|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
Delaware
|
77-0467272
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(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
|
Large accelerated filer
|
x
|
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
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(Do not check if a smaller reporting company)
|
Smaller reporting company
|
o
|
|
|
|
Emerging growth company
|
o
|
|
|
Page
|
|
Part I. Financial Information
|
|
Item 1.
|
|
|
|
||
|
||
|
||
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
Part II. Other Information
|
|
Item 1.
|
||
Item 1A.
|
||
Item 6.
|
||
|
||
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
Revenues
|
$
|
2,785,464
|
|
|
$
|
2,105,204
|
|
|
$
|
5,422,099
|
|
|
$
|
4,062,940
|
|
Cost of revenues
|
1,902,308
|
|
|
1,473,098
|
|
|
3,559,332
|
|
|
2,842,638
|
|
||||
Marketing
|
274,323
|
|
|
216,029
|
|
|
545,593
|
|
|
424,039
|
|
||||
Technology and development
|
267,083
|
|
|
207,300
|
|
|
524,191
|
|
|
410,808
|
|
||||
General and administrative
|
213,943
|
|
|
138,407
|
|
|
408,234
|
|
|
265,632
|
|
||||
Operating income
|
127,807
|
|
|
70,370
|
|
|
384,749
|
|
|
119,823
|
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
(55,482
|
)
|
|
(35,455
|
)
|
|
(102,224
|
)
|
|
(70,992
|
)
|
||||
Interest and other income (expense)
|
(58,363
|
)
|
|
16,317
|
|
|
(44,771
|
)
|
|
42,280
|
|
||||
Income before income taxes
|
13,962
|
|
|
51,232
|
|
|
237,754
|
|
|
91,111
|
|
||||
Provision for (benefit from) income taxes
|
(51,638
|
)
|
|
10,477
|
|
|
(6,068
|
)
|
|
22,698
|
|
||||
Net income
|
$
|
65,600
|
|
|
$
|
40,755
|
|
|
$
|
243,822
|
|
|
$
|
68,413
|
|
Earnings per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.15
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
|
$
|
0.16
|
|
Diluted
|
$
|
0.15
|
|
|
$
|
0.09
|
|
|
$
|
0.55
|
|
|
$
|
0.16
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Basic
|
431,396
|
|
|
428,483
|
|
|
431,000
|
|
|
428,300
|
|
||||
Diluted
|
446,262
|
|
|
438,154
|
|
|
445,862
|
|
|
438,073
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
Net income
|
$
|
65,600
|
|
|
$
|
40,755
|
|
|
$
|
243,822
|
|
|
$
|
68,413
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
14,347
|
|
|
(4,446
|
)
|
|
16,926
|
|
|
3,096
|
|
||||
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $89, $388, $166, and $1,222, respectively
|
144
|
|
|
636
|
|
|
271
|
|
|
2,001
|
|
||||
Total other comprehensive income (loss)
|
14,491
|
|
|
(3,810
|
)
|
|
17,197
|
|
|
5,097
|
|
||||
Comprehensive income
|
$
|
80,091
|
|
|
$
|
36,945
|
|
|
$
|
261,019
|
|
|
$
|
73,510
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
65,600
|
|
|
$
|
40,755
|
|
|
$
|
243,822
|
|
|
$
|
68,413
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
||||||||
Additions to streaming content assets
|
(2,664,421
|
)
|
|
(1,791,766
|
)
|
|
(5,013,087
|
)
|
|
(4,108,365
|
)
|
||||
Increase in streaming content liabilities
|
514,890
|
|
|
238,517
|
|
|
881,147
|
|
|
1,144,240
|
|
||||
Amortization of streaming content assets
|
1,550,794
|
|
|
1,175,361
|
|
|
2,856,477
|
|
|
2,233,882
|
|
||||
Amortization of DVD content assets
|
16,511
|
|
|
20,021
|
|
|
35,109
|
|
|
40,462
|
|
||||
Depreciation and amortization of property, equipment and intangibles
|
18,551
|
|
|
14,131
|
|
|
33,600
|
|
|
28,929
|
|
||||
Stock-based compensation expense
|
44,028
|
|
|
44,112
|
|
|
88,916
|
|
|
86,534
|
|
||||
Excess tax benefits from stock-based compensation
|
—
|
|
|
(13,323
|
)
|
|
—
|
|
|
(24,639
|
)
|
||||
Other non-cash items
|
11,519
|
|
|
9,040
|
|
|
33,185
|
|
|
21,797
|
|
||||
Foreign currency remeasurement loss on long-term debt
|
64,220
|
|
|
—
|
|
|
64,220
|
|
|
—
|
|
||||
Deferred taxes
|
(20,702
|
)
|
|
(17,876
|
)
|
|
(47,466
|
)
|
|
(34,479
|
)
|
||||
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
||||||||
Other current assets
|
(80,199
|
)
|
|
24,091
|
|
|
(105,601
|
)
|
|
38,399
|
|
||||
Accounts payable
|
(12,439
|
)
|
|
8,795
|
|
|
(23,439
|
)
|
|
(11,103
|
)
|
||||
Accrued expenses
|
(48,042
|
)
|
|
2,099
|
|
|
45,500
|
|
|
43,331
|
|
||||
Deferred revenue
|
46,609
|
|
|
22,753
|
|
|
61,830
|
|
|
50,255
|
|
||||
Other non-current assets and liabilities
|
(41,447
|
)
|
|
(3,003
|
)
|
|
(32,597
|
)
|
|
(32,539
|
)
|
||||
Net cash used in operating activities
|
(534,528
|
)
|
|
(226,293
|
)
|
|
(878,384
|
)
|
|
(454,883
|
)
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
|
|
