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 25, 2019

 

 

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 October 25, 2019, announcing the Company’s results for the third quarter ended September 30, 2019.

 

 

 

 

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 25, 2019By:

     Greg Abovsky

     Chief Financial Officer and

Chief Operating Officer

 

 

3

INDEX TO EXHIBITS

 

Number 

Description

99.1

Press release of Yandex N.V. dated October 25, 2019, announcing the Company’s results for the third quarter ended September 30, 2019.

 

 

4

yndx_Current_Folio_6K_Ex99_1

Exhibit 99.1

Yandex Announces Third Quarter 2019 Financial Results

 

MOSCOW and AMSTERDAM, the Netherlands, October 25, 2019 -- Yandex (NASDAQ and MOEX: 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, 2019.

 

Q3 2019 Financial Highlights(1)(2)(3)

 

Q3 2019 consolidated financial results

 

·

Revenues of RUB 45 billion ($698.8 million), up 38% compared with Q3 2018

·

Net income of RUB 4.4 billion ($68.0 million), down 1% compared with Q3 2018; net income margin of 9.7%

·

Adjusted net income of RUB 6.9 billion ($106.7 million), up 12% compared with Q3 2018; adjusted net income margin of 15.3%

·

Adjusted EBITDA of RUB 13.9 billion ($216.1 million), up 29% compared with Q3 2018; adjusted EBITDA margin of 30.9%

 

Cash, cash equivalents and term deposits as of September 30, 2019:

·

RUB 85.4 billion ($1,326.4 million) on a consolidated basis

·

Of which RUB 25.7 billion ($399.3 million) related to Taxi segment 

 

Q3 2019 Operational and Corporate Highlights

 

·

Share of Russian search market, including mobile, averaged 56.6% in Q3 2019, up from 55.9% in Q3 2018 and down from 56.9% in Q2 2019, according to Yandex.Radar

·

Search share on Android in Russia was 52.8% in Q3 2019, up from 49.1% in Q3 2018 and 52.3% in Q2 2019, according to Yandex.Radar

·

Search queries in Russia grew 9% compared with Q3 2018

·

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 22% compared with Q3 2018

·

Average cost per click decreased 2% compared with Q3 2018

·

Number of rides in the Taxi segment grew 58% year-on-year compared with Q3 2018

·

MLU B.V., Yandex’s ride-sharing and food delivery joint venture with Uber, announced an agreement to acquire the IP and call-centers of the Vezet group of companies in Russia

 

“I am delighted with another excellent set of results,” said Arkady Volozh, Chief Executive Officer of Yandex. “In Q3, our ride-sharing business delivered sequential acceleration in ride growth, while Zen continued to grow its user engagement, and Yandex.Drive became the second largest car-sharing service in the world.  Our strong IT expertise allows us to develop new business models, and we aim to continue preserving and growing the IT talent pool both for Yandex and the country as a whole.”

 

 

“We delivered 38% year-on-year revenue growth in Q3 with great contributions from Search and Portal, Taxi and Drive,” said Greg Abovsky, Chief Operating Officer and Chief Financial Officer of Yandex. “Our core business continued delivering strong results and demonstrated solid margins, while our business units and experiments maintained triple digit revenue growth, and now represent 36% of consolidated revenues.”

 

The following table provides a summary of our key consolidated financial results for the three and nine months ended September 30, 2018 and 2019, which includes Yandex.Market financial results through April 27, 2018, the date as of which that business was deconsolidated:

 

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Revenues

32,570

45,014

38%

88,815

123,695

39%

Ex-TAC revenues2

27,277

39,257

44%

74,481

107,002

44%

Income from operations

5,959

7,437

25%

13,380

19,809

48%

Adjusted EBITDA2

10,801

13,919

29%

27,261

37,784

39%

Net income

4,434

4,378

-1%

38,860

10,918

-72%

Adjusted net income2

6,162

6,876

12%

15,183

18,141

19%

 

 

 

(1)

Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 64.4156 to $1.00, the official exchange rate quoted as of September 30, 2019 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.

