Netflix Announces Record Third Quarter 2002 Financial Results
- Revenue of $40.7 million, up 116 percent year over year and up 12
percent sequentially.
- EBITDA of $6.3 million, up 923 percent year over year.
- Free cash flow of $5.8 million or 14 percent of revenue and 92 percent of
LOS GATOS, Calif., Oct 17, 2002 /PRNewswire-FirstCall via COMTEX/ -- Netflix, Inc. (NFLX) announced financial results for the third quarter ended September 30, 2002. Total revenue for the third quarter was $40.7 million, compared to $18.9 million for the third quarter ended September 30, 2001, and $36.4 million for the second quarter ended June 30, 2002.
EBITDA for the third quarter 2002 was $6.3 million, compared to $614 thousand for the third quarter ended September 30, 2001, and $6.5 million for the second quarter ended June 30, 2002.
Free cash flow for the third quarter 2002 was 14 percent of revenue or $5.8 million, up 24 percent compared to the second quarter ended June 30, 2002. Year to date the Company has generated $11.1 million of free cash flow. In the most recent quarter, free cash flow was 92 percent of EBITDA.
Net loss on a GAAP basis for the third quarter 2002 was $1.7 million or a loss of $0.08 per basic and diluted share, compared to a net loss of $5.6 million or a loss of $0.38 per pro forma basic and diluted share for the quarter ended September 30, 2001 and a net loss of $13.4 million or a loss of $0.76 per pro forma basic and diluted share for the second quarter ended June 30, 2002.
Excluding stock-based compensation expense, pro forma net loss was $228 thousand, or $0.01 per pro forma basic and diluted share, for the third quarter of 2002 compared to a pro forma net loss of $3.7 million, or a loss of $0.25 per pro forma basic and diluted share, for the third quarter of 2001 and a pro forma net income of $12.0 thousand, or $0.00 per pro forma basic and diluted share, for the second quarter of 2002, which also excluded $10.7 million in one-time interest charges related to debt retirement.
Subscriber acquisition costs(1) for the quarter declined 2 percent sequentially to $33.57 per new-trial subscriber compared to a cost of $34.13 for the second quarter ended June 30, 2002, and a cost of $32.19 for the third quarter ended September 30, 2001.
As previously announced, Netflix ended the third quarter of 2002 with 742,000 total subscribers of which 708,000 were paying subscribers. During the third quarter, the Company acquired 277,000 new trial subscribers
Business Outlook
The Company is updating guidance for pro forma operating income and EBITDA for the fourth quarter of fiscal 2002. The updated guidance is:
- Pro forma operating loss before stock-based compensation expense of
$2.0 to $4.0 million. The previous guidance was a loss of $3.0 to
$6.0 million.
- EBITDA of $5.0 to $6.5 million. The previous guidance was EBITDA of
$2.5 to $4.5 million.
The following guidance remains unchanged:
- Ending subscribers of 830 to 860 thousand
- Revenue of $41 to $44 million
- Gross margin of 47 to 48%
The Netflix earnings call will be web cast today at 4:10 p.m. Eastern Time / 1:10 p.m. Pacific Time, and may be accessed at http://www.netflix.com or at http://www.prnewswire.com . Following the conclusion of the web cast, a replay of the call will be available via Netflix's web site at http://www.netflix.com . The Company plans to include discussion of its business outlook in the conference call.
About Netflix
Launched in 1998, Netflix is the world's largest online DVD rental service, providing more than 742,000 subscribers with access to a comprehensive library of over 12,000 DVD titles. For $19.95 a month, Netflix subscribers can rent as many DVDs as they want, with three movies out at a time, and keep them for as long as they like. There are no due dates and no late fees. DVDs are delivered directly to the subscriber's address by first-class mail from 11 distribution centers throughout the United States. The company also provides background information on DVD releases, including reviews, member reviews and ratings and personalized movie recommendations. For more information on the company, visit www.netflix.com.
Forward Looking Statements
This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our subscriber growth, revenues, gross margins, pro forma operating income, and EBITDA for the fourth quarter of 2002. These statements are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to manage our growth, in particular managing our subscriber acquisition costs as well as the mix between revenue sharing titles and titles not subject to revenue sharing that are delivered to our subscribers; our ability to attract new subscribers and retain existing subscribers; fluctuations in consumer spending on DVD players, DVDs and related products; competition; disruption in service on our website or with our computer systems; deterioration of the U.S. economy or conditions specific to online commerce or the filmed entertainment industry; conditions that effect our delivery through the U.S. Postal Service, including increases in first class postage; changes to the exclusive release period provided by the studios for DVDs following theatrical release; increases in the costs of acquiring DVDs; and, widespread 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 final prospectus dated May 22, 2002 relating to our initial public offering. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
(1) Subscriber acquisition costs is defined as the total marketing expense on the Company's Statement of Operations divided by total new trial subscribers in the quarter.