||||||||
Acquisition of DVD content assets
|
(7,624
|
)
|
|
(17,924
|
)
|
|
(32,996
|
)
|
|
(41,131
|
)
|
||||
Purchases of property and equipment
|
(65,231
|
)
|
|
(10,814
|
)
|
|
(117,754
|
)
|
|
(19,239
|
)
|
||||
Change in other assets
|
(1,064
|
)
|
|
907
|
|
|
(1,833
|
)
|
|
551
|
|
||||
Purchases of short-term investments
|
(14,246
|
)
|
|
(18,492
|
)
|
|
(72,020
|
)
|
|
(53,454
|
)
|
||||
Proceeds from sale of short-term investments
|
14,128
|
|
|
18,752
|
|
|
69,876
|
|
|
26,940
|
|
||||
Proceeds from maturities of short-term investments
|
17,605
|
|
|
24,675
|
|
|
22,705
|
|
|
87,700
|
|
||||
Net cash (used in) provided by investing activities
|
(56,432
|
)
|
|
(2,896
|
)
|
|
(132,022
|
)
|
|
1,367
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
|
|
||||||||
Proceeds from issuance of debt
|
1,420,510
|
|
|
—
|
|
|
1,420,510
|
|
|
—
|
|
||||
Debt issuance costs
|
(15,013
|
)
|
|
—
|
|
|
(15,013
|
)
|
|
—
|
|
||||
Proceeds from issuance of common stock
|
14,826
|
|
|
4,232
|
|
|
39,004
|
|
|
7,768
|
|
||||
Excess tax benefits from stock-based compensation
|
—
|
|
|
13,323
|
|
|
—
|
|
|
24,639
|
|
||||
Other financing activities
|
63
|
|
|
57
|
|
|
124
|
|
|
112
|
|
||||
Net cash provided by financing activities
|
1,420,386
|
|
|
17,612
|
|
|
1,444,625
|
|
|
32,519
|
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
11,527
|
|
|
(2,742
|
)
|
|
16,982
|
|
|
2,592
|
|
||||
Net change in cash and cash equivalents
|
840,953
|
|
|
(214,319
|
)
|
|
451,201
|
|
|
(418,405
|
)
|
||||
Cash and cash equivalents, beginning of period
|
1,077,824
|
|
|
1,605,244
|
|
|
1,467,576
|
|
|
1,809,330
|
|
||||
Cash and cash equivalents, end of period
|
$
|
1,918,777
|
|
|
$
|
1,390,925
|
|
|
$
|
1,918,777
|
|
|
$
|
1,390,925
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
||||||||
Change in investing activities included in liabilities
|
$
|
(3,493
|
)
|
|
$
|
(1,254
|
)
|
|
$
|
(20,165
|
)
|
|
$
|
(1,757
|
)
|
|
As of
|
||||||
|
June 30,
2017 |
|
December 31,
2016 |
||||
|
(unaudited)
|
|
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,918,777
|
|
|
$
|
1,467,576
|
|
Short-term investments
|
246,125
|
|
|
266,206
|
|
||
Current content assets, net
|
4,149,111
|
|
|
3,726,307
|
|
||
Other current assets
|
386,772
|
|
|
260,202
|
|
||
Total current assets
|
6,700,785
|
|
|
5,720,291
|
|
||
Non-current content assets, net
|
9,078,474
|
|
|
7,274,501
|
|
||
Property and equipment, net
|
309,831
|
|
|
250,395
|
|
||
Other non-current assets
|
428,133
|
|
|
341,423
|
|
||
Total assets
|
$
|
16,517,223
|
|
|
$
|
13,586,610
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current content liabilities
|
$
|
4,095,374
|
|
|
$
|
3,632,711
|
|
Accounts payable
|
273,398
|
|
|
312,842
|
|
||
Accrued expenses
|
248,871
|
|
|
197,632
|
|
||
Deferred revenue
|
505,302
|
|
|
443,472
|
|
||
Total current liabilities
|
5,122,945
|
|
|
4,586,657
|
|
||
Non-current content liabilities
|
3,356,090
|
|
|
2,894,654
|
|
||
Long-term debt
|
4,836,502
|
|
|
3,364,311
|
|
||
Other non-current liabilities
|
89,186
|
|
|
61,188
|
|
||
Total liabilities
|
13,404,723
|
|
|
10,906,810
|
|
||
Commitments and contingencies (Note 6)
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2017 and December 31, 2016; 431,749,744 and 430,054,212 issued and outstanding at June 30, 2017 and December 31, 2016, respectively
|
1,727,858
|
|
|
1,599,762
|
|
||
Accumulated other comprehensive loss
|
(31,368
|
)
|
|
(48,565
|
)
|
||
Retained earnings
|
1,416,010
|
|
|
1,128,603
|
|
||
Total stockholders’ equity
|
3,112,500
|
|
|
2,679,800
|
|
||
Total liabilities and stockholders’ equity
|
$
|
16,517,223
|
|
|
$
|
13,586,610
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
|
(in thousands, except per share data)
|
||||||||||||||
Basic earnings per share:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
65,600
|
|
|
$
|
40,755
|
|
|
$
|
243,822
|
|
|
$
|
68,413
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding
|
431,396
|
|
|
428,483
|
|
|
431,000
|
|
|
428,300
|
|
||||
Basic earnings per share
|
$
|
0.15
|
|
|
$
|
0.10
|
|
|
$
|
0.57
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted earnings per share:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
65,600
|
|
|
$
|
40,755
|
|
|
$
|
243,822
|
|
|
$
|
68,413
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
||||||||
Weighted-average common shares outstanding
|
431,396
|
|
|
428,483
|
|
|
431,000
|
|
|
428,300
|
|
||||
Employee stock options
|
