yndx_Current_Folio_6K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

July 28, 2017

 

YANDEX N.V.

 

Schiphol Boulevard 165

1118 BG Schiphol

Netherlands

+31 (0)20 206 6970

(Address, Including ZIP Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☒          Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 


 

Furnished as Exhibit 99.1 to this Report on Form 6-K is a press release of Yandex N.V. dated July 28, 2017, announcing the Company’s second quarter 2017 financial results

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

YANDEX N.V.

 

 

 

 

Date: July 28, 2017

By:

/S/ GREG ABOVSKY

 

Greg Abovsky

 

Chief Financial Officer

 

3


 

INDEX TO EXHIBITS

 

 

 

 

Number

 

Description

 

 

 

99.1

 

Press Release of Yandex N.V. dated July 28, 2017, announcing the Company’s second quarter 2017 financial results.

 

4


yndx_Current_Folio_6K_Ex99_1

Exhibit 99.1

Yandex Announces Second Quarter 2017 Financial Results

 

MOSCOW, Russia and AMSTERDAM, the Netherlands, July 28, 2017 -- Yandex (NASDAQ: YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its unaudited financial results for the second quarter ended June 30, 2017.

 

Q2 2017 Financial Highlights(1)(2)

 

·

Revenues of RUB 22.1 billion ($374.1 million), up 23% compared with Q2 2016

·

Net income of RUB 3.5 billion ($59.0 million), up 69% compared with Q2 2016; net income margin of 15.8%

·

Adjusted net income of RUB 4.0 billion ($67.5 million), up 2% compared with Q2 2016; adjusted net income margin of 18.1%

·

Adjusted EBITDA of RUB 7.2 billion ($122.1 million), up 7% compared with Q2 2016; adjusted EBITDA margin of 32.6%

·

Cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 66.2 billion ($1,120.0 million) as of June 30, 2017

 

 

Q2 2017 Operational and Corporate Highlights

 

·

Share of Russian search market, including mobile, averaged 54.3% in Q2 2017, compared with 54.7% in Q1 2017 (according to Yandex.Radar, a search traffic and browser usage analytics tool based on Yandex.Metrica data)

·

Search queries in Russia grew 5% compared with Q2 2016

·

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 10% compared with Q2 2016

·

Average cost per click grew 9% compared with Q2 2016

·

Yandex.Taxi number of rides grew 425%  year-on-year compared with Q2 2016 

 

 

Q2 2017 Subsequent Events

 

·

Yandex and Uber announced an agreement to combine their ridesharing businesses in Russia and five neighboring countries

·

Yandex launched Yandex.Radar,  a search traffic and browser usage analytics tool based on Yandex.Metrica data 

 

"Our team delivered another strong quarter," said Arkady Volozh, Chief Executive Officer of Yandex. "Our agreement with Uber to combine ridesharing operations in Russia and five neighboring countries demonstrates the potential of our business units to accelerate innovation and create substantial shareholder value."

 

"We delivered solid results across all business segments in Q2, and I was pleased to see strong growth and profitability in our core business," said Alexander Shulgin, Chief Operating Officer of Yandex. "We expect continued investments in Taxi, e-Commerce, Classifieds, and other new initiatives to drive further growth."

 

The following table provides a summary of our key consolidated financial results for the three and six months ended June 30, 2016 and 2017:

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Revenues

18,040
22,104
23%
34,513
42,756
24%

Ex-TAC revenues2

14,486
17,888
23%
27,569
34,605
26%

Income from operations

3,517
2,997

-15%

5,957
6,372
7%

Adjusted EBITDA2

6,762
7,213
7%
12,532
14,087
12%

Net income

2,058
3,484
69%
3,127
4,303
38%

Adjusted net income2

3,906
3,990
2%
7,074
7,739
9%

 


 

 

(1)

Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 59.0855 to $1.00, the official exchange rate quoted as of June 30, 2017 by the Central Bank of the Russian Federation.

 

(2)

The following measures presented in this release are «non-GAAP financial measures»: ex-TAC revenues; adjusted EBITDA; adjusted EBITDA margin; adjusted ex-TAC EBITDA margin; adjusted net income; adjusted net income margin and adjusted ex-TAC net income margin. Please see the section headed «Use of Non-GAAP Financial Measures» below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures.