 

 

Our segment disclosure is available in the Segment financial results table below Income from operations.

 

 

 

Consolidated revenues breakdown

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Online advertising revenues:

 

 

 

 

 

 

              Yandex properties3

19,965

24,903

25%

56,303

68,669

22%

              Advertising network

5,952

6,329

6%

16,936

18,744

11%

Total online advertising revenues3

25,917

31,232

21%

73,239

87,413

19%

Revenues related to Taxi segment

5,109

9,636

89%

12,289

26,058

112%

Other

1,544

4,146

169%

3,287

10,224

211%

Total revenues3

32,570

45,014

38%

88,815

123,695

39%

 

(3)

Excluding Yandex.Market from financial results for the nine months ended September 30, 2018:

·

Online advertising revenues related to Yandex properties grew 25% year-on-year

·

Total online advertising revenues grew 22% year-on-year

·

Total revenues grew 41% year-on-year

 

 

Online advertising revenues grew 21% in Q3 2019 compared with Q3 2018 and generated 69% 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 25% in Q3 2019 compared with Q3 2018 and accounted for 55% of total revenues.

 

Online advertising revenues from our advertising network increased 6% in Q3 2019 compared with Q3 2018 and accounted for 14% of total revenues.

 

Revenues related to Taxi segment grew 89% in Q3 2019 compared with Q3 2018 and accounted for 21% of total revenues. This increase mainly reflected the solid performance of our ride-sharing business driven by increase in the number of rides and incentives optimization, the strong growth of our corporate Taxi offering, which we recognize on a gross basis, as well as the growing contribution of our food delivery businesses.

 

Other revenues grew 169% in Q3 2019 compared with Q3 2018 and amounted to 9% of total revenues. The growth was primarily driven by our car-sharing service Yandex.Drive, subscription revenues of Media Services and our initiatives related to IoT (Internet of Things).

 

 

 

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 include 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 2019 Yandex's headcount increased by 583 full-time employees. The total number of full-time employees was 9,588 as of September 30, 2019, up by 6% compared with June 30, 2019, and up 8% from September 30, 2018.

 

 

Cost of revenues, including traffic acquisition costs (TAC)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

TAC:

 

 

 

 

 

 

Related to the Yandex advertising network

3,772

3,848

2%

10,379

11,273

9%

Related to distribution partners

1,521

1,909

26%

3,955

5,420

37%

Total TAC

5,293

5,757

9%

14,334

16,693

16%

Total TAC as a % of total revenues

16.3%
12.8%

 

16.1%
13.5%

 

Costs related to Taxi segment

1,282

3,029

136%

3,459

8,155

136%

Costs related to Taxi segment as a % of revenues

3.9%
6.7%

 

3.9%
6.6%

 

Other cost of revenues

2,489

5,175

108%

6,243

13,275

113%

Other cost of revenues as a % of revenues

7.6%
11.5%

 

7.0%
10.7%

 

Total cost of revenues

9,064

13,961

54%

24,036

38,123

59%

Total cost of revenues as a % of revenues

27.8%
31.0%

 

27.1%
30.8%

 

 

TAC grew 9% in Q3 2019 compared with Q3 2018 and represented 12.8% of total revenues, 350 basis points lower than in Q3 2018 and 70 basis points lower compared with Q2 2019 as a result of revenue mix effect. 

 

Costs related to Taxi segment increased 136% compared with Q3 2018. The growth was mainly a result of an increase of costs related to our corporate Taxi offering and the logistics costs related to food delivery. We are the principal in

 

transactions with our Taxi corporate clients, therefore, we recognize both revenues and cost of revenues on a gross basis.

 

Other cost of revenues in Q3 2019 increased 108% compared with Q3 2018,  mainly reflecting the growth of costs related to Yandex.Drive, our investments in content within Media Services, as well as our IoT initiatives.

