Netflix Announces Record Second Quarter 2002 Financial Results
• Revenues grow 19% sequentially and 98% year over year
• Subscribers reach 670,000, growing 11% sequentially and 118% year over year
• EBITDA Increases 67% sequentially to $6.5 million
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LOS GATOS, Calif., July 24 /PRNewswire-FirstCall/-- Netflix, Inc. (Nasdaq: NFLX - News) announced financial results for the second quarter ended June 30, 2002. Total revenue for the second quarter was $36.4 million, compared to $18.4 million for the second quarter ended June 30, 2001, and $30.5 million for the first quarter ended March 31, 2002. EBITDA(1) for the second quarter 2002 was $6.5 million, compared to a loss of $0.1 million for the second quarter ended June 30, 2001, and $3.9 million for the first quarter ended March 31, 2002.
Netflix also reported a net loss on a GAAP basis totaling $13.4 million or $1.31 per basic and diluted share, compared to a net loss of $8.0 million or $4.48 per basic and diluted share for the quarter ended June 30, 2001 and a net loss of $4.5 million or $2.20 per basic and diluted share for the quarter ended March 31, 2002.
Excluding stock-based compensation expense and $10.7 million in one-time interest charges related to debt retirement, pro forma net income was $12.0 thousand, or $0.00 per pro forma basic and diluted share, for the second quarter of 2002, compared to a pro forma net loss of $6.6 million, or $0.48 per pro forma basic and diluted share, for the second quarter of 2001, and a pro forma net loss of $1.7 million, or $0.11 per pro forma basic and diluted share for the first quarter of 2002.
"Our second quarter 2002 and first quarter as a public company was marked by a number of significant accomplishments, including record subscribers and revenue, a dramatic increase in distribution capability, and a successful initial public offering," said Reed Hastings, Netflix CEO and co-founder. "Our subscribers grew to 670,000 and drove record total revenue for the quarter of $36.4 million, while churn(2) declined to 6.7 percent. We also completed the opening of our ten new regional distribution centers to provide faster service and further drive demand. I'm very pleased with the customer and market reception to Netflix as we pioneer a new category in the delivery of home entertainment," concluded Hastings.
In the second quarter Netflix raised $94.9 million in gross proceeds through the sale of 6,325,000 shares of the Company's common stock in its initial public offering.
Business Outlook
The following are the Company's current expectations for the third and fourth quarters of 2002:
- The Company expects to end the third quarter of 2002 with approximately
700,000 to 730,000 subscribers and the fourth quarter of 2002
with approximately 830,000 to 860,000 subscribers.
- The Company expects total revenue to be in the range of $37 and
$40 million for the third quarter of 2002 and in the range of $41 and
$44 million for the fourth quarter of 2002.
- As a result of increased postage costs and disc usage, the Company
expects gross margins for the third and fourth quarters to decline by
two to three percentage points from the gross margin in the second
quarter and be in a range of 47 and 48%.
- The Company expects a pro forma operating loss before stock-based
compensation expense of approximately $3.5 million and $5.5 million for
the third quarter of 2002 and a pro forma operating loss before
stock-based compensation expense in the range of $3.0 million and
$6.0 million for the fourth quarter of 2002. The Company's goal is to
be profitable on a pro forma operating basis, beginning in the second
quarter of fiscal 2003.
- EBITDA is expected to be in the range of $2.0 to $4.0 million for the
third quarter of 2002 and $2.5 to $4.5 million for the fourth quarter
of 2002.
The Netflix earnings call will be web cast today at 5:00 p.m. Eastern Time / 2:00 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 670,000 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 the number of our subscribers, our revenues, gross margins, pro forma operating loss, and EBITDA for the third and fourth quarters of 2002 as well as the Company's goals regarding pro forma operating income in 2003. 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 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) EBITDA consists of operating loss before depreciation, amortization of intangible assets, amortization of DVD library, non-cash charges for equity instruments granted to non-employees, gains or losses on disposal of assets and stock-based compensation.
