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

 

October 24, 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 October 24, 2017, announcing the Company’s result for the third quarter ended September 30, 2017.

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: October 24, 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 October 24, 2017, announcing the Company’s results for the third quarter ended September 30, 2017.

 

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yndx_Current_Folio_6K_Ex99_1

Exhibit 99.1

Yandex Announces Third Quarter 2017 Financial Results

 

MOSCOW and AMSTERDAM, the Netherlands, October 24, 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 third quarter ended September 30, 2017.

 

Q3 2017 Financial Highlights(1)(2)

 

·

Revenues of RUB 23.4 billion ($404.0 million), up 21% compared with Q3 2016

·

Net income of RUB 0.9 billion ($14.7 million), down 65% compared with Q3 2016; net income margin of 3.6%

·

Adjusted net income of RUB 2.4 billion ($40.9 million), down 37% compared with Q3 2016; adjusted net income margin of 10.1%

·

Adjusted EBITDA of RUB 5.7 billion ($98.2 million), down 17% compared with Q3 2016; adjusted EBITDA margin of 24.3%

·

Cash, cash equivalents and term deposits of RUB 66.6 billion ($1,148.7 million) as of September 30, 2017

 

Q3 2017 Operational and Corporate Highlights

 

·

Share of Russian search market, including mobile, averaged 54.9% in Q3 2017, compared with 54.3% in Q2 2017, and reached 55.5% in September 2017 (according to Yandex.Radar, a search traffic and browser usage analytics tool based on Yandex.Metrica data)

·

Search share on Android in Russia was 41.2% in Q3 2017, compared with 38.2% in Q2 2017, and averaged to 43.9% October-to-date

·

Search queries in Russia grew 7% compared with Q3 2016

·

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 6% compared with Q3 2016

·

Average cost per click grew 12% compared with Q3 2016

·

Yandex.Taxi number of rides grew 360%  year-on-year compared with Q3 2016 

·

Released the new Intelligent Search Algorithm “Korolyov

·

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

·

Yandex and Sberbank announced that the two companies have signed a non-binding term sheet to form a joint venture based on the Yandex.Market platform

 

Q3 2017 Subsequent Events

 

·

Yandex launched Alice - the first conversational intelligent assistant designed for the Russian market

 

"This was another strong quarter with 21% revenue growth and significant increase in our search share on Android," said Arkady Volozh, Chief Executive Officer of Yandex. "I am also very excited about the recent launch of Alice, the first conversational intelligent assistant for the Russian market.  Alice is a great demonstration of how we can apply our expertise in AI, voice recognition and synthesis technology to create products that delight our consumers."

 

"I am very proud of the pace of innovations in our core business. In Q3 we launched Korolyov, our new intelligent search algorithm, and introduced our Turbo technology, which significantly accelerates loading times of mobile sites," said Alexander Shulgin, Chief Operating Officer of Yandex. "We continued to invest in our business units, including in regional expansion within Yandex.Taxi and our Classifieds segment."

 

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

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Revenues

19,293
23,438
21%
53,806
66,194
23%

 


 

Ex-TAC revenues2

15,561
19,033
22%
43,130
53,638
24%

Income from operations

3,553
1,847

-48%

9,510
8,219

-14%

Adjusted EBITDA2

6,888
5,695

-17%

19,420
19,782
2%

Net income

2,443
853

-65%

5,570
5,156

-7%

Adjusted net income2

3,793
2,371

-37%

10,867
10,110

-7%

 

(1)

Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 58.0169 to $1.00, the official exchange rate quoted as of September 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 September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Online advertising revenues:

 

 

 

 

 

 

              Yandex properties

13,435

16,330

22%

37,401

46,217

24%

              Advertising network

5,005

5,551

11%

14,173

16,113

14%

Total online advertising revenues

18,440

21,881

19%

51,574

62,330

21%

Other

853

1,557

83%

2,232

3,864

73%

Total revenues

19,293

23,438

21%

53,806

66,194

23%

 

Online advertising revenues grew 19% in Q3 2017 compared with Q3 2016 and continued to determine overall top-line performance, contributing 93% 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 22% in Q3 2017 compared with Q3 2016 and accounted for 70% of total revenues.

 

Online advertising revenues from our advertising network increased 11% in Q3 2017 compared with Q3 2016 and contributed 24% of total revenues.

