February 19, 2013

Yandex Announces Fourth Quarter and Full-Year 2012 Financial Results

Webcast

Earnings slides

MOSCOW and THE HAGUE, Netherlands, Feb. 19, 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 fourth quarter and the full year ended December 31, 2012.

Q4 2012 Financial Highlights

  • Revenues of RUR 8.8 billion ($290.4 million1), up 37% compared with Q4 2011
  • Ex-TAC revenues2 (excluding traffic acquisition costs), up 36% compared with Q4 2011
  • Income from operations of RUR 3.1 billion ($102.3 million), up 19% compared with Q4 2011
  • Adjusted EBITDA 3 of RUR 4.3 billion ($140.1 million), up 30% compared with Q4 2011
  • Operating margin of 35.2%
  • Adjusted EBITDA margin2 of 48.2%
  • Adjustedex-TAC EBITDA margin2 of 57.5%
  • Net income of RUR 2.7 billion ($88.6 million), up 27% compared with Q4 2011
  • Adjusted net income3 of RUR 3.0 billion ($97.6 million), up 35% compared with Q4 2011
  • Net income margin of 30.5%
  • Adjusted net income margin2 of 33.6%
  • Adjustedex-TAC net income margin2 of 40.1%
  • Cash, deposits and investments in debt securities of RUR 27.2 billion ($895.3 million) as of December 31, 2012

FY 2012 Financial Highlights

  • Revenues of RUR 28.8 billion ($947.1 million1), up 44% compared with FY 2011
  • Ex-TAC revenues2 (excluding traffic acquisition costs), up 41% compared with FY 2011
  • Income from operations of RUR 9.5 billion ($311.2 million), up 34% compared with FY 2011
  • Adjusted EBITDA3 of RUR 13.1 billion ($432.7 million), up 42% compared with FY 2011
  • Operating margin of 32.9%
  • Adjusted EBITDA margin2 of 45.7%
  • Adjustedex-TAC EBITDA margin2 of 54.8%
  • Net income of RUR 8.2 billion ($270.7 million), up 42% compared with FY 2011
  • Adjusted net income3 of RUR 8.8 billion ($288.7 million), up 46% compared with FY 2011
  • Net income margin of 28.6%
  • Adjusted net income margin2 of 30.5%
  • Adjustedex-TAC net income margin2 of 36.6%

"Yandex delivered strong fourth quarter and full year 2012 results with robust revenue growth, solid search share and a continuing stream of important innovations," said Arkady Volozh, Chief Executive Officer of Yandex. "In Q4, we launched key products aimed at improving the user experience, including new mobile apps, personalized search and our Yandex.Browser, which has already captured a considerable share of the Russian browser market. I am also proud to report that, for the first time ever, we became the fourth largest search engine in the world, according to comScore."

1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 30.3727 to $1.00, the official exchange rate quoted as of December 31, 2012 by the Central Bank of the Russian Federation.

2 This 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.

3 Adjusted EBITDA and adjusted net income are non-GAAP financial measures. Beginning with Q1 2012, our adjusted EBITDA and adjusted net income include adjustments for the accrual of expense related to the contingent compensation that may be payable to certain employees through November 2013 in connection with our acquisition of the mobile software business of SPB Software. Beginning with Q3 2012, our adjusted net income includes adjustment for gains from the sale of our equity investments. 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.

The following table provides a summary of key financial results for the three and twelve months ended December 31, 2011 and 2012:

             
 In RUR millions Three months
ended December 31,
 Twelve months
ended December 31
       
  2011 2012 Change 2011 2012 Change
Revenues 6,439 8,819 37% 20,033 28,767 44%
Ex-TAC revenues2 5,437 7,403 36% 17,035 23,987 41%
Income from operations 2,603 3,107 19% 7,034 9,454 34%
Adjusted EBITDA 3 3,269 4,255 30% 9,237 13,142 42%
Net income 2,123 2,691 27% 5,773 8,223 42%
Adjusted net income3 2,198 2,965 35% 6,003 8,768 46%

