July 25, 2013

Yandex Announces Second Quarter 2013 Financial Results

Webcast

Earnings slides

MOSCOW and THE HAGUE, Netherlands, July 25, 2013 (GLOBE NEWSWIRE) -- Yandex (Nasdaq:YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its financial results for the second quarter ended June 30, 2013.

Q2 2013 Financial Highlights

  • Revenues of RUR 9.2 billion ($281.2 million1), up 35% compared with Q2 2012
  • Ex-TAC revenues2 (excluding traffic acquisition costs) up 37% compared with Q2 2012
  • Income from operations of RUR 3.2 billion ($98.4 million), up 43% compared with Q2 2012
  • Adjusted EBITDA3 of RUR 4.3 billion ($131.6 million), up 40% compared with Q2 2012
  • Operating margin of 35.0%
  • Adjusted EBITDA margin2of 46.8%
  • Adjustedex-TAC EBITDA margin2 of 55.6%
  • Net income of RUR 2.9 billion ($89.1 million), up 47% compared with Q2 2012
  • Adjusted net income3 of RUR 3.1 billion ($93.5 million), up 48% compared with Q2 2012
  • Net income margin of 31.7%
  • Adjusted net income margin2of 33.2%
  • Adjusted ex-TAC net income margin2 of 39.5%
  • Cash, deposits and investments in debt securities of RUR 30.8 billion ($940.1 million) as of June 30, 2013

"Yandex delivered strong financial and operating results. We released the mobile version of our Yandex.Browser and a new, task-oriented version of Yandex.Mail," said Arkady Volozh, CEO of Yandex. "We also unveiled Yandex.Islands, a next generation search platform with interactive search results."

The following table provides a summary of key financial results for the three months and six months ended June 30, 2012 and 2013.

                                                                   
1Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 32.7090 to $1.00, the official exchange rate quoted as of June 30, 2013 by the Central Bank of the Russian Federation.
 
2This is a non-GAAP financial measure. Please see "Use of Non-GAAP Financial Measures" below for a discussion of how we define this non-GAAP financial measure. You will find a reconciliation of this non-GAAP financial measure to the most directly comparable US GAAP measure in the accompanying financial tables at the end of this release.
 
3Adjusted EBITDA and adjusted net income are non-GAAP financial measures. Please see "Use of Non-GAAP Financial Measures" below for a discussion of how we define adjusted EBITDA and adjusted net income. You will find a reconciliation of adjusted EBITDA and adjusted net income to GAAP net income, the most directly comparable US GAAP measure for both non-GAAP measures, in the accompanying financial tables at the end of this release.
     
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Revenues 6,801 9,199 35% 12,675 17,198 36%
Ex-TAC revenues2 5,660 7,734 37% 10,542 14,428 37%
Income from operations 2,245 3,218 43% 3,804 5,671 49%
Adjusted EBITDA3 3,070 4,303 40% 5,447 7,807 43%
Net income 1,983 2,915 47% 3,241 5,161 59%
Adjusted net income3 2,069 3,058 48% 3,574 5,468 53%

Q2 2013 Operational and Corporate Highlights

  • Share of Russian search market averaged 61.7% in Q2 2013 (according to LiveInternet)
  • SERPs (search engine result pages) grew 22% from Q2 2012
  • Number of advertisers grew to more than 239,000, up 24% from Q2 2012 and up 6% from Q1 2013
  • Introduced a new concept in search engine result pages — interactive blocks, called Islands
  • Launched two versions of our mobile browser — for Android-based smartphones and for the iPad
  • Repurchased 4 million shares as of July 24, 2013 as part of the previously announced 12 million share repurchase program

Subsequent Events

  • Signed a cooperation agreement with Mail.ru under which Yandex is the paid search services provider for Mail.ru
  • Completed the formation of the joint venture between Yandex.Money and Sberbank on July 4, 2013