14,866
|
|
|
9,671
|
|
|
14,862
|
|
|
9,773
|
|
||||
Weighted-average number of shares
|
446,262
|
|
|
438,154
|
|
|
445,862
|
|
|
438,073
|
|
||||
Diluted earnings per share
|
$
|
0.15
|
|
|
$
|
0.09
|
|
|
$
|
0.55
|
|
|
$
|
0.16
|
|
|
Three Months Ended
|
|
Six months ended
|
||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||
|
(in thousands)
|
||||||||||
Employee stock options
|
215
|
|
|
1,930
|
|
|
226
|
|
|
1,634
|
|
|
As of June 30, 2017
|
||||||||||||||||||||||||||
|
Amortized
Cost |
|
Gross
Unrealized Gains |
|
Gross
Unrealized Losses |
|
Estimated
Fair Value |
|
Cash and cash equivalents
|
|
Short-term investments
|
|
Non-current assets (1)
|
||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||
Cash
|
$
|
1,348,434
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,348,434
|
|
|
$
|
1,344,799
|
|
|
$
|
—
|
|
|
$
|
3,635
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
275,248
|
|
|
|
|
|
—
|
|
|
275,248
|
|
|
273,978
|
|
|
—
|
|
|
1,270
|
|
|||||||
Level 2 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Time Deposits
|
300,000
|
|
|
—
|
|
|
—
|
|
|
300,000
|
|
|
300,000
|
|
|
—
|
|
|
—
|
|
|||||||
Corporate debt securities
|
189,190
|
|
|
228
|
|
|
(392
|
)
|
|
189,026
|
|
|
—
|
|
|
189,026
|
|
|
—
|
|
|||||||
Government securities
|
35,906
|
|
|
—
|
|
|
(169
|
)
|
|
35,737
|
|
|
—
|
|
|
35,737
|
|
|
—
|
|
|||||||
Agency securities
|
21,569
|
|
|
—
|
|
|
(207
|
)
|
|
21,362
|
|
|
—
|
|
|
21,362
|
|
|
—
|
|
|||||||
Total
|
$
|
2,170,347
|
|
|
$
|
228
|
|
|
$
|
(768
|
)
|
|
$
|
2,169,807
|
|
|
$
|
1,918,777
|
|
|
$
|
246,125
|
|
|
$
|
4,905
|
|
|
As of December 31, 2016
|
||||||||||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
Cash and cash equivalents
|
|
Short-term investments
|
|
Non-current assets (1)
|
||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||
Cash
|
$
|
1,267,523
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,267,523
|
|
|
$
|
1,264,126
|
|
|
$
|
—
|
|
|
$
|
3,397
|
|
Level 1 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
204,967
|
|
|
—
|
|
|
—
|
|
|
204,967
|
|
|
203,450
|
|
|
—
|
|
|
1,517
|
|
|||||||
Level 2 securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Corporate debt securities
|
199,843
|
|
|
110
|
|
|
(731
|
)
|
|
199,222
|
|
|
—
|
|
|
199,222
|
|
|
—
|
|
|||||||
Government securities
|
35,944
|
|
|
—
|
|
|
(128
|
)
|
|
35,816
|
|
|
—
|
|
|
35,816
|
|
|
—
|
|
|||||||
Certificates of deposit
|
9,833
|
|
|
—
|
|
|
—
|
|
|
9,833
|
|
|
—
|
|
|
9,833
|
|
|
—
|
|
|||||||
Agency securities
|
21,563
|
|
|
—
|
|
|
(228
|
)
|
|
21,335
|
|
|
—
|
|
|
21,335
|
|
|
—
|
|
|||||||
Total
|
$
|
1,739,673
|
|
|
$
|
110
|
|
|
$
|
(1,087
|
)
|
|
$
|
1,738,696
|
|
|
$
|
1,467,576
|
|
|
$
|
266,206
|
|
|
$
|
4,914
|
|
|
As of
|
||||||
|
June 30,
2017 |
|
December 31,
2016 |
||||
|
(in thousands)
|
||||||
Licensed content, net
|
$
|
11,195,034
|
|
|
$
|
9,595,315
|
|
|
|
|
|
||||
Produced content, net
|
|
|
|
|
|
||
Released, less amortization
|
861,967
|
|
|
335,400
|
|
||
In production
|
1,057,283
|
|
|
1,010,463
|
|
||
In development
|
95,240
|
|
|
34,215
|
|
||
|
2,014,490
|
|
|
1,380,078
|
|
||
DVD, net
|
18,061
|
|
|
25,415
|
|
||
Total
|
$
|
13,227,585
|
|
|
$
|
11,000,808
|
|
|
|
|
|
||||
Current content assets, net
|
$
|
4,149,111
|
|
|
$
|
3,726,307
|
|
Non-current content assets, net
|
$
|
9,078,474
|
|
|
$
|
7,274,501
|
|
|
|
As of
|
|
|
||||||
|
|
June 30,
2017 |
|
December 31,
2016 |
|
Estimated Useful Lives
|
||||
|
|
(in thousands)
|
|
|
||||||
Information technology assets
|
|
$
|
213,447
|
|
|
$
|
185,345
|
|
|
3 years
|
Furniture and fixtures
|
|
45,374
|
|
|
32,185
|
|
|
3 years
|
||
Buildings
|
|
40,681
|
|
|
40,681
|
|
|
30 years
|
||
Leasehold improvements
|
|
205,514
|
|
|
107,945
|
|
|
Over life of lease
|
||
DVD operations equipment
|
|
70,152
|
|
|
70,152
|
|
|
5 years
|
||
Corporate aircraft
|
|
29,304
|
|
|
—
|
|
|
8 years
|
||
Capital work-in-progress
|
|
11,409
|
|
|
108,296
|
|
|
|
||
Property and equipment, gross
|
|
615,881
|
|
|
544,604
|
|
|
|
||
Less: Accumulated depreciation
|
|
(306,050
|
)
|
|
(294,209
|
)
|
|
|
||
Property and equipment, net
|
|
$
|
309,831
|
|
|
$
|
250,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value as of
|
||||||||
|
Principal Amount at Par
|
|
Issuance Date
|
|
Maturity
|
|
Interest Payment Dates
|
|
June 30, 2017
|
|
December 31, 2016
|
||||||
|
(in millions)
|
|
|
|
|
|
|
|
(in millions)
|
||||||||
3.625% Senior Notes (1)
|
$
|
1,484.7
|
