EX-99.1 2 nflx-63015xex991.htm LETTER TO SHAREHOLDERS NFLX-6.30.15-EX99.1


Exhibit 99.1
July 15, 2015

Fellow shareholders,

In Q2, we eclipsed 65 million members, with over 42 million in the US and 23 million internationally. We are at the forefront of a wave of global Internet TV adoption and intend to make our service available throughout the world by the end of 2016. Our summary results and Q3 forecast are below.
 (in millions except per share data and Streaming Content Obligations)
Q2 '14
Q3 '14
Q4 '14
Q1 '15
Q2 '15
Q3 '15 Forecast
Total Streaming:
 
 
 
 
 
 
Revenue
$
1,146

$
1,223

$
1,305

$
1,400

$
1,481

$
1,593

Contribution Profit
$
212

$
220

$
178

$
247

$
248

$
272

Contribution Margin
18.5
 %
18.0
 %
13.6
 %
17.7
 %
16.7
 %
17.1
 %
Paid Memberships
47.99

50.65

54.48

59.62

62.71

66.61

Total Memberships
50.05

53.06

57.39

62.27

65.55

69.10

Net Additions
1.69

3.02

4.33

4.88

3.28

3.55

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
838

$
877

$
917

$
985

$
1,026

$
1,069

Contribution Profit
$
227

$
251

$
257

$
312

$
340

$
349

Contribution Margin
27.1
 %
28.6
 %
28.0
 %
31.7
 %
33.1
 %
32.6
 %
Paid Memberships
35.09

36.27

37.70

40.32

41.06

42.51

Total Memberships
36.24

37.22

39.11

41.40

42.30

43.45

Net Additions
0.57

0.98

1.90

2.28

0.90

1.15

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
307

$
346

$
388

$
415

$
455

$
524

Contribution Profit (Loss)
$
(15
)
$
(31
)
$
(79
)
$
(65
)
$
(92
)
$
(77
)
Contribution Margin
-5.0
 %
-8.9
 %
-20.3
 %
-15.6
 %
-20.2
 %
-14.7
 %
Paid Memberships
12.91

14.39

16.78

19.30

21.65

24.10

Total Memberships
13.80

15.84

18.28

20.88

23.25

25.65

Net Additions
1.12

2.04

2.43

2.60

2.37

2.40

 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Operating Income
$
130

$
110

$
65

$
97

$
75

$
81

Net Income*
$
71

$
59

$
83

$
24

$
26

$
31

EPS*
$
0.16

$
0.14

$
0.19

$
0.05

$
0.06

$
0.07

 
 
 
 
 
 
 
Free Cash Flow
$
16

$
(74
)
$
(78
)
$
(163
)
$
(229
)
 
EBITDA
$
172

$
155

$
110

$
140

$
119

 
Shares (FD)*
431.4

432.7

432.5

433.8

436.1

 
Streaming Content Obligations** ($B)
7.7

8.9

9.5

9.8

10.1

 
* EPS and shares adjusted for 7-for-1 stock split. Q4'14 Net Income/EPS includes a $39m / $0.10 benefit from a tax accrual release related to resolution of tax audit
**Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K

                                                                                                                                                    1


Q2 Results and Q3 Forecast
We added a Q2 record 3.3 million new streaming members, compared to 1.7 million in the previous year quarter. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we clearly under-forecast in Q2 (forecast was 2.5 million net adds). We strive for accuracy in the forecast and our Q3 estimates are based on everything we know up to today.

We gained 0.9 million members in the US and added 2.4 million members internationally in Q2. We believe the higher than anticipated level of acquisition was fueled by the growing strength of our original programming slate, which in Q2 included the first seasons of Marvel’s Daredevil, Sense8, Dragons: Race to the Edge and Grace and Frankie as well as season 3 of Orange is the New Black. US revenue growth was also driven by a 5% year over year increase in ASP due to uptake in our HD 2-stream plan. We continue to target a 40% US contribution margin by 2020, even though we are running ahead of plan given stronger than expected top line performance and lower content and other streaming costs. We are forecasting Q3 US net adds of 1.15 million, slightly higher than the year ago period.

