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

 

 

 

February 15, 2018

 

 

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  X 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): ____

1


 

Furnished as Exhibit 99.1 to this Report on Form 6-K is a press release of Yandex N.V. dated February 15, 2018, announcing the Company’s results for the fourth quarter and full year ended December 31, 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: February 15, 2018By:

     Greg Abovsky

     Chief Financial Officer 

 

 

3


 

INDEX TO EXHIBITS

 

Number 

Description

99.1

Press Release of Yandex N.V. dated February 15, 2018, announcing the Company’s results for the fourth quarter and full year ended December 31, 2017.

 

 

4


yndx_Current_Folio_6K_Ex99_1

Exhibit 99.1

Yandex Announces Fourth Quarter and Full-Year 2017 Financial Results

 

MOSCOW and AMSTERDAM, the Netherlands, February 15, 2018 -- 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 fourth quarter and the full year ended December 31, 2017.

 

Q4 2017 Financial Highlights(1)(2)

 

·

Revenues of RUB 27.9 billion ($483.7 million), up 26% compared with Q4 2016

·

Net income of RUB 3.5 billion ($60.8 million), up 189% compared with Q4 2016; net income margin of 12.6%

·

Adjusted net income of RUB 5.2 billion ($91.1 million), up 62% compared with Q4 2016; adjusted net income margin of 18.8%

·

Adjusted EBITDA of RUB 9.3 billion ($161.3 million), up 39% compared with Q4 2016; adjusted EBITDA margin of 33.4%

·

Cash, cash equivalents and term deposits of RUB 70.7 billion ($1,227.6 million) as of December 31, 2017

 

FY 2017 Financial Highlights(1)(2)

 

·

Revenues of RUB 94.1 billion ($1,632.9 million), up 24% compared with FY 2016

·

Net income of RUB 8.7 billion ($150.3 million), up 28% compared with FY 2016; net income margin of 9.2%

·

Adjusted net income of RUB 15.4 billion ($266.6 million), up 9% compared with FY 2016; adjusted net income margin of 16.3%

·

Adjusted EBITDA of RUB 29.1 billion ($504.8 million), up 11% compared with FY 2016; adjusted EBITDA margin of 30.9%

 

Q4 2017 Operational and Corporate Highlights

 

·

Share of Russian search market, including mobile, averaged 56.5% in Q4 2017, compared with 54.9% in Q3 2017, and reached 56.7% in December 2017, according to Yandex.Radar

·

Search share on Android in Russia was 45.0% in Q4 2017, compared with 41.2% in Q3 2017 and 37.0% in Q4 2016

·

Search queries in Russia grew 9% compared with Q4 2016

·

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 10% compared with Q4 2016

·

Average cost per click grew 9% compared with Q4 2016

·

Yandex.Taxi number of rides grew 250% year-on-year compared with Q4 2016 

·

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

·

The Federal Antimonopoly Service of the Russian Federation approved the combination of Yandex.Taxi and Uber ride-sharing businesses

·

Yandex and Sberbank signed a binding agreement to form a joint venture based on the Yandex.Market platform

 

Q4 2017 Subsequent Events

 

·

Yandex created Media Services  (KinoPoisk, Yandex.Music, Yandex.Afisha and Yandex.TV program) business unit

·

On February 7, 2018, Yandex completed the transaction between Yandex.Taxi and Uber in Russia and neighbouring countries

 

“I am delighted with Yandex’s performance in 2017,” said Arkady Volozh, Chief Executive Officer of Yandex. “It was a transformational year for us in many ways, with great partnerships and continuous innovation supported by an improving macro environment. We made enhancements to Search, Zen and Taxi, and launched Alice, our intelligent voice assistant.”  

 

 


 

“Delivering 26% year-over-year top line growth was quite an accomplishment,” said Greg Abovsky, Chief Operating Officer and Chief Financial Officer of Yandex. “Focused investment in leading edge technologies supported solid growth rates in our core business and revenue acceleration in Yandex.Taxi and Classifieds segments.”