|
|
May 2017
|
|
2027
|
|
May 15 and November 15
|
|
$
|
1,513
|
|
|
$
|
—
|
|
4.375% Senior Notes
|
1,000.0
|
|
|
October 2016
|
|
2026
|
|
May 15 and November 15
|
|
1,004
|
|
|
975
|
|
|||
5.50% Senior Notes
|
700.0
|
|
|
February 2015
|
|
2022
|
|
April 15 and October 15
|
|
762
|
|
|
758
|
|
|||
5.875% Senior Notes
|
800.0
|
|
|
February 2015
|
|
2025
|
|
April 15 and October 15
|
|
888
|
|
|
868
|
|
|||
5.750% Senior Notes
|
400.0
|
|
|
February 2014
|
|
2024
|
|
March 1 and September 1
|
|
438
|
|
|
431
|
|
|||
5.375% Senior Notes
|
500.0
|
|
|
February 2013
|
|
2021
|
|
February 1 and August 1
|
|
541
|
|
|
539
|
|
|||
|
$
|
4,884.7
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
||||||
|
June 30,
2017 |
|
December 31,
2016 |
||||
|
(in thousands)
|
||||||
Less than one year
|
$
|
6,592,517
|
|
|
$
|
6,200,611
|
|
Due after one year and through three years
|
7,461,470
|
|
|
6,731,336
|
|
||
Due after three years and through five years
|
1,488,760
|
|
|
1,386,934
|
|
||
Due after five years
|
156,640
|
|
|
160,606
|
|
||
Total streaming content obligations
|
$
|
15,699,387
|
|
|
$
|
14,479,487
|
|
|
|
|
Options Outstanding
|
|
|
|
|
||||||||
|
Shares
Available for Grant |
|
Number of
Shares |
|
Weighted-
Average Exercise Price
(per share)
|
|
Weighted-Average Remaining
Contractual Term (in years) |
|
Aggregate
Intrinsic Value (in thousands) |
||||||
Balances as of December 31, 2016
|
13,289,953
|
|
|
22,437,347
|
|
|
$
|
44.83
|
|
|
|
|
|
||
Granted
|
(1,374,941
|
)
|
|
1,374,941
|
|
|
145.41
|
|
|
|
|
|
|||
Exercised
|
—
|
|
|
(1,695,532
|
)
|
|
23.11
|
|
|
|
|
|
|||
Expired
|
—
|
|
|
(1,561
|
)
|
|
$
|
3.25
|
|
|
|
|
|
||
Balances as of June 30, 2017
|
11,915,012
|
|
|
22,115,195
|
|
|
$
|
52.75
|
|
|
6.11
|
|
$
|
2,141,769
|
|
Vested and exercisable as of June 30, 2017
|
|
|
22,115,195
|
|
|
$
|
52.75
|
|
|
6.11
|
|
$
|
2,141,769
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
|
(in thousands)
|
||||||||||||||
Total intrinsic value of options exercised
|
$
|
101,727
|
|
|
$
|
37,268
|
|
|
$
|
208,824
|
|
|
$
|
68,725
|
|
Cash received from options exercised
|
$
|
14,826
|
|
|
$
|
4,232
|
|
|
$
|
39,004
|
|
|
$
|
7,768
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
||||||||
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
||||
Expected volatility
|
34
|
%
|
|
45
|
%
|
|
34% - 37%
|
|
|
45% - 50%
|
|
||||
Risk-free interest rate
|
2.37
|
%
|
|
1.83
|
%
|
|
2.37%- 2.45%
|
|
|
1.83% - 2.04%
|
|
||||
Suboptimal exercise factor
|
2.51
|
|
|
2.48
|
|
|
2.48 - 2.51
|
|
|
2.48
|
|
||||
Weighted-average fair value (per share)
|
$
|
67.21
|
|
|
$
|
48.38
|
|
|
$
|
64.67
|
|
|
$
|
49.52
|
|
Total stock-based compensation expense (in thousands)
|
$
|
44,028
|
|
|
$
|
44,112
|
|
|
$
|
88,916
|
|
|
$
|
86,534
|
|
Total income tax impact on provision (in thousands)
|
$
|
14,477
|
|
|
$
|
16,571
|
|
|
$
|
29,178
|
|
|
$
|
32,534
|
|
|
Foreign currency
|
|
Change in unrealized gains on available-for-sale securities
|
|
Total
|
||||||
|
(in thousands)
|
||||||||||
Balance as of March 31, 2017
|
$
|
(45,387
|
)
|
|
$
|
(472
|
)
|
|
$
|
(45,859
|
)
|
Other comprehensive income before reclassifications
|
14,347
|
|
|
144
|
|
|
14,491
|
|
|||
Net decrease in other comprehensive loss
|
14,347
|
|
|
144
|
|
|
14,491
|
|
|||
Balance as of June 30, 2017
|
$
|
(31,040
|
)
|
|
$
|
(328
|
)
|
|
$
|
(31,368
|
)
|
|
Foreign currency
|
|
Change in unrealized gains on available-for-sale securities
|
|
Total
|
||||||
|
(in thousands)
|
||||||||||
Balance as of December 31, 2016
|
$
|
(47,966
|
)
|
|
$
|
(599
|
)
|
|
$
|
(48,565
|
)
|
Other comprehensive income before reclassifications
|
16,926
|
|
|
271
|
|
|
17,197
|
|
|||
Net decrease in other comprehensive loss
|
16,926
|
|
|
271
|
|
|
17,197
|
|
|||
Balance as of June 30, 2017
|
$
|
(31,040
|
)
|
|
$
|
(328
|
)
|
|
$
|
(31,368
|
)
|
|
As of
|
||||||
|
June 30,
2017 |
|
December 31, 2016
|
||||
|
(in thousands)
|
||||||
United States
|
$
|
286,897
|
|
|
$
|
236,977
|
|
International
|
22,934
|
|
|
13,418
|
|
|
As of/ Three Months Ended June 30, 2017
|
||||||||||||||
|
Domestic
Streaming |
|
International
Streaming |
|
Domestic
DVD |
|
Consolidated
|
||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
51,921
|
|
|
52,031
|
|
|
3,758
|
|
|
—
|
|
||||
Revenues
|
$
|
1,505,499
|
|
|
$
|
1,165,228
|
|
|
$
|
114,737
|
|
|
$
|
2,785,464
|
|
Cost of revenues
|
831,962
|
|
|
1,017,612
|
|
|
52,734
|
|
|
1,902,308
|
|
||||
Marketing
|