Q4 2012 Operational Highlights

  • Share of Russian search market (including mobile) averaged 60.5% in Q4 2012 (according to LiveInternet)
  • Search queries grew 26% from Q4 2011
  • Number of advertisers grew to more than 213,000, up 22% from Q4 2011 and up 5% from Q3 2012
  • Rolled out a new search platform code-named Kaliningrad
  • Launched Yandex.Browser
  • Launched Yandex.Search app for the iPad
  • Announced the formation of a Yandex.Money joint venture with Sberbank

Revenues

             
 In RUR millions Three months
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
Advertising revenues:            
Text-based advertising            
Yandex websites 4,405 6,181 40% 14,590 20,610 41%
Ad network 1,037 1,462 41% 2,922 4,898 68%
Total text-based advertising 5,442 7,643 40% 17,512 25,508 46%
Display advertising 864 964 12% 2,096 2,592 24%
Total advertising revenues 6,306 8,607 36% 19,608 28,100 43%
Online payment commissions 115 178 55% 383 552 44%
Other 18 34 89% 42 115 174%
Total revenues 6,439 8,819 37% 20,033 28,767 44%

Text-based advertising revenues, accounting for 87% of total revenues in Q4 2012, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 70% of total revenues during Q4 2012, and increased 40% compared with Q4 2011. Text-based advertising revenues from our ad network increased 41% compared with Q4 2011 and contributed 17% of total revenues during Q4 2012. Our advertising network grew generally in line with Yandex's own websites given that a full year has passed since we made several changes to the monetization algorithms and added Rambler to our partner network.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 26% in Q4 2012 compared with Q4 2011 and grew 20% sequentially. As with growth rates in network ad revenues, lower growth rates in paid clicks reflects the fact that a full year has passed since we made several changes to the monetization algorithms and added Rambler to our partner network. Additionally, growth in paid clicks during each of the previous four quarters benefited from the initiatives that we launched in Q3 2011, which aimed to lower CPCs in the regions. Our average cost per click in Q4 2012 increased 11% compared with Q4 2011.

Display advertising revenue, accounting for 11% of total revenues during Q4 2012, increased 12% compared with Q4 2011, considerably faster than the 4% growth posted by the market overall. As anticipated, the growth rate in display advertising was significantly lower than in text-based advertising partially due to increased supply of TV ad inventory at attractive rates.

Online payment commissions accounted for 2% of revenue during Q4 2012, and increased 55% compared with Q4 2011.

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 Q4 2012, Yandex added 154 full-time employees, an increase of 4% from September 30, 2012, and up 14% from December 31, 2011. The total number of full-time employees was 3,761 as of December 31, 2012. Total share-based compensation expense increased 37% in Q4 2012.

Costs of revenues, including traffic acquisition costs (TAC)

             
In RUR millions Three months
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
TAC:            
Related to the Yandex ad network 665 928 40% 1,853 3,128 69%
Related to distribution partners 337 488 45% 1,145 1,652 44%
Total TAC 1,002 1,416 41% 2,998 4,780 59%
Total TAC as a % of total revenues 15.6% 16.1%   15.0% 16.6%  
Other cost of revenues 483 660 37% 1,709 2,408 41%
Other cost of revenues as a % of revenues 7.5% 7.5%   8.5% 8.4%  
Total cost of revenues 1,485 2,076 40% 4,707 7,188 53%
Total cost of revenues as a % of revenues 23.1% 23.5%   23.5% 25.0%  

TAC remained stable as a percentage of text-based revenues at 18.5% in Q4 2012 compared with 18.4% in Q4 2011.

Other cost of revenues in Q4 2012 increased 37% compared with Q4 2011, reflecting growth in personnel and data center-related costs in line with revenue growth.

Product development

             
 In RUR millions Three months
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
Product development 853 1,115 31% 3,124 4,274 37%
As a % of revenues 13.2% 12.6%   15.6% 14.9%  

The increase in product development expenses in Q4 2012 primarily reflects increases in the number of developers, as well as in employee remuneration. Headcount in development staff increased 10% from 1,842 as of December 31, 2011, to 2,027 as of December 31, 2012, with 78 employees added since September 30, 2012.