 

Product development

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Product development

5,534

7,407

34%

16,723

21,108

26%

As a % of revenues

17.0%
16.5%

 

18.7%
17.1%

 

 

Product development expenses grew 34% in Q3 2019 compared to Q3 2018, primarily reflecting salary and other personnel-related costs increases, growth of share-based compensation and new hires in Q3 2019.  

 

Sales, general and administrative (SG&A)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Sales, general and administrative

8,895

12,421

40%

25,742

33,854

32%

As a % of revenues

27.3%
27.6%

 

29.0%
27.4%

 

 

SG&A expenses grew 40% in Q3 2019 compared to Q3 2018.The growth was mainly driven by the increase of personnel costs as a result of salary and other personnel expenses growth as well as new hires, and due to the increase of advertising and marketing expenses to support growth of our business units.  

 

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, 

 

2018

2019

Change

2018

2019

Change

SBC expense included in cost of revenues

47

72

53%

126

204

62%

 

SBC expense included in product development

1,139

1,663

46%

3,343

4,674

40%

SBC expense included in SG&A

530

935

76%

1,441

2,258

57%

Total SBC expense

1,716

2,670

56%

4,910

7,136

45%

As a % of revenues

5.3%
5.9%

 

5.5%
5.8%

 

 

Total SBC expense increased 56% in Q3 2019 compared with Q3 2018. The growth was primarily related to new equity-based grants made in 2018-2019.

 

Depreciation and amortization (D&A) expense

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Depreciation and amortization

3,118

3,788

21%

8,934

10,801

21%

As a % of revenues

9.6%
8.4%

 

10.1%
8.7%

 

 

D&A expense increased 21% in Q3 2019 compared with Q3 2018. The D&A expense increase was mainly driven by our investments in servers and data center equipment as well as by costs related to purchases of office and other equipment.

 

 

Income from operations

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

 

2018

2019

Change

2018

2019

Change

Income from operations

5,959

7,437

25%

13,380

19,809

48%

 

Income from operations increased 25% in Q3 2019 compared with Q3 2018.

 

Segment financial results

 

 

 

 

 

 

 

 

In RUB millions

Three months ended September 30,

Nine months ended September 30,

 

2018

2019

Change

2018

2019

Change

Revenues:

 

 

 

 

 

 

 

Search and Portal

25,816

31,172

21%
71,350

87,371

22%

Search and Portal, excluding IoT*

25,801

30,894

20%
71,335

86,680

22%

E-commerce**

 -

 -

 -

1,697

 -

-100%

Taxi

5,109
9,654
89%
12,289
26,103
112%

Classifieds

988
1,371
39%
2,609
3,779
45%

Media Services

414
924
123%
1,230
2,534
106%

Other Bets and Experiments

1,480
4,088
176%
3,389
9,986
195%

Eliminations

(1,237)
(2,195)
77%
(3,749)
(6,078)
62%

Total revenues

32,570
45,014
38%
88,815
123,695
39%

Adjusted EBITDA:

 

 

 

 

 

 

Search and Portal

12,593

15,467

23%
34,808

42,061

21%

Search and Portal, excluding IoT*

12,666

15,669

24%
34,956

42,556

22%

E-commerce**

 -

 -

 -

(263)

 -

-100%

Taxi

(711)
170

n/m

(4,305)
477

n/m

Classifieds

78
43

-45%

(165)
(20)

-88%

Media Services

(238)
(636)
167%
(595)
(1,514)
154%

Other Bets and Experiments

(962)
(1,180)
23%
(2,318)
(3,366)
45%

Eliminations

41
55
34%
99
146
47%

Total adjusted EBITDA

10,801
13,919
29%
27,261
37,784
39%

Adjusted EBITDA margin:

 

 

 

 

 

 

Search and Portal

48.8%
49.6%
0.8%
48.8%
48.1%

-0.7%

Search and Portal, excluding IoT*

49.1%
50.7%
1.6%
49.0%
49.1%
0.1%

E-commerce**

 -

 -

 -

-15.5%

 -

 -

 

Taxi

-13.9%

1.8%
15.7%

-35.0%

1.8%
36.8%

Classifieds

7.9%
3.1%

-4.8%

-6.3%

-0.5%

5.8%

Media Services

-57.5%

-68.8%

-11.3%

-48.4%

-59.7%

-11.3%

Other Bets and Experiments

-65.0%

-28.9%

36.1%

-68.4%

-33.7%

34.7%

Total adjusted EBITDA margin

33.2%
30.9%

-2.3%

30.7%
30.5%

-0.2%

 

Financial results of segments are presented in the new segment structure that we introduced in Q1 2019. The historical data is provided in the supplementary slides.