Our international segment is growing at a rapid pace. We did not add additional markets in Q2 but saw continued improvement across existing markets, including a full quarter of additions from our successful March 24, 2015 launch in Australia/New Zealand. We project Q3 international net adds of 2.4 million.

International revenue grew 48% year over year, despite an -$83 million impact from currency (+5% ASP growth x-F/X). As we expected, international losses increased sequentially with a full quarter of operating costs in AU/NZ. We expect this trend to continue in the second half as we launch additional markets (Japan in Q3 and Spain, Italy and Portugal in Q4) and prepare for further global expansion in 2016, including China as we continue to explore options there.

EPS for Q2 amounted to $0.06 after adjustment for our 7-for-1 stock split (EPS would have been $0.42 using pre-split share count). We remain committed to running around break-even globally on a net income basis through 2016, and to then deliver material global profits in 2017 and beyond.

Content
We are making great progress shifting to exclusive content and expanding our original content, which differentiates our service, drives enjoyment for existing members and helps motivate consumers to join Netflix.

In Q2, we launched our largest number to date of high profile Netflix original series. On April 10, Marvel’s Daredevil debuted to strong audience engagement, particularly for a new show. Grace and Frankie, the bittersweet comedy starring Lily Tomlin and Jane Fonda which launched on May 8, also has found a broad and appreciative audience around the world. Both series have already begun their second season of production.

Our global expansion extends to our content strategy as well. Sense8, the mind-bending cinematic thriller from the Wachowski siblings and J. Michael Straczynski that debuted June 5, is an ambitious, truly international show with talent behind and in front of the camera from multiple countries. Similarly, on August 7, we will launch in all territories our first non-English language original, Club de Cuervos1, a family comedy set in the world of futbol from Mexican filmmaker Gaz Alazraki, and on August 28, Narcos2, a gripping account of the roots of the cocaine trade, shot in Colombia and starring the great Brazilian star Wagner Moura as Pablo Escobar.
_______________
1https://www.youtube.com/watch?v=9x3c8P3ooik&feature=youtu.be
2https://www.youtube.com/watch?v=U7elNhHwgBU&feature=youtu.be


                                                                                                                                                    2


The original documentary Chef’s Table and our latest DreamWorks Animation series Dragons: Race to the Edge are among our most viewed new originals to date. They are the perfect example of what we strive for in our original programming; an elevated version of popular genres that reach a large audience globally.

We closed the quarter with season 3 of Orange is the New Black, which went live on June 11 and set off a social media shockwave around the world. On the following Sunday, Netflix members globally watched a record number of hours in a single day, led by Orange, despite the season finale of HBO’s Game of Thrones and game five of the NBA finals also falling on that Sunday. Global enthusiasm for the third season of Orange underlines our ability to create franchise properties that bring new members to Netflix as well as delighting current ones. Nearly ninety percent of Netflix members have engaged with Netflix original content, another indicator that we are on the right path.

We anticipate that as our global content spend approaches $5 billion in 2016 on a P&L basis (over $6 billion cash), we will devote more investment to originals both in absolute dollars and percentage terms. This includes not only series, documentaries and stand-up but also original feature films.

We are moving into the original film business in order to have new, high-quality movies that our global members can find only on Netflix. As with series, we’ve chosen to take a portfolio approach covering a wide variety of genres and based around creators with great track records and stories they are passionate about. The first of our films, Beasts of No Nation, a gripping war drama from the award-winning director Cary Fukunaga (True Detective) and starring award-winning Idris Elba (Mandela, Luther, The Wire) will be available to all Netflix members and in select theaters in October. In June, we announced War Machine, a provocative satirical comedy starring Brad Pitt, which will be exclusively available to Netflix members and in select theaters next year. The release schedule for our slate of original films can be found here3.

