (in thousands) |
United States | $ | 2,269,444 | | | $ | 2,224,891 | |
International | 753,704 | | | 773,018 | |
|
| | | | | | | |
| 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 |
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; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, adequacy of existing facilities, net cash provided by (used in) operating activities, access to financing sources, and free cash flows; capital allocation strategies, including any stock repurchases; seasonality; impact of foreign exchange rate fluctuations; the impact of the discontinuance of the LIBO Rate; future regulatory changes and the Company’s response to, new accounting standards; content amortization; pricing changes; dividends;their impact on our business; price changes and testing; impact of foreign currency and exchange rate fluctuations, including on net income, revenues and average revenues per paying member; investments in global streaming, including original content; impact of content on membership growth; cash use in connection with the acquisition, licensing and production of content; liquidity and free cash flow; unrecognized tax benefits; deferred tax assets; effective tax rate; accessing and obtaining additional capital, including future debt financing;recently adopted accounting pronouncements; accounting treatment for changes related to content assets; membership growth, including impact of content and pricing changes on membership growth; partnerships; member viewing patterns; dividends; future contractual obligations, including unknown streaming content obligations and timing of payments.payments; our global content and marketing investments, including investments in original programming; content amortization; tax expense; unrecognized tax benefits; deferred tax assets; our ability to effectively manage change and growth; and the impact of the 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, 20162020 filed with the Securities and Exchange Commission (“SEC”) on January 27, 2017,28, 2021, 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 (ir.netflix.net), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media and blogs 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 and blogs 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 and blogs listed on our investor relations Web site.website.
Overview
We are one of the world’s leading internet television networkentertainment services with over 109approximately 208 million paid streaming membersmemberships 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 DVD-by-mail service in the United States (“U.S., our members can receive DVDs delivered quickly to their homes.”).
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 moviesentertainment 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 profitoperating margin targets.target. We are continuously improving our members'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 perpetuallycontinuously 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 |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except revenue per membership and percentages) |
Financial Results: | | | | | | | |
Streaming revenues | $ | 7,113,707 | | | $ | 5,703,363 | | | $ | 1,410,344 | | | 25 | % |
DVD revenues | 49,575 | | | 64,328 | | | (14,753) | | | (23) | % |
Total revenues | $ | 7,163,282 | | | $ | 5,767,691 | | | $ | 1,395,591 | | | 24 | % |
| | | | | | | |
Operating income | $ | 1,959,856 | | | $ | 958,256 | | | $ | 1,001,600 | | | 105 | % |
Operating margin | 27.4 | % | | 16.6 | % | | 10.8 | % | | 65 | % |
| | | | | | | |
Global Streaming Memberships: | | | | | | | |
Paid net membership additions | 3,976 | | | 15,766 | | | (11,790) | | | (75) | % |
Paid memberships at end of period | 207,639 | | | 182,856 | | | 24,783 | | | 14 | % |
Average paying memberships | 205,651 | | | 174,973 | | | 30,678 | | | 18 | % |
Average monthly revenue per paying membership | $ | 11.53 | | | $ | 10.87 | | | $ | 0.66 | | | 6 | % |
|
| | | | | | | | | | | | | | |
| 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 | % |
Consolidated revenues for the three months ended September 30, 2017March 31, 2021 increased $694.7 million24% as compared to the three months ended September 30, 2016March 31, 2020. The increase in our consolidated revenues was due to the 18% growth in the average number of paid streamingpaying memberships globally, the majority of which was growthand a 6% increase in our international memberships. In addition, the average monthly revenue per paying streamingmembership. The increase in average monthly revenue per paying membership increasedwas primarily due to price changes and plan mix. The increasefavorable fluctuations in operating incomeforeign exchange rates. Paid net membership additions for the three months ended September 30, 2017March 31, 2021 decreased 75% as compared to the same periodthree months ended March 31, 2020. We believe the decrease in 2016 was duepaid net membership additions can primarily to increased revenues partially offset by increased content expenses as we continue to acquire, license and produce content, including more Netflix originals, as well as increased headcount 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 duebe attributed to the adoption of ASU 2016-09COVID-19 pandemic which contributed to significant paid net membership additions in the first quarter of 2017, partially offset by an2020, and resulted in less growth in the first quarter of 2021 as compared to the prior year. While we are unable to accurately predict the impact of the pandemic on paid net membership additions, we expect slower paid net membership additions in the first half of 2021 compared to comparable periods in 2020.