 

*IoT stands for Internet of Things

 

**Our E-commerce segment revenues include revenues of Yandex.Market through April 27, 2018. As a result of deconsolidation, we record our share of Yandex.Market’s financial results within the loss/(income) from equity method investments line in the consolidated statements of income.

 

·

Search and Portal segment offers a broad range of services in Russia, Belarus, Kazakhstan, Uzbekistan and Turkey, other than those described below. Since Q1 2019 our Search and Portal segment also includes Yandex.Health, previously reported in Other Bets and Experiments;

·

E-commerce segment includes Yandex.Market for the period prior to April 27, 2018, the date of the completion of the Yandex.Market joint venture between Yandex and Sberbank;

·

Taxi segment includes our Taxi business (including Yandex.Taxi and Uber in Russia and neighboring countries), Food Delivery business (including Yandex.EATs, UberEATs and Yandex.Chef, a meal kit subscription service) and Self-Driving Cars division;

·

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

·

Media Services segment includes KinoPoisk, Yandex.Music, Yandex.Afisha, Yandex.TV program, our production center Yandex.Studio and our subscription service Yandex.Plus;

·

Other Bets and Experiments category includes Zen, Yandex.Cloud, Yandex.Drive, Geolocation Services and Yandex.Education. Geolocation Services and Yandex.Education previously were a part of our Search and Portal segment;

·

Eliminations in our revenues represent the elimination of transactions between the reportable segments, primarily related to advertising. Eliminations related to our adjusted EBITDA mainly reflect reallocation of a portion of Search and Portal D&A expenses related to leasehold improvements to office rent expenses of our business unites.

 

Adjusted EBITDA increased 29% in Q3 2019 compared with Q3 2018. The growth was mainly driven by the solid perfomance of Search and Portal segment and continuing improvment of our Taxi segment profitability, which were slightly offset by investments in Media Services and car-sharing business as well as by development of our Cloud and IoT initiatives.

 

Adjusted EBITDA of Taxi was RUB 170 million in Q3 2019, up from negative RUB 711 million in Q3 2018. The significant increase of adjusted EBITDA was driven by consistently improving profitability of our ride-sharing business, partially offset by our investments in our autonomous vehicles and foodtech initiatives.

 

 

Interest income in Q3 2019 was RUB 847 million, compared with RUB 928 million in Q3 2018.

 

Interest expense in Q3 2019 was RUB 30 million, down from RUB 260 million in Q3 2018.

 

Foreign exchange gain in Q3 2019 was RUB 254 million, compared with a foreign exchange gain of RUB 154 million in Q3 2018. This gain reflects the depreciation of the Russian ruble during Q3 2019 from RUB 63.0756 to $1.00 on June 30, 2019, to RUB 64.4156 to $1.00 on September 30, 2019. 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 income/(loss), 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 Q3 2019.

 

Income tax expense for Q3 2019 was RUB 3,341 million, up from RUB 2,326 million in Q3 2018. Our effective tax rate of 43.3% in Q3 2019 was higher than in Q3 2018, primarily due to increase in stock-based compensation which is non-taxable. Adjusted for SBC expense and certain tax provisions recognized, our effective tax rate for Q3 2019 was 31.7%, compared with 25.4% for Q3 2018 as adjusted for SBC expense and similar provisions in that year. The increase in the adjusted effective tax rate was primarily driven by certain additional valuation allowances provided in Q3 2019.