Revenues

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Advertising revenues:            
Text-based advertising            
Yandex websites 4,890 6,717 37% 9,174 12,567 37%
Ad network 1,132 1,412 25% 2,152 2,716 26%
Total text-based advertising 6,022 8,129 35% 11,326 15,283 35%
Display advertising 628 822 31% 1,048 1,445 38%
Total advertising revenues 6,650 8,951 35% 12,374 16,728 35%
Online payment commissions 127 200 57% 241 387 61%
Other 24 48 100% 60 83 38%
Total revenues 6,801 9,199 35% 12,675 17,198 36%

Text-based advertising revenues, accounting for 88% of total revenues in Q2 2013, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 73% of total revenues during Q2 2013, and increased by 37% compared with Q2 2012. Text-based advertising revenues from our ad network increased 25% compared with Q2 2012 and contributed 15% of total revenues during Q2 2013. Revenues from Yandex websites grew faster than those from our ad network as we implemented changes to our advertising technologies on our owned and operated sites.   

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 29% in Q2 2013 compared with Q2 2012. Our average cost per click in Q2 2013 increased 5% compared with Q2 2012.

Display advertising revenue accounted for 9% of total revenues during Q2 2013, and increased 31% compared with Q2 2012. 

Online payment commissions accounted for 2% of revenues during Q2 2013, and increased 57% compared with Q2 2012. In July 2013, we completed our sale of 75% of Yandex.Money to Sberbank and the formation of our joint venture with Sberbank in respect of this business. From Q3 2013, we will deconsolidate Yandex.Money and no longer recognize its online payment commissions as revenue.

Operating Costs and Expenses

Yandex's operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, including related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q2 2013, Yandex added 326 full-time employees, an increase of 8% from March 31, 2013, and up 24% from June 30, 2012. The total number of full-time employees was 4,298 as of June 30, 2013.

Cost of revenues, including traffic acquisition costs (TAC)

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
TAC:            
Related to the Yandex ad network 729 890 22% 1,386 1,710 23%
Related to distribution partners 412 575 40% 747 1,060 42%
Total TAC 1,141 1,465 28% 2,133 2,770 30%
Total TAC as a % of total revenues 16.8% 15.9%   16.8% 16.1%  
Other cost of revenues 608 693 14% 1,134 1,364 20%
Other cost of revenues as a % of revenues 8.9% 7.5%   8.9% 7.9%  
Total cost of revenues 1,749 2,158 23% 3,267 4,134 27%
Total cost of revenues as a % of revenues 25.7% 23.5%   25.8% 24.0%  

TAC decreased from 18.9% of text-based revenues in Q2 2012 to 18.0% in Q2 2013, reflecting the larger growth in revenues from our own sites.

Other cost of revenues in Q2 2013 increased 14% compared with Q2 2012, reflecting growth in personnel, content acquisition costs and data center-related costs.

Product development 

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Product development 1,059 1,381 30% 2,125 2,709 27%
As a % of revenues 15.6% 15.0%   16.8% 15.8%  

The absolute increase in product development expenses in Q2 2013 was in line with increases in product development staff and employee compensation. Product development headcount increased 25% from 1,899 as of June 30, 2012, to 2,365 as of June 30, 2013, with 184 employees added since March 31, 2013.

Selling, general and administrative (SG&A)

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Sales, general and administrative 1,052 1,530 45% 2,122 2,893 36%
As a % of revenues 15.5% 16.6%   16.7% 16.8%  

The absolute increase in SG&A in Q2 2013 was driven primarily by increased advertising and marketing expenses in Russia and Turkey.

Share-based compensation (SBC) expense

SBC expense is included in each of the cost of revenues, product development and SG&A categories discussed above.

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
SBC expense included in cost of revenues 6 12 100% 12 23 92%
SBC expense included in product development 53 91 72% 92 173 88%
SBC expense included in SG&A 15 48 220% 51 106 108%
Total SBC expense 74 151 104% 155 302 95%
As a % of revenues 1.1% 1.6%   1.2% 1.8%  

Total SBC expense increased 104% in Q2 2013 compared with Q2 2012. The increase is primarily related to new equity-based grants issued in 2012.