 

Consolidated revenues breakdown

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Online advertising revenues:

 

 

 

 

 

 

              Yandex properties

12,562

15,531

24%

23,966

29,887

25%

              Advertising network

4,740

5,403

14%

9,168

10,562

15%

Total online advertising revenues

17,302

20,934

21%

33,134

40,449

22%

Other

738

1,170

59%

1,379

2,307

67%

Total revenues

18,040

22,104

23%

34,513

42,756

24%

 

Online advertising revenues grew 21% in Q2 2017 compared with Q2 2016 and continued to determine overall top-line performance, contributing 95% of total revenues. Online advertising revenues include revenues derived from performance and brand advertising on Yandex properties and in our advertising network.

 

Online advertising revenues from Yandex properties increased 24% in Q2 2017 compared with Q2 2016 and accounted for 70% of total revenues.

 

Online advertising revenues from our advertising network increased 14% in Q2 2017 compared with Q2 2016 and contributed 24% of total revenues.

 

Other revenues grew 59% in Q2 2017 compared with Q2 2016, and were mainly driven by growth in Yandex.Taxi revenues.

 

Segment revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Revenues:

 

 

 

 

 

 

Search and Portal

16,532

20,135

22%

31,679

38,791

22%

E-commerce

1,069

1,168

9%

2,112

2,463

17%

Taxi

528

772

46%

973

1,550

59%

Classifieds

313

462

48%

554

833

50%

Experiments

153

344

125%

338

670

98%

Eliminations

(555)

(777)

40%

(1,143)

(1,551)

36%

Total revenues

18,040

22,104

23%

34,513

42,756

24%

 

Search and Portal segment includes all our services offered in Russia, Belarus and Kazakhstan (and, for periods prior to the imposition of sanctions on Yandex by the government of Ukraine in May 2017, all our services offered in Ukraine), other than those described below;

E-commerce segment includes our Yandex.Market service;

Taxi segment consists of our Yandex.Taxi service;

Classifieds segment includes Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel;

 


 

Experiments segment includes Media Services (including KinoPoisk, Yandex.Music, Yandex.Afisha and Yandex.TV program), Yandex Data Factory, Discovery services (including Yandex Zen and Yandex Launcher international revenues) and Search and Portal in Turkey.

Eliminations represent the elimination of transactions between the reportable segments, primarily related to advertising.

 

Consolidated 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, relevant office space rental, and related share-based compensation expense. Increases across all cost categories reflect investments in overall growth. In Q2 2017 Yandex's headcount increased by 32 full-time employees. The total number of full-time employees was 6,517 as of June 30, 2017, unchanged compared with March 31, 2017, and up 17% from June 30, 2016.

 

Cost of revenues, including traffic acquisition costs (TAC)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

TAC:

 

 

 

 

 

 

Related to the Yandex advertising network

2,641
3,148
19%
5,136
6,044
18%

Related to distribution partners

913
1,068
17%
1,808
2,107
17%

Total TAC

3,554
4,216
19%
6,944
8,151
17%

Total TAC as a % of total revenues

19.7%
19.1%

 

20.1%
19.1%

 

Other cost of revenues

1,142
1,531
34%
2,256
2,944
30%

Other cost of revenues as a % of revenues

6.3%
6.9%

 

6.5%
6.9%

 

Total cost of revenues

4,696
5,747
22%
9,200
11,095
21%

Total cost of revenues as a % of revenues

26.0%
26.0%

 

26.7%
25.9%

 

 

TAC grew 19% in Q2 2017 compared with Q2 2016 and represented 19.1% of total revenues, 60 basis points lower than in Q2 2016 and flat compared with Q1 2017. The decrease of partner TAC as a percent of revenues from the Yandex advertising network was due to changes in partner revenue mix.

 

Other cost of revenues in Q2 2017 increased 34% compared with Q2 2016, primarily due to an increase in services provided to Taxi corporate clients, for which revenue and related costs are recorded on a gross basis.

 

Product development

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Product development

3,794
4,473
18%
7,671
8,991
17%

As a % of revenues

21.1%
20.2%

 

22.2%
21.0%

 

 

Growth in product development expenses in Q2 2017 primarily reflects salary increases and new hires in 2016 and in early 2017.

 

Sales, general and administrative (SG&A)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Sales, general and administrative

3,717
6,064
63%
6,975
11,012
58%

As a % of revenues

20.6%
27.4%

 

20.2%
25.8%

 

 

SG&A expenses grew faster than revenue, increasing by 63% in Q2 2017 compared to Q2 2016 as we continued to invest in advertising and marketing to support our business units, primarily Taxi.