 

Net income was RUB 4.4 billion ($68.0 million) in Q3 2019, down 1% compared with Q3 2018.

 

Adjusted net income in Q3 2019 was RUB 6.9 billion ($106.7 million), a 12% increase from Q3 2018. 

 

Adjusted net income margin was 15.3% in Q3 2019, compared with 18.9% in Q3 2018.

 

As of September 30, 2019, Yandex had cash, cash equivalents and term deposits of RUB 85.4 billion ($1,326.4 million), including cash, cash equivalents and term deposits of Yandex.Taxi in total amount of RUB 25.7 billion ($399.3 million). 

 

Net cash flow provided by operating activities for Q3 2019 was RUB 14.7 billion ($228.0 million) and capital expenditures were RUB 5.3 billion ($82.4 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 and Classifieds segments, pursuant to which such persons are eligible to acquire depositary receipts, or receive options to acquire depositary receipts, which entitles them to economic interests in the respective business unit subsidiaries.

 

The total number of shares issued and outstanding as of September 30, 2019 was 328,485,996 including 290,767,337 Class A shares, 37,718,658 Class B shares, and one Priority share and excluding 1,830,318 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 were cancelled.

 

There were also employee share options outstanding to purchase up to an additional 3.3 million shares, at a weighted average exercise price of $36.85 per share, 1.5 million of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $32.76, all of which were fully vested; and restricted share units (RSUs) covering 12.7 million shares, of which RSUs to acquire 4.3 million shares were fully

 

vested. Equity awards in respect of business unit subsidiaries are described under Redeemable noncontrolling interests above.

 

Financial outlook

 

Based on our recent performance, we currently expect our ruble-based revenues excluding Yandex.Market to grow in the range of 36% to 38% for the full year 2019 compared with 2018.

 

We  are changing the lower end of our financial outlook for Search and Portal and now expect its ruble-based revenue to grow in the range of 20% to 21% in the full year 2019 compared with 2018.

 

 

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  25, 2019 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: +1 866 966 1396

UK/International: +44 (0) 844 571 8892

Russia: 8 10 800 2357 5011

Passcode: 8095887

 

A replay of the call will be available until November 1, 2019. To access the replay, please dial:

 

US: +1 917 677 7532

UK/International: +44 (0) 844 571 8951

Russia: +7 495 249 9138

Passcode: 8095887

 

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

 

https://edge.media-server.com/mmc/p/movn8ea6 

 

 

ABOUT YANDEX

 

Yandex (NASDAQ and MOEX: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 34 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 2019. 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 or our business, changes in the political, legal and/or regulatory environment, competitive pressures, changes in advertising patterns, changes in user preferences, 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, 2018, 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 25, 2019, 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) loss/(income) from equity method investments, (6) income tax expense,  less (1) effect of Yandex.Market deconsolidation, (2) interest income and (3)  other (income)/loss, net

·

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) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax, less (1) foreign exchange (gains)/losses adjusted for increase/(reduction) in income tax attributable to foreign exchange (gains)/losses and (2) effect of deconsolidation of former subsidiaries

·

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 and bonuses but, unlike sales commissions and bonuses, 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.

 

 

Effect of deconsolidation of Yandex.Market/former subsidiaries

 

We believe that it is useful to present adjusted net income and related margin measures excluding the effect of deconsolidation of former subsidiaries and to present certain other financial metrics described above in order to provide a clearer picture of our underlying operating performance and to provide meaningful period-to-period comparisons. Adjusted net income in 9 months 2018 excludes a gain from deconsolidation of Yandex.Market following the formation of Yandex.Market joint venture by Yandex and Sberbank in April 2018.

 

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 which matured in Q4 2018. 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.