The increase in interest expenseoperating margin is primarily due to content amortization growing at a slower rate as compared to the higher principal of notes outstanding and an24% increase in foreign exchange losses primarilyrevenues as a result of delays in content releases due to the remeasurementCOVID-19 pandemic. Marketing, technology and development, and general and administrative expenses also grew at a slower rate as compared to the growth in revenue.
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 Part I, Item 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional details. In an effort to protect the health and safety of our euro denominated senior notes.employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been curtailed, and while most of our productions have resumed, certain of our productions continue to experience disruption, as do the productions of our third-party content suppliers. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. As a result, the pandemic has and continues to affect our ability to produce content,
which in turn led to delays in certain content releases. Many government measures to contain COVID-19 or slow its spread, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing, continue to remain in effect or may be rescinded, modified, or reinstated. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity 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 typesa variety of streaming membership plans. Inplans, the U.S.price of which varies by country and the features of the plan. As of March 31, 2021, 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 priceranged from the U.S. dollar equivalent of approximately $5.00$3 to $24 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 themay 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 representstables summarize streaming revenue and other streaming membership information by region for the key elements to our segment resultsthree months ended March 31, 2021 and March 31, 2020.
United States and Canada (UCAN)
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| | As of/ Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except revenue per membership and percentages) |
Revenues | | $ | 3,170,972 | | | $ | 2,702,776 | | | $ | 468,196 | | | 17 | % |
Paid net membership additions | | 448 | | | 2,307 | | | (1,859) | | | (81) | % |
Paid memberships at end of period | | 74,384 | | | 69,969 | | | 4,415 | | | 6 | % |
Average paying memberships | | 74,160 | | | 68,816 | | | 5,344 | | | 8 | % |
Average monthly revenue per paying membership | | $ | 14.25 | | | $ | 13.09 | | | $ | 1.16 | | | 9 | % |
Constant currency change (1) | | | | | | | | 9 | % |
| | | | | | | | |
| | | | | | | | |
Europe, Middle East, and Africa (EMEA)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/ Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except revenue per membership and percentages) |
Revenues | | $ | 2,343,674 | | | $ | 1,723,474 | | | $ | 620,200 | | | 36 | % |
Paid net membership additions | | 1,810 | | | 6,956 | | | (5,146) | | | (74) | % |
Paid memberships at end of period | | 68,508 | | | 58,734 | | | 9,774 | | | 17 | % |
Average paying memberships | | 67,603 | | | 55,256 | | | 12,347 | | | 22 | % |
Average monthly revenue per paying membership | | $ | 11.56 | | | $ | 10.40 | | | $ | 1.16 | | | 11 | % |
Constant currency change (1) | | | | | | | | 4 | % |
| | | | | | | | |
| | | | | | | | |
We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by the segment.Latin America (LATAM)
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| | As of/ Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except revenue per membership and percentages) |
Revenues | | $ | 836,647 | | | $ | 793,453 | | | $ | 43,194 | | | 5 | % |
Paid net membership additions | | 357 | | | 2,901 | | | (2,544) | | | (88) | % |
Paid memberships at end of period | | 37,894 | | | 34,318 | | | 3,576 | | | 10 | % |
Average paying memberships | | 37,716 | | | 32,868 | | | 4,848 | | | 15 | % |
Average monthly revenue per paying membership | | $ | 7.39 | | | $ | 8.05 | | | $ | (0.66) | | | (8) | % |
Constant currency change (1) | | | | | | | | 5 | % |
| | | | | | | | |
| | | | | | | | |
Asia-Pacific (APAC)
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| | As of/ Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except revenue per membership and percentages) |
Revenues | | $ | 762,414 | | | $ | 483,660 | | | $ | 278,754 | | | 58 | % |
Paid net membership additions | | 1,361 | | | 3,602 | | | (2,241) | | | (62) | % |
Paid memberships at end of period | | 26,853 | | | 19,835 | | | 7,018 | | | 35 | % |
Average paying memberships | | 26,173 | | | 18,034 | | | 8,139 | | | 45 | % |
Average monthly revenue per paying membership | | $ | 9.71 | | | $ | 8.94 | | | $ | 0.77 | | | 9 | % |
Constant currency change (1) | | | | | | | | 3 | % |
| | | | | | | | |
| | | | | | | | |
(1) We believe thisconstant currency information is an important measureuseful 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 representsforeign 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 includethree months ended March 31, 2021, our revenues would have been approximately $80 million lower had foreign currency exchange rates remained constant with those for the amortizationthree months ended March 31, 2020.