Netflix, Inc.
Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three Months Ended
Sep 30, Jun 30, Sep 30,
2001 2002 2002
Revenues:
Subscription $18,444 $35,608 $40,163
Sales 434 752 568
Total revenues 18,878 36,360 40,731
Cost of revenues:
Subscription 9,667 17,779 21,147
Sales 176 313 349
Total cost of revenues 9,843 18,092 21,496
Gross profit 9,035 18,268 19,235
Operating expenses:
Fulfillment 3,283 4,854 4,908
Technology and development 4,463 3,518 3,966
Marketing 3,444 8,054 9,299
General and administrative 1,003 1,638 1,870
Restructuring charges 671 -- --
Stock-based compensation 1,220 2,746 1,467
Total operating expenses 14,084 20,810 21,510
Operating loss (5,049) (2,542) (2,275)
Interest and other income (expense),
net (505) (10,887) 580
Loss before income taxes (5,554) (13,429) (1,695)
Provision for income taxes -- -- --
Net loss $(5,554) $(13,429) $(1,695)
Net loss per share:
Basic and diluted $(2.94) $(1.31) $(.08)
Pro forma basic and diluted $(.38) $(.76) $(.08)
Weighted average shares outstanding:
Basic and diluted 1,891 10,216 21,922
Pro forma basic and diluted 14,540 17,573 21,922
Other data:
EBITDA
Operating loss $(5,049) $(2,542) $(2,275)
Add back:
Stock based compensation 1,220 2,746 1,467
Pro forma operating income (loss) (3,829) 204 (808)
Depreciation of PP&E 1,319 1,448 1,576
Amortization of DVD Library 2,449 3,988 4,663
Amortization of Intangibles 667 819 808
Non-cash charges for equity granted
to non-employees 8 -- 40
EBITDA $614 $6,459 $6,279
Pro forma net income (loss):
Net loss $(5,554) $(13,429) $(1,695)
Add back:
Restructuring charges 671 -- --
Stock-based compensation 1,220 2,746 1,467
Non-cash interest on early
repayment of debt -- 10,695 --
Pro forma net income (loss) $(3,663) $12 $(228)
Pro forma net income (loss) per
share:
Pro forma basic and diluted $(.25) $.00 $(.01)
Netflix, Inc.
Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
As of
Dec 31, 2001 Sep 30, 2002
Assets
Current assets:
Cash and cash equivalents $16,131 $54,321
Short-term investments -- 43,217
Prepaid expenses 1,019 1,807
Prepaid revenue sharing expenses 732 379
Other current assets 1,670 1,551
Total current assets 19,552 101,275
DVD library, net 3,633 7,070
Intangible assets, net 7,917 6,902
Property and equipment, net 8,205 5,870
Deposits 1,677 1,185
Other assets 646 605
Total assets $41,630 $122,907
Liabilities and Stockholders'
(Deficit) Equity
Current liabilities:
Accounts payable $13,715 $18,148
Accrued expenses 4,544 8,108
Deferred revenue 4,937 7,179
Current portion of capital lease
obligations 1,345 1,482
Notes payable 1,667 --
Total current liabilities 26,208 34,917
Deferred rent 240 285
Capital lease obligations, less
current portion 1,057 394
Subordinated notes payable 2,799 --
Total liabilities 30,304 35,596
Commitments and contingency
Redeemable convertible preferred
stock 101,830 --
Stockholders' (deficit) equity:
Convertible preferred stock, $0.001
par value; 8,500,000 shares
authorized; 6 --
6,157,499 and no shares issued and
outstanding at December 31, 2001
and September 30, 2002,
respectively; aggregate
liquidation preference of $2,222
Common stock, $0.001 par value;
100,000,000 and 150,000,000 shares 2 22
authorized at December 31, 2001 and
September 30, 2002, respectively;
2,161,855 and 22,069,068 issued
and outstanding at December 31,
2001 and September 30, 2002,
respectively
Additional paid-in capital 52,479 257,339
Deferred stock-based compensation (5,725) (13,755)
Accumulated other comprehensive
income -- 603
Accumulated deficit (137,266) (156,898)
Total stockholders' (deficit)
equity (90,504) 87,311
Total liabilities and
stockholders' (deficit) equity $41,630 $122,907
Netflix, Inc.