 

The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use from 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, 

 

 

2018*

 

2019

 

2019

 

 

RUB

 

RUB

 

$

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

68,798

 

43,528

 

675.7

Term deposits

 

 -

 

41,913

 

650.7

Investments in marketable equity securities

 

 -

 

2,998

 

46.5

Accounts receivable, net

 

14,570

 

15,900

 

246.8

Prepaid expenses

 

2,119

 

2,682

 

41.7

Funds receivable, net

 

2,217

 

1,298

 

20.2

Other current assets

 

4,177

 

9,270

 

143.9

Total current assets

 

91,881

 

117,589

 

1,825.5

 

 

 

 

 

 

 

Property and equipment, net

 

39,740

 

45,754

 

710.3

Operating lease right-of-use assets

 

16,944

 

17,769

 

275.8

Intangible assets, net

 

11,545

 

10,608

 

164.7

Non-current content assets, net

 

335

 

1,809

 

28.1

Goodwill

 

52,662

 

52,967

 

822.3

Long-term prepaid expenses

 

1,800

 

1,851

 

28.6

Investments in non-marketable equity securities

 

36,484

 

29,500

 

458.0

Deferred tax assets

 

3,523

 

2,201

 

34.2

Other non-current assets

 

3,473

 

3,451

 

53.6

TOTAL ASSETS

 

258,387

 

283,499

 

4,401.1

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

22,550

 

31,866

 

494.6

Income and non-income taxes payable

 

4,059

 

7,779

 

120.8

Deferred revenue

 

2,792

 

2,806

 

43.6

Total current liabilities

 

29,401

 

42,451

 

659.0

 

 

 

 

 

 

 

Deferred tax liabilities

 

1,572

 

2,206

 

34.2

Operating lease liabilities

 

12,204

 

8,098

 

125.7

Other accrued liabilities

 

569

 

1,010

 

15.8

Total liabilities

 

43,746

 

53,765

 

834.7

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests

 

13,035

 

13,682

 

212.4

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: 292,437,655 and 292,597,655, Class B: 37,878,658 and 37,718,658, and Class C: nil and 30,000, respectively); shares outstanding (Class A: 286,848,365 and 290,767,337, Class B: 37,878,658 and 37,718,658, and Class C: nil)

 

263

 

263

 

4.1

Treasury shares at cost (Class A: 5,589,290 and 1,830,318, respectively)

 

(10,769)

 

(3,236)

 

(50.2)

Additional paid-in capital

 

69,729

 

69,417

 

1,077.6

Accumulated other comprehensive income

 

8,182

 

6,042

 

93.8

Retained earnings

 

111,465

 

122,366

 

1,899.6

Total equity attributable to Yandex N.V.

 

178,870

 

194,852

 

3,024.9

Noncontrolling interests

 

22,736

 

21,200

 

329.1

Total shareholders’ equity

 

201,606

 

216,052

 

3,354.0

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

258,387

 

283,499

 

4,401.1

 

    Derived from audited consolidated financial statements except for restatement of balances due to adoption of ASC 842 Leases, which required the recognition of right-of-use assets and lease liabilities for operating leases

 

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, 

 

 

2018*

 

2019

 

2019

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

Revenues

 

32,570

 

45,014

 

698.8

Operating costs and expenses:

 

 

 

 

 

 

Cost of revenues(1)

 

9,064

 

13,961

 

216.7

Product development(1)

 

5,534

 

7,407

 

115.0

Sales, general and administrative(1)

 

8,895

 

12,421

 

192.9

Depreciation and amortization

 

3,118

 

3,788

 

58.8

Total operating costs and expenses

 

26,611

 

37,577

 

583.4

Income from operations

 

5,959

 

7,437

 

115.4

Interest income

 

928

 

847

 

13.1

Interest expense

 

(260)

 

(30)

 

(0.5)

Loss from equity method investments

 

(22)

 

(899)

 

(14.0)

Other income, net

 

155

 

364

 

5.8

Net income before income taxes

 

6,760

 

7,719

 

119.8

Income tax expense

 

2,326

 

3,341

 

51.8

Net income

 

4,434

 

4,378

 

68.0

Net loss attributable to noncontrolling interests

 

334

 

270

 

4.2

Net income attributable to Yandex N.V.