 

The following table provides a summary of our key consolidated financial results for the three and twelve months ended December 31, 2016 and 2017:

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Revenues

22,119
27,860
26%
75,925
94,054
24%

Ex-TAC revenues2

17,845
23,071
29%
60,975
76,709
26%

Income from operations

3,337
4,817
44%
12,847
13,036
1%

Adjusted EBITDA2

6,701
9,293
39%
26,121
29,075
11%

Net income

1,213
3,500
189%
6,783
8,656
28%

Adjusted net income2

3,249
5,249
62%
14,116
15,359
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 57.6002 to $1.00, the official exchange rate quoted as of December 31, 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 December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Online advertising revenues:

 

 

 

 

 

 

              Yandex properties

15,487

18,932

22%

52,888

65,149

23%

              Advertising network

5,518

6,138

11%

19,691

22,251

13%

Total online advertising revenues

21,005

25,070

19%

72,579

87,400

20%

Other

1,114

2,790

150%

3,346

6,654

99%

Total revenues

22,119

27,860

26%

75,925

94,054

24%

 

Online advertising revenues grew 19% in Q4 2017 compared with Q4 2016 and continued to determine overall top-line performance, contributing 90% 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 Q4 2017 compared with Q4 2016 and accounted for 68% of total revenues.

 

Online advertising revenues from our advertising network increased 11% in Q4 2017 compared with Q4 2016 and contributed 22% of total revenues.

 

Other revenues grew 150% in Q4 2017 compared with Q4 2016, and were mainly driven by growth in Yandex.Taxi revenues.

 

 


 

 

Segment revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Revenues:

 

 

 

 

 

 

Search and Portal

20,095

24,067

20%

69,256

83,975

21%

E-commerce

1,406

1,445

3%

4,718

4,968

5%

Taxi

753

2,191

191%

2,313

4,891

111%

Classifieds

398

693

74%

1,304

2,082

60%

Experiments

282

576

104%

830

1,658

100%

Eliminations

(815)

(1,112)

36%

(2,496)

(3,520)

41%

Total revenues

22,119

27,860

26%

75,925

94,054

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 includes our Yandex.Taxi service and Food delivery business FoodFox acquired in December 2017;

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 Q4 2017 Yandex's headcount increased by 549 full-time employees. The total number of full-time employees was 7,445 as of December 31, 2017, up by 8% compared with September 30, 2017, and up 19% from December 31, 2016.

 

Cost of revenues, including traffic acquisition costs (TAC)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

TAC:

 

 

 

 

 

 

Related to the Yandex advertising network

3,101
3,567
15%
11,015
12,907
17%

Related to distribution partners

1,173
1,222
4%
3,935
4,438
13%

Total TAC

4,274
4,789
12%
14,950
17,345
16%

Total TAC as a % of total revenues

19.3%
17.2%

 

19.7%
18.4%

 

Other cost of revenues

1,362
2,008
47%
4,804
6,592
37%

Other cost of revenues as a % of revenues

6.2%
7.2%

 

6.3%
7.0%

 

Total cost of revenues

5,636
6,797
21%
19,754
23,937
21%

Total cost of revenues as a % of revenues

25.5%
24.4%

 

26.0%
25.5%

 

 

TAC grew 12% in Q4 2017 compared with Q4 2016 and represented 17.2% of total revenues, 210 basis points lower than in Q4 2016 and 160 basis points lower compared with Q3 2017 due to revenue mix effect. 

 

 


 

Other cost of revenues in Q4 2017 increased 47% compared with Q4 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, as well as growth of outsourced services in Taxi.

 

 

Product development

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Product development

4,303
5,201
21%
15,832
18,761
19%

As a % of revenues

19.4%
18.6%

 

20.8%
19.9%

 

 

Product development expenses grew slower than revenue and reflected salary increases in late 2016 and in 2017 and new hires.

