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Exhibit


Exhibit 99.1
October 14, 2015

Fellow shareholders,

We have grown to over 69 million members around the world and expect to end this year with over 74 million members. With a successful launch in Japan, and our launches next week in Spain, Italy and Portugal, we remain on track to become global by the end of 2016. Our summary results and forecast for Q4 are below.
 (in millions except per share data and Streaming Content Obligations)
Q3 '14
Q4 '14
Q1 '15
Q2 '15
Q3 '15
Q4 '15 Forecast
Total Streaming:
 
 
 
 
 
 
Revenue
$
1,223

$
1,305

$
1,400

$
1,481

$
1,581

$
1,667

Contribution Profit
$
220

$
178

$
247

$
248

$
277

$
257

Contribution Margin
18.0
 %
13.6
 %
17.7
 %
16.7
 %
17.5
 %
15.4
 %
Paid Memberships
50.65

54.48

59.62

62.71

66.02

70.42

Total Memberships
53.06

57.39

62.27

65.55

69.17

74.32

Net Additions
3.02

4.33

4.88

3.28

3.62

5.15

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
877

$
917

$
985

$
1,026

$
1,064

$
1,101

Contribution Profit
$
251

$
257

$
312

$
340

$
344

$
374

Contribution Margin
28.6
 %
28.0
 %
31.7
 %
33.1
 %
32.4
 %
34.0
 %
Paid Memberships
36.27

37.70

40.32

41.06

42.07

43.37

Total Memberships
37.22

39.11

41.40

42.30

43.18

44.83

Net Additions
0.98

1.90

2.28

0.90

0.88

1.65

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
346

$
388

$
415

$
455

$
517

$
566

Contribution Profit (Loss)
$
(31
)
$
(79
)
$
(65
)
$
(92
)
$
(68
)
$
(117
)
Contribution Margin
-8.9
 %
-20.3
 %
-15.6
 %
-20.2
 %
-13.1
 %
-20.7
 %
Paid Memberships
14.39

16.78

19.30

21.65

23.95

27.05

Total Memberships
15.84

18.28

20.88

23.25

25.99

29.49

Net Additions
2.04

2.43

2.60

2.37

2.74

3.50

 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Operating Income
$
110

$
65

$
97

$
75

$
74

$
49

Net Income*
$
59

$
83

$
24

$
26

$
29

$
10

EPS*
$
0.14

$
0.19

$
0.05

$
0.06

$
0.07

$
0.02

 
 
 
 
 
 
 
Free Cash Flow
$
(74
)
$
(78
)
$
(163
)
$
(229
)
$
(252
)
 
EBITDA
$
155

$
110

$
140

$
119

$
123

 
Shares (FD)*
432.7

432.5

433.8

436.1

437.6

 
Streaming Content Obligations** ($B)
8.9

9.5

9.8

10.1

10.4

 
* 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

Q3 Results and Q4 Forecast

Global membership grew 3.62 million to 69.17 million members compared to prior year growth of 3.02 million, and a forecast of 3.55 million. Operating income was $74 million, compared to prior year of $110 million and a forecast of $81 million. Seven quarters ago we moved to providing you our internal forecast for the quarter ahead. We strive for accuracy in this projection and, when it comes to global net additions, Q3 was our most accurate to date: we were within 2% (3.62 vs. 3.55) and within 10% on operating income ($74m vs. $81m).

While global growth was as we expected, our forecast was high for the US and low for international. We added 0.88 million new US members in the quarter compared to 0.98 million prior year and a forecast of 1.15 million. Our over-forecast in the US for Q3 was due to slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards. In terms of US net additions, through the first nine months of 2015, we are slightly ahead of prior year, and we expect to finish 2015 at about 2014 levels. This would mark the 4th consecutive year we’ve added about 6 million members in the US.

Our US contribution margin in Q3 expanded 375 basis points year over year to 32.4%. This was inclusive of an acceleration in the amortization of some of our licensed content, similar to how we already treat originals and reflecting more viewing in the first month. The effect of this change was a $13 million decrease in US streaming contribution profit in Q3. For Q4, we anticipate 1.65 million US net adds and US contribution margin of 34.0% vs. 28.0% in the year ago quarter. We continue to target a 40% US contribution margin by 2020.