Depreciation and amortization (D&A) expense

 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Depreciation and amortization 696 912 31% 1,357 1,791 32%
As a % of revenues 10.2% 9.9%   10.7% 10.4%  

D&A expense increased 31% in Q2 2013 compared with Q2 2012, primarily reflecting our investments in servers and data centers made last year.

As a result of the factors described above, income from operations was RUR 3.2 billion ($98.4 million) in Q2 2013, a 43% increase from Q2 2012, while adjusted EBITDA reached RUR 4.3 billion ($131.6 million) in Q2 2013, up 40% from Q2 2012.

Interest income in Q2 2013 was RUR 452 million, up from RUR 234 million in Q2 2012, principally as a result of investing more of our cash provided by operating activities in Russia, where our investments earn higher returns.

Foreign exchange gain in Q2 2013 was RUR 35 million, compared to a foreign exchange gain of RUR 52 million in Q2 2012. The foreign exchange gain is due to the appreciation of the U.S. dollar during Q2 2013 from RUR 31.0834 to $1.00 on March 31, 2013 to RUR 32.7090 to $1.00 on June 30, 2013. Yandex's Russian operating subsidiaries' functional currency is the Russian ruble, and therefore changes in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies due to exchange rate fluctuations are recognized as foreign exchange gains or losses in the income statement. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities were not impacted by these currency fluctuations, they resulted in an upward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q2 2013.

Income tax expense for Q2 2013 was RUR 772 million, up from RUR 549 million in Q2 2012. Our effective tax rate decreased from 21.7% in Q2 2012 to 20.9% in Q2 2013.

Adjusted net income in Q2 2013 was RUR 3.1 billion ($93.5 million), a 48% increase from Q2 2012.

Adjusted net income margin was 33.2% in Q2 2013, compared to 30.4% in Q2 2012.

Net income was RUR 2.9 billion ($89.1 million) in Q2 2013, up 47% compared with Q2 2012. Net income grew slower than adjusted net income due to an increase in SBC expense partially offset by large swings in foreign exchange gains and the associated income tax impact and a decrease in contingent compensation payable the recent period in connection with an acquisition in 2011. We adjust for these expenses in our non-GAAP adjusted net income measure.

As of June 30, 2013, Yandex had cash, cash equivalents, term deposits (including long-term deposits) and long-term debt securities of RUR 30.8 billion ($940.1 million).

Net operating cash flow and capital expenditures for Q2 2013 were RUR 4.0 billion ($122.2 million) and RUR 0.7 billion ($20.9 million), respectively.

The totalnumber of shares issued and outstanding as of June 30, 2013 was 326,409,208, including 231,020,637 Class A shares, 95,388,570 Class B shares, and one Priority share and excluding 3,512,546 Class A shares held in treasury and all Class C shares outstanding solely as a result of conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also employee share options outstanding to purchase up to an additional 8.1 million shares, at a weighted average exercise price of $4.58 per share, of which options to purchase 6.5 million shares were fully vested; equity-settled share appreciation rights equal to 0.9 million shares, at a weighted average measurement price of $20.36, 0.1 million of which were fully vested; and restricted share units covering  2.6 million shares, of which restricted share units to acquire 0.1 million shares were fully vested. 

Outlook for 2013

We are raising our revenue guidance for the full-year 2013, and we now expect year-on-year ruble-based revenue growth of 34-38%.1

1The guidance is provided on a like-for-like basis, excluding the revenue associated with Yandex.Money from both 2012 and 2013 results. In 2012, Yandex recognized total revenue of RUR 28,767 million, including RUR 552 million in payment commissions related to Yandex.Money and RUR 28,215 million in advertising revenue and other revenue. On July 4, 2013, Yandex and Sberbank announced the completion of the formation of their joint venture in respect of the Yandex.Money business. Accordingly, we will deconsolidate Yandex.Money in Q3 2013. 