 

Sales, general and administrative (SG&A)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Sales, general and administrative

6,435
8,022
25%
17,885
27,081
51%

As a % of revenues

29.1%
28.8%

 

23.6%
28.8%

 

 

SG&A expenses grew in line with revenue, increasing by 25% in Q4 2017 compared to Q4 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 December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

SBC expense included in cost of revenues

48
36

-25%

193
178

-8%

SBC expense included in product development

566
811
43%
2,238
2,477
11%

SBC expense included in SG&A

251
547
118%
991
1,538
55%

Total SBC expense

865
1,394
61%
3,422
4,193
23%

As a % of revenues

3.9%
5.0%

 

4.5%
4.5%

 

 

Total SBC expense increased 61% in Q4 2017 compared with Q4 2016. The acceleration of growth rates of our total SBC expense is primarily related to new equity-based grants made in 2016-2017 as well as to accelerated vesting of a portion of RSUs.

 

Depreciation and amortization (D&A) expense

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Depreciation and amortization

2,408
3,023
26%
9,607
11,239
17%

As a % of revenues

10.9%
10.9%

 

12.7%
11.9%

 

 

D&A expense increased 26% in Q4 2017 compared with Q4 2016. The acceleration of D&A expense growth rate in Q4 2017, compared with previous quarters, primarily reflects our investments in servers connected with the launch of our new data center in Vladimir, Russia, earlier in 2017.

 


 

 

Income from operations

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Income from operations

3,337
4,817
44%
12,847
13,036
1%

 

Income from operations increased 44% in Q4 2017 compared with Q4 2016. This growth rate was driven by low base of Q4 2016 impacted by RUB 0.5 billion VAT provision, primarily related to prior years’ tax audit.

 

Adjusted EBITDA

 

Consolidated adjusted EBITDA

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA

6,701
9,293
39%
26,121
29,075
11%

 

Adjusted EBITDA increased 39% in Q4 2017 compared with Q4 2016.

 

Adjusted EBITDA by segments

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Adjusted EBITDA:

 

 

 

 

 

 

Search and Portal

8,123

10,665

31%

28,445

36,658

29%

E-commerce

329

370

12%

1,420

1,598

13%

Taxi

(1,300)

(1,584)

22%

(2,086)

(7,963)

n/m

Classifieds

(97)

72

n/m

(54)

108

n/m

Experiments

(354)

(230)

-35%

(1,604)

(1,326)

-17%

Total adjusted EBITDA

6,701

9,293

39%

26,121

29,075

11%

 

Adjusted EBITDA of Taxi was negative RUB 1,584 million in Q4 2017, and improved significantly compared with negative RUB 3,168 million in Q3 2017. This improvement was mainly related to optimization of user and driver incentives, that we started in September 2017. 

 

Interest income    in Q4 2017 was RUB 780 million, up from RUB 609 million in Q4 2016.

 

Interest expense in Q4 2017 was RUB 226 million, down from RUB 265 million in Q4 2016.

 

Foreign exchange loss in Q4 2017 was RUB 243 million, compared with a foreign exchange loss of RUB 1,163 million in Q4 2016. This loss reflects the appreciation of the Russian ruble during Q4 2017 from RUB 58.0169 to $1.00 on September 30, 2017, to RUB 57.6002 to $1.00 on December 31, 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 (loss)/income, 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 a downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q4 2017.

 

Income tax expense for Q4 2017 was RUB 1,897 million, up from RUB 1,314 million in Q4 2016. Our effective tax rate of 35.1% in Q4 2017 was lower than in Q4 2016, primarily due to the effects of certain tax provisions recognized in Q4 2016 related to the results of prior years' tax audits. Adjusted for the similar tax effects, SBC expense and also for

 


 

additional dividend withholding tax provided by our main Russian operating subsidiary following decision to remit earnings for the year 2013 to our Dutch parent company, our effective tax rate for Q4 2017 was 22.8%, 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 ($60.8 million) in Q4 2017, up 189% compared with Q4 2016, mainly due to growth in income from operations in Q4 2017 as well as due to higher foreign exchange loss in Q4 2016 compared with Q4 2017.