113,608
|
|
|
160,715
|
|
|
—
|
|
|
274,323
|
|
||||
Contribution profit (loss)
|
$
|
559,929
|
|
|
$
|
(13,099
|
)
|
|
$
|
62,003
|
|
|
$
|
608,833
|
|
Other operating expenses
|
|
|
|
|
|
|
481,026
|
|
|||||||
Operating income
|
|
|
|
|
|
|
127,807
|
|
|||||||
Other income (expense)
|
|
|
|
|
|
|
(113,845
|
)
|
|||||||
Benefit from income taxes
|
|
|
|
|
|
|
(51,638
|
)
|
|||||||
Net income
|
|
|
|
|
|
|
$
|
65,600
|
|
|
As of/ Six Months Ended June 30, 2017
|
||||||||||||||
|
Domestic
Streaming |
|
International
Streaming |
|
Domestic
DVD |
|
Consolidated
|
||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
51,921
|
|
|
52,031
|
|
|
3,758
|
|
|
—
|
|
||||
Revenues
|
$
|
2,975,541
|
|
|
$
|
2,211,427
|
|
|
$
|
235,131
|
|
|
$
|
5,422,099
|
|
Cost of revenues
|
1,581,450
|
|
|
1,864,929
|
|
|
112,953
|
|
|
3,559,332
|
|
||||
Marketing
|
228,646
|
|
|
316,947
|
|
|
—
|
|
|
545,593
|
|
||||
Contribution profit
|
$
|
1,165,445
|
|
|
$
|
29,551
|
|
|
$
|
122,178
|
|
|
$
|
1,317,174
|
|
Other operating expenses
|
|
|
|
|
|
|
932,425
|
|
|||||||
Operating income
|
|
|
|
|
|
|
384,749
|
|
|||||||
Other income (expense)
|
|
|
|
|
|
|
(146,995
|
)
|
|||||||
Benefit from income taxes
|
|
|
|
|
|
|
(6,068
|
)
|
|||||||
Net income
|
|
|
|
|
|
|
$
|
243,822
|
|
|
As of/ Three Months Ended June 30, 2016
|
||||||||||||||
|
Domestic
Streaming |
|
International
Streaming |
|
Domestic
DVD |
|
Consolidated
|
||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
47,129
|
|
|
36,048
|
|
|
4,530
|
|
|
—
|
|
||||
Revenues
|
$
|
1,208,271
|
|
|
$
|
758,201
|
|
|
$
|
138,732
|
|
|
$
|
2,105,204
|
|
Cost of revenues
|
707,106
|
|
|
698,162
|
|
|
67,830
|
|
|
1,473,098
|
|
||||
Marketing
|
86,806
|
|
|
129,223
|
|
|
—
|
|
|
216,029
|
|
||||
Contribution profit (loss)
|
$
|
414,359
|
|
|
$
|
(69,184
|
)
|
|
$
|
70,902
|
|
|
$
|
416,077
|
|
Other operating expenses
|
|
|
|
|
|
|
345,707
|
|
|||||||
Operating income
|
|
|
|
|
|
|
70,370
|
|
|||||||
Other income (expense)
|
|
|
|
|
|
|
(19,138
|
)
|
|||||||
Provision for income taxes
|
|
|
|
|
|
|
10,477
|
|
|||||||
Net income
|
|
|
|
|
|
|
$
|
40,755
|
|
|
As of/ Six Months Ended June 30, 2016
|
||||||||||||||
|
Domestic
Streaming |
|
International
Streaming |
|
Domestic
DVD |
|
Consolidated
|
||||||||
|
(in thousands)
|
||||||||||||||
Total memberships at end of period (1)
|
47,129
|
|
|
36,048
|
|
|
4,530
|
|
|
—
|
|
||||
Revenues
|
$
|
2,369,512
|
|
|
$
|
1,409,949
|
|
|
$
|
283,479
|
|
|
$
|
4,062,940
|
|
Cost of revenues
|
1,373,652
|
|
|
1,328,061
|
|
|
140,925
|
|
|
2,842,638
|
|
||||
Marketing
|
168,748
|
|
|
255,291
|
|
|
—
|
|
|
424,039
|
|
||||
Contribution profit (loss)
|
$
|
827,112
|
|
|
$
|
(173,403
|
)
|
|
$
|
142,554
|
|
|
$
|
796,263
|
|
Other operating expenses
|
|
|
|
|
|
|
676,440
|
|
|||||||
Operating income
|
|
|
|
|
|
|
119,823
|
|
|||||||
Other income (expense)
|
|
|
|
|
|
|
(28,712
|
)
|
|||||||
Provision for income taxes
|
|
|
|
|
|
|
22,698
|
|
|||||||
Net income
|
|
|
|
|
|
|
$
|
68,413
|
|
|
Domestic
Streaming
|
|
International
Streaming
|
|
Domestic
DVD
|
|
Consolidated
|
||||||||
|
(in thousands)
|
||||||||||||||
Three months ended June 30,
|
|
|
|
|
|
|
|
||||||||
2017
|
$
|
696,688
|
|
|
$
|
854,106
|
|
|
$
|
16,511
|
|
|
$
|
1,567,305
|
|
2016
|
581,390
|
|
|
593,971
|
|
|
20,021
|
|
|
1,195,382
|
|
||||
Six months ended June 30,
|
|
|
|
|
|
|
|
||||||||
2017
|
1,305,436
|
|
|
1,551,041
|
|
|
35,109
|
|
|
2,891,586
|
|
||||
2016
|
1,112,129
|
|
|
1,121,753
|
|
|
40,462
|
|
|
2,274,344
|
|
(1)
|
A membership (also referred to as a subscription or a member) 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
|
|
As of/ Three Months Ended
|
|
Change
|
|||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Global streaming memberships at end of period
|
103,952
|
|
|
83,177
|
|
|
20,775
|
|
|
25
|
%
|
|||
Global streaming average monthly revenue per paying membership
|
$
|
9.21
|
|
|
$
|
8.32
|
|
|
$
|
0.89
|
|
|
11
|
%
|
Revenues
|
2,785,464
|
|
|
2,105,204
|
|
|
680,260
|
|
|
32
|
%
|
|||
Global operating income
|
127,807
|
|
|
70,370
|
|
|
57,437
|
|
|
82
|
%
|
|||
Global operating margin
|
4.6
|
%
|
|
3.3
|
%
|
|
1.3
|
%
|
|
39
|
%
|
|||
Net income
|
65,600
|
|
|
40,755
|
|
|
24,845
|
|
|
61
|
%
|
•
|
We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by the segment. We believe this is an important measure of our operating segment performance as it represents each segment's performance before global corporate costs.