Conference Call Information

Yandex's management will hold an earnings conference call on July 25, 2013 at 8:00 AM U.S. Eastern Time (4:00 PM Moscow time; 1:00 PM London time).

To access the conference call live, please dial:

US: +1 631 621 5256
UK: +44 (0) 1452 560 304
Russia: 8 10 800 23942044 
 
Passcode: 1407-1186#

A replay of the call will be available until August 1, 2013. To access the replay, please dial:

US: +1 866 247 4222 
Russia/International: +44 (0) 1452 550 000 
 
Passcode: 1407-1186#

A live and archived webcast of this conference call will be available at http://ir.yandex.com/eventdetail.cfm?eventid=127979

ABOUT YANDEX

Yandex (Nasdaq:YNDX) is one of the largest European internet companies, providing the world with search and online services one market at a time. Yandex's mission is to help users solve their everyday problems by building people-centric products and services. Based on innovative technologies, the company provides the most relevant, locally tailored experience on all digital platforms and devices. Yandex is the leading search service in Russia and also serves Turkey, Ukraine, Belarus and Kazakhstan. More information on Yandex can be found at http://company.yandex.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These include statements regarding our anticipated revenues for full-year 2013. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the legal and regulatory environment, technological developments, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions "Risk Factors" and "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the year ended December 31, 2012, which is on file with the Securities and Exchange Commission and is available on our investor relations website at http://ir.yandex.com/sec.cfm and on the SEC website at www.sec.gov. All information in this release and in the attachments is as of July 25, 2013, and Yandex undertakes no duty to update this information unless required by law.

USE OF NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with US GAAP, we present the following non-GAAP financial measures: ex-TAC revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted ex-TAC EBITDA margin, adjusted net income, adjusted net income margin and adjusted ex-TAC net income margin. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with US GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to the nearest comparable US GAAP measures", included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:

  • Ex-TAC revenue means US GAAP revenues less total traffic acquisition costs (TAC).
  • Adjusted EBITDA means net income plus (1) depreciation and amortization, (2) share-based compensation expense, (3) accrual of expense related to the contingent compensation that may be payable to employees in connection with our acquisition of the mobile software business of SPB Software and (4) provision for income taxes, less (A) interest income and (B) other income/(expense).
  • Adjusted EBITDA margin means adjusted EBITDA divided by US GAAP revenues.
  • Adjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenue.
  • Adjusted net income means US GAAP net income plus (1) SBC expense adjusted for the income tax reduction attributable to SBC expense, (2) accrual of expense related to the contingent compensation that may be payable to certain employees in connection with our acquisition of the mobile software business of SPB Software, and (3) foreign exchange losses (less foreign exchange gains) adjusted for the (reduction) increase in income tax attributable to the foreign exchange losses (gains); less gain from the sale of equity investments.
  • Adjusted net income margin means adjusted net income divided by US GAAP revenues.
  • Adjusted ex-TAC net income margin means adjusted net income divided by ex-TAC revenues.

These non-GAAP financial measures are used by management for evaluating financial performance as well as decision-making. Management believes that these metrics reflect the organic, core operating performance of the company, and therefore are useful to analysts and investors in providing supplemental information that helps them understand, model and forecast the evolution of our operating business.

Although our management uses these non-GAAP financial measures for operational decision making and considers these financial measures to be useful for analysts and investors, we recognize that there are a number of limitations related to such measures. In particular, it should be noted that several of these measures exclude some costs, particularly share-based compensation, that are recurring. In addition, the components of the costs that we exclude in our calculation of the measures described above may differ from the components that our peer companies exclude when they report their results of operations.

Below, we describe why we make particular adjustments to certain US GAAP financial measures:

TAC

We believe that it may be useful for investors and analysts to review certain measures both in accordance with US GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from US GAAP revenues. By presenting revenue, adjusted EBITDA margin and adjusted net income margin net of TAC, we believe that investors and analysts are able to obtain a clearer picture of our business without the impact of the revenues we share with our partners.