Cost of the streamingRevenues
Amortization of content assets and other expenses associated withmakes up the licensing and acquisition of streaming content, represent the vast majority of cost of revenues. StreamingExpenses associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights were generally obtained forto 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 Domesticoverall deals with talent, miscellaneous production related costs and International streaming segments based on estimated fair market value. Other cost of revenues such asparticipations and residuals), streaming delivery expenses, customer servicecosts and payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentageother 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 deliveryDelivery 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. CostOther 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.
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| Three Months Ended | | Change |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except percentages) |
Cost of revenues | $ | 3,868,511 | | $ | 3,599,701 | | $ | 268,810 | | | 7 | % |
As a percentage of revenues | 54 | % | | 62 | % | | | | |
The increase in cost of revenues was primarily due to a $236 million increase in the Domestic DVD segment consistcontent amortization relating to our existing and new content, including more exclusive and original programming. Other content costs increased $33 million primarily of delivery expenses, content expenses, including amortization of DVD content assets and revenue sharing expenses, and otherdue to increases in expenses associated with streaming delivery costs and 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 Domesticalso 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. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except percentages) |
Marketing | $ | 512,512 | | | $ | 503,830 | | | $ | 8,682 | | | 2 | % |
As a percentage of revenues | 7 | % | | 9 | % | | | | |
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
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| | 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 | % | | | | |
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 in domestic streaming cost of revenuesmarketing expenses was primarily due to a $136.5$11 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming.
Domestic marketing expenses increasedpersonnel-related costs, 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
|
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| | 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 membershipsaverage headcount to support the increase in our production activity 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 launchedimprovements in 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 driven by our growing member base.
International marketing expenses increased mainly due to increased advertising and public relations as well as increased payments to our 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 increaseddecreased 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
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| | | | | | | | | | | | | | | |
| | 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,recommendations, 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 |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except percentages) |
Technology and development | $ | 525,207 | | | $ | 453,817 | | | $ | 71,390 | | | 16 | % |
As a percentage of revenues | 7 | % | | 8 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| September 30, 2017 | | September 30, 2016 | | Q3'17 vs. Q3'16 |
| (in thousands, except percentages) |
Technology and development | $ | 255,236 |
| | $ | 216,099 |
| | $ | 39,137 |
| | 18 | % |
As a percentage of revenues | 9 | % | | 9 | % | | | | |
The increase in technology and development expenses was primarily due to a $22.9$61 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in compensation for existing employees and a 2%primarily due to growth in average headcount supportingto 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 aspersonnel. 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
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except percentages) |
General and administrative | $ | 297,196 | | | $ | 252,087 | | | $ | 45,109 | | | 18 | % |
As a percentage of revenues | 4 | % | | 4 | % | | | | |
|
| | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| September 30, 2017 | | September 30, 2016 | | Q3'17 vs. Q3'16 |
| (in thousands, except percentages) |
General and administrative | $ | 215,526 |
| | $ | 153,166 |
| | $ | 62,360 |
| | 41 | % |
As a percentage of revenues | 7 | % | | 7 | % | | | | |
GeneralThe increase in general and administrative expenses increasedwas primarily due to a $37.6$24 million increase in third-party expenses, including costs for contractors and consultants. In addition, personnel-related costs including stock-based compensation expense, resulting from a 50% increaseincreased by $19 million, primarily due to growth in average headcount primarily to support our international and original content expansion, and anthe increase in compensation for existing employees. In addition, facilities-related costs increased $8.2 million, primarily driven by costs for our expanded Los Gatos, California headquartersproduction activity and new Los Angeles, California facility, both of which were placed into operationcontinued improvements in the first quarter of 2017. In addition, third party expenses increased $14.1 million.our streaming 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) |
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 in average headcount primarily to support our international and original content expansion, and an 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 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 $31.0 million.