International net add growth totaled 2.74 million compared to 2.04 million in the prior year and a 2.40 million forecast. Excluding the impact of foreign currency ($96 million on a year over year basis), international ASP improved 6% vs. Q3 ‘14, helped by plan mix. In August, we raised our high-definition 2-screen monthly price plan in Europe by one Euro without negatively impacting growth.

As we have indicated previously, international contribution losses will grow sequentially in Q4 as we launch Spain, Italy and Portugal. We have announced our expansion to South Korea, Hong Kong, Taiwan and Singapore in early 2016. Our plan remains to run around break-even through 2016 and to deliver material profits thereafter.

Last week we increased prices in several countries including the US, to improve our ability to acquire and offer high quality content, which is the number one member request. Our US pricing is now $7.99 for our standard-definition 1-screen-at-a-time plan (unchanged), $9.99 for our high-definition 2-screen plan (up $1), and $11.99 for ultra-high-definition 4-screen plan (unchanged). Members who were paying $8.99 for the high-definition plan are grandfathered at that price for one year.













                                                                                                                                                    2

Content

As our membership expands, we are quickly becoming a global distribution platform for creators worldwide. Narcos, our latest original series, is a hit and is another fine example of a Netflix original - embraced by both critics1 and audiences2 and global in nature (bilingual, Brazilian director and star, US and Latin American cast, shot in Colombia) with substantial viewing across all our territories.

This past quarter, we also unveiled our first locally-produced original series, Club de Cuervos, which played strongly not just in its home country of Mexico but with Spanish speakers around the world, including the US. We are currently in production on our second Mexican original series, Ingobernable, starring Latin American TV superstar, Kate del Castillo, and the French produced Marseille. We have also announced original series productions in Brazil and Italy3.

We will launch our first original feature film Beasts of No Nation on Netflix on October 16. This gripping war drama featuring Idris Elba and Abraham Attah has received universal critical acclaim4 and is an early Oscar5 hopeful. Attah won the prestigious Marcello Mastroianni Award at the Venice Film Festival recognizing him as the best newcomer. We’re also excited to release the first of four films from Adam Sandler, The Ridiculous Six, in December. This release comes on the heels of Sandler’s global success with Pixels ($240M worldwide box office) and the currently hot Hotel Transylvania 2 (already grossing over $200M worldwide box office and yet to be released in many of the larger foreign markets).

Just three years into our originals strategy, we have come a long way and our content is increasingly recognized for its quality and breadth. This year, we garnered a Netflix-record 34 Emmy nominations, across 11 of our original series and documentaries and won four. Netflix and HBO were the only networks to have 3 shows competing for best series honors this year. HBO had an amazing year at the Emmys, but we have only just begun. In addition, Common Sense Media recently named 6 of our original series among the 25 best shows6 on TV for families with kids from age 2-17.

It is clear that Internet TV is becoming increasingly mainstream and traditional media companies are adjusting to the shift from linear to on-demand viewing. It is a great time to be a creator of content because studios make content to sell content (not to withhold it) and there are new bidders for their product. Some studios will choose to license content to SVOD services like Hulu, Amazon Prime Instant Video and Netflix. Others may not. We have a lot of content to select from.

We recently announced that we have acquired global second window rights to four major series. These are How to Get Away with Murder, ABC’s highest rated new series from the 2014/2015 TV season, the eagerly anticipated Colony from Legendary Television and Universal Cable Productions and, from CBS, Zoo, the most-watched scripted summer series of 2015 and the critically acclaimed, Emmy nominated and Golden Globe winning Jane the Virgin. These deals will ensure that audiences around the world will have access to these exciting series on Netflix.