Product
In June, we unveiled the new Netflix website, our first major update in over four years. The new experience has been built from the ground up to make it faster and easier for our members to discover great content to watch. The UI is a richer and more visual experience with improved title art and a better details view. It also works more like an app and less like a series of linked web pages. Early feedback has been positive from both members and the media, and retention should benefit.

In support of expanding our service globally, we are focused on adding more languages, optimizing our personalization algorithms for a global library in local markets, and expanding support for a range of device, operator and payment partnerships. We are also placing a greater emphasis on optimizing for mobile, which is the main means for Internet access in many emerging markets where we will be expanding in the future.






_______________
3https://pr.netflix.com/WebClient/getNewsSummary.do?newsId=2282

                                                                                                                                                    3


Strong Net Neutrality
Charter Communications made net neutrality history today by committing to open and free interconnection across the Charter/TWC network, if their pending merger is approved. This move ensures that all online video providers can aggressively compete for consumers' favor, without selective and increasing fees paid to ISPs. Charter's interconnection policy is the right way to scale the Internet. It means consumer will receive the fast connection speeds they expect. The Charter/TWC transaction, with this condition, would deliver significant public interest benefits to broadband consumers, and we urge its timely approval.

Competition
We compete with linear TV, PPV, video piracy, other Internet networks, video gaming and many other sources of entertainment. The recent Sandvine results from North America show that, looking at just the Internet networks segment, we continue to improve faster than others. Note that this data measures peak megabits, not peak viewing hours, so YouTube, for example, with more modest average video quality, is underrepresented in terms of hours.



DVD
Our DVD-by-mail business in the US continues to serve 5.3 million members and provided $77.9 million in contribution profit in Q2. The broad selection of titles, including new release movies and TV shows, remains appealing to a core user base and means that the tail on this business should be quite long.

Free Cash Flow & Capital
Free cash flow in Q2 amounted to -$229 million, compared with -$163 million in Q1. As we have previously detailed, our investment in originals is working capital intensive, which results in higher cash spent upfront relative to content amortization, and, we anticipate this trend to continue given our increased investment in originals. At the end of Q2, gross debt totaled $2.4 billion, which represented 4.6x LTM EBITDA and we ended the quarter with $2.8 billion in cash & equivalents and short term investments.

                                                                                                                                                    4


Reference
For quick reference, our eight most recent investor letters are: April 20154, January 20155, October 20146,July 20147,April 20148, January 20149, October 201310, July 201311.

Summary
We’re pleased to see the growing momentum of our original programming driving strong growth in the US and abroad. With our first set of international markets having achieved contribution profitability, we’ll be making our first foray into Asia this Fall with our Japan launch, and are gearing up to offer our service around the globe.


Sincerely,
Reed Hastings, CEO
David Wells, CFO






________________________
4http://files.shareholder.com/downloads/NFLX/4124769775x7871834x821407/DB785B50-90FE-44DA-9F5B-37DBF0DCD0E1/Q1_15_Earnings_Letter_final_tables.pdf
5http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf
6http://files.shareholder.com/downloads/NFLX/3754169286x0x786677/6974d8e9-5cb3-4009-97b1-9d4a5953a6a5/Q3_14_Letter_to_shareholders.pdf
7http://files.shareholder.com/downloads/NFLX/3527949458x0x769748/9b21df7f-743c-4f0f-94da-9f13e384a3d2/July2014EarningsLetter_7.21.14_final.pdf
8http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf
9http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf
10http://files.shareholder.com/downloads/NFLX/2531040512x0x698481/ecfe1ab4-66f5-4e23-a64a-1ca025216e5e/Q313%20Earnings%20Letter%2010.21.13%2010.30am.pdf
11http://files.shareholder.com/downloads/NFLX/2531040512x0x678215/a9076739-bc08-421e-8dba-52570f4e489e/Q213%20Investor%20Letter.pdf

                                                                                                                                                    5


July 15th, 2015 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 1:30 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Mark Mahaney, RBC Capital Markets and Rich Greenfield, BTIG Research. Questions that investors would like to see asked should be sent to mark.mahaney@rbccm.com or michael@moffettnathanson.com.