Interest Expense
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 interestcosts. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our lease financingdebt obligations.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except percentages) |
Interest expense | | $ | 194,440 | | | $ | 184,083 | | | $ | 10,357 | | | 6 | % |
As a percentage of revenues | | 3 | % | | 3 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | September 30, 2017 | | September 30, 2016 | | Q3'17 vs. Q3'16 |
| | (in thousands, except percentages) |
Interest expense | | $ | (60,688 | ) | | $ | (35,536 | ) | | $ | (25,152 | ) | | (71 | )% |
As a percentage of revenues | | (2 | )% | | (2 | )% | | | | |
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 consistedconsists of interest on our Notes of $58.4 million and $156.5$190 million for the three and nine months ended September 30, 2017.March 31, 2021. The increase in interest expense for the three and nine months ended September 30, 2017March 31, 2021 as compared to the three and nine months ended September 30, 2016March 31, 2020 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.equivalents.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| | (in thousands, except percentages) |
Interest and other income | | $ | 269,086 | | | $ | 21,697 | | | $ | 247,389 | | | 1,140 | % |
As a percentage of revenues | | 4 | % | | — | % | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | September 30, 2017 | | September 30, 2016 | | Q3'17 vs. Q3'16 |
| | (in thousands, except percentages) |
Interest and other income (expense) | | $ | (31,702 | ) | | $ | 8,627 |
| | $ | (40,329 | ) | | (467 | )% |
As a percentage of revenues | | (1 | )% | | — | % | | | | |
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 forincreased in the three and nine months ended September 30, 2017,March 31, 2021 primarily due to foreign exchange lossesgains of $35.3$258 million, and $84.7 million, respectively, compared to gains of $6.4$9 million and $44.6 million, respectively, for the corresponding periodsperiod in 2016.2020. In the three and nine months ended September 30, 2017,March 31, 2021, the foreign exchange lossesgains were primarily driven by the $50.8$253 million and $115.1 million, respectively, lossnon-cash gain from the remeasurement of our €1,300.0€5,170 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the three months ended March 31, 2020, the foreign exchange gains were primarily driven by the $93 million non-cash gain from the remeasurement of our €4,700 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currenciescurrencies.
Provision for Income Taxes
The effective tax rates for the three months ended September 30, 2017 and 2016 were (11)% and 35%, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | |
| | March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 | | | |
| | (in thousands, except percentages) |
Provision for income taxes | | $ | 327,787 | | | $ | 86,803 | | | $ | 240,984 | | 278 | % | | | | |
Effective tax rate | | 16 | % | | 11 | % | | | | | | | |
The effective tax rate for the three months ended September 30, 2017March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act and recognition of excess tax benefits attributable to the adoption of ASU 2016-09 and Federal and California research and development ("R&D") credits partially offset by state taxes, foreign taxes, and non-deductible expenses. stock-based compensation.
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 decreaseincrease in our effective tax rate for the three months ended September 30, 2017,March 31, 2021, as compared to the same period in 20162020 was primarily due primarily to the recognition of therecognizing less excess tax benefits attributablerelated to the adoption of ASU 2016-09 and an increase in foreign income taxed at rates lower than the U.S. statutory rate.stock-based compensation.
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 2016-09 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.
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | | | | | | | | |
| As of | | Change |
| March 31, 2021 | | December 31, 2020 | | March 31, 2021 vs. December 31, 2020 |
| (in thousands, except percentages) |
Cash, cash equivalents and restricted cash | $ | 8,436,453 | | | $ | 8,238,870 | | | $ | 197,583 | | | 2 | % |
Short-term and long-term debt | 15,559,340 | | | 16,308,973 | | | (749,633) | | | (5) | % |
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 $1,733.8restricted cash increased $198 million as of December 31, 2016. The increase in the ninethree months ended September 30, 2017 wasMarch 31, 2021 primarily due to cash provided by operations, partially offset by the repayment of debt.
Debt, net of debt issuance costs, decreased $750 million primarily due to the proceeds fromrepayment upon maturity of the issuance$500 million aggregate principal amount of debt partially offset by cash usedour 5.375% Senior Notes in operations.