_______________
1http://www.rottentomatoes.com/tv/narcos/s01/
2http://www.imdb.com/title/tt2707408/?ref_=nv_sr_1
3https://pr.netflix.com/WebClient/getNewsSummary.do?newsId=2693
4http://www.rottentomatoes.com/m/beasts_of_no_nation/
5http://decider.com/2015/09/17/beasts-of-no-nation-review/
6http://globenewswire.com/news-release/2015/10/06/773616/10151752/en/Common-Sense-Media-Announces-the-Common-Sense-Seal-for-TV-Honoring-Only-25-Series-and-Specials-Among-Hundreds-Available-Across-Networks-and-Platforms.html

                                                                                                                                                    3


Last month, we did not renew our deal to carry movies from EPIX, as the films were non-exclusive, US-only and offered in windows even further behind other premium Pay TV outlets. So far, we’ve seen no material reduction in US feature film viewing as we have so many other films for members to enjoy. We are investing in high profile, exclusive and globally available original films and creating the first-of-their-kind global Pay TV deals directly with producers. In some cases, we are making the films available globally after a 30 day theatrical and VOD window or in the case of the upcoming New Regency film The Big Short, with Brad Pitt, Christian Bale, Ryan Gosling and Steve Carell, we will offer the film globally in a more traditional Pay TV window several months after theatrical and transactional VOD, in all territories excluding France.

Product

In September, we expanded our in-app purchase relationship with Apple by extending our partnership from Apple TV to iPhone and iPad. Now, new members around the world can sign up for Netflix in-app on the iPhone and iPad, creating a more seamless user experience.

We recently announced a partnership with Virgin America, where new and existing members are able to stream the full Netflix service to their personal devices (at no additional cost) at 35,000 feet in the sky on newly upgraded Virgin America aircraft. Partnerships like this advance our goal to bring Netflix streaming to members wherever they are and whenever they want.

Competition

The competitive landscape remains vibrant as Netflix competes with many forms of entertainment for consumers’ leisure time. Other SVOD services continue to evolve: Hulu now offers a commercial free option at $11.99 per month, HBO GO is expanding into Latin America, and the press reported that Amazon Prime spent about $250 million on the new Jeremy Clarkson show. They remain active bidders for content, in addition to all the cable networks around the world.

As we have written in our Long-Term View7, linear networks that embrace on demand and Internet delivery as we have, will become more valuable and will experience renewed growth (like HBO Now), while those that do not will lose relevancy. The secular shift to on-demand consumption is best described as “consumers evolving vs. old habits” rather than “Netflix vs. traditional media.” We’re all racing to fulfill consumer desires.

DVD

Our DVD-by-mail business in the US continues to serve and please over 5 million members, providing us with $80 million in contribution profit in Q3 (down 11% Y/Y). The broad selection of titles, including new release movies and TV shows, remains attractive to a core member base and means that the tail on this business should be quite long.



_______________
7http://ir.netflix.com/long-term-view.cfm


                                                                                                                                                    4

Free Cash Flow and Capital

Free cash flow in Q3 totaled -$252 million, down from -$229 million in Q2, due to the working capital intensity of our investment in originals, which results in higher cash spent upfront relative to content amortization. Investing in originals remains the right strategy for Netflix. Exclusive first-window “only on Netflix” content differentiates our service, allows us to leverage our global platform, reduces our dependence on third parties, and adds positive brand halo. Moreover, as more of our content spend is devoted to producing and owning our originals, we are building long term library value.

At the end of Q3, gross debt totaled $2.4 billion, which represents a debt to total cap ratio of about 5%, and we ended the quarter with $2.6 billion in cash & equivalents and short term investments. We are likely to raise additional capital next year to fund our continued content investments.

                                                                                                                                                    5

Reference
For quick reference, our eight most recent investor letters are: July 20158, April 20159, January 201510, October 201411,July 201412,April 201413, January 201414, October 201315.

Summary
We are privileged to be leading the growth of Internet TV worldwide and to be building a global service connecting storytellers and viewers all over the world.
 