 

Other revenues grew 83% in Q3 2017 compared with Q3 2016, and were mainly driven by growth in Yandex.Taxi revenues.

 

Segment revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Revenues:

 

 

 

 

 

 

Search and Portal

17,482

21,117

21%

49,161

59,908

22%

E-commerce

1,200

1,060

-12%

3,312

3,523

6%

Taxi

587

1,150

96%

1,560

2,700

73%

Classifieds

352

556

58%

906

1,389

53%

Experiments

210

412

96%

548

1,082

97%

Eliminations

(538)

(857)

59%

(1,681)

(2,408)

43%

Total revenues

19,293

23,438

21%

53,806

66,194

23%

 

 


 

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 Q3 2017 Yandex's headcount increased by 379 full-time employees. The total number of full-time employees was 6,896 as of September 30, 2017, increased by 6% compared with June 30, 2017, and up 17% from September 30, 2016.

 

Cost of revenues, including traffic acquisition costs (TAC)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

TAC:

 

 

 

 

 

 

Related to the Yandex advertising network

2,778
3,296
19%
7,914
9,340
18%

Related to distribution partners

954
1,109
16%
2,762
3,216
16%

Total TAC

3,732
4,405
18%
10,676
12,556
18%

Total TAC as a % of total revenues

19.3%
18.8%

 

19.8%
19.0%

 

Other cost of revenues

1,186
1,640
38%
3,442
4,584
33%

Other cost of revenues as a % of revenues

6.1%
7.0%

 

6.4%
6.9%

 

Total cost of revenues

4,918
6,045
23%
14,118
17,140
21%

Total cost of revenues as a % of revenues

25.5%
25.8%

 

26.2%
25.9%

 

 

TAC grew 18% in Q3 2017 compared with Q3 2016 and represented 18.8% of total revenues, 50 basis points lower than in Q3 2016 and 30 compared with Q2 2017. 

 

Other cost of revenues in Q3 2017 increased 38% compared with Q3 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, growth in outsourced services related to the increased usage of our crowdsourcing platform Toloka and content acquisition costs related to Media Services.

 

Product development

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Product development

3,858
4,569
18%
11,529
13,560
18%

As a % of revenues

20.0%
19.5%

 

21.4%
20.5%

 

 

Growth in product development expenses in Q3 2017 primarily reflects new hires and salary increases in late 2016 and in 2017.

 


 

 

Sales, general and administrative (SG&A)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Sales, general and administrative

4,475
8,047
80%
11,450
19,059
66%

As a % of revenues

23.2%
34.3%

 

21.3%
28.8%

 

 

SG&A expenses grew faster than revenue, increasing by 80% in Q3 2017 compared to Q3 2016 as we continued to invest in advertising and marketing to support our business units, primarily Taxi, as well as due to our extensive advertising and marketing campaign related to Search.

 

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 September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

SBC expense included in cost of revenues

50
36

-28%

145
142

-2%

SBC expense included in product development

532
548
3%
1,672
1,666
0%

SBC expense included in SG&A

203
292
44%
740
991
34%

Total SBC expense

785
876
12%
2,557
2,799
9%

As a % of revenues

4.1%
3.7%

 

4.8%
4.2%

 

 

Total SBC expense increased 12% in Q3 2017 compared with Q3 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 September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Depreciation and amortization

2,489
2,930
18%
7,199
8,216
14%

As a % of revenues

12.9%
12.5%

 

13.4%
12.4%

 

 

D&A expense increased 18% in Q3 2017 compared with Q3 2016, primarily reflecting investments in servers and data centers made in 2016 and 2017.

 

Income from operations

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Income from operations

3,553
1,847

-48%

9,510
8,219

-14%

 

Income from operations decreased 48% in Q3 2017 compared with Q3 2016, due to an increase in our advertising and marketing costs related to business units, primarily Taxi, and our extensive advertising and marketing campaign related to  Search.

 

 


 

Adjusted EBITDA

 

Consolidated adjusted EBITDA

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA

6,888
5,695

-17%

19,420
19,782
2%

 

Adjusted EBITDA decreased 17% in Q3 2017 compared with Q3 2016.