 


 

 

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 RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

SBC expense included in cost of revenues

46
64
39%
95
106
12%

SBC expense included in product development

545
542

-1%

1,140
1,118

-2%

SBC expense included in SG&A

290
359
24%
537
699
30%

Total SBC expense

881
965
10%
1,772
1,923
9%

As a % of revenues

4.9%
4.4%

 

5.1%
4.5%

 

 

Total SBC expense increased 10% in Q2 2017 compared with Q2 2016. The increase is primarily related to new equity-based grants made in 2016-2017.

 

Depreciation and amortization (D&A) expense

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Depreciation and amortization

2,316
2,823
22%
4,710
5,286
12%

As a % of revenues

12.8%
12.8%

 

13.6%
12.4%

 

 

D&A expense increased 22% in Q2 2017 compared with Q2 2016, primarily reflecting investments in servers and data centers made in 2016 and 2017, and was partially offset by the currency translation effect related to the D&A expense of our data center in Finland, which is denominated in euros.

 

Income from operations

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Income from operations

3,517
2,997

-15%

5,957
6,372
7%

 

Income from operations decreased 15% in Q2 2017 compared with Q2 2016, due to an increase in our advertising and marketing costs related to business units, primarily Taxi.

 

Adjusted EBITDA

 

Consolidated adjusted EBITDA

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA

6,762
7,213
7%
12,532
14,087
12%

 

Adjusted EBITDA increased 7% in Q2 2017 compared with Q2 2016.

 

Adjusted EBITDA by segments

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA:

 

 

 

 

 

 

Search and Portal

6,927

9,098

31%

12,838

17,071

33%

E-commerce

325

445

37%

705

1,005

43%

Taxi

(153)

(1,966)

n/m

(153)

(3,211)

n/m

Classifieds

23

(17)

-174%

17

(13)

-176%

 


 

Experiments

(360)

(347)

-4%

(875)

(765)

-13%

Total adjusted EBITDA

6,762

7,213

7%

12,532

14,087

12%

 

Adjusted EBITDA of Taxi was negative RUB 1,966 million in Q2 2017, compared with negative RUB 1,245 million in Q1 2017, and was mainly related to an increase in our advertising and marketing costs, primarily driven by expansion to the new cities, introduction of minimum fare guarantees to drivers in Q3 2016 as well as discounts and coupons to our users.

 

Interest income    in Q2 2017 was RUB 688 million, down from RUB 735 million in Q2 2016.

 

Interest expense in Q2 2017 was RUB 217 million, down from RUB 298 million in Q2 2016.

 

Foreign exchange gain in Q2 2017 was RUB 1,273 million, compared with a foreign exchange loss of RUB 958 million in Q2 2016. This gain reflects the depreciation of the Russian ruble during Q2 2017 from RUB 56.3779 to $1.00 on March 31, 2017, to RUB 59.0855 to $1.00 on June 30, 2017. Yandex's Russian operating subsidiaries' functional currency is the Russian ruble, and therefore changes due to exchange rate fluctuations in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies are recognized as foreign exchange gains or losses within the Other gain, net line in the condensed consolidated statements of income. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities was 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 2017.

 

Income tax expense for Q2 2017 was RUB 1,373 million, up from RUB 1,054 million in Q2 2016. Our effective tax rate of 28.3% in Q2 2017 was higher than in Q2 2016, primarily due to provision of certain reserves resulting from sanctions in Ukraine, partly offset by the effects of certain provisions reversed in Q2 2017 related to the results of prior years’ tax audits. Adjusted for these effects and SBC expense, our effective tax rate for Q2 2017 was 23.1%, compared with 23.4% for full year 2016 as adjusted for SBC expense and similar provisions in that year.

 

Net income was RUB 3.5 billion ($59.0 million) in Q2 2017, up 69% compared with Q2 2016, mainly due to foreign exchange gain in Q2 2017.

 

Adjusted net income in Q2 2017 was RUB 4.0 billion ($67.5 million), a 2% increase from Q2 2016.

 

Adjusted net income margin was 18.1% in Q2 2017, compared with 21.7% in Q2 2016.

 

As of June 30, 2017, Yandex had cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 66.2 billion ($1,120.0 million).