 

Adjusted net income in Q4 2017 was RUB 5.2 billion ($91.1 million), a 62% increase from Q4 2016.

 

Adjusted net income margin was 18.8% in Q4 2017, compared with 14.7% in Q4 2016.

 

As of December 31, 2017, Yandex had cash, cash equivalents and term deposits of RUB 70.7 billion ($1,227.6 million).

 

Net cash flow provided by operating activities for Q4 2017 was RUB 7.6 billion ($131.8 million) and capital expenditures were RUB 2.6 billion ($44.5 million).

 

During Q4 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 December 31, 2017 was 326,304,843 including 285,612,556 Class A shares, 40,692,286 Class B shares, and one Priority share and excluding 3,751,911 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 2.7 million shares, at a weighted average exercise price of $26.68 per share, 1.0 million of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $32.10, all of which, excluding SARs for approximately 1,000 shares, were fully vested; and restricted share units (RSUs) covering 11.2 million shares, of which RSUs to acquire 2.4 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 Q4 2017 earnings release, including quarterly data for the twelve quarters from Q1 2015 through Q4 2017 and annual data for the five years from 2013 through 2017.

 

Financial outlook

 

We expect our consolidated ruble-based revenue to grow in the range of 25% to 30% in the full year 2018 compared with 2017.  This outlook implies consolidation of Yandex.Taxi with Uber’s operations in Russia and neighboring countries starting from February 7, 2018, but excludes the effect of potential deconsolidation of Yandex.Market.  

We expect our Search and Portal ruble-based revenue to grow in the range of 18% to 20% in the full year 2018 compared with 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 February 15, 2018 at 8:00 AM U.S. Eastern Time (4:00 PM Moscow time; 1:00 PM London time).

 

 


 

To access the conference call live, please dial:

 

US: +1 646 828 8193

UK/International: +44(0)330 336 9105

Russia: 8 800 500 9283

Passcode: 8775378

 

A replay of the call will be available until February 22, 2018. To access the replay, please dial:

 

US: +1 719 457 0820

UK/International: +44(0)207 660 0134

Russia: 810 800 2702 1012

Passcode: 8775378

 

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

 

https://edge.media-server.com/m6/p/33c2czgn 

 

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 2018. 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 February 15, 2018, 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/(income), 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 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 2017 also excludes a loss from the repurchase of $12.0 million in principal of our 1.125% convertible senior notes due 2018 for approximately $11.6 million. We have eliminated this loss from adjusted net income for the twelve months ended December 31, 2017 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 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,

 

December 31, 

 

December 31, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

28,232

 

42,662

 

740.7

Term deposits

 

31,769

 

23,040

 

400.0

Investments in debt securities

 

3,033

 

 -

 

 -

Accounts receivable, net

 

7,741

 

9,929

 

172.4

Prepaid expenses

 

1,481

 

1,269

 

21.9

Other current assets

 

2,714

 

3,495

 

60.7

Total current assets

 

74,970

 

80,395

 

1,395.7

 

 

 

 

 

 

 

Property and equipment, net

 

18,817

 

21,171

 

367.6

Intangible assets, net

 

5,514

 

5,023

 

87.2

Goodwill

 

8,436

 

9,328

 

161.9

Long-term prepaid expenses

 

1,385

 

1,788

 

31.1

Term deposits, non-current

 

 -

 

5,005

 

86.9

Investments in non-marketable equity securities

 

1,513

 

2,001

 

34.7

Deferred tax assets

 

662

 

2,171

 

37.7

Other non-current assets

 

2,811

 

3,301

 

57.3

TOTAL ASSETS

 

114,108

 

130,183

 

2,260.1

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

9,532

 

10,750

 

186.7

Taxes payable

 

2,963

 

4,213

 

73.1

Deferred revenue

 

2,127

 