IR Contact:
PR Contact:
Spencer Wang
Jonathan Friedland
Vice President, Finance & Investor Relations
Chief Communications Officer
408 540-3700
310 734-2958


                                                                                                                                                    6



Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measures of net income on a pro forma basis excluding the release of tax reserves, free cash flow and EBITDA. Management believes that the non-GAAP measures of net income on a pro forma basis excluding the release of tax reserves provides useful information as these measures exclude effects that are not indicative of our core operating results. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding US contribution margin growth; international expansion; content launches; product improvements; content spend, including investments in originals; lifespan of our DVD business; member growth domestically and internationally, including net, total and paid; revenue; contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2015. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.











                                                                                                                                                    7



Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Revenues
$
1,644,694

 
$
1,573,129

 
$
1,340,407

 
$
3,217,823

 
$
2,610,496

Cost of revenues
1,121,752

 
1,046,401

 
914,848

 
2,168,153

 
1,784,034

Marketing
197,140

 
194,677

 
120,763

 
391,817

 
257,861

Technology and development
155,061

 
143,106

 
115,182

 
298,167

 
225,492

General and administrative
95,906

 
91,489

 
60,014

 
187,395

 
115,914

Operating income
74,835

 
97,456

 
129,600

 
172,291

 
227,195

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(35,217
)
 
(26,737
)
 
(13,328
)
 
(61,954
)
 
(23,380
)
Interest and other income (expense)
872

 
(32,293
)
 
1,100

 
(31,421
)
 
2,501

Income before income taxes
40,490

 
38,426

 
117,372

 
78,916

 
206,316

Provision for income taxes
14,155

 
14,730

 
46,354

 
28,885

 
82,183

Net income
$
26,335

 
$
23,696

 
$
71,018

 
$
50,031

 
$
124,133

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.06

 
$
0.06

 
$
0.17

 
$
0.12

 
$
0.30

Diluted
$
0.06

 
$
0.05

 
$
0.16

 
$
0.12

 
$
0.29

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
425,340

 
423,624

 
419,974

 
424,486

 
419,349

Diluted
436,097

 
433,809

 
431,441

 
434,958

 
431,141




                                                                                                                                                    8




Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,293,872

 
$
1,113,608

Short-term investments
502,886

 
494,888

Current content library, net
2,510,946

 
2,125,702

Other current assets
292,806

 
206,271

Total current assets
5,600,510

 
3,940,469

Non-current content library, net
3,640,767

 
2,773,326

Property and equipment, net
171,396

 
149,875

Other non-current assets
242,188

 
192,981

Total assets
$
9,654,861

 
$
7,056,651

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
2,556,180

 
$
2,117,241

Accounts payable
211,729

 
201,581

Accrued expenses
150,406

 
69,746

Deferred revenue
301,754

 
274,586

Total current liabilities
3,220,069

 
2,663,154

Non-current content liabilities
1,942,624

 
1,575,832

Long-term debt
2,400,000

 
900,000

Other non-current liabilities
60,093

 
59,957

Total liabilities
7,622,786

 
5,198,943

Stockholders' equity:
 
 
 
Common stock
1,200,880

 
1,042,870

Accumulated other comprehensive loss
(38,120
)
 
(4,446
)
Retained earnings
869,315

 
819,284

Total stockholders' equity
2,032,075

 
1,857,708

Total liabilities and stockholders' equity
$
9,654,861

 
$
7,056,651

 

                                                                                                                                                    9



Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
26,335

 
$
23,696

 
$
71,018

 
$
50,031

 
$
124,133

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content library
(1,273,677
)
 
(1,611,925
)
 
(813,314
)
 
(2,885,602
)
 
(1,562,713
)
Change in streaming content liabilities
191,154

 
626,325

 
78,359

 
817,479

 
120,603

Amortization of streaming content library
822,600

 
749,518

 
639,037

 
1,572,118

 
1,239,772

Amortization of DVD content library
20,813

 
21,185

 
16,923

 
41,998

 
33,044

Depreciation and amortization of property, equipment and intangibles
15,581

 
15,167

 
12,977

 
30,748

 
25,359

Stock-based compensation expense
28,590

 
27,441

 
29,285

 
56,031

 
55,110

Excess tax benefits from stock-based compensation
(39,427
)
 