 

Net cash flow provided by operating activities for Q2 2017 was RUB 7.2 billion ($121.4 million) and capital expenditures were RUB 3.9 billion ($65.4 million).

 

During Q2 2017, we repurchased $4.0 million in principal of our 1.125% convertible senior notes due 2018 for approximately $3.9 million.

 

Redeemable noncontrolling interests presented in our condensed consolidated balance sheets relate to the equity incentive arrangements we have made available to the senior employees of the Taxi, Classifieds and E-commerce segments, pursuant to which such persons are eligible to acquire depositary receipts, or receive options to acquire depositary receipts, which entitle them to economic interests in the respective business unit subsidiaries.

 

The total number of shares issued and outstanding as of June 30, 2017 was 325,021,108 including 280,167,373 Class A shares, 44,853,734 Class B shares, and one Priority share and excluding 5,035,646 Class A shares held in treasury and all 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 share options outstanding to purchase up to an additional 1.3 million shares, at a weighted average exercise price of $5.30 per share, all of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $31.95, all of which, excluding SARs for

 


 

approximately 1,000 shares, were fully vested; and restricted share units (RSUs) covering 9.8 million shares, of which RSUs to acquire 2.0 million shares were fully vested. Equity awards in respect of business unit subsidiaries are described under Redeemable noncontrolling interests above.  

 

Please note that historical information on revenues and adjusted EBITDA of our segments is provided in the supplementary slides accompanying our Q2 2017 earnings release, including quarterly data for the ten quarters from Q1 2015 through Q2 2017 and annual data for the four years from 2013 through 2016.

 

Financial outlook

 

Based on the solid first half of the year, we currently expect our ruble-based revenue to grow in the range of 18% to 21% for the full year 2017. 

This outlook reflects our current view, based on the trends that we see at this time, and may change in light of market and economic developments in the business sectors and jurisdictions in which we operate.

 

Conference Call Information

 

Yandex’s management will hold an earnings conference call on July  28, 2017 at 8:00 AM U.S. Eastern Time (3:00 PM Moscow time; 1:00 PM London time).

 

To access the conference call live, please dial:

 

US: +1 877 280 2296

UK/International: +44 20 3427 1904

Russia: 8 800 500 9311

Passcode: 1461276#

 

A replay of the call will be available until Aug 3, 2017. To access the replay, please dial:

 

US: +1 866 932 5017

UK/International: +44 20 3427 0598

Russia: 810 800 2870 1012

Passcode: 1461276#

 

A live and archived webcast of this conference call will be available at

 

https://edge.media-server.com/m6/p/j28o33g4

 

ABOUT YANDEX

 

Yandex (NASDAQ:YNDX) is a technology company that builds intelligent products and services powered by machine learning. Our goal is to help consumers and businesses better navigate the online and offline world. Since 1997, we have delivered world-class, locally relevant search and information services. Additionally, we have developed market-leading on-demand transportation services, navigation products, and other mobile applications for millions of consumers across the globe. Yandex, which has 17 offices worldwide, has been listed on the NASDAQ since 2011.

More information on Yandex can be found at https://yandex.com/company.

 

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 2017. 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, macroeconomic and geopolitical developments affecting the Russian economy, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the political, legal and/or 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, 2016, which is on file with the U.S. Securities and Exchange Commission (SEC) 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  28, 2017, and Yandex undertakes no duty to update this information unless required by law.

 

USE OF NON-GAAP FINANCIAL MEASURES

 

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we present the following non-GAAP financial measures: ex-TAC revenues, 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 U.S. 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 U.S. GAAP measures», included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:

 

·

Ex-TAC revenues means U.S. GAAP revenues less total traffic acquisition costs (TAC)

·

Adjusted EBITDA means U.S. GAAP net income plus (1) depreciation and amortization, (2) SBC expense, (3) accrual of expense related to the contingent compensation that may be payable to employees in connection with certain business combinations, (4) interest expense, (5) other loss/(gain), net, (6) operating losses resulting from sanctions in Ukraine imposed in May 2017 and (7) provision for income taxes, less interest income

·

Adjusted EBITDA margin means adjusted EBITDA divided by U.S. GAAP revenues

·

Adjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenues

·

Adjusted net income means U.S. 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 certain business combinations, (3) foreign exchange losses/gains adjusted for reduction/increase in income tax attributable to the foreign exchange losses/gains, (4)  gains/losses from repurchases of our convertible notes adjusted for the related increase/reduction in income tax, (5) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax and (6) losses resulting from sanctions in Ukraine imposed in May 2017

·

Adjusted net income margin means adjusted net income divided by U.S. 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 recurring costs, particularly share-based compensation. 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 U.S. GAAP financial measures:

 

TAC

 

We believe that it may be useful for investors and analysts to review certain measures both in accordance with U.S. GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from U.S. 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 clearer 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 U.S. GAAP to accrue as expense the contingent compensation that is payable to certain employees in connection with certain business combinations. We eliminate these acquisition-related expenses 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 and liabilities 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.