Selling, general and administrative (SG&A)

             
 In RUR millions Three months
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
Sales, general and administrative 916 1,661 81% 3,294 4,900 49%
As a % of revenues 14.2% 18.8%   16.4% 17.0%  

The increase in SG&A in Q4 2012 was driven primarily by increased advertising and marketing expenses in Russia and in Turkey and by compensation expense related to contingent compensation paid and potentially payable in connection with our acquisition of SPB Software.

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
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
SBC expense included in cost of revenues 7 14 100% 26 33 27%
SBC expense included in product development 42 70 67% 153 221 44%
SBC expense included in SG&A 35 31 -11% 150 122 -19%
Total SBC expense 84 115 37% 329 376 14%
As a % of revenues 1.3% 1.3%   1.6% 1.3%  

Total SBC expense increased 37% in Q4 2012 compared with Q4 2011. The increase is principally related to new grants.

Depreciation and amortization (D&A) expense

             
 In RUR millions Three months
ended December 31,
 Twelve months
ended December 31,
       
  2011 2012 Change 2011 2012 Change
Depreciation and amortization 582 860 48% 1,874 2,951 57%
As a % of revenues 9.0% 9.8%   9.4% 10.3%  

D&A expense increased 48% in Q4 2012 compared with Q4 2011, primarily reflecting considerable investments in servers and data centers made last year.

As a result of the factors described above, income from operations was RUR 3.1 billion ($102.3 million) in Q4 2012, a 19% increase from Q4 2011, while adjusted EBITDA reached RUR 4.3 billion ($140.1 million) in Q4 2012, up 30% from Q4 2011.

Interest income in Q4 2012 was RUR 333 million, up from RUR 105 million in Q4 2011, 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 Q4 2012 was RUR 17 million, compared to a foreign exchange gain of RUR 6 million in Q4 2011. 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 cash, cash equivalents and term deposits was not impacted by these currency fluctuations, they resulted in upward revaluations of the ruble equivalent of these U.S. dollar-denominated monetary assets in Q4 2012 and Q4 2011.

Income tax expense for Q4 2012 was RUR 791 million, up from RUR 573 million in Q4 2011. Our effective tax rate increased from 21.3% in Q4 2011 to 22.7% in Q4 2012 and was in line with our effective tax rate of 22.5% in Q3 2012.

Adjusted net income in Q4 2012 was RUR 3.0 billion ($97.6 million), a 35% increase from Q4 2011, broadly in line with the revenue growth.

Adjusted net income margin was 33.6% in Q4 2012, compared to 34.1% in Q4 2011.

Net income was RUR 2.7 billion ($88.6 million) in Q4 2012, up 27% compared with Q4 2011. The slower growth in net income compared with adjusted net income was primarily the result of the accrual of expense related to the contingent compensation paid and potentially payable to certain employees in connection with our acquisition of the mobile software business of SPB Software. We adjust for this expense in our non-GAAP adjusted net income measure.

As of December 31, 2012, Yandex had cash and cash equivalents, term deposits (including long-term deposits) and long-term debt securities of RUR 27.2 billion ($895.3 million).

Net operating cash flow and capital expenditures for Q4 2012 were RUR 3.9 billion ($126.8 million) and RUR 1.0 billion ($32.9 million), respectively.

The totalnumber of shares issued and outstanding as of December 31, 2012 was 327,760,083, including 202,318,864 Class A shares, 125,441,218 Class B shares, one Priority share, and excluding Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also employee stock options outstanding to purchase up to an additional 10.4 million shares, at a weighted average exercise price of $4.30 per share, of which options to purchase 7.9 million shares were fully vested; equity-settled share appreciation rights equal to 0.9 million shares, at a weighted average measurement price of $20.21, none of which were vested; and restricted share units equal to 1.9 million shares, of which restricted share units to purchase 0.1 million shares were fully vested.