 

Adjusted EBITDA by segments

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA:

 

 

 

 

 

 

Search and Portal

7,484

8,922

19%

20,322

25,993

28%

E-commerce

386

223

-42%

1,091

1,228

13%

Taxi

(633)

(3,168)

n/m

(786)

(6,379)

n/m

Classifieds

26

49

88%

43

36

-16%

Experiments

(375)

(331)

-12%

(1,250)

(1,096)

-12%

Total adjusted EBITDA

6,888

5,695

-17%

19,420

19,782

2%

 

Adjusted EBITDA of Taxi was negative RUB 3,168 million in Q3 2017, compared with negative RUB 1,966 million in Q2 2017. The increase in Taxi spending was mainly related to an increase in our advertising and marketing costs, related to geographical expansion, as well as one-off accruals for professional services, related to the Yandex.Taxi and Uber transaction.

 

Interest income    in Q3 2017 was RUB 732 million, up from RUB 646 million in Q3 2016.

 

Interest expense in Q3 2017 was RUB 226 million, down from RUB 295 million in Q3 2016.

 

Foreign exchange loss in Q3 2017 was RUB 609 million, compared with a foreign exchange loss of RUB 432 million in Q3 2016. This loss reflects the appreciation of the Russian ruble during Q3 2017 from RUB 59.0855 to $1.00 on June 30, 2017, to RUB 58.0169 to $1.00 on September 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 downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q3 2017.

 

Income tax expense for Q3 2017 was RUB 874 million, down from RUB 1,243 million in Q3 2016. Our effective tax rate of 50.6% in Q3 2017 was higher than in Q3 2016, primarily due to the effects of certain tax provisions recognized in Q3 2017. Adjusted for these effects and SBC expense, our effective tax rate for Q3 2017 was 26.2%, compared with 23.4% for full year 2016 as adjusted for SBC expense and similar provisions in that year. The increase in the adjusted effective tax rate was primarily driven by a change in the contributions to our earnings before tax from different jurisdictions.

 

Net income was RUB 0.9 billion ($14.7 million) in Q3 2017, down 65% compared with Q3 2016, mainly due to increase of SGA expenses in Q3 2017.

 

Adjusted net income in Q3 2017 was RUB 2.4 billion ($40.9 million), a 37% decrease from Q3 2016.

 

Adjusted net income margin was 10.1% in Q3 2017, compared with 19.7% in Q3 2016.

 

 


 

As of September 30, 2017, Yandex had cash, cash equivalents and term deposits of RUB 66.6 billion ($1,148.7 million).

 

Net cash flow provided by operating activities for Q3 2017 was RUB 3.3 billion ($56.3 million) and capital expenditures were RUB 2.1 billion ($36.1 million).

 

During Q3 2017 there were no repurchases of convertible debt notes. -

 

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 September 30, 2017 was 325,775,802 including 280,922,067 Class A shares, 44,853,734 Class B shares, and one Priority share and excluding 4,280,952 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 1.1 million shares, at a weighted average exercise price of $5.35 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 $32.03, all of which, excluding SARs for approximately 1,000 shares, were fully vested; and restricted share units (RSUs) covering 9.4 million shares, of which RSUs to acquire 1.9 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 Q3 2017 earnings release, including quarterly data for the eleven quarters from Q1 2015 through Q3 2017 and annual data for the four years from 2013 through 2016.

 

Financial outlook

 

Based on our current outlook, we are raising our revenue growth outlook for the calendar year 2017. We currently expect our ruble-based revenue to grow 22% to 23% 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 October  24, 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 1254

UK/International: +44(0)20 3427 1904

Russia: 8 800 500 9312

Passcode: 5253089

 

A replay of the call will be available until October 30, 2017. To access the replay, please dial:

 

US: +1 719 457 0820

UK/International: +44 (0)20 7984 7568

Russia: 810 800 2702 1012

Passcode: 5253089

 

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

 

 


 

https://edge.media-server.com/m6/p/ie44v62w

 

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 October  24, 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,  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 adjusted for reduction in income tax attributable to the foreign exchange losses, (4) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax and (5) losses resulting from sanctions in Ukraine imposed in May 2017 less gains/losses from repurchases of our convertible notes adjusted for the related increase/reduction in income tax

·

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 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 for Q3 2016 also excludes a gain from the repurchase of $4.6 million in principal of our 1.125% convertible senior notes due 2018 for approximately $4.5 million. We have eliminated this gain from adjusted net income as it is not indicative of our ongoing operating performance.