|
•
|
For the Domestic and International streaming segments, content expenses, which include the amortization of the streaming content assets and other expenses associated with the licensing and acquisition of streaming content, represent the vast majority of cost of revenues. Streaming content rights were generally obtained for our current geographic regions. As we expanded internationally, we obtained additional rights for new geographies. With our global expansion, we now aspire to obtain global rights for our content. We allocate this content between the Domestic and International streaming segments based on estimated fair market value. Other cost of revenues such as streaming delivery expenses, customer service and payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentage of total cost of revenues. We have built our own global content delivery network ("Open Connect") to help us efficiently stream a high volume of content to our members over the internet. Streaming delivery expenses, therefore, include equipment costs related to Open Connect and all third-party costs, such as cloud computing costs, associated with delivering streaming content over the internet. Cost of revenues in the Domestic DVD segment consist primarily of delivery expenses, content expenses, including amortization of DVD content assets and revenue sharing expenses, and other expenses associated with 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.
|
•
|
For the Domestic and International streaming segments, marketing expenses consist primarily of advertising expenses and revenue sharing payments made to our marketing partners, including CE manufacturers, MVPDs, mobile operators and ISPs. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses are incurred by our Domestic and 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 and the timing of the launch of new territories.
|
•
|
We have demonstrated our ability to grow domestic streaming contribution margin as evidenced by the increase in contribution margin from 17% in 2012 to 37% in the
second
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.
|
|
|
As of/ Three Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net additions
|
|
1,067
|
|
|
162
|
|
|
905
|
|
|
559
|
%
|
|||
Memberships at end of period
|
|
51,921
|
|
|
47,129
|
|
|
4,792
|
|
|
10
|
%
|
|||
Paid memberships at end of period
|
|
50,323
|
|
|
46,004
|
|
|
4,319
|
|
|
9
|
%
|
|||
Average monthly revenue per paying membership
|
|
$
|
10.07
|
|
|
$
|
8.78
|
|
|
$
|
1.29
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit:
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
1,505,499
|
|
|
$
|
1,208,271
|
|
|
$
|
297,228
|
|
|
25
|
%
|
Cost of revenues
|
|
831,962
|
|
|
707,106
|
|
|
124,856
|
|
|
18
|
%
|
|||
Marketing
|
|
113,608
|
|
|
86,806
|
|
|
26,802
|
|
|
31
|
%
|
|||
Contribution profit
|
|
559,929
|
|
|
414,359
|
|
|
145,570
|
|
|
35
|
%
|
|||
Contribution margin
|
|
37
|
%
|
|
34
|
%
|
|
|
|
|
|
|
As of/ Six Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
YTD'17 vs. YTD'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net additions
|
|
2,490
|
|
|
2,391
|
|
|
99
|
|
|
4
|
%
|
|||
Memberships at end of period
|
|
51,921
|
|
|
47,129
|
|
|
4,792
|
|
|
10
|
%
|
|||
Paid memberships at end of period
|
|
50,323
|
|
|
46,004
|
|
|
4,319
|
|
|
9
|
%
|
|||
Average monthly revenue per paying membership
|
|
$
|
10.07
|
|
|
$
|
8.74
|
|
|
$
|
1.33
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit:
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
2,975,541
|
|
|
$
|
2,369,512
|
|
|
$
|
606,029
|
|
|
26
|
%
|
Cost of revenues
|
|
1,581,450
|
|
|
1,373,652
|
|
|
207,798
|
|
|
15
|
%
|
|||
Marketing
|
|
228,646
|
|
|
168,748
|
|
|
59,898
|
|
|
35
|
%
|
|||
Contribution profit
|
|
1,165,445
|
|
|
827,112
|
|
|
338,333
|
|
|
41
|
%
|
|||
Contribution margin
|
|
39
|
%
|
|
35
|
%
|
|
|
|
|
|
|
As of/ Three Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net additions
|
|
4,137
|
|
|
1,515
|
|
|
2,622
|
|
|
173
|
%
|
|||
Memberships at end of period
|
|
52,031
|
|
|
36,048
|
|
|
15,983
|
|
|
44
|
%
|
|||
Paid memberships at end of period
|
|
48,713
|
|
|
33,892
|
|
|
14,821
|
|
|
44
|
%
|
|||
Average monthly revenue per paying membership
|
|
$
|
8.29
|
|
|
$
|
7.67
|
|
|
$
|
0.62
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit (loss):
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
1,165,228
|
|
|
$
|
758,201
|
|
|
$
|
407,027
|
|
|
54
|
%
|
Cost of revenues
|
|
1,017,612
|
|
|
698,162
|
|
|
319,450
|
|
|
46
|
%
|
|||
Marketing
|
|
160,715
|
|
|
129,223
|
|
|
31,492
|
|
|
24
|
%
|
|||
Contribution profit (loss)
|
|
(13,099
|
)
|
|
(69,184
|
)
|
|
56,085
|
|
|
81
|
%
|
|||
Contribution margin
|
|
(1
|
)%
|
|
(9
|
)%
|
|
|
|
|
|
|
|
As of/ Six Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
YTD'17 vs. YTD'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net additions
|
|
7,666
|
|
|
6,024
|
|
|
1,642
|
|
|
27
|
%
|
|||
Memberships at end of period
|
|
52,031
|
|
|
36,048
|
|
|
15,983
|
|
|
44
|
%
|
|||
Paid memberships at end of period
|
|
48,713
|
|
|
33,892
|
|
|
14,821
|
|
|
44
|
%
|
|||
Average monthly revenue per paying membership
|
|
$
|
8.20
|
|
|
$
|
7.50
|
|
|
$
|
0.70