Our primary usesFebruary 2021, coupled with the remeasurement of cash include the acquisition, licensingour euro-denominated notes. The amount of principal and production of content, streaming delivery, marketing programs and personnel-related costs. Investmentsinterest on our outstanding notes due 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 $1,454 million. As of September 30, 2017,March 31, 2021, no amounts had been borrowed under the $750 million Revolving Credit Agreement. See Note 56 Debt in the accompanying notes to theour consolidated financial statements for additional information.statements.
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. We anticipate financingthat our future capital needs infrom the debt market as our after-tax cost of debt is lower than our cost of equity.will be more limited compared to prior years. 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. 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.
In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. As of September 30, 2017,March 31, 2021, no stock has been repurchased under this program.
Our primary uses of 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 amountedupfront relative to $443.7 million. If these fundslicensed content. For example, production costs are needed for our operationspaid 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 taxescontent is available on the portion associated with undistributed earningsservice and amortized. We expect to continue to significantly increase our investments in global content, particularly in original content, which will impact our liquidity. 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.
Free Cash Flow
We define free cash flow as cash provided by (used in) operating activities less purchases of property and investing activities excluding the non-operational cash flows from purchases, maturitiesequipment and sales of short-term investments.change in other assets. 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 strategic acquisitions and investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content.like stock repurchases. 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, net cash flowprovided 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, non-cash remeasurement gain/loss on our euro-denominated debt, 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 membersMembership fees due are generally settle quickly and deferred revenue is a source of cash flow.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016collected quickly.
|
| | | | | | | |
| 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 | | Change |
| March 31, 2021 | | March 31, 2020 | | Q1'21 vs. Q1'20 |
| (in thousands, except percentages) |
Net cash provided by operating activities | $ | 777,266 | | | $ | 259,912 | | | $ | 517,354 | | | 199 | % |
Net cash used in investing activities | (85,616) | | | (98,303) | | | (12,687) | | | (13) | % |
Net cash provided by (used in) financing activities | (451,929) | | | 43,694 | | | (495,623) | | | (1,134) | % |
| | | | | | | |
Non-GAAP reconciliation of free cash flow: | | | | | | | |
Net cash provided by operating activities | 777,266 | | | 259,912 | | | 517,354 | | | 199 | % |
Purchases of property and equipment | (81,001) | | | (98,015) | | | (17,014) | | | (17) | % |
Change in other assets | (4,615) | | | (288) | | | (4,327) | | | (1,502) | % |
Free cash flow | $ | 691,650 | | | $ | 161,609 | | | $ | 530,041 | | | 328 | % |
Cash used inNet cash provided by operating activities decreased $42.3increased $517 million to $419.6$777 million for the three months ended September 30, 2017, compared to the same period of 2016.March 31, 2021. The decreased use ofincrease in cash provided by operating activities was due primarily todriven by a $694.7$1,396 million or 30%24% increase in revenues, partially offset by thean increase in investments in streaming content that requiresrequire more upfront cash payments. The payments for streaming content assets increased $437.4$515 million, from $3,035 million to $3,551 million, or 23%17%, as compared to the increase in the amortization of content assets of $236 million, from $2,483 million to $2,719 million, or 9%. 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 and our international expansion.
Cash provided byNet cash used in investing activities increased $178.2decreased $13 million for the three months ended March 31, 2021, primarily due to a $179.0 million increasedecrease in the proceeds from the salepurchases of short-term investments. In July 2017, the Company sold all short-term investments.property and equipment.
CashNet cash provided by (used in) financing activities increased $17.8decreased $496 million infor the quarterthree months 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 compensationMarch 31, 2021, primarily due to the adoptionrepayment of ASU 2016-09 in the first quarter of 2017.debt.
Free cash flow was $594.5$1,015 million lower than net income for the three months ended September 30, 2017March 31, 2021 primarily due to $722.1$831 million of cash payments for streaming content assets over streaming amortization expense, $253 million of non-cash remeasurement gain on our euro-denominated debt, and $38 million in other non-favorable working capital differences, partially offset by $44.8$107 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$547 million lower than net income for the three months ended September 30, 2016,March 31, 2020, primarily due to $688.1$552 million of cash payments for streaming content assets over streaming amortization expense and $93 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $43.5$97 million of non-cash stock-based compensation expense and $86.7$1 million in 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 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 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 million non-favorable other working capital differences, partially offset by $133.7 million of non-cash stock-based compensation expenses.