2,464

 

42.8

Convertible debt

 

 -

 

17,834

 

309.6

Total current liabilities

 

14,622

 

35,261

 

612.2

Convertible debt

 

18,750

 

 -

 

 -

Deferred tax liabilities

 

1,040

 

959

 

16.6

Other accrued liabilities

 

1,104

 

1,316

 

22.9

Total liabilities

 

35,516

 

37,536

 

651.7

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests

 

1,506

 

9,821

 

170.5

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 289,364,467, Class B: 45,037,734 and 40,692,286, and Class C: 560,235 and 4,166,448, respectively); shares outstanding (Class A: 277,579,206 and 285,612,556, Class B: 45,037,734 and 40,692,286, and Class C: nil)

 

284

 

271

 

4.7

Treasury shares at cost (Class A: 7,439,813 and 3,751,911, respectively)

 

(8,368)

 

(3,814)

 

(66.2)

Additional paid-in capital

 

16,579

 

16,469

 

285.9

Accumulated other comprehensive income

 

896

 

1,864

 

32.3

Retained earnings

 

67,695

 

68,036

 

1,181.2

Total shareholders’ equity

 

77,086

 

82,826

 

1,437.9

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

114,108

 

130,183

 

2,260.1

 

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 December 31, 

 

 

2016

 

2017

 

2017

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

Revenues

 

22,119

 

27,860

 

483.7

Operating costs and expenses:

 

 

 

 

 

 

Cost of revenues(1)

 

5,636

 

6,797

 

118.0

Product development(1)

 

4,303

 

5,201

 

90.3

Sales, general and administrative(1)

 

6,435

 

8,022

 

139.3

Depreciation and amortization

 

2,408

 

3,023

 

52.5

Total operating costs and expenses

 

18,782

 

23,043

 

400.1

Income from operations

 

3,337

 

4,817

 

83.6

Interest income

 

609

 

780

 

13.5

Interest expense

 

(265)

 

(226)

 

(3.9)

Other (loss)/income, net

 

(1,154)

 

26

 

0.5

Net income before income taxes

 

2,527

 

5,397

 

93.7

Provision for income taxes

 

1,314

 

1,897

 

32.9

Net income

 

1,213

 

3,500

 

60.8

Net loss attributable to noncontrolling interests

 

15

 

26

 

0.4

Net income attributable to Yandex N.V.

 

1,228

 

3,526

 

61.2

Net income per Class A and Class B share:

 

 

 

 

 

 

Basic

 

3.81

 

10.82

 

0.19

Diluted

 

3.76

 

10.61

 

0.18

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

Basic

 

322,036,640

 

326,011,908

 

326,011,908

Diluted

 

327,013,212

 

332,463,799

 

332,463,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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

 

48

 

36

 

0.6

 

Product development

 

566

 

811

 

14.1

 

Sales, general and administrative

 

251

 

547

 

9.5

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Income

 

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

 

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31, 

 

 

 

2016*

 

2017

 

2017

 

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

 

 

Revenues

 

75,925

 

94,054

 

1,632.9

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of revenues(1)

 

19,754

 

23,937

 

415.6

 

Product development(1)

 

15,832

 

18,761

 

325.7

 

Sales, general and administrative(1)

 

17,885

 

27,081

 

470.2

 

Depreciation and amortization

 

9,607

 

11,239

 

195.1

 

Total operating costs and expenses

 

63,078

 

81,018

 

1,406.6

 

Income from operations

 

12,847

 

13,036

 

226.3

 

Interest income

 

2,863

 

2,909

 

50.5

 

Interest expense

 

(1,208)

 

(897)

 

(15.6)

 

Other loss, net

 

(3,395)

 

(1,466)

 

(25.4)

 

Net income before income taxes

 

11,107

 

13,582

 

235.8

 

Provision for income taxes

 

4,324

 

4,926

 

85.5

 

Net income

 

6,783

 

8,656

 

150.3

 

Net loss attributable to noncontrolling interests

 

15

 

120

 

2.1

 

Net income attributable to Yandex N.V.