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit (loss):
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
2,211,427
|
|
|
$
|
1,409,949
|
|
|
$
|
801,478
|
|
|
57
|
%
|
Cost of revenues
|
|
1,864,929
|
|
|
1,328,061
|
|
|
536,868
|
|
|
40
|
%
|
|||
Marketing
|
|
316,947
|
|
|
255,291
|
|
|
61,656
|
|
|
24
|
%
|
|||
Contribution profit (loss)
|
|
29,551
|
|
|
(173,403
|
)
|
|
202,954
|
|
|
117
|
%
|
|||
Contribution margin
|
|
1
|
%
|
|
(12
|
)%
|
|
|
|
|
|
|
As of/ Three Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net losses
|
|
(186
|
)
|
|
(211
|
)
|
|
(25
|
)
|
|
(12
|
)%
|
|||
Memberships at end of period
|
|
3,758
|
|
|
4,530
|
|
|
(772
|
)
|
|
(17
|
)%
|
|||
Paid memberships at end of period
|
|
3,692
|
|
|
4,435
|
|
|
(743
|
)
|
|
(17
|
)%
|
|||
Average monthly revenue per paying membership
|
|
$
|
10.12
|
|
|
$
|
10.18
|
|
|
$
|
(0.06
|
)
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit:
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
114,737
|
|
|
$
|
138,732
|
|
|
$
|
(23,995
|
)
|
|
(17
|
)%
|
Cost of revenues
|
|
52,734
|
|
|
67,830
|
|
|
(15,096
|
)
|
|
(22
|
)%
|
|||
Contribution profit
|
|
62,003
|
|
|
70,902
|
|
|
(8,899
|
)
|
|
(13
|
)%
|
|||
Contribution margin
|
|
54
|
%
|
|
51
|
%
|
|
|
|
|
|
|
As of/ Six Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
YTD'17 vs. YTD'16
|
|||||||||
|
|
(in thousands, except revenue per membership and percentages)
|
|||||||||||||
Memberships:
|
|
|
|
|
|
|
|
|
|||||||
Net losses
|
|
(356
|
)
|
|
(374
|
)
|
|
(18
|
)
|
|
(5
|
)%
|
|||
Memberships at end of period
|
|
3,758
|
|
|
4,530
|
|
|
(772
|
)
|
|
(17
|
)%
|
|||
Paid memberships at end of period
|
|
3,692
|
|
|
4,435
|
|
|
(743
|
)
|
|
(17
|
)%
|
|||
Average monthly revenue per paying membership
|
|
$
|
10.14
|
|
|
$
|
10.21
|
|
|
$
|
(0.07
|
)
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|||||||
Contribution profit:
|
|
|
|
|
|
|
|
|
|||||||
Revenues
|
|
$
|
235,131
|
|
|
$
|
283,479
|
|
|
$
|
(48,348
|
)
|
|
(17
|
)%
|
Cost of revenues
|
|
112,953
|
|
|
140,925
|
|
|
(27,972
|
)
|
|
(20
|
)%
|
|||
Contribution profit
|
|
122,178
|
|
|
142,554
|
|
|
(20,376
|
)
|
|
(14
|
)%
|
|||
Contribution margin
|
|
52
|
%
|
|
50
|
%
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
(in thousands, except percentages)
|
|||||||||||||
Technology and development
|
$
|
267,083
|
|
|
$
|
207,300
|
|
|
$
|
59,783
|
|
|
29
|
%
|
As a percentage of revenues
|
10
|
%
|
|
10
|
%
|
|
|
|
|
|
Six Months Ended
|
|
Change
|
|||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
YTD'17 vs. YTD'16
|
|||||||||
|
(in thousands, except percentages)
|
|||||||||||||
Technology and development
|
$
|
524,191
|
|
|
$
|
410,808
|
|
|
$
|
113,383
|
|
|
28
|
%
|
As a percentage of revenues
|
10
|
%
|
|
10
|
%
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
(in thousands, except percentages)
|
|||||||||||||
General and administrative
|
$
|
213,943
|
|
|
$
|
138,407
|
|
|
$
|
75,536
|
|
|
55
|
%
|
As a percentage of revenues
|
8
|
%
|
|
7
|
%
|
|
|
|
|
|
Six Months Ended
|
|
Change
|
|||||||||||
|
June 30,
2017 |
|
June 30,
2016 |
|
YTD'17 vs. YTD'16
|
|||||||||
|
(in thousands, except percentages)
|
|||||||||||||
General and administrative
|
$
|
408,234
|
|
|
$
|
265,632
|
|
|
$
|
142,602
|
|
|
54
|
%
|
As a percentage of revenues
|
8
|
%
|
|
7
|
%
|
|
|
|
|
|
|
Three Months Ended
|
|
Change
|
|||||||||||
|
|
June 30,
2017 |
|
June 30,
2016 |
|
Q2'17 vs. Q2'16
|
|||||||||
|
|
(in thousands, except percentages)
|
|||||||||||||
Interest expense
|
|
$
|
(55,482
|
)
|
|
$
|
(35,455
|
)
|
|
$
|
(20,027
|
)
|
|
(56
|
)%
|
As a percentage of revenues
|
|
(2
|
)%
|
|
(2
|
)%
|
|
|
|
|
|
Three Months Ended
|
||||||
|
June 30,
2017 |
|
June 30,
2016 |
||||
|
(in thousands)
|
||||||
Net cash used in operating activities
|
$
|
(534,528
|
)
|
|
$
|
(226,293
|
)
|
Net cash used in investing activities
|
(56,432
|
)
|
|
(2,896
|
)
|
||
Net cash provided by financing activities
|
1,420,386
|
|
|
17,612
|
|
||
|
|
|
|
||||
Non-GAAP free cash flow reconciliation:
|
|
|
|
||||
Net cash used in operating activities
|
(534,528
|
)
|
|
(226,293
|
)
|
||
Acquisition of DVD content assets
|
(7,624
|
)
|
|
(17,924
|
)
|
||
Purchases of property and equipment
|
(65,231
|
)
|
|
(10,814
|
)
|
||
Change in other assets
|
(1,064
|
)
|
|
907
|
|
||
Non-GAAP free cash flow
|
$
|
(608,447
|
)
|
|
$
|
(254,124
|
)
|
|
Six Months Ended
|
||||||
|
June 30,
2017 |
|
June 30,
2016 |
||||
|
(in thousands)
|
||||||
Net cash used in operating activities
|
$
|
(878,384
|
)
|
|
$
|
(454,883
|
)
|
Net cash (used in) provided by investing activities
|
(132,022
|
)
|
|
1,367
|
|
||
Net cash provided by financing activities
|
1,444,625
|
|
|
32,519
|
|
||
|
|
|
|
||||
Non-GAAP free cash flow reconciliation:
|
|
|
|
||||
Net cash used in operating activities
|
(878,384
|
)
|
|
(454,883
|
)
|
||
Acquisition of DVD content assets
|
(32,996
|
)
|
|
(41,131
|
)
|
||
Purchases of property and equipment
|
(117,754
|
)
|
|
(19,239
|
)
|
||
Change in other assets
|
(1,833
|
)
|
|
551
|
|
||
Non-GAAP free cash flow
|
$
|
(1,030,967
|
)
|
|
$
|
(514,702
|
)
|
|
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)
|
$
|
15,699,387
|
|
|
$
|
6,592,517
|
|
|
$
|
7,461,470