 

Amortization of debt discount

 

We also adjust net income for interest expense representing amortization of the debt discount related to our convertible notes issued in Q4 2013 and Q1 2014.We have eliminated this expense from adjusted net income as it is non-cash in nature and is not indicative of our ongoing operating performance.

 

Gains and losses from repurchases of convertible debt

 

Adjusted net income is also adjusted for a loss from the repurchase of $4.0 million in principal of our 1.125% convertible senior notes due 2018 for approximately $3.9 million that we recorded in Q2 2017. We have eliminated this loss from adjusted net income as it is not indicative of our ongoing operating performance.

 

Losses resulting from sanctions in Ukraine

 

We also adjusted our net income and EBITDA for losses and gains from write-off of assets and liabilities in our Ukrainian legal entities. In May 2017, the government of Ukraine imposed sanctions on our Ukrainian operations. The sanctions resulted in the freezing of the assets held by our Ukrainian legal entities and restricting our services in Ukraine. We believe that it is useful to present adjusted net income and adjusted EBITDA measures excluding the one-off impact of these events,  which are not related to our operating activities.

 

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

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Balance Sheets

 

(in millions of Russian rubles and U.S. dollars, except share and per share data)

 

 

 

 

 

 

 

 

 

 

As of

 

 

December 31,

 

June 30, 

 

June 30, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

28,232

 

14,606

 

247.2

Term deposits

 

31,769

 

45,255

 

765.9

Investments in debt securities

 

3,033

 

1,182

 

20.0

Accounts receivable, net

 

7,741

 

7,784

 

131.7

Prepaid expenses

 

1,481

 

1,558

 

26.5

Other current assets

 

2,714

 

2,998

 

50.7

Total current assets

 

74,970

 

73,383

 

1,242.0

 

 

 

 

 

 

 

Property and equipment, net

 

18,817

 

22,355

 

378.4

Intangible assets, net

 

5,514

 

5,549

 

93.9

Goodwill

 

8,436

 

8,689

 

147.1

Long-term prepaid expenses

 

1,385

 

1,488

 

25.0

Term deposits, non-current

 

 -

 

5,135

 

86.9

Investments in non-marketable equity securities

 

1,513

 

1,741

 

29.5

Deferred tax assets

 

662

 

1,173

 

19.9

Other non-current assets

 

2,811

 

3,163

 

53.5

TOTAL ASSETS

 

114,108

 

122,676

 

2,076.2

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

9,532

 

10,840

 

183.4

Taxes payable

 

2,963

 

3,774

 

63.9

Deferred revenue

 

2,127

 

2,150

 

36.4

Total current liabilities

 

14,622

 

16,764

 

283.7

Convertible debt

 

18,750

 

17,947

 

303.7

Deferred tax liabilities

 

1,040

 

1,224

 

20.7

Other accrued liabilities

 

1,104

 

1,127

 

19.1

Total liabilities

 

35,516

 

37,062

 

627.2

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests

 

1,506

 

4,970

 

84.1

Shareholders’ equity:

 

 

 

 

 

 

Priority share: €1.00 par value; 1 share authorized, issued and outstanding

 

 

 

Preference shares: €0.01 par value; 1,000,000,001 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: 1,000,000,000, Class B: 46,997,887 and Class C: 46,997,887); shares issued (Class A: 285,019,019 and 285,203,019, Class B: 45,037,734 and 44,853,734, and Class C: 560,235 and 744,235, respectively); shares outstanding (Class A: 277,579,206 and 280,167,373, Class B: 45,037,734 and 44,853,734, and Class C: nil)

 

284

 

284

 

4.8

Treasury shares at cost (Class A: 7,439,813 and 5,035,646, respectively)

 

(8,368)

 

(5,174)

 

(87.6)

Additional paid-in capital

 

16,579

 

15,489

 

262.1

Accumulated other comprehensive income

 

896

 

1,511

 

25.7

Retained earnings

 

67,695

 

68,534

 

1,159.9

Total shareholders’ equity

 

77,086

 

80,644

 

1,364.9

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

114,108

 

122,676

 

2,076.2

 

Derived from audited consolidated financial statements

 


 

YANDEX N.V.