 

6,798

 

8,776

 

152.4

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

Basic

 

21.19

 

27.02

 

0.47

 

Diluted

 

20.84

 

26.49

 

0.46

 

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

 

Basic

 

320,788,967

 

324,747,888

 

324,747,888

 

Diluted

 

326,136,949

 

331,243,961

 

331,243,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

Cost of revenues

 

193

 

178

 

3.1

Product development

 

2,238

 

2,477

 

43.0

Sales, general and administrative

 

991

 

1,538

 

26.7

 

 

Derived from audited consolidated financial statements

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

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

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 

 

 

2016*

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

1,213

 

3,500

 

60.8

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

 

 

 

 

 

 

Depreciation of property and equipment

 

1,913

 

2,534

 

44.0

Amortization of intangible assets

 

495

 

489

 

8.5

Amortization of debt discount and issuance costs

 

201

 

173

 

3.0

Share-based compensation expense

 

865

 

1,394

 

24.2

Deferred income taxes

 

(673)

 

(584)

 

(10.1)

Foreign exchange losses

 

1,163

 

243

 

4.2

Gain from sale of equity securities

 

 -

 

(33)

 

(0.6)

Other

 

107

 

(226)

 

(3.9)

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

 

 

 

 

 

 

Accounts receivable, net

 

(1,513)

 

(1,505)

 

(26.1)

Prepaid expenses and other assets

 

(546)

 

(253)

 

(4.4)

Accounts payable and accrued liabilities

 

1,798

 

1,632

 

28.3

Deferred revenue

 

306

 

227

 

3.9

Net cash provided by operating activities

 

5,329

 

7,591

 

131.8

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

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(2,923)

 

(2,563)

 

(44.5)

Proceeds from sale of property and equipment

 

19

 

43

 

0.7

Acquisitions of businesses, net of cash acquired

 

 -

 

(554)

 

(9.6)

Investments in non-marketable equity securities

 

(130)

 

(78)

 

(1.4)

Proceeds from sale of equity securities

 

 -

 

51

 

0.9

Investments in debt securities

 

(1,253)

 

 -

 

 -

Investments in term deposits

 

(33,034)

 

 -

 

 -

Maturities of term deposits

 

12,632

 

14,863

 

258.0

Loans granted

 

(277)

 

(61)

 

(1.0)

Net cash (used in)/provided by investing activities

 

(24,966)

 

11,701

 

203.1

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

100

 

18

 

0.3

Repurchase of equity awards

 

 -

 

(77)

 

(1.3)

Repurchases of convertible debt

 

(3,318)

 

 -

 

 -

Payment for contingent consideration

 

(87)

 

 -

 

 -

Other financing activities

 

114

 

(1)

 

 -

Net cash used in financing activities

 

(3,191)

 

(60)

 

(1.0)

Effect of exchange rate changes on cash and cash balances

 

(671)

 

(162)

 

(2.9)

Net change in cash and cash balances

 

(23,499)

 

19,070

 

331.0

Cash and cash balances at beginning of period

 

52,309

 

24,161

 

419.5

Cash and cash balances at end of period

 

28,810

 

43,231

 

750.5

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

51,695

 

23,591

 

409.6

Restricted cash, beginning of period

 

614

 

570

 

9.9

Cash and cash balances, beginning of period

 

52,309

 

24,161

 

419.5

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

28,232

 

42,662

 

740.7

Restricted cash, end of period

 

578

 

569

 

9.8

Cash and cash balances, end of period

 

28,810

 

43,231

 

750.5

 

* 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)

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31, 

 

 

2016* **

 

2017

 

2017

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

6,783

 

8,656

 

150.3

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

 

 

 

 

 

 

Depreciation of property and equipment

 

7,655

 

9,131

 

158.5

Amortization of intangible assets

 

1,952

 

2,108

 

36.6

Amortization of debt discount and issuance costs

 