 

 


 

Losses resulting from sanctions in Ukraine

 

Adjusted net income and adjusted EBITDA exclude losses and gains from write-off of assets and liabilities in our Ukrainian legal entities that we recorded in Q2 2017. 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,

 

September 30, 

 

September 30, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

28,232

 

23,591

 

406.6

Term deposits

 

31,769

 

38,015

 

655.2

Investments in debt securities

 

3,033

 

 -

 

 -

Accounts receivable, net

 

7,741

 

8,417

 

145.1

Prepaid expenses

 

1,481

 

1,100

 

19.0

Other current assets

 

2,714

 

3,490

 

60.2

Total current assets

 

74,970

 

74,613

 

1,286.1

 

 

 

 

 

 

 

Property and equipment, net

 

18,817

 

22,450

 

387.0

Intangible assets, net

 

5,514

 

5,160

 

88.9

Goodwill

 

8,436

 

8,689

 

149.8

Long-term prepaid expenses

 

1,385

 

1,429

 

24.6

Term deposits, non-current

 

 -

 

5,042

 

86.9

Investments in non-marketable equity securities

 

1,513

 

1,818

 

31.3

Deferred tax assets

 

662

 

1,786

 

30.8

Other non-current assets

 

2,811

 

3,631

 

62.6

TOTAL ASSETS

 

114,108

 

124,618

 

2,148.0

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

9,532

 

11,404

 

196.6

Taxes payable

 

2,963

 

3,057

 

52.7

Deferred revenue

 

2,127

 

2,234

 

38.5

Total current liabilities

 

14,622

 

16,695

 

287.8

Convertible debt

 

18,750

 

17,792

 

306.7

Deferred tax liabilities

 

1,040

 

1,141

 

19.7

Other accrued liabilities

 

1,104

 

1,269

 

21.8

Total liabilities

 

35,516

 

36,897

 

636.0

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests

 

1,506

 

5,408

 

93.2

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 5,000, respectively); shares outstanding (Class A: 277,579,206 and 280,922,067, Class B: 45,037,734 and 44,853,734, and Class C: nil)

 

284

 

284

 

4.9

Treasury shares at cost (Class A: 7,439,813 and 4,280,952, respectively)

 

(8,368)

 

(4,359)

 

(75.1)

Additional paid-in capital

 

16,579

 

15,594

 

268.8

Accumulated other comprehensive income

 

896

 

1,845

 

31.8

Retained earnings

 

67,695

 

68,949

 

1,188.4

Total shareholders’ equity

 

77,086

 

82,313

 

1,418.8

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

114,108

 

124,618

 

2,148.0

 

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 September 30, 

 

 

2016

 

2017

 

2017

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

Revenues

 

19,293

 

23,438

 

404.0

Operating costs and expenses:

 

 

 

 

 

 

Cost of revenues(1)

 

4,918

 

6,045

 

104.2

Product development(1)

 

3,858

 

4,569

 

78.8

Sales, general and administrative(1)

 

4,475

 

8,047

 

138.7

Depreciation and amortization

 

2,489

 

2,930

 

50.5

Total operating costs and expenses

 

15,740

 

21,591

 

372.2

Income from operations

 

3,553

 

1,847

 

31.8

Interest income

 

646

 

732

 

12.6

Interest expense

 

(295)

 

(226)

 

(3.9)

Other loss, net

 

(218)

 

(626)

 

(10.7)

Net income before income taxes

 

3,686

 

1,727

 

29.8

Provision for income taxes

 

1,243

 

874

 

15.1

Net income

 

2,443

 

853

 

14.7

Net loss attributable to noncontrolling interests

 

 -

 

47

 

0.8

Net income attributable to Yandex N.V.

 

2,443

 

900

 

15.5

Net income per Class A and Class B share:

 

 

 

 

 

 

Basic

 

7.60

 

2.77

 

0.05

Diluted

 

7.47

 

2.72

 

0.05

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

Basic

 

321,342,428

 

325,341,670

 

325,341,670

Diluted

 

326,825,443

 

330,979,488

 

330,979,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

50

 

36

 

0.6

 

Product development

 

532

 

548

 

9.4

 

Sales, general and administrative

 

203

 

292

 

5.1

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Income

 

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

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

 

2016

 

2017

 

2017

 

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

 

 

Revenues

 

53,806

 

66,194

 

1,140.9

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of revenues(1)

 