 

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, 

 

 

2016

 

2017

 

2017

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

Revenues

 

18,040

 

22,104

 

374.1

Operating costs and expenses:

 

 

 

 

 

 

Cost of revenues(1)

 

4,696

 

5,747

 

97.3

Product development(1)

 

3,794

 

4,473

 

75.7

Sales, general and administrative(1)

 

3,717

 

6,064

 

102.6

Depreciation and amortization

 

2,316

 

2,823

 

47.8

Total operating costs and expenses

 

14,523

 

19,107

 

323.4

Income from operations

 

3,517

 

2,997

 

50.7

Interest income

 

735

 

688

 

11.6

Interest expense

 

(298)

 

(217)

 

(3.7)

Other (loss)/income, net

 

(842)

 

1,389

 

23.6

Net income before income taxes

 

3,112

 

4,857

 

82.2

Provision for income taxes

 

1,054

 

1,373

 

23.2

Net income

 

2,058

 

3,484

 

59.0

Net loss attributable to noncontrolling interests

 

-

 

30

 

0.5

Net income attributable to Yandex N.V.

 

2,058

 

3,514

 

59.5

Net income per Class A and Class B share:

 

 

 

 

 

 

Basic

 

6.42

 

10.83

 

0.18

Diluted

 

6.30

 

10.65

 

0.18

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

Basic

 

320,323,089

 

324,355,605

 

324,355,605

Diluted

 

326,836,136

 

330,036,917

 

330,036,917

 

 

 

 

 

 

 

 


(1)

These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

 

 

 

 

 

 

 

 

Cost of revenues

 

46

 

64

 

1.1

 

Product development

 

545

 

542

 

9.2

 

Sales, general and administrative

 

290

 

359

 

6.0

 

 

 


 

YANDEX N.V.

 

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, 

 

 

 

2016

 

2017

 

2017

 

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

 

 

Revenues

 

34,513

 

42,756

 

723.6

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of revenues(1)

 

9,200

 

11,095

 

187.8

 

Product development(1)

 

7,671

 

8,991

 

152.2

 

Sales, general and administrative(1)

 

6,975

 

11,012

 

186.3

 

Depreciation and amortization

 

4,710

 

5,286

 

89.5

 

Total operating costs and expenses

 

28,556

 

36,384

 

615.8

 

Income from operations

 

5,957

 

6,372

 

107.8

 

Interest income

 

1,608

 

1,397

 

23.6

 

Interest expense

 

(648)

 

(445)

 

(7.5)

 

Other loss, net

 

(2,023)

 

(866)

 

(14.6)

 

Net income before income taxes

 

4,894

 

6,458

 

109.3

 

Provision for income taxes

 

1,767

 

2,155

 

36.5

 

Net income

 

3,127

 

4,303

 

72.8

 

Net loss attributable to noncontrolling interests

 

-

 

46

 

0.8

 

Net income attributable to Yandex N.V.

 

3,127

 

4,349

 

73.6

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

Basic

 

9.78

 

13.43

 

0.23

 

Diluted

 

9.59

 

13.20

 

0.22

 

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

 

Basic

 

319,878,504

 

323,803,590

 

323,803,590

 

Diluted

 

326,019,560

 

329,455,881

 

329,455,881

 

 

 

 

 

 

 

 

 

 


(1)

These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:

 

 

 

 

 

 

 

 

Cost of revenues

 

95

 

106

 

1.8

Product development

 

1,140

 

1,118

 

18.9

Sales, general and administrative

 

537

 

699

 

11.8

 

 

 

 

 

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

(in millions of Russian rubles and U.S. dollars)

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

2,058

 

3,484

 

59.0

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

1,847

 

2,205

 

37.3

Amortization of intangible assets

 

469

 

618

 

10.5

Amortization of debt discount and issuance costs

 

225

 

165

 

2.8

Share-based compensation expense

 

881

 

965

 

16.3

Deferred income taxes

 

(98)

 

(249)

 

(4.2)

Foreign exchange losses/(gains)

 

958

 

(1,273)

 