SBC

SBC is a significant expense item, and an important part of our compensation and incentive programs. As it is a non-cash charge, however, and highly dependent on our share price at the time of equity award grants, we believe that it is useful for investors and analysts to see certain financial measures excluding the impact of these charges in order to obtain a clear picture of our operating performance.

Acquisition-related costs

We may incur expenses in connection with acquisitions that are not indicative of our recurring core operating performance. In particular, we are required under US GAAP to accrue as expense the contingent compensation that may be payable to certain employees in connection with our acquisition of the mobile software business of SPB Software in November 2011. The maximum aggregate amount of such contingent compensation is $14.1 million, payable on the achievement of certain milestones and the continued employment of the sellers, $7.1 million of which was paid in November 2012 and $4.1 million of which was paid in February 2013; the remaining $2.9 million is payable in November 2013 upon the satisfaction of defined milestones. We have eliminated this acquisition-related expense from adjusted EBITDA and adjusted net income to provide management and investors a tool for comparing on a period-to-period basis our operating performance in the ordinary course of operations.

Foreign exchange gains and losses

Because we hold significant assets in currencies other than our Russian ruble operating currency, and because foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance.

Gain from the sale of equity investments

Adjusted net income also excludes a gain in the year ended December 31, 2012 from our sale of our minority interest in face.com in connection with the sale of that company. We believe that it is useful to present adjusted net income and related margin measures excluding the effect of this significant one-off item in order to provide a clearer picture of our operating performance.

The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use to the most directly comparable US GAAP financial measure.

YANDEX N.V.

Unaudited Condensed Consolidated Balance Sheets

(in millions of Russian rubles ("RUR") and U.S. dollars ("$"), except share and per share data)
       
  As of
  December 31, June 30, June 30,
  2012* 2013 2013
  RUR RUR $
ASSETS      
Current assets:      
Cash and cash equivalents  7,425  6,161  188.4
Marketable securities  76  116  3.5
Term deposits  4,629  820  25.1
Accounts receivable, net  1,767  2,127  65.0
Prepaid expenses  597  607  18.5
Assets held for sale  2,024  2,165  66.2
Deferred tax assets  456  578  17.7
Other current assets  1,217  946  28.9
Total current assets  18,191  13,520  413.3
       
Property and equipment, net  8,095  7,955  243.2
Intangible assets, net  323  299  9.1
Goodwill  750  775  23.7
Long-term prepaid expenses  695  720  22.1
Restricted cash  214  94  2.9
Term deposits  10,330  18,580  568.0
Investments in non-marketable equity securities  500  651  19.9
Investments in debt securities  4,810  5,189  158.6
Deferred tax assets  35  110  3.4
Other non-current assets  342  922  28.2
TOTAL ASSETS  44,285  48,815  1,492.4
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable and accrued liabilities  2,513  2,863  87.5
Taxes payable  1,455  1,570  48.0
Deferred revenue  1,092  1,143  34.9
Liabilities related to assets held for sale  1,619  1,704  52.1
Deferred tax liabilities  3  22  0.7
Total current liabilities  6,682  7,302  223.2
Deferred tax liabilities  448  420  12.8
Other accrued liabilities  108  80  2.5
Total liabilities  7,238  7,802  238.5
       