- (2) The company calculates churn as a monthly percentage determined by subtracting from one, a quotient, the numerator of which is the ending subscribers for the current quarter and the denominator of which is the sum of the previous quarter's ending subscribers plus the current quarter's new trial subscribers and then dividing this resulting number by 3, which is the number of months in the quarter.
Netflix, Inc.
Statements of Operations
(in thousands, except per share data)
Three Months Ended
Jun 30, 2001 Mar 31, 2002 Jun 30, 2002
Revenues:
Subscription $17,392 $30,069 $35,608
Sales 967 458 752
Total revenues 18,359 30,527 36,360
Cost of revenues:
Subscription 10,776 14,872 17,779
Sales 446 286 313
Total cost of revenues 11,222 15,158 18,092
Gross profit 7,137 15,369 18,268
Operating expenses:
Fulfillment 3,589 4,155 4,854
Technology and development 4,896 3,181 3,518
Marketing 4,090 7,938 8,054
General and administrative 1,031 1,309 1,638
Restructuring charges -- -- --
Stock-based compensation 1,436 2,840 2,746
Total operating expenses 15,042 19,423 20,810
Operating loss (7,905) (4,054) (2,542)
Interest and other income (expense),
net (96) (454) (10,887)
Loss before income taxes (8,001) (4,508) (13,429)
Provision for income taxes -- -- --
Net loss $(8,001) $(4,508) $(13,429)
Net loss per share:
GAAP Basic and Diluted $(4.48) $(2.20) $(1.31)
Pro forma Basic $(.59) $(.30) $(.76)
Pro forma Diluted $(.59) $(.30) $(.76)
Weighted average shares outstanding:
GAAP Basic and Diluted 1,787 2,047 10,216
Pro forma Basic 13,664 14,834 17,573
Pro forma Diluted 13,664 14,834 25,057
Other data:
EBITDA and Adjusted EBITDA
Operating loss $(7,905) $(4,054) $(2,542)
Add back:
Stock based compensation 1,436 2,840 2,746
Pro forma operating income (loss) (6,469) (1,214) 204
Depreciation of PP&E 1,363 1,457 1,448
Amortization of DVD Library 4,508 2,917 3,988
Amortization of Intangibles 456 706 819
Non-cash charges for equity
granted to non-employees 10 -- --
Loss on disposal of PP&E -- -- --
EBITDA $(132) $3,866 $6,459
Less: Amortization of DVD library (4,508) (2,917) (3,988)
Add: "Normalized" DVD library
amortization 1,223
Adjusted EBITDA $(3,417) $949 $2,471
Pro forma net income (loss):
Net loss $(8,001) $(4,508) $(13,429)
Add back:
Restructuring charges -- -- --
Stock-based compensation 1,436 2,840 2,746
Non-cash interest on early
repayment of debt -- -- 10,695
Pro forma net income (loss) $(6,565) $(1,668) $12
Pro forma net income (loss) per
share:
Pro forma Basic $(.48) $(.11) $.00
Pro forma Diluted $(.48) $(.11) $.00
Netflix, Inc.
Balance Sheets
(in thousands, except per share data)
As of
Dec 31, 2001 Jun 30, 2002
Assets
Current assets:
Cash and cash equivalents $16,131 $49,759
Short term investments -- 42,040
Prepaid expenses 1,019 2,168
Prepaid revenue sharing expenses 732 299
Other current assets 1,670 765
Total current assets 19,552 95,031
DVD library, net 3,633 6,116
Intangible assets, net 7,917 7,710
Property and equipment, net 8,205 6,727
Deposits 1,677 1,696
Other assets 646 618
Total assets $41,630 $117,898
Liabilities and Stockholders'
(Deficit) Equity
Current liabilities:
Accounts payable $13,715 $13,371
Accrued expenses 4,544 7,819
Deferred revenue 4,937 7,066
Current portion of capital lease
obligations 1,345 1,493
Notes payable 1,667 417
Total current liabilities 26,208 30,166
Deferred rent 240 269
Capital lease obligations, less
current portion 1,057 765
Note payable -- --
Subordinated notes payable 2,799 --
Total liabilities 30,304 31,200
Commitments and contingency
Redeemable convertible preferred stock 101,830 --
Stockholders' (deficit) equity:
Convertible preferred stock 6 --
Common stock 2 21
Additional paid-in capital 52,479 261,011
Deferred stock-based compensation (5,725) (19,024)
Accumulated other comprehensive
income -- (107)
Accumulated deficit (137,266) (155,203)
Total stockholders' (deficit)
equity (90,504) 86,698
Total liabilities and
stockholders' (deficit) equity $41,630 $117,898
Working capital $(6,656) $64,865
Per share amounts
Issued and outstanding shares
(000's) 21,588
Book value per share $4.02
Cash and short term investments per share $4.25
Netflix, Inc.