14,118

 

17,140

 

295.4

 

Product development(1)

 

11,529

 

13,560

 

233.7

 

Sales, general and administrative(1)

 

11,450

 

19,059

 

328.6

 

Depreciation and amortization

 

7,199

 

8,216

 

141.6

 

Total operating costs and expenses

 

44,296

 

57,975

 

999.3

 

Income from operations

 

9,510

 

8,219

 

141.6

 

Interest income

 

2,254

 

2,129

 

36.7

 

Interest expense

 

(943)

 

(671)

 

(11.6)

 

Other loss, net

 

(2,241)

 

(1,492)

 

(25.6)

 

Net income before income taxes

 

8,580

 

8,185

 

141.1

 

Provision for income taxes

 

3,010

 

3,029

 

52.2

 

Net income

 

5,570

 

5,156

 

88.9

 

Net loss attributable to noncontrolling interests

 

 -

 

94

 

1.6

 

Net income attributable to Yandex N.V.

 

5,570

 

5,250

 

90.5

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

Basic

 

17.39

 

16.19

 

0.28

 

Diluted

 

17.11

 

15.89

 

0.27

 

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

 

Basic

 

320,370,040

 

324,321,917

 

324,321,917

 

Diluted

 

325,618,354

 

330,365,639

 

330,365,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

Cost of revenues

 

145

 

142

 

2.4

Product development

 

1,672

 

1,666

 

28.7

Sales, general and administrative

 

740

 

991

 

17.1

 

 

 

 

 

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

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

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

2,443

 

853

 

14.7

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

 

 

 

 

 

 

Depreciation of property and equipment

 

1,972

 

2,427

 

41.8

Amortization of intangible assets

 

517

 

503

 

8.7

Amortization of debt discount and issuance costs

 

223

 

173

 

3.0

Share-based compensation expense

 

785

 

876

 

15.1

Deferred income taxes

 

23

 

(697)

 

(12.0)

Foreign exchange losses

 

432

 

609

 

10.5

Gain from sale of equity securities

 

(157)

 

 -

 

 -

Other

 

 1

 

(78)

 

(1.3)

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

 

 

 

 

 

 

Accounts receivable, net

 

(669)

 

(646)

 

(11.1)

Prepaid expenses and other assets

 

(383)

 

(428)

 

(7.5)

Accounts payable and accrued liabilities

 

973

 

(408)

 

(7.0)

Deferred revenue

 

29

 

82

 

1.4

Net cash provided by operating activities

 

6,189

 

3,266

 

56.3

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(2,761)

 

(2,097)

 

(36.1)

Proceeds from sale of property and equipment

 

93

 

10

 

0.2

Investments in non-marketable equity securities

 

(119)

 

(10)

 

(0.2)

Investments in debt securities

 

(1,906)

 

 -

 

 -

Proceeds from maturity of debt securities

 

2,525

 

1,185

 

20.4

Investments in term deposits

 

(3,554)

 

(11,600)

 

(199.9)

Maturities of term deposits

 

22,836

 

18,308

 

315.6

Loans granted

 

(167)

 

(66)

 

(1.2)

Net cash provided by investing activities

 

16,947

 

5,730

 

98.8

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

 

 

 

 

 

 

Proceeds from exercise of share options

 

121

 

52

 

0.9

Repurchases of convertible debt

 

(589)

 

 -

 

 -

Other financing activities

 

(17)

 

16

 

0.3

Net cash (used in)/provided by financing activities

 

(485)

 

68

 

1.2

Effect of exchange rate changes on cash and cash balances

 

(475)

 

(103)

 

(1.9)

Net change in cash and cash balances

 

22,176

 

8,961

 

154.4

Cash and cash balances at beginning of period

 

30,133

 

15,200

 

262.0

Cash and cash balances at end of period

 

52,309

 

24,161

 

416.4

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

29,506

 

14,606

 

251.8

Restricted cash, beginning of period

 

627

 

594

 

10.2

Cash and cash balances, beginning of period

 

30,133

 

15,200

 

262.0

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

51,695

 

23,591

 

406.6

Restricted cash, end of period

 

614

 

570

 

9.8

Cash and cash balances, end of period

 

52,309

 

24,161

 

416.4

 

* 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)

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

2016

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

5,570

 

5,156

 

88.9

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

 

 

 

 

 

 