Commitments and contingencies      
Shareholders' equity:      
Priority share: €1 par value; 1 share authorized, issued and outstanding  —   —   — 
Preference shares: €0.01 par value; 2,000,000,001 shares authorized, nil shares issued and outstanding  —   —   — 
Ordinary shares: par value (Class A €0.01, Class B €0.10 and Class C €0.09); shares authorized
(Class A: 2,000,000,000 and 2,000,000,000, Class B: 159,494,722 and 102,115,140, and
Class C: 159,494,722 and 102,115,140); shares issued (Class A: 202,318,864 and
234,533,183, Class B: 125,441,218 and 95,388,570, and Class C: 27,972,630 and
58,025,278, respectively); shares outstanding (Class A: 202,318,864 and 231,020,637,
Class B: 125,441,218 and 95,388,570, and Class C: nil)
 445  333  10.2
Treasury shares at cost (Class A: nil and 3,512,546, and Class B: nil and nil)  --   (2,636)  (80.6)
Additional paid-in capital  13,617  14,162  433.0
Accumulated other comprehensive income  961  1,969  60.2
Retained earnings  22,024  27,185  831.1
Total shareholders' equity  37,047  41,013  1,253.9
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  44,285  48,815  1,492.4
       
_____________________      
* Derived from the audited financial statements      
 
 
 
Unaudited Condensed Consolidated Statements of Income

(in millions of Russian rubles and U.S. dollars, except share and per share data)
           
    Three months ended June 30,  
    2012 2013 2013  
    RUR RUR $  
           
  Revenues 6,801 9,199 281.2  
  Operating costs and expenses:        
  Cost of revenues(1) 1,749 2,158 66.0  
  Product development(1) 1,059 1,381 42.2  
  Sales, general and administrative(1) 1,052 1,530 46.8  
  Depreciation and amortization 696 912 27.9  
  Total operating costs and expenses 4,556 5,981 182.9  
  Income from operations 2,245 3,218 98.3  
  Interest income 234 452 13.8  
  Other income, net 53 17 0.6  
  Net income before income taxes 2,532 3,687 112.7  
  Provision for income taxes 549 772 23.6  
  Net income 1,983 2,915 89.1  
  Net income per Class A and Class B share:        
  Basic 6.08 8.91 0.27  
  Diluted 5.92 8.70 0.27  
  Weighted average number of Class A and Class B shares outstanding        
  Basic 326,161,539 327,270,521 327,270,521  
  Diluted 335,245,767 335,106,587 335,106,587  
           
(1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share‑based compensation expenses of:
           
  Cost of revenues 6 12 0.4  
  Product development 53 91 2.8  
  Sales, general and administrative 15 48 1.4  
           
 
 
Unaudited Condensed Consolidated Statements of Income

(in millions of Russian rubles and U.S. dollars, except share and per share data)
           
    Six months ended June 30,  
    2012 2013 2013  
    RUR RUR $  
           
  Revenues 12,675 17,198 525.8  
  Operating costs and expenses:        
  Cost of revenues(1) 3,267 4,134 126.4  
  Product development(1) 2,125 2,709 82.8  
  Sales, general and administrative(1) 2,122 2,893 88.4  
  Depreciation and amortization 1,357 1,791 54.8  
  Total operating costs and expenses 8,871 11,527 352.4  
  Income from operations 3,804 5,671 173.4  
  Interest income 401 820 25.1  
  Other (expense)/ income, net  (71) 43 1.3  
  Net income before income taxes 4,134 6,534 199.8  
  Provision for income taxes 893 1,373 42.0  
  Net income 3,241 5,161 157.8  
  Net income per Class A and Class B share:        
  Basic 9.96 15.74 0.48  
  Diluted 9.67 15.38 0.47  
  Weighted average number of Class A and Class B shares outstanding        
  Basic 325,303,178 327,820,231 327,820,231  
  Diluted 335,107,446 335,669,392 335,669,392  
           
(1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share‑based compensation expenses of:
           
  Cost of revenues 12 23 0.7  
  Product development 92 173 5.3  
  Sales, general and administrative 51 106 3.2  
 
 
 
YANDEX N.V.