Statements of Cash Flows
(Unaudited)
(in thousands, except per share data)
Three Months Ended
Sep 30, Jun 30, Sep 30,
2001 2002 2002
Cash flows from operating activities:
Net loss $(5,554) $(13,429) $(1,695)
Adjustments to reconcile net loss to
net cash (used in)
provided by operating activities:
Depreciation of property plant and
equipment 1,319 1,448 1,576
Amortization of DVD library 2,449 3,988 4,663
Amortization of intangible assets 667 819 808
Noncash charges for equity
instruments granted to
non-employees 8 -- 40
Stock-based compensation expense 1,220 2,746 1,467
Loss on disposal of property and
equipment -- -- --
Gain on disposal of DVDs -- (674) (512)
Noncash interest expense 466 10,921 37
Changes in operating assets and
liabilities:
Prepaid expenses and other
current assets 466 962 (505)
Accounts payable (308) (2,921) 4,777
Accrued expenses (582) 3,461 289
Deferred revenue 289 779 113
Deferred rent 38 16 16
Net cash provided by operating
activities 478 8,116 11,074
Cash flows from investing activities:
Purchases of short-term investments -- (42,147) (467)
Proceeds from sale of short-term
investments -- -- --
Purchases of property and equipment (1,029) (749) (719)
Acquisitions of DVD library (1,277) (3,480) (5,673)
Proceeds from sale of DVDs -- 752 568
Deposits and other assets (157) 9 524
Net cash used in investing
activities (2,463) (45,615) (5,767)
Cash flows from financing activities:
Proceeds from issuance of redeemable
convertible preferred stock -- -- --
Proceeds from issuance of common
stock 10 86,428 91
Net proceeds from issuance of
subordinated notes payable
and detachable warrants 12,831 -- --
Repurchases of common stock -- (3) --
Proceeds from issuance of notes
payable -- -- --
Principal payments on notes payable
and capital lease obligations (983) (14,838) (836)
Net cash (used in) provided by
financing activities 11,858 71,587 (745)
Net increase (decrease) in cash and
cash equivalents 9,873 34,088 4,562
Cash and cash equivalents, beginning
of period 4,361 15,671 49,759
Cash and cash equivalents, end of
period $14,234 $49,759 $54,321
Free Cash Flow:
Net cash provided by operating
activities $478 $8,116 $11,074
Purchases of property and equipment (1,029) (749) (719)
Acquisitions of DVD library (1,277) (3,480) (5,673)
Proceeds from sale of DVDs -- 752 568
Deposits and other assets (157) 9 524
Free Cash Flow $(1,985) $4,648 $5,774
Supplemental disclosure:
Cash paid for interest $187 $240 $95
Noncash investing and financing
activities:
Discount on capital lease
obligation $172 $-- $--
Exchange of Series F non-voting
convertible preferred stock for
intangible asset $2,690 $105 $--
Unrealized gain (loss) on short-
term investments $-- $(107) $710
Conversion of redeemable
convertible preferred stock to
common stock $-- $101,830 $--
Netflix, Inc.
Other data:
(Unaudited)
Three Months Ended
Sep 30, Jun 30, Sep 30,
2001 2002 2002
Subscribers:
New Trial Subscribers: during period
(000's) 107 236 277
New Trial Subscribers year to year
change (19.5%) 168.2% 158.9%
Subscribers: end of period (000's) 334 670 742
Year to year change 40% 118% 122%
Qtr. to Qtr. sequential change 8% 11% 11%
Free subscribers: end of period
(000's) 19 37 34
Free % of ending subscribers 5.7% 5.5% 4.6%
Paid subscribers: end of period
(000's) 315 633 708
Year to year change 49% 114% 125%
Qtr. to Qtr. sequential change 6% 13% 12%
Monthly churn 6.5% 6.7% 7.2%
Subscription revenue per average paid
subscriber (monthly) $20.12 $19.86 $19.97
Subscriber Acquisition Cost $32.19 $34.13 $33.57
Margins:
Gross margin 47.9% 50.2% 47.2%
Operating margin (26.7%) (7.0%) (5.6%)
Proforma operating margin (20.3%) 0.6% (2.0%)
Net margin (29.4%) (36.9%) (4.2%)
Pro forma net margin (19.4%) 0.0% (0.6%)
Expense % of revenues:
Fulfillment 17.4% 13.3% 12.0%
Technology and development 23.6% 9.7% 9.7%
Marketing 18.2% 22.2% 22.8%
General and administrative 5.3% 4.5% 4.6%
Operating expenses before stock-
based comp. and restructuring 64.6% 49.7% 49.2%
Restructuring charges 3.6% 0.0% 0.0%
Stock-based compensation 6.5% 7.6% 3.6%
Total operating expenses 74.7% 57.3% 52.8%
Year to year change:
Subscription revenues 81.1% 104.7% 117.8%
Sales revenues 100.0% (22.2%) 30.9%
Total revenues 85.4% 98.1% 115.8%
Fulfillment 38.6% 35.2% 49.5%
Technology and development 10.4% (28.1%) (11.1%)
Marketing (47.9%) 96.9% 170.0%
General and administrative (46.2%) 58.9% 86.4%
Operating expenses before stock-
based comp. and restructuring (18.1%) 32.8% 64.4%
Restructuring charges 100.0% 0.0% (100.0%)
Stock-based compensation (41.1%) 91.2% 20.2%
Total operating expenses (17.0%) 38.3% 52.7%