Sincerely,
Reed Hastings, CEO
David Wells, CFO

________________________
8http://files.shareholder.com/downloads/NFLX/4124769775x7871834x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
9http://files.shareholder.com/downloads/NFLX/4124769775x7871834x821407/DB785B50-90FE-44DA-9F5B-37DBF0DCD0E1/Q1_15_Earnings_Letter_final_tables.pdf
10http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf
11http://files.shareholder.com/downloads/NFLX/3754169286x0x786677/6974d8e9-5cb3-4009-97b1-9d4a5953a6a5/Q3_14_Letter_to_shareholders.pdf
12http://files.shareholder.com/downloads/NFLX/3527949458x0x769748/9b21df7f-743c-4f0f-94da-9f13e384a3d2/July2014EarningsLetter_7.21.14_final.pdf
13http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf
14http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf
15http://files.shareholder.com/downloads/NFLX/2531040512x0x698481/ecfe1ab4-66f5-4e23-a64a-1ca025216e5e/Q313%20Earnings%20Letter%2010.21.13%2010.30am.pdf

                                                                                                                                                    6

October 14th, 2015 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 2:00 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Mark Mahaney, RBC Capital Markets and Peter Kafka, Re/code. Questions that investors would like to see asked should be sent to mark.mahaney@rbccm.com or peter@recode.net.




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


                                                                                                                                                    7


Use of Non-GAAP Measures                                
This shareholder letter and its attachments include reference to the non-GAAP financial measure of net income on a pro forma basis excluding the release of tax reserves, and to free cash flow and EBITDA. Management believes that the non-GAAP measure of net income on a pro forma basis excluding the release of tax reserves provides useful information as this measure excludes 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 international expansion, content launches, including timing of feature film availability; business outlook for our DVD segment; raising capital; 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.
                                                                                                                                                    8


Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2015
 
June 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Revenues
$
1,738,355

 
$
1,644,694

 
$
1,409,432

 
$
4,956,178

 
$
4,019,928

Cost of revenues
1,173,958

 
1,121,752

 
954,394

 
3,342,111

 
2,738,428

Marketing
208,102

 
197,140

 
145,654

 
599,919

 
403,515

Technology and development
171,762

 
155,061

 
120,953

 
469,929

 
346,445

General and administrative
110,892

 
95,906

 
78,024

 
298,287

 
193,938

Operating income
73,641

 
74,835

 
110,407

 
245,932

 
337,602

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(35,333
)
 
(35,217
)
 
(13,486
)
 
(97,287
)
 
(36,866
)
Interest and other income (expense)
3,930

 
872

 
616

 
(27,491
)
 
3,117

Income before income taxes
42,238

 
40,490

 
97,537

 
121,154

 
303,853

Provision for income taxes
12,806

 
14,155

 
38,242

 
41,691

 
120,425

Net income
$
29,432

 
$
26,335

 
$
59,295

 
$
79,463

 
$
183,428

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.06

 
$
0.14

 
$
0.19

 
$
0.44

Diluted
$
0.07

 
$
0.06

 
$
0.14

 
$
0.18

 
$
0.42

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
426,869

 
425,340

 
421,194

 
425,289

 
419,972

Diluted
437,606

 
436,097

 
432,742

 
435,849

 
431,683




                                                                                                                                                    9



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,115,437

 
$
1,113,608

Short-term investments
494,205

 
494,888

Current content library, net
2,695,184

 
2,125,702

Other current assets
264,887

 
206,271

Total current assets
5,569,713

 
3,940,469

Non-current content library, net
3,891,790

 
2,773,326

Property and equipment, net
181,268

 
149,875

Other non-current assets
273,496

 
192,981

Total assets
$
9,916,267

 
$
7,056,651

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
2,622,964

 
$
2,117,241

Accounts payable
209,365

 
201,581

Accrued expenses
179,350

 
69,746

Deferred revenue
329,739

 
274,586

Total current liabilities
3,341,418

 
2,663,154

Non-current content liabilities
1,966,854

 
1,575,832

Long-term debt
2,400,000

 
900,000

Other non-current liabilities
40,677

 
59,957

Total liabilities
7,748,949

 
5,198,943

Stockholders' equity:
 
 
 
Common stock
1,306,461

 
1,042,870

Accumulated other comprehensive loss
(37,890
)
 
(4,446
)
Retained earnings
898,747

 
819,284

Total stockholders' equity
2,167,318

 
1,857,708

Total liabilities and stockholders' equity
$
9,916,267

 
$
7,056,651

 
                                                                                                                                                    10


Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2015
 
June 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
29,432

 
$
26,335

 
$
59,295

 
$
79,463

 
$
183,428

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content library
(1,308,943
)
 