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, 2021. 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, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by Period |
Contractual obligations (in thousands): | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Content obligations (1) | | $ | 20,725,165 | | | $ | 9,456,342 | | | $ | 8,241,022 | | | $ | 2,259,821 | | | $ | 767,980 | |
Debt (2) | | 21,000,783 | | | 1,453,690 | | | 1,804,714 | | | 3,161,269 | | | 14,581,110 | |
Operating lease obligations (3) | | 2,825,470 | | | 357,900 | | | 655,591 | | | 576,630 | | | 1,235,349 | |
Other purchase obligations (4) | | 1,067,747 | | | 679,340 | | | 383,349 | | | 5,058 | | | — | |
Total | | $ | 45,619,165 | | | $ | 11,947,272 | | | $ | 11,084,676 | | | $ | 6,002,778 | | | $ | 16,584,439 | |
|
| | | | | | | | | | | | | | | | | | | |
| Payments due by Period |
Contractual obligations (in thousands): | 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 |
|
Debt (2) | 6,708,200 |
| | 237,108 |
| | 469,578 |
| | 1,622,849 |
| | 4,378,665 |
|
Lease obligations (3) | 727,508 |
| | 96,224 |
| | 184,905 |
| | 157,762 |
| | 288,617 |
|
Other purchase obligations (4) | 642,821 |
| | 368,214 |
| | 198,418 |
| | 46,560 |
| | 29,629 |
|
Total | $ | 25,070,459 |
|
| $ | 7,685,906 |
| | $ | 8,770,910 |
| | $ | 3,745,294 |
| | $ | 4,868,349 |
|
| |
(1) | As of September 30, 2017, streaming content obligations were comprised of $4.1 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $9.6 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition. |
Streaming(1)As of March 31, 2021, content obligations increasedwere comprised of $4.3 billion included in “Current content liabilities” and $2.5 billion from $14.5of “Non-current content liabilities” on the Consolidated Balance Sheets and $13.9 billion of obligations that are not reflected on the Consolidated Balance Sheets as of December 31, 2016 to $17.0 billion as of September 30, 2017, primarily due to multi-year commitments associated withthey did not then meet the continued expansion of our exclusive and original programming.criteria for recognition.
Streaming contentContent 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.
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(2) | Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 5 to the consolidated financial statements for further details. |
(2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt to the consolidated financial statements for further details.
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(3) | Lease obligations include lease financing obligations of $16.4 million related to a portion of our current Los Gatos, California headquarters for which we are the deemed owner for accounting purposes, commitments of $519.3 million for our expanded headquarters in Los Gatos, California, and our new office space in Los Angeles, California and other commitments of $191.8 million for facilities under non-cancelable operating leases. These leases have expiration dates varying through approximately 2028. |
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(4) | Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery, DVD content acquisition, and miscellaneous open purchase orders for which we have not received the related services or goods. |
(3)Operating lease obligations are comprised of operating lease liabilities included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Consolidated Balance Sheets, inclusive of imputed interest. Operating lease obligations also include additional obligations that are not reflected on the Consolidated Balance Sheets as they did not meet the criteria for recognition. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases.
(4)Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods.
As of September 30, 2017,March 31, 2021, we had gross unrecognized tax benefits of $37.2 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.$160 million. 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.
Indemnification
The information set forth under Note 6 7 Commitments and Contingencies 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,programming, in order to offer our members unlimited viewing of TV shows and films.video 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 streamingcontent assets and the changes in related liabilities, are classified within "Net cash used inprovided by 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 licenseslicensed 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 “CurrentFor 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 periodis 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 anand 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, contentContent assets both licensed(licensed and producedproduced) are predominantly monetized as a group and therefore are reviewed in aggregate at the operating segmenta 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 amortizedunamortized 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.
Income Taxes
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 eventHowever, we were to determinebelieve that we wouldit is more likely than not be able to realize all or partthat most of our net deferred tax assets in the future, an adjustment to the deferred tax assets wouldrecorded on our Consolidated Balance Sheets will ultimately be chargedrealized. We record a valuation allowance to earnings inreduce our deferred tax assets to the period in whichnet amount that we make such determination.believe is more likely than not to be realized. As of March 31, 2021, the valuation allowance of $298 million was related to the California research and
development credits and certain foreign tax attributes that we do not expect 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, 2021, our estimated gross unrecognized tax benefits were $37.2$160 million of which $33.3$99 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 Income Taxes 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.