 

4,768

 

4,648

 

72.2

Net income per Class A and Class B share:

 

 

 

 

 

 

Basic

 

14.58

 

14.17

 

0.22

Diluted

 

14.25

 

13.85

 

0.22

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

Basic

 

326,960,171

 

327,950,520

 

327,950,520

Diluted

 

334,518,196

 

335,432,722

 

335,432,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

47

 

72

 

1.1

 

Product development

 

1,139

 

1,663

 

25.8

 

Sales, general and administrative

 

530

 

935

 

14.5

 

 

 

*  Adjusted for restatement of operating costs and expenses and other income/(loss), net due to adoption of ASC 842 Leases, which required the recognition of right-of-use assets and lease liabilities for operating leases

 

 

 

 

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, 

 

 

 

2018*

 

2019

 

2019

 

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

 

 

Revenues

 

88,815

 

123,695

 

1,920.3

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of revenues(1)

 

24,036

 

38,123

 

591.8

 

Product development(1)

 

16,723

 

21,108

 

327.7

 

Sales, general and administrative(1)

 

25,742

 

33,854

 

525.5

 

Depreciation and amortization

 

8,934

 

10,801

 

167.7

 

Total operating costs and expenses

 

75,435

 

103,886

 

1,612.7

 

Income from operations

 

13,380

 

19,809

 

307.6

 

Interest income

 

2,453

 

2,508

 

38.9

 

Interest expense

 

(724)

 

(43)

 

(0.7)

 

Effect of Yandex.Market deconsolidation

 

28,244

 

 -

 

 -

 

Income/(loss) from equity method investments

 

280

 

(2,483)

 

(38.5)

 

Other income/(loss), net

 

1,016

 

(285)

 

(4.5)

 

Net income before income taxes

 

44,649

 

19,506

 

302.8

 

Income tax expense

 

5,789

 

8,588

 

133.3

 

Net income

 

38,860

 

10,918

 

169.5

 

Net loss attributable to noncontrolling interests

 

1,578

 

957

 

14.8

 

Net income attributable to Yandex N.V.

 

40,438

 

11,875

 

184.3

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

Basic

 

123.51

 

36.37

 

0.56

 

Diluted

 

120.40

 

35.47

 

0.55

 

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

 

Basic

 

327,396,376

 

326,486,040

 

326,486,040

 

Diluted

 

335,852,917

 

334,774,392

 

334,774,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  These balances exclude depreciation and amortization expenses, which are presented separately, and

     include share-based compensation expenses of:

 

 

 

 

 

 

 

 

Cost of revenues

 

126

 

204

 

3.2

Product development

 

3,343

 

4,674

 

72.6

Sales, general and administrative

 

1,441

 

2,258

 

35.0

 

*  Adjusted for restatement of operating costs and expenses and other income/(loss), net due to adoption of ASC 842 Leases, which required the recognition of right-of-use assets and lease liabilities for operating leases

 

 

 

 

 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

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

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

 

2018*

 

2019

 

2019

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

4,434

 

4,378

 

68.0

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

 

 

 

 

 

 

Depreciation of property and equipment

 

2,511

 

3,110

 

48.3

Amortization of intangible assets

 

607

 

678

 

10.5

ROU assets amortization*

 

1,404

 

2,358

 

36.6

Amortization of debt discount and issuance costs

 

201

 

 -

 

 -

Share-based compensation expense

 

1,716

 

2,670

 

41.4

Deferred income taxes

 

(47)

 

74

 

1.1

Foreign exchange gains

 

(154)

 

(254)

 

(3.9)

Loss from equity method investments

 

25

 

899

 

14.0

Other

 

(39)

 

135

 

2.1

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

 

 

 

 

 

 

Accounts receivable, net

 

(1,332)

 

168

 

2.6

Prepaid expenses and other assets

 

(2,036)

 

(114)

 

(1.7)

Accounts payable and accrued liabilities

 

366

 

581

 

9.0

Deferred revenue

 

(60)

 

 1

 

 -

Net cash provided by operating activities

 

7,596

 

14,684

 