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions of Russian rubles and U.S. dollars)
   
  Three months ended June 30,
  2012* 2013 2013
  RUR RUR $
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income  1,983 2,915 89.1
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property and equipment  670 890 27.2
Amortization of acquisition‑related intangible assets  26 22 0.7
Share‑based compensation expense  74 151 4.6
Deferred income taxes  17 (161) (4.9)
Foreign exchange gains  (52) (35) (1.1)
Other (3) 17 0.5
Changes in operating assets and liabilities excluding the effect of acquisitions:      
Accounts receivable, net  (306) (274) (8.4)
Prepaid expenses and other assets  (169) (412) (12.6)
Accounts payable and accrued liabilities  562 756 23.2
Deferred revenue  52 163 5.0
Assets held for sale  (103) (96) (2.9)
Liabilities related to assets held for sale 91 59 1.8
       
Net cash provided by operating activities 2,842 3,995 122.2
       
CASH FLOWS USED IN INVESTING ACTIVITIES:      
Purchase of property and equipment (690) (685) (20.9)
Investments in non-marketable equity securities  (47)
Investments in term deposits  (4,685) (6,230) (190.5)
Maturities of term deposits  711 3,470 106.1
Loans granted  — (35) (1.1)
       
Net cash used in investing activities (4,711) (3,480) (106.4)
       
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:      
Proceeds from exercise of share options 116 123 3.8
Repurchases of ordinary shares (2,521) (77.1)
       
Net cash provided by/(used in) financing activities 116 (2,398) (73.3)
       
Effect of exchange rate changes on cash and cash equivalents 506 287 8.7
       
Net change in cash and cash equivalents (1,247) (1,596) (48.8)
       
Cash and cash equivalents at beginning of period 5,376 7,757 237.2
       
Cash and cash equivalents at end of period 4,129 6,161 188.4
       
* Cash flows related to Yandex.Money are reclassified from their historical presentation to cash flows related to changes in assets held for sale and liabilities related to assets held for sale
 
 
 
YANDEX N.V.

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions of Russian rubles and U.S. dollars)
   
  Six months ended June 30,
  2012* 2013 2013
  RUR RUR $
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income  3,241 5,161 157.8
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization of property and equipment  1,313 1,746 53.4
Amortization of acquisition‑related intangible assets  44 45 1.4
Share‑based compensation expense  155 302 9.2
Deferred income taxes  (81) (214) (6.5)
Foreign exchange losses/(gains)  62 (42) (1.3)
Other 10 (8) (0.2)
Changes in operating assets and liabilities excluding the effect of acquisitions:      
Accounts receivable, net  (216) (356) (10.9)
Prepaid expenses and other assets   (487) (412) (12.6)
Accounts payable and accrued liabilities  544 431 13.2
Deferred revenue  (33) 41 1.2
Assets held for sale  (50) (155) (4.7)
Liabilities related to assets held for sale 97 86 2.6
       
Net cash provided by operating activities 4,599 6,625 202.6
       
CASH FLOWS USED IN INVESTING ACTIVITIES:      
Purchase of property and equipment (1,454) (1,544) (47.2)
Investments in non-marketable equity securities  (47)
Investments in term deposits  (8,635) (11,450) (350.0)
Maturities of term deposits  3,374 7,070 216.1
Escrow cash deposit  — 130 4.0
Loans granted  — (35) (1.1)
       
Net cash used in investing activities (6,762) (5,829) (178.2)
       
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:      
Proceeds from exercise of share options 235 255 7.8
Repurchases of ordinary shares (2,764) (84.5)
       
Net cash provided by/(used in) financing activities 235 (2,509) (76.7)
       
Effect of exchange rate changes on cash and cash equivalents 127 449 13.7
       
Net change in cash and cash equivalents (1,801) (1,264) (38.6)
       
Cash and cash equivalents at beginning of period 5,930 7,425 227.0
       
Cash and cash equivalents at end of period 4,129 6,161 188.4
       
* Cash flows related to Yandex.Money are reclassified from their historical presentation to cash flows related to changes in assets held for sale and liabilities related to assets held for sale
 
 
 
YANDEX N.V.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE NEAREST COMPARABLE US GAAP MEASURES
             
Reconciliation of Ex-TAC Revenues to US GAAP Revenues
 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Total revenues 6,801 9,199 35% 12,675 17,198 36%
Less: traffic acquisition costs (TAC) 1,141 1,465 28% 2,133 2,770 30%
Ex-TAC revenues 5,660 7,734 37% 10,542 14,428 37%
             