Statements of Cash Flows
(in thousands, except per share data)
Three Months Ended
Jun 30, 2001 Mar 31, 2002 Jun 30, 2002
Cash flows from operating activities:
Net loss $(8,001) $(4,508) $(13,429)
Adjustments to reconcile net loss to
net cash (used in)
provided by operating activities:
Depreciation of property plant and
equipment 1,363 1,457 1,448
Amortization of DVD library 4,508 2,917 3,988
Amortization of intangible assets 456 706 819
Noncash charges for equity
instruments granted to
non-employees 10 -- --
Stock-based compensation expense 1,436 2,840 2,746
Loss on disposal of property and
equipment -- -- --
Gain on disposal of DVDs -- (283) (674)
Noncash interest expense (36) 395 10,921
Changes in operating assets and
liabilities:
Prepaid expenses and other
current assets (64) (773) 962
Accounts payable 998 2,577 (2,921)
Accrued expenses (10) (186) 3,461
Deferred revenue 156 1,350 779
Deferred rent 37 13 16
Net cash (used in) provided by
operating activities 853 6,505 8,116
Cash flows from investing activities:
Purchases of short-term investments -- -- (42,147)
Proceeds from sale of short-term
investments -- -- --
Purchases of property and equipment (685) (95) (749)
Acquisitions of DVD library (1,568) (6,161) (3,480)
Proceeds from sale of DVDs -- 458 752
Deposits and other assets (395) -- 9
Net cash (used in) provided by
investing activities (2,648) (5,798) (45,615)
Cash flows from financing activities:
Proceeds from issuance of redeemable
convertible preferred stock -- -- --
Proceeds from issuance of common
stock 58 87 86,428
Net proceeds from issuance of
subordinated notes payable
and detachable warrants -- -- --
Repurchases of common stock (7) -- (3)
Proceeds from issuance of notes
payable -- -- --
Principal payments on notes payable
and capital lease obligations (971) (1,254) (14,838)
Net cash (used in) provided by
financing activities (920) (1,167) 71,587
Net increase (decrease) in cash and
cash equivalents (2,715) (460) 34,088
Cash and cash equivalents, beginning
of period 7,076 16,131 15,671
Cash and cash equivalents, end of
period $4,361 $15,671 $49,759
Free Cash Flow:
Net cash (used in) provided by
operating activities $853 $6,505 $8,116
Purchases of property and equipment (685) (95) (749)
Acquisitions of DVD library (1,568) (6,161) (3,480)
Proceeds from sale of DVDs -- 458 752
Deposits and other assets (395) -- 9
Free Cash Flow $(1,795) $707 $4,648
Supplemental disclosure:
Cash paid for interest $201 $136 $240
Noncash investing and financing
activities:
Purchase of assets under capital
lease obligations $-- $583 $--
Discount on capital lease
obligation $-- $-- $--
Warrant issued as a deposit on
operating lease $-- $-- $--
Exchange of Series F non-voting
convertible preferred stock for
intangible asset $873 $1,213 $105
Unrealized appreciation
(depreciation) of short term
investments $-- $-- $(107)