(29,001
)
 
(14,628
)
 
(68,428
)
 
(47,360
)
Other non-cash items
6,682

 
6,306

 
3,251

 
12,988

 
5,447

Deferred taxes
(4,232
)
 
(37,042
)
 
(16,569
)
 
(41,274
)
 
(29,672
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(39,614
)
 
23,109

 
(20,685
)
 
(16,505
)
 
14,381

Accounts payable
6,447

 
(10,625
)
 
(3,086
)
 
(4,178
)
 
19,726

Accrued expenses
41,624

 
35,922

 
59,008

 
77,546

 
58,566

Deferred revenue
16,414

 
10,754

 
11,315

 
27,168

 
25,563

Other non-current assets and liabilities
(633
)
 
21,788

 
3,133

 
21,155

 
10,424

Net cash (used in) provided by operating activities
(181,343
)
 
(127,382
)
 
56,024

 
(308,725
)
 
92,383

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content library
(19,786
)
 
(22,906
)
 
(20,981
)
 
(42,692
)
 
(35,895
)
Purchases of property and equipment
(27,538
)
 
(13,036
)
 
(19,869
)
 
(40,574
)
 
(33,203
)
Other assets
(639
)
 
225

 
1,129

 
(414
)
 
1,424

Purchases of short-term investments
(67,949
)
 
(90,940
)
 
(170,908
)
 
(158,889
)
 
(231,454
)
Proceeds from sale of short-term investments
48,412

 
51,948

 
89,662

 
100,360

 
232,710

Proceeds from maturities of short-term investments
19,170

 
31,887

 
92,014

 
51,057

 
95,104

Net cash (used in) provided by investing activities
(48,330
)
 
(42,822
)
 
(28,953
)
 
(91,152
)
 
28,686

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock
23,804

 
10,916

 
14,469

 
34,720

 
46,917

Proceeds from issuance of debt

 
1,500,000

 

 
1,500,000

 
400,000

Issuance costs
(397
)
 
(17,232
)
 
(353
)
 
(17,629
)
 
(7,080
)
Excess tax benefits from stock-based compensation
39,427

 
29,001

 
14,628

 
68,428

 
47,360

Principal payments of lease financing obligations
(287
)
 
(251
)
 
(271
)
 
(538
)
 
(538
)
Net cash provided by financing activities
62,547

 
1,522,434

 
28,473

 
1,584,981

 
486,659

 Effect of exchange rate changes on cash and cash equivalents
6,221

 
(11,061
)
 
1,250

 
(4,840
)
 
1,551

 Net (decrease) increase in cash and cash equivalents
(160,905
)
 
1,341,169

 
56,794

 
1,180,264

 
609,279

 Cash and cash equivalents, beginning of period
2,454,777

 
1,113,608

 
1,157,450

 
1,113,608

 
604,965

 Cash and cash equivalents, end of period
$
2,293,872

 
$
2,454,777

 
$
1,214,244

 
$
2,293,872

 
$
1,214,244

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(181,343
)
 
$
(127,382
)
 
$
56,024

 
$
(308,725
)
 
$
92,383

Acquisition of DVD content library
(19,786
)
 
(22,906
)
 
(20,981
)
 
(42,692
)
 
(35,895
)
Purchases of property and equipment
(27,538
)
 
(13,036
)
 
(19,869
)
 
(40,574
)
 
(33,203
)
Other assets
(639
)
 
225

 
1,129

 
(414
)
 
1,424

Non-GAAP free cash flow
$
(229,306
)
 
$
(163,099
)
 
$
16,303

 
$
(392,405
)
 