(1,273,677
)
 
(1,202,484
)
 
(4,194,545
)
 
(2,765,197
)
Change in streaming content liabilities
104,684

 
191,154

 
346,752

 
922,163

 
467,355

Amortization of streaming content library
871,403

 
822,600

 
686,154

 
2,443,521

 
1,925,926

Amortization of DVD content library
18,589

 
20,813

 
18,269

 
60,587

 
51,313

Depreciation and amortization of property, equipment and intangibles
16,047

 
15,581

 
14,357

 
46,795

 
39,716

Stock-based compensation expense
32,834

 
28,590

 
29,878

 
88,865

 
84,988

Excess tax benefits from stock-based compensation
(37,726
)
 
(39,427
)
 
(21,060
)
 
(106,154
)
 
(68,420
)
Other non-cash items
10,866

 
6,682

 
3,360

 
23,854

 
8,807

Deferred taxes
(29,417
)
 
(4,232
)
 
(7,892
)
 
(70,691
)
 
(37,564
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
71,172

 
(39,614
)
 
12,960

 
54,667

 
27,341

Accounts payable
6,762

 
6,447

 
13,003

 
2,584

 
32,729

Accrued expenses
10,883

 
41,624

 
(6,980
)
 
88,429

 
51,586

Deferred revenue
27,985

 
16,414

 
11,626

 
55,153

 
37,189

Other non-current assets and liabilities
(20,540
)
 
(633
)
 
5,323

 
615

 
15,747

Net cash (used in) provided by operating activities
(195,969
)
 
(181,343
)
 
(37,439
)
 
(504,694
)
 
54,944

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content library
(14,467
)
 
(19,786
)
 
(15,530
)
 
(57,159
)
 
(51,425
)
Purchases of property and equipment
(37,820
)
 
(27,538
)
 
(21,032
)
 
(78,394
)
 
(54,235
)
Other assets
(3,760
)
 
(639
)
 
341

 
(4,174
)
 
1,765

Purchases of short-term investments
(66,444
)
 
(67,949
)
 
(123,883
)
 
(225,333
)
 
(355,337
)
Proceeds from sale of short-term investments
43,887

 
48,412

 
107,568

 
144,247

 
340,278

Proceeds from maturities of short-term investments
31,125

 
19,170

 
32,125

 
82,182

 
127,229

Net cash (used in) provided by investing activities
(47,479
)
 
(48,330
)
 
(20,411
)
 
(138,631
)
 
8,275

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock
35,089

 
23,804

 
9,877

 
69,809

 
56,794

Proceeds from issuance of debt
—

 
—

 
—

 
1,500,000

 
400,000

Issuance costs
—

 
(397
)
 
—

 
(17,629
)
 
(7,080
)
Excess tax benefits from stock-based compensation
37,726

 
39,427

 
21,060

 
106,154

 
68,420

Principal payments of lease financing obligations
(61
)
 
(287
)
 
(275
)
 
(599
)
 
(813
)
Net cash provided by financing activities
72,754

 
62,547

 
30,662

 
1,657,735

 
517,321

 Effect of exchange rate changes on cash and cash equivalents
(7,741
)
 
6,221

 
(3,839
)
 
(12,581
)
 
(2,288
)
 Net (decrease) increase in cash and cash equivalents
(178,435
)
 
(160,905
)
 
(31,027
)
 
1,001,829

 
578,252

 Cash and cash equivalents, beginning of period
2,293,872

 
2,454,777

 
1,214,244

 
1,113,608

 
604,965

 Cash and cash equivalents, end of period
$
2,115,437

 
$
2,293,872

 
$
1,183,217

 
$
2,115,437

 
$
1,183,217

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2015
 
June 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(195,969
)
 
$
(181,343
)
 
$
(37,439
)
 
$
(504,694
)
 
$
54,944

Acquisition of DVD content library
(14,467
)
 
(19,786
)
 
(15,530
)
 
(57,159
)
 
(51,425
)
Purchases of property and equipment
(37,820
)
 