228.0

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

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(4,305)

 

(5,305)

 

(82.4)

Proceeds from sale of property and equipment

 

60

 

 7

 

0.1

Acquisitions of businesses, net of cash acquired

 

(83)

 

 -

 

 -

Investments in non-marketable equity securities

 

(16)

 

 -

 

 -

Investments in term deposits

 

 -

 

(28,507)

 

(442.5)

Maturities of term deposits

 

20,243

 

28,787

 

446.9

Loans granted, net of proceeds from repayments

 

(194)

 

 -

 

 -

Net cash provided by/(used in) investing activities

 

15,705

 

(5,018)

 

(77.9)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

 3

 

89

 

1.4

Purchase of redeemable noncontrolling interests

 

 -

 

(26)

 

(0.4)

Repurchases of ordinary shares

 

(9,544)

 

 -

 

 -

Payment for contingent consideration

 

(759)

 

(44)

 

(0.7)

Other financing activities

 

(18)

 

(58)

 

(0.9)

Net cash used in financing activities

 

(10,318)

 

(39)

 

(0.6)

Effect of exchange rate changes on cash and cash balances

 

367

 

92

 

1.4

Net change in cash and cash balances

 

13,350

 

9,719

 

150.9

Cash and cash balances at beginning of period

 

36,116

 

33,853

 

525.5

Cash and cash balances at end of period

 

49,466

 

43,572

 

676.4

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

35,930

 

33,809

 

524.9

Restricted cash, beginning of period

 

186

 

44

 

0.6

Cash and cash balances, beginning of period

 

36,116

 

33,853

 

525.5

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

49,388

 

43,528

 

675.7

Restricted cash, end of period

 

78

 

44

 

0.7

Cash and cash balances, end of period

 

49,466

 

43,572

 

676.4

 

 

 

*  Adjusted for restatement of cash flows from operating activities due to adoption of ASC 842 Leases, which required the recognition of right-of-use (ROU) assets and lease liabilities for operating leases

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

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

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

2018*

 

2019

 

2019

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

38,860

 

10,918

 

169.5

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

 

 

 

 

 

 

Depreciation of property and equipment

 

7,239

 

8,850

 

137.4

Amortization of intangible assets

 

1,695

 

1,951

 

30.3

ROU assets amortization*

 

3,775

 

6,367

 

98.8

Amortization of debt discount and issuance costs

 

558

 

 -

 

 -

Share-based compensation expense

 

4,910

 

7,136

 

110.8

Deferred income taxes

 

(1,479)

 

1,834

 

28.5

Foreign exchange (gains)/losses

 

(896)

 

295

 

4.6

Effect of deconsolidation of Yandex.Market

 

(28,244)

 

 -

 

 -

(Income)/loss from equity method investments

 

(279)

 

2,483

 

38.5

Other

 

(188)

 

321

 

5.0

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

 

 

 

 

 

 

Accounts receivable, net

 

(2,484)

 

(1,408)

 

(21.9)

Prepaid expenses and other assets

 

(4,712)

 

(4,756)

 

(73.7)

Accounts payable and accrued liabilities

 

976

 

1,728

 

26.8

Deferred revenue

 

(126)

 

35

 

0.5

Net cash provided by operating activities

 

19,605

 

35,754

 

555.1

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(14,466)

 

(15,010)

 

(233.0)

Proceeds from sale of property and equipment

 

224

 

36

 

0.6

Acquisitions of businesses, net of cash acquired

 

20,680

 

(347)

 

(5.4)

Investments in non-marketable equity securities

 

(155)

 

(65)

 

(1.0)

Investments in term deposits

 

(55,592)

 

(76,262)

 

(1,183.9)

Maturities of term deposits

 

47,343

 

34,339

 

533.1

Deconsolidation of cash and cash equivalents of Yandex.Market

 

(2,181)

 

 -

 

 -

Loans granted, net of proceeds from repayments

 

(383)

 

84

 

1.2

Net cash used in investing activities

 

(4,530)

 

(57,225)