(21.5)

Losses from repurchases of convertible debt

 

 -

 

 3

 

0.1

Other

 

(112)

 

(39)

 

(0.7)

Changes in operating assets and liabilities excluding the effect of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

(87)

 

(172)

 

(2.9)

Prepaid expenses and other assets

 

525

 

(72)

 

(1.3)

Accounts payable and accrued liabilities

 

1,377

 

1,384

 

23.4

Deferred revenue

 

100

 

152

 

2.6

Net cash provided by operating activities

 

8,143

 

7,171

 

121.4

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(2,486)

 

(3,864)

 

(65.4)

Proceeds from sale of property and equipment

 

43

 

14

 

0.2

Acquisitions of businesses, net of cash acquired

 

 -

 

(364)

 

(6.2)

Investments in non-marketable equity securities

 

(22)

 

(69)

 

(1.2)

Proceeds from maturity of debt securities

 

 -

 

1,702

 

28.8

Investments in term deposits

 

(12,157)

 

(18,224)

 

(308.4)

Maturities of term deposits

 

8,310

 

8,122

 

137.5

Loans granted

 

(50)

 

(41)

 

(0.6)

Net cash used in investing activities

 

(6,362)

 

(12,724)

 

(215.3)

CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

164

 

167

 

2.8

Repurchases of convertible debt

 

 -

 

(220)

 

(3.7)

Other financing activities

 

 -

 

(63)

 

(1.1)

Net cash provided by/(used in) financing activities

 

164

 

(116)

 

(2.0)

Effect of exchange rate changes on cash and cash balances

 

(719)

 

345

 

5.8

Net change in cash and cash balances

 

1,226

 

(5,324)

 

(90.1)

Cash and cash balances at beginning of period

 

28,907

 

20,524

 

347.4

Cash and cash balances at end of period

 

30,133

 

15,200

 

257.3

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

28,075

 

19,983

 

338.2

Restricted cash, beginning of period

 

832

 

541

 

9.2

Cash and cash balances, beginning of period

 

28,907

 

20,524

 

347.4

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

29,506

 

14,606

 

247.2

Restricted cash, end of period

 

627

 

594

 

10.1

Cash and cash balances, end of period

 

30,133

 

15,200

 

257.3

 

* In Q1 2017, Yandex elected to early adopt Accounting Standards Update ("ASU") No. 2016-18—Statement of Cash Flows (Topic 230): Restricted Cash, which provided revised guidance on the classification and presentation of restricted cash in the statement of cash flows on a retrospective basis. Prior periods have been adjusted accordingly.

 

 


 

 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

(in millions of Russian rubles and U.S. dollars)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

2016

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

3,127

 

4,303

 

72.8

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

3,770

 

4,170

 

70.6

Amortization of intangible assets

 

940

 

1,116

 

18.9

Amortization of debt discount and issuance costs

 

487

 

338

 

5.7

Share-based compensation expense

 

1,772

 

1,923

 

32.5

Deferred income taxes

 

(214)

 

(232)

 

(3.9)

Foreign exchange losses

 

2,239

 

932

 

15.8

(Gains)/losses from repurchases of convertible debt

 

(53)

 

 6

 

0.1

Other

 

(148)

 

38

 

0.7

Changes in operating assets and liabilities excluding the effect of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

(203)

 

(28)

 

(0.5)

Prepaid expenses and other assets

 

1,042

 

(999)

 

(16.9)

Accounts payable and accrued liabilities

 

1,046

 

1,336

 

22.6

Deferred revenue

 

(37)

 

12

 

0.2

Net cash provided by operating activities

 

13,768

 

12,915

 

218.6

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(3,941)

 

(7,729)

 

(130.8)

Proceeds from sale of property and equipment

 

65

 

20

 

0.3

Acquisitions of businesses, net of cash acquired

 

 -

 

(364)

 

(6.2)

Investments in non-marketable equity securities

 

(242)

 

(103)

 

(1.7)

Proceeds from sale of equity securities

 

 -

 

216

 

3.7

Proceeds from maturity of debt securities

 

 -

 

1,702

 

28.8

Investments in term deposits

 

(33,842)

 

(58,482)

 

(989.8)

Maturities of term deposits

 

32,979

 

39,560

 

669.5

Loans granted

 

(106)

 

(39)

 

(0.6)

Net cash used in investing activities

 

(5,087)

 

(25,219)

 