Expected Volatility: The Company calculates expected volatility based solely on implied volatility. We believe that implied volatility of publicly traded options in our 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 our common stock. An increase/decrease of 10% in our computation of expected volatility would increase/decrease the total stock-based compensation expense by approximately $5.7 million for the three months ended September 30, 2017.
Suboptimal Exercise Factor: Our computation of the suboptimal exercise factor is based on historical and estimated option exercise behavior. An increase/decrease in the suboptimal exercise factor of 10% would increase/decrease the total stock-based compensation expense by approximately $1.1 million for the three months ended September 30, 2017.
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.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
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, 2016.2020. Our exposure to market risk has not changed significantly since December 31, 2016.2020.
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 weaccount for 56% of the consolidated amount for the three months ended March 31, 2021. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Brazilian real, the Canadian dollar, the Mexican Peso, the Australian dollar, and the Japanese yen and the Brazilian real.yen.
Accordingly, 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 segmentoperating income as expressed in U.S. dollars. In the ninethree months ended September 30, 2017, we believeMarch 31, 2021, our international revenues would have been approximately $21.0$80 million higherlower had foreign currency exchange rates remained consistent with those in same period of 2016.2020.
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 ninethree months ended September 30, 2017,March 31, 2021, we recognized an $84.7a $258 million foreign exchange loss which resultedgain primarily fromdue to the non-cash remeasurement of our €1,300.0 million Senior Notes and was partially offset bydenominated in euros, coupled with the remeasurement of cash and content liability positionsliabilities 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 nineConsolidated Statements of Cash Flow for the three months ended September 30, 2017March 31, 2021 was $27.7a decrease of $42 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.
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Item 4. | Controls and Procedures |
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chiefco-Chief Executive OfficerOfficers 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 Chiefco-Chief Executive OfficerOfficers 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)that such information is accumulated and communicated to our management, including our Chiefco-Chief Executive OfficerOfficers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, including our Chiefco-Chief Executive OfficerOfficers 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, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The information set forth under Note 6 7 Commitments and Contingencies in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.
Item 1A.Risk Factors
There have been no material changes from the risk factors as previously disclosed under the heading “Risk Factors”"Risk Factors" in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Company Purchases of Equity Securities
In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. As of March 31, 2021, no stock has been repurchased under this program.
Item 6.Exhibits
(a) Exhibits:
See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Incorporated by Reference | | Filed Herewith |
| | | | Form | | File No. | | Exhibit | | Filing Date | | |
| | | | | | | | | | | | |
| | | | 10-Q | | 001-35727 | | 3.1 | | July 17, 2015 | | |
| | | | | | | | | | | | |
| | | | 8-K | | 001-35727 | | 3.1 | | December 18, 2020 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags | | | | | | | | | | X |
| | | | | | | | | | | | |
104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL | | | | | | | | | | X |
* 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.
† Indicates a management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | NETFLIX, INC. |
Dated: | April 22, 2021 | By: | /s/ Reed Hastings |
| | | Reed Hastings Co-Chief Executive Officer (Principal executive officer) |
| | | |
Dated: | April 22, 2021 | NETFLIX, INC.By: | /s/ Spencer Neumann |
Dated: | October 18, 2017 | By: | /s/ REED HASTINGS |
| | | Reed Hastings
Chief Executive Officer
(Principal executive officer)
|
| | | |
Dated: | October 18, 2017 | By: | /s/ DAVID WELLS |
| | | David Wells
Spencer Neumann Chief Financial Officer (Principal financial and accounting officer)
|
EXHIBIT INDEX
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Incorporated by Reference | | Filed Herewith |
| | | | Form | | File No. | | Exhibit | | Filing Date | | |
| | | | | | | |
| |
| | | | 001-35727 | | 10.14 | | July 19, 2017 | | |
| | | | | | | | | | | | |
| |
| | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
101 | | 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. | | | | | | | | | | X |
| |
* | 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. |