Outlook for 2013

On a like-for-like basis, excluding the revenue associated with Yandex.Money from 2012 and 2013 results, Yandex expects to achieve full year ruble-based revenue growth of 28% to 32% in 20131.

1 In 2012, Yandex recognized total revenue of RUR 28,767 million, including RUR 552 million in payments commissions related to Yandex.Money and RUR 28,215 million in advertising revenue and other revenue. Yandex will continue to recognize revenue related to Yandex.Money until the Joint Venture with Sberbank is completed. We currently expect to complete this transaction in Q2 2013.

Conference Call Information

Yandex's management will hold an earnings conference call on February 19, 2013 at 9:00 AM U.S. Eastern Time (6:00 PM Moscow time; 2:00 PM London time).

To access the conference call live, please dial:

US: +1 631 510 7498
UK: +44 (0) 1452 555 566
Russia: 8 10 800 20972044 
 
Passcode: 95073339#

A replay of the call will be available through February 26, 2013. To access the replay, please dial:

US: +1 866 247 4222 
Russia/International: +44 (0) 1452 550 000 
 
Passcode: 95073339#

A live and archived webcast of this conference call will be available at http://ir.yandex.com/eventdetail.cfm?eventid=124874

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.

The Yandex Company logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=10933

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, 2011, 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. Additional risk factor disclosure and related information will also be set forth in our Annual Report on Form 20-F for the year ended December 31, 2012. All information in this release and in the attachments is as of February 19, 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. 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 Consolidated Balance Sheets      
(in millions of Russian rubles and U.S. dollars, except share and per share data)  
   
  As of December 31,    
  2011* 2012 2012
ASSETS RUR RUR $
Current assets:      
Cash and cash equivalents 5,930 7,425 244.5
Marketable securities  --  76 2.5
Term deposits 4,789 4,629 152.4
Accounts receivable, net 1,246 1,767 58.2
Prepaid expenses 620 597 19.7
Assets held for sale 1,656 2,024 66.6
Deferred tax assets 296 456 15.0
Other current assets 529 1,217 40.1
Total current assets 15,066 18,191 599.0
Property and equipment, net 6,916 8,095 266.5
Intangible assets, net 481 323 10.6
Goodwill 754 750 24.7
Long-term prepaid expenses 616 695 22.9
Restricted cash 454 214 7.0
Term deposits 2,344 10,330 340.1
Investments in non-marketable equity securities 569 500 16.5
Investments in debt securities 6,733 4,810 158.4
Deferred tax assets 2 35 1.2
Other non-current assets 141 342 11.3
TOTAL ASSETS  34,076 44,285 1,458.2
LIABILITIES ANDSHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable and accrued liabilities 1,710 2,513 82.8
Taxes payable 906 1,455 47.9
Deferred revenue 899 1,092 36.0
Liabilities related to assets held for sale  1,196 1,619 53.3
Deferred tax liabilities  --  3 0.1
Total current liabilities 4,711 6,682 220.1
Deferred tax liabilities 189 448 14.8
Other accrued liabilities 223 108 3.6
Total liabilities 5,123 7,238 238.5
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: 273,764,304 and 159,494,722, and Class C: 276,063,445 and 159,494,722);      
shares issued (Class A: 159,217,348 and 202,318,864, Class B: 164,621,382 and 125,441,218, and Class C: 109,142,922 and 27,972,630, respectively);      
shares outstanding (Class A: 159,217,348 and 202,318,864, Class B: 164,621,382 and 125,441,218, and Class C: nil) 595 445 14.7
Additional paid-in capital 12,729 13,617 448.3
Accumulated other comprehensive income 1,828 961 31.6
Retained earnings 13,801 22,024 725.1
Total shareholders' equity 28,953 37,047 1,219.7
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  34,076 44,285 1,458.2
       
* Balances related to Yandex.Money are reclassified from their historical presentation to assets held for sale and liabilities related to assets held for sale
       
YANDEX N.V.    <


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