Depreciation of property and equipment

 

5,742

 

6,597

 

113.7

Amortization of intangible assets

 

1,457

 

1,619

 

27.9

Amortization of debt discount and issuance costs

 

710

 

511

 

8.8

Share-based compensation expense

 

2,557

 

2,799

 

48.2

Deferred income taxes

 

(191)

 

(929)

 

(16.0)

Foreign exchange losses

 

2,671

 

1,541

 

26.6

Gain from sale of equity securities

 

(157)

 

 -

 

 -

(Gains)/losses from repurchases of convertible debt

 

(53)

 

 6

 

0.1

Other

 

(147)

 

(40)

 

(0.7)

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

 

 

 

 

 

 

Accounts receivable, net

 

(872)

 

(674)

 

(11.6)

Prepaid expenses and other assets

 

659

 

(1,427)

 

(24.6)

Accounts payable and accrued liabilities

 

2,019

 

928

 

16.0

Deferred revenue

 

(8)

 

94

 

1.6

Net cash provided by operating activities

 

19,957

 

16,181

 

278.9

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

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(6,702)

 

(9,826)

 

(169.4)

Proceeds from sale of property and equipment

 

158

 

30

 

0.5

Acquisitions of businesses, net of cash acquired

 

 -

 

(364)

 

(6.3)

Investments in non-marketable equity securities

 

(361)

 

(113)

 

(1.9)

Proceeds from sale of equity securities

 

 -

 

216

 

3.7

Investments in debt securities

 

(1,906)

 

 -

 

 -

Proceeds from maturity of debt securities

 

2,525

 

2,887

 

49.8

Investments in term deposits

 

(37,396)

 

(70,082)

 

(1,208.0)

Maturities of term deposits

 

55,815

 

57,868

 

997.4

Loans granted

 

(273)

 

(105)

 

(1.7)

Net cash provided by/(used in) investing activities

 

11,860

 

(19,489)

 

(335.9)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

331

 

310

 

5.3

Repurchases of convertible debt

 

(2,079)

 

(668)

 

(11.4)

Payment for contingent consideration

 

(593)

 

(195)

 

(3.4)

Other financing activities

 

(17)

 

26

 

0.4

Net cash used in financing activities

 

(2,358)

 

(527)

 

(9.1)

Effect of exchange rate changes on cash and cash balances

 

(2,778)

 

(814)

 

(14.1)

Net change in cash and cash balances

 

26,681

 

(4,649)

 

(80.2)

Cash and cash balances at beginning of period

 

25,628

 

28,810

 

496.6

Cash and cash balances at end of period

 

52,309

 

24,161

 

416.4

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

24,238

 

28,232

 

486.6

Restricted cash, beginning of period

 

1,390

 

578

 

10.0

Cash and cash balances, beginning of period

 

25,628

 

28,810

 

496.6

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

51,695

 

23,591

 

406.6

Restricted cash, end of period

 

614

 

570

 

9.8

Cash and cash balances, end of period

 

52,309

 

24,161

 

416.4

 

 

* 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 September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Total revenues

19,293
23,438
21%
53,806
66,194
23%

Less: traffic acquisition costs (TAC)

3,732
4,405
18%
10,676
12,556
18%

Ex-TAC revenues

15,561
19,033
22%
43,130
53,638
24%

 

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

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Net income

2,443

853

-65%

5,570

5,156

-7%

Add: depreciation and amortization

2,489

2,930

18%

7,199

8,216

14%

Add: share-based compensation expense

785

876

12%

2,557

2,799

9%

Add: compensation expense related to contingent consideration

61

42

-31%

154

161

5%

Less: interest income

(646)

(732)

13%

(2,254)

(2,129)

-6%

Add: interest expense

295

226

-23%

943

671

-29%

Add: other loss, net

218

626

187%

2,241

1,492

-33%

Add: provision for income taxes

1,243

874

-30%

3,010

3,029

1%

Add: operating losses resulting from sanctions in Ukraine

 -

 -

n/m

 -

387

n/m

Adjusted EBITDA

6,888

5,695

-17%

19,420

19,782

2%

 

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

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2016

2017

Change

2016

2017

Change

Net income

2,443

853

-65%

5,570

5,156

-7%

Add: SBC expense

785

876

12%

2,557

2,799

9%

Less: reduction in income tax attributable to SBC expense

(12)

(18)