             
Reconciliation of Adjusted EBITDA to US GAAP Net Income
 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Net income  1,983  2,915 47%  3,241  5,161 59%
Add: depreciation and amortization  696  912 31%  1,357  1,791 32%
Add: share-based compensation (SBC) expense  74  151 104%  155  302 95%
Add: compensation expense related to contingent consideration  55  22 -60%  131  43 -67%
Less: interest income  (234)  (452) 93%  (401)  (820) 104%
Add: other income, net  (53)  (17) n/m  71  (43) n/m
Add: provision for income taxes  549  772 41%  893  1,373 54%
Adjusted EBITDA  3,070  4,303 40%  5,447  7,807 43%
             
             
Reconciliation of Adjusted Net Income to US GAAP Net Income
 
In RUR millions Three months Six months
  ended June 30, ended June 30,
  2012 2013 Change 2012 2013 Change
Net income  1,983  2,915 47%  3,241  5,161 59%
Add: SBC expense  74  151 104%  155  302 95%
Less: reduction in income tax attributable to SBC expense  (1)  (2) n/m  (2)  (4) n/m
Add: compensation expense related to contingent consideration  55  22 -60%  131  43 -67%
Less: foreign exchange (gain)/loss  (52)  (35) n/m  62  (42) n/m
Add: increase/(reduction) in income tax attributable to foreign exchange (gain)/loss  10  7 n/m  (13)  8 n/m
Adjusted net income 2,069 3,058 48% 3,574 5,468 53%
 
 
 
Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to US GAAP Net Income Margin for the Three months ended June 30, 2013
           
In RUR millions           
  US GAAP Actual Net Income Net Income Margin (1) Adjustment (2) Adjusted EBITDA Adjusted EBITDA Margin (3) Adjusted Ex-TAC EBITDA Margin (4)
Three months ended June 30, 2013 2,915 31.7% 1,388 4,303 46.8% 55.6%
 
(1)  Net income margin is defined as net income divided by total revenues.
(2)  Adjusted to eliminate depreciation and amortization expense, SBC expense, expense related to SPB Software contingent compensation, interest income, other (expense)/income, net, and provision for income taxes. For a reconciliation of adjusted EBITDA to net income, please see the table above.
(3)  Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenues. 
(4)  Adjusted ex-TAC EBITDA margin is defined as adjusted EBITDA divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to GAAP revenues, please see the table above. 
 
 
 
Reconciliation of Adjusted Net Income Margin and Adjusted Ex-TAC Net Income Margin to US GAAP Net Income Margin for the Three months ended June 30, 2013
           
In RUR millions           
  US GAAP Actual Net Income Net Income Margin (1) Adjustment (2) Adjusted Net Income Adjusted Net Income Margin (3) Adjusted Ex-TAC Net Income Margin (4)
Three months ended June 30, 2013 2,915 31.7% 143 3,058 33.2% 39.5%
 
(1)  Net income margin is defined as net income divided by total revenues.
(2)  Adjusted to eliminate depreciation and amortization expense, SBC expense, expense related to SPB Software contingent compensation, interest income, other (expense)/income, net, and provision for income taxes. For a reconciliation of adjusted net income to net income, please see the table above.
(3)  Adjusted net income margin is defined as adjusted net income divided by total revenues. 
(4)  Adjusted ex-TAC net income margin is defined as adjusted net income divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to US GAAP revenues, please see the table above. 
CONTACT: Investor Relations

         Greg Abovsky, Katya Zhukova

         Phone: +7 495 974-35-38

         E-mail: askIR@yandex-team.ru

         

         Media Relations

         Ochir Mandzhikov, Tatiana Komarova

         Phone: +7 495 739-70-00

         E-mail: pr@yandex-team.ru

 

 


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