$
24,709


                                                                                                                                                    10



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Six Months Ended
 
June 30,
2015
 
March 31,
2015
 
June 30,
2014
 
June 30,
2015
 
June 30,
2014
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
42,300

 
41,397

 
36,244

 
42,300

 
36,244

Paid memberships at end of period
41,057

 
40,315

 
35,085

 
41,057

 
35,085

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,025,913

 
$
984,532

 
$
838,225

 
$
2,010,445

 
$
1,636,842

Cost of revenues
612,691

 
582,529

 
546,223

 
1,195,220

 
1,063,317

Marketing
73,427

 
89,551

 
64,727

 
162,978

 
144,985

Contribution profit
339,795

 
312,452

 
227,275

 
652,247

 
428,540

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
23,251

 
20,877

 
13,801

 
23,251

 
13,801

Paid memberships at end of period
21,649

 
19,304

 
12,907

 
21,649

 
12,907

 
 
 
 
 
 
 
 
 
 
Revenues
$
454,763

 
$
415,397

 
$
307,461

 
$
870,160

 
$
574,579

Cost of revenues
422,966

 
375,278

 
266,697

 
798,244

 
511,964

Marketing
123,713

 
105,126

 
56,036

 
228,839

 
112,876

Contribution profit (loss)
(91,916
)
 
(65,007
)
 
(15,272
)
 
(156,923
)
 
(50,261
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
5,314

 
5,564

 
6,261

 
5,314

 
6,261

Paid memberships at end of period
5,219

 
5,470

 
6,167

 
5,219

 
6,167

 
 
 
 
 
 
 
 
 
 
Revenues
$
164,018

 
$
173,200

 
$
194,721

 
$
337,218

 
$
399,075

Cost of revenues
86,095

 
88,594

 
101,928

 
174,689

 
208,753

Contribution profit
77,923

 
84,606

 
92,793

 
162,529

 
190,322

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,644,694

 
$
1,573,129

 
$
1,340,407

 
$
3,217,823

 
$
2,610,496

Cost of revenues
1,121,752

 
1,046,401

 
914,848

 
2,168,153

 
1,784,034

Marketing
197,140

 
194,677

 
120,763

 
391,817

 
257,861

Contribution profit
325,802

 
332,051

 
304,796

 
657,853

 
568,601

Other operating expenses
250,967

 
234,595

 
175,196

 
485,562

 
341,406

Operating income
74,835

 
97,456

 
129,600

 
172,291

 
227,195

Other income (expense)
(34,345
)
 
(59,030
)
 
(12,228
)
 
(93,375
)
 
(20,879
)
Provision for income taxes
14,155

 
14,730

 
46,354

 
28,885

 
82,183

Net income
$
26,335

 
$
23,696

 
$
71,018

 
$
50,031

 
$
124,133





                                                                                                                                                    11


Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands, except per share data)

 
Three Months Ended
 
June 30,
2014
 
September 30,
2014
 
December 31,
2014
 
March 31,
2015
 
June 30,
2015
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
71,018

 
$
59,295

 
$
83,371

 
$
23,696

 
$
26,335

Add:
 
 
 
 
 
 
 
 
 
Interest and other (income) expense
12,228

 
12,870

 
19,530

 
59,030

 
34,345

Provision (benefit) for income taxes
46,354

 
38,242

 
(37,855
)
 
14,730

 
14,155

Depreciation and amortization of property, equipment and intangibles
12,977

 
14,357

 
14,312

 
15,167

 
15,581

Stock based compensation
29,285

 
29,878

 
30,251

 
27,441

 
28,590

Adjusted EBITDA
$
171,862

 
$
154,642

 
$
109,609

 
$
140,064

 
$
119,006



 
 
Three Months Ended
 
 
December 31,
2014
Non-GAAP net income reconciliation:
 
 
GAAP net income
 
$
83,371

Less: Release of tax accrual
 
(38,612
)
Non-GAAP net income
 
$
44,759

Non-GAAP earnings per share:
 
 
Basic
 
0.11

Diluted
 
0.10

Weighted-average common shares outstanding:
 
 
Basic
 
422,244

Diluted
 
432,514



                                                                                                                                                    12