(426.8)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

210

 

258

 

4.4

Repurchases of convertible debt

 

(1,490)

 

(668)

 

(11.4)

Payment for contingent consideration

 

(593)

 

(195)

 

(3.3)

Other financing activities

 

 -

 

10

 

0.2

Net cash used in financing activities

 

(1,873)

 

(595)

 

(10.1)

Effect of exchange rate changes on cash and cash balances

 

(2,303)

 

(711)

 

(12.0)

Net change in cash and cash balances

 

4,505

 

(13,610)

 

(230.3)

Cash and cash balances at beginning of period

 

25,628

 

28,810

 

487.6

Cash and cash balances at end of period

 

30,133

 

15,200

 

257.3

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

24,238

 

28,232

 

477.8

Restricted cash, beginning of period

 

1,390

 

578

 

9.8

Cash and cash balances, beginning of period

 

25,628

 

28,810

 

487.6

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

29,506

 

14,606

 

247.2

Restricted cash, end of period

 

627

 

594

 

10.1

Cash and cash balances, end of period

 

30,133

 

15,200

 

257.3

 

 

* In Q1 2017, Yandex elected to early adopt Accounting Standards Update ("ASU") No. 2016-18—Statement of Cash Flows (Topic 230): Restricted Cash, which provided revised guidance on the classification and presentation of restricted cash in the statement of cash flows on a retrospective basis. Prior periods have been adjusted accordingly.

 


 

YANDEX N.V.

 

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

TO THE NEAREST COMPARABLE U.S. GAAP MEASURES

 

Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Total revenues

18,040
22,104
23%
34,513
42,756
24%

Less: traffic acquisition costs (TAC)

3,554
4,216
19%
6,944
8,151
17%

Ex-TAC revenues

14,486
17,888
23%
27,569
34,605
26%

 

Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Net income

2,058

3,484

69%

3,127

4,303

38%

Add: depreciation and amortization

2,316

2,823

22%

4,710

5,286

12%

Add: share-based compensation expense

881

965

10%

1,772

1,923

9%

Add: compensation expense related to contingent consideration

48

41

-15%

93

119

28%

Less: interest income

(735)

(688)

-6%

(1,608)

(1,397)

-13%

Add: interest expense

298

217

-27%

648

445

-31%

Add: other loss/(gain), net

842

(1,389)

n/m

2,023

866

-57%

Add: provision for income taxes

1,054

1,373

30%

1,767

2,155

22%

Add: operating losses resulting from sanctions in Ukraine

 -

387

n/m

 -

387

n/m

Adjusted EBITDA

6,762

7,213

7%

12,532

14,087

12%

 

Reconciliation of Adjusted Net Income to U.S. GAAP Net Income

 

 

 

 

 

 

 

 

In RUB millions

Three months ended June 30, 

Six months ended June 30, 

 

2016

2017

Change

2016

2017

Change

Net income

2,058

3,484

69%

3,127

4,303

38%

Add: SBC expense

881

965

10%

1,772

1,923

9%

Less: reduction in income tax attributable to SBC expense

(10)

(16)

60%

(24)

(28)

17%

Add: compensation expense related to contingent consideration

48

41

-15%

93

119

28%

Add: foreign exchange losses/(gains)

958

(1,273)

n/m

2,239

932

-58%

Less: (decrease)/increase in income tax attributable to foreign exchange (losses)/gains

(198)

270

n/m

(458)

(161)

-65%

Add: (gains)/losses from repurchases of convertible debt

 -

 3

n/m

(53)

 6

-111%

Less: increase/(reduction) in income tax attributable to (losses)/gains from repurchases of convertible debt

 -

 -

n/m

13

(1)

-108%

Add: amortization of debt discount

225

165

-27%

487

338

-31%

Less: reduction in income tax attributable to amortization of debt discount

(56)

(42)

-25%

(122)

(85)

-30%

Add: losses resulting from sanctions in Ukraine

 -

393

n/m

 -

393

n/m

Adjusted net income

3,906

3,990

2%

7,074

7,739

9%

 


 

Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to U.S. GAAP Net Income Margin

 

 

 

 

 

 

 

In RUB millions

 

 

 

 

 

 

U.S. GAAP Actual Net Income

Net Income Margin (1)

Adjustment (2)

Adjusted EBITDA

Adjusted EBITDA Margin (3)

Adjusted Ex-TAC EBITDA Margin (4)