(27,538
)
 
(21,032
)
 
(78,394
)
 
(54,235
)
Other assets
(3,760
)
 
(639
)
 
341

 
(4,174
)
 
1,765

Non-GAAP free cash flow
$
(252,016
)
 
$
(229,306
)
 
$
(73,660
)
 
$
(644,421
)
 
$
(48,951
)

                                                                                                                                                    11


Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Nine Months Ended
 
September 30,
2015
 
June 30,
2015
 
September 30,
2014
 
September 30,
2015
 
September 30,
2014
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
43,181

 
42,300

 
37,219

 
43,181

 
37,219

Paid memberships at end of period
42,068

 
41,057

 
36,265

 
42,068

 
36,265

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,063,961

 
$
1,025,913

 
$
877,150

 
$
3,074,406

 
$
2,513,992

Cost of revenues
644,914

 
612,691

 
565,251

 
1,840,134

 
1,628,568

Marketing
74,835

 
73,427

 
61,045

 
237,813

 
206,030

Contribution profit
344,212

 
339,795

 
250,854

 
996,459

 
679,394

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
25,987

 
23,251

 
15,843

 
25,987

 
15,843

Paid memberships at end of period
23,951

 
21,649

 
14,389

 
23,951

 
14,389

 
 
 
 
 
 
 
 
 
 
Revenues
$
516,870

 
$
454,763

 
$
345,685

 
$
1,387,030

 
$
920,264

Cost of revenues
451,251

 
422,966

 
291,942

 
1,249,495

 
803,906

Marketing
133,267

 
123,713

 
84,609

 
362,106

 
197,485

Contribution profit (loss)
(67,648
)
 
(91,916
)
 
(30,866
)
 
(224,571
)
 
(81,127
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
5,060

 
5,314

 
5,986

 
5,060

 
5,986

Paid memberships at end of period
4,971

 
5,219

 
5,899

 
4,971

 
5,899

 
 
 
 
 
 
 
 
 
 
Revenues
$
157,524

 
$
164,018

 
$
186,597

 
$
494,742

 
$
585,672

Cost of revenues
77,793

 
86,095

 
97,201

 
252,482

 
305,954

Contribution profit
79,731

 
77,923

 
89,396

 
242,260

 
279,718

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,738,355

 
$
1,644,694

 
$
1,409,432

 
$
4,956,178

 
$
4,019,928

Cost of revenues
1,173,958

 
1,121,752

 
954,394

 
3,342,111

 
2,738,428

Marketing
208,102

 
197,140

 
145,654

 
599,919

 
403,515

Contribution profit
356,295

 
325,802

 
309,384

 
1,014,148

 
877,985

Other operating expenses
282,654

 
250,967

 
198,977

 
768,216

 
540,383

Operating income
73,641

 
74,835

 
110,407

 
245,932

 
337,602

Other income (expense)
(31,403
)
 
(34,345
)
 
(12,870
)
 
(124,778
)
 
(33,749
)
Provision for income taxes
12,806

 
14,155

 
38,242

 
41,691

 
120,425

Net income
$
29,432

 
$
26,335

 
$
59,295

 
$
79,463

 
$
183,428





                                                                                                                                                    12

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

 
Three Months Ended
 
September 30,
2014
 
December 31,
2014
 
March 31,
2015
 
June 30,
2015
 
September 30,
2015
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
59,295

 
$
83,371

 
$
23,696

 
$
26,335

 
$
29,432

Add:
 
 
 
 
 
 
 
 
 
Interest and other (income) expense
12,870

 
19,530

 
59,030

 
34,345

 
31,403

Provision (benefit) for income taxes
38,242

 
(37,855
)
 
14,730

 
14,155

 
12,806

Depreciation and amortization of property, equipment and intangibles
14,357

 
14,312

 
15,167

 
15,581

 
16,047

Stock-based compensation expense
29,878

 
30,251

 
27,441

 
28,590

 
32,834

Adjusted EBITDA
$
154,642

 
$
109,609

 
$
140,064

 
$
119,006

 
$
122,522



 
 
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



                                                                                                                                                    13
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