911

 

684

 

11.9

Share-based compensation expense

 

3,422

 

4,193

 

72.8

Deferred income taxes

 

(864)

 

(1,513)

 

(26.3)

Foreign exchange losses

 

3,834

 

1,784

 

31.0

Gain from sale of equity securities

 

(157)

 

(33)

 

(0.6)

(Gains)/losses from repurchases of convertible debt

 

(53)

 

 6

 

0.1

Other

 

(40)

 

(266)

 

(4.6)

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

 

 

 

 

 

 

Accounts receivable, net

 

(2,385)

 

(2,179)

 

(37.8)

Prepaid expenses and other assets

 

113

 

(1,680)

 

(29.2)

Accounts payable and accrued liabilities

 

3,817

 

2,560

 

44.4

Deferred revenue

 

298

 

321

 

5.6

Net cash provided by operating activities

 

25,286

 

23,772

 

412.7

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(9,625)

 

(12,389)

 

(215.1)

Proceeds from sale of property and equipment

 

177

 

73

 

1.3

Acquisitions of businesses, net of cash acquired

 

 -

 

(918)

 

(15.9)

Investments in non-marketable equity securities

 

(491)

 

(191)

 

(3.3)

Proceeds from sale of equity securities

 

 -

 

267

 

4.6

Investments in debt securities

 

(3,159)

 

 -

 

 -

Proceeds from maturity of debt securities

 

2,525

 

2,887

 

50.1

Investments in term deposits

 

(70,430)

 

(70,082)

 

(1,216.7)

Maturities of term deposits

 

68,447

 

72,731

 

1,262.7

Loans granted

 

(550)

 

(166)

 

(2.9)

Net cash used in investing activities

 

(13,106)

 

(7,788)

 

(135.2)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

431

 

328

 

5.7

Repurchase of equity awards

 

 -

 

(77)

 

(1.3)

Repurchases of convertible debt

 

(5,397)

 

(668)

 

(11.6)

Payment for contingent consideration

 

(680)

 

(195)

 

(3.4)

Other financing activities

 

97

 

25

 

0.4

Net cash used in financing activities

 

(5,549)

 

(587)

 

(10.2)

Effect of exchange rate changes on cash and cash balances

 

(3,449)

 

(976)

 

(17.0)

Net change in cash and cash balances

 

3,182

 

14,421

 

250.3

Cash and cash balances at beginning of period

 

25,628

 

28,810

 

500.2

Cash and cash balances at end of period

 

28,810

 

43,231

 

750.5

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

24,238

 

28,232

 

490.1

Restricted cash, beginning of period

 

1,390

 

578

 

10.1

Cash and cash balances, beginning of period

 

25,628

 

28,810

 

500.2

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

28,232

 

42,662

 

740.7

Restricted cash, end of period

 

578

 

569

 

9.8

Cash and cash balances, end of period

 

28,810

 

43,231

 

750.5

 

 

* 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.

 

** Derived from audited consolidated financial statements

 


 

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 December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Total revenues

22,119
27,860
26%
75,925
94,054
24%

Less: traffic acquisition costs (TAC)

4,274
4,789
12%
14,950
17,345
16%

Ex-TAC revenues

17,845
23,071
29%
60,975
76,709
26%

 

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

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2016

2017

Change

2016

2017

Change

Net income

1,213

3,500

189%

6,783

8,656

28%

Add: depreciation and amortization

2,408

3,023

26%

9,607

11,239

17%

Add: share-based compensation expense

865

1,394

61%

3,422

4,193

23%

Add: compensation expense related to contingent consideration

91

42

-54%

245

203

-17%

Less: interest income

(609)

(780)

28%

(2,863)

(2,909)

2%

Add: interest expense

265

226

-15%

1,208

897

-26%

Add: other loss/(income), net

1,154

(26)

n/m

3,395

1,466

-57%

Add: provision for income taxes

1,314

1,897

44%

4,324

4,926

14%