|
|
|
$
|
1,488,760
|
|
|
$
|
156,640
|
|
Debt (2)
|
6,663,805
|
|
|
235,189
|
|
|
465,893
|
|
|
1,632,601
|
|
|
4,330,122
|
|
|||||
Lease obligations (3)
|
695,877
|
|
|
85,859
|
|
|
167,447
|
|
|
148,051
|
|
|
294,520
|
|
|||||
Other purchase obligations (4)
|
699,110
|
|
|
428,448
|
|
|
190,878
|
|
|
40,371
|
|
|
39,413
|
|
|||||
Total
|
$
|
23,758,179
|
|
|
$
|
7,342,013
|
|
|
$
|
8,285,688
|
|
|
$
|
3,309,783
|
|
|
$
|
4,820,695
|
|
(1)
|
As of
June 30, 2017
, streaming content obligations were comprised of
$4.1 billion
included in "Current content liabilities" and
$3.4 billion
of "Non-current content liabilities" on the Consolidated Balance Sheets and
$8.2 billion
of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.
|
(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.
|
(3)
|
Lease obligations include lease financing obligations of
$17.1 million
related to a portion of our current Los Gatos, California headquarters for which we are the deemed owner for accounting purposes, commitments of
$529.7 million
for our expanded headquarters in Los Gatos, California, and our new office space in Los Angeles, California and other commitments of
$149.1 million
for facilities under non-cancelable operating leases. These leases have expiration dates varying through approximately 2028.
|
(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.
|
•
|
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 $5.4 million for the three months ended
June 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
June 30, 2017
.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 6.
|
Exhibits
|
|
|
NETFLIX, INC.
|
|
Dated:
|
July 19, 2017
|
By:
|
/s/ REED HASTINGS
|
|
|
|
Reed Hastings
Chief Executive Officer
(Principal executive officer)
|
|
|
|
|
Dated:
|
July 19, 2017
|
By:
|
/s/ DAVID WELLS
|
|
|
|
David Wells
Chief Financial Officer
(Principal financial and accounting officer)
|
Exhibit Number
|
|
Exhibit Description
|
|
Incorporated by Reference
|
|
Filed
Herewith |
||||||
|
|
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
|
|
|
|
|
|
|
|
|||||
4.8
|
|
Indenture, dated as of May 2, 2017, by and between the Company and Wells Fargo Bank, National Association, as Trustee.
|
|
|
|
001-35727
|
|
4.1
|
|
May 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Form of Note (included in Exhibit 4.8)
|
|
|
|
001-35727
|
|
4.2
|
|
May 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Purchase Agreement, dated as of April 26, 2017, between the Company and Morgan Stanley & Co. International plc, as representative of the Initial Purchasers listed on Schedule 1 thereto.
|
|
|
|
001-35727
|
|
10.1
|
|
April 24, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Registration Rights Agreement, dated as of May 2, 2017, by and between the Company and Morgan Stanley & Co. International plc, as representative of the Initial Purchasers listed in Schedule 1 thereto.
|
|
|
|
001-35727
|
|
10.1
|
|
May 2, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Executive Severance and Retention Incentive Plan, as amended and restated as of July 12, 2017
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|||||
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|||||
32.1*
|
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|||||
101
|
|
The following financial information from Netflix, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed with the SEC on July 19, 2017, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016, (ii) Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (iii) Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (iv) Consolidated Statements of Cash Flows for the Three and Six Months Ended June 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.
|
Plan Name:
|
|
Executive Severance and Retention Incentive Plan
|
Plan Sponsor:
|
|
Netflix, Inc.
100 Winchester Circle
Los Gatos, CA 95032
|
Identification Numbers:
|
|
EIN:
- 77-0467272
PLAN:
501
|
Plan Year:
|
|
Calendar year
|
Plan Administrator:
|
|
Netflix, Inc.
Attention:
Chief Talent Officer
100 Winchester Circle
Los Gatos, CA 95032
(408) 540-3700
|
Agent for Service of Legal Process:
|
|
Netflix, Inc.
Attention:
General Counsel
100 Winchester Circle
Los Gatos, CA 95032
(408) 540-3700
Service of process may also be made upon the
Plan Administrator.
|
Type of Plan
|
|
Bonus Plan/Severance Plan/Employee Welfare Benefit Plan
|
Plan Costs
|
|
The cost of the Plan is paid by the Employer.
|
|
|
Netflix, Inc.
|
|
|
By_______________________________________
|
|
|
Title______________________________________
|
|
|
Date _____________________________________
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Netflix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: July 19, 2017
|
|
|
By:
|
|
/S/ REED HASTINGS
|
|
|
|
|
|
Reed Hastings
|
|
|
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Netflix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: July 19, 2017
|
|
By:
|
|
/
S
/ D
AVID
W
ELLS
|
|
|
|
|
David Wells
|
|
|
|
|
Chief Financial Officer
|
Dated: July 19, 2017
|
|
By:
|
|
/
S
/ R
EED
H
ASTINGS
|
|
|
|
|
Reed Hastings
|
|
|
|
|
Chief Executive Officer
|
Dated: July 19, 2017
|
|
By:
|
|
/
S
/ D
AVID
W
ELLS
|
|
|
|
|
David Wells
|
|
|
|
|
Chief Financial Officer
|