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

 

June, 2020

 

YANDEX N.V.

 

Schiphol Boulevard 165

1118 BG, Schiphol, the Netherlands.

Tel: +31 202 066 970

(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 o

 

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): o

 

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): o

 

 

 


 

Operating and Financial Review and Prospects

 

First Quarter 2020 and 2019

 

You should read the following discussion and analysis of our financial condition and results of operations for the first quarter 2020 and 2019 in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Report on Form 6-K, as well as our audited consolidated financial statements and the “Operating and Financial Review and Prospects” section of our 2019 Annual Report on Form 20-F, filed with the Securities and Exchange Commission on April 2, 2020, as amended, our 2019 Annual Report. In addition to historical information, this discussion contains forward-looking statements based on our current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” and “Forward-Looking Statements” sections of our 2019 Annual Report.

 

Overview

 

We are one of the largest European internet companies and the leading search provider in Russia. A detailed description of our business, our segment structure, key trends impacting our results of operations and our recent acquisitions is contained in the “Operating and Financial Review and Prospects” section of our 2019 Annual Report.

 

Impact of COVID-19 Pandemic

 

On March 11, 2020, the World Health Organization characterized the novel coronavirus disease (“COVID-19”) as a global pandemic. The pandemic has had a significant impact on the economies of most countries, led to the closure of borders, the suspension of manufacturing and production and the cancellation of mass events. In order to prevent the spread of infection, on March 28, 2020, the Government of the Russian Federation introduced a number of recommendations and restrictions, including restrictions on the movement of citizens and a limitation on most commercial activities in the country. These restrictions differ in scope across various regions of the Russian Federation, and are also subject to continuous updating, resulting in both the strengthening and loosening of such restrictions in different regions on a near daily basis. In the second week of June 2020, a gradual loosening of these restrictions in Russia commenced, including in Moscow.

 

For most of the three months ended March 31, 2020, our results of operations generally reflect historical trends and seasonality. The impact of COVID-19 on our financial results and operations in the three months ended March 31, 2020 was limited to the last two weeks of March, when we began to see a slowdown of growth in our advertising and ride-hailing businesses, which continued into the second quarter. Although overall user search activity increased, we noticed a slowdown in the commercial queries. The trends in April were particularly challenging in both businesses, but we began to see a moderate recovery from the end of the month, which continued in May and early June. We observed stronger performance in our FoodTech business, including the contributions of Yandex.Lavka and Yandex.Eats, as well as an acceleration in our Media Services business. With respect to our overall financial position as of March 31, 2020, our management concluded that COVID-19 factors had no significant impact on goodwill, non-current assets and redeemable noncontrolling interests. We believe our current liquidity position provides a certain financial flexibility to withstand the challenges of the COVID-19 situation: as of the end of March 31, 2020 our cash, cash equivalents and term deposits balances were RUB 197.2 billion, the majority of which is in foreign currency (primarily U.S. dollars). As of the end of May 2020, our cash, cash equivalents and term deposits remained on approximately the same level as in the end of the first quarter 2020. We, together with our subsidiaries, introduced and continue to follow as appropriate the safety measures introduced by respective countries of operation. In March 2020, in response to the COVID-19 pandemic, we shifted to remote working for all employees who could do so.

 

We also followed focused cost control and optimization process. In general, we have been able to sustain our operations, maintain financial reporting systems and internal control processes, and implement relevant additional COVID-19 influenced internal controls and procedures, including those over financial statements preparation.

 

At this time, the full impact of COVID-19 remains unknown and is rapidly evolving. Our past results may not be indicative of our future performance. For example, to the extent the pandemic continues to disrupt global economic activity, we will not necessarily be immune from potential adverse impacts to our business, operations and financial results through depressed economic activity, reductions in advertising expenditures, or declines in use of transportation. Further, the evolution of the pandemic may lead to a change in estimates and assumptions that affect the reported amounts of our assets and liabilities. Ultimately, the extent to which the COVID-19 crisis impacts our results will depend on future developments, which are highly uncertain and cannot be predicted at this time, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain the virus or treat its impact, among others.

 

Results of Operations

 

The following table presents our historical consolidated results of operations as a percentage of revenues for the periods indicated:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

Revenues

 

100.0

%

100.0

%

Operating costs and expenses:

 

 

 

 

 

Cost of revenues

 

31.1

 

34.5

 

Product development

 

19.3

 

16.9

 

Sales, general and administrative

 

28.0

 

28.8

 

Depreciation and amortization

 

8.7

 

8.5

 

Total operating costs and expenses

 

87.1

 

88.7

 

Income from operations

 

12.9

 

11.3

 

Interest income

 

2.2

 

1.5

 

Interest expense

 

 

(0.4

)

Loss from equity method investments

 

(1.7

)

(2.4

)

Other (loss)/income, net

 

(0.6

)

9.6

 

Income before income tax expense

 

12.8

 

19.6

 

Income tax expense

 

5.9

 

7.9

 

Net income

 

6.9

%

11.7

%

 

2


 

Our consolidated income from operations decreased, as a percentage of revenues, from 12.9% in the three months ended March 31, 2019 to 11.3% in the three months ended March 31, 2020. The decrease primarily reflects changes in segment mix amid the continuing investments in our rapidly growing new businesses, including Yandex.Drive and Media Services.

 

We expect our operating margins, representing our income from operations as a percentage of revenues, to decrease in the near term as a result of the increasing contribution of our non-core business units as a percentage of total revenues, given that their operating margins are lower than those of our core business, as well as due to investments in new initiatives in Search and Portal.

 

The following table presents our historical results of operations by reportable segment for the periods indicated:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

(in millions of
RUB)

 

Revenues

 

 

 

 

 

Search and Portal

 

27,109

 

30,126

 

Taxi

 

7,639

 

11,422

 

Classifieds

 

1,106

 

1,488

 

Media Services

 

734

 

1,433

 

Other Bets and Experiments

 

2,478

 

4,911

 

Eliminations

 

(1,782

)

(2,377

)

Total revenues

 

37,284

 

47,003

 

Adjusted operating costs and expenses

 

 

 

 

 

Search and Portal

 

16,877

 

18,525

 

Taxi

 

7,800

 

11,374

 

Classifieds

 

1,438

 

1,593

 

Media Services

 

1,184

 

2,158

 

Other Bets and Experiments

 

3,959

 

7,321

 

Eliminations

 

(1,782

)

(2,377

)

Total adjusted operating costs and expenses

 

29,476

 

38,594

 

Adjusted operating income

 

 

 

 

 

Search and Portal

 

10,232

 

11,601

 

Taxi

 

(161

)

48

 

Classifieds

 

(332

)

(105

)

Media Services

 

(450

)

(725

)

Other Bets and Experiments

 

(1,481

)

(2,410

)

Eliminations

 

 

 

Total adjusted operating income

 

7,808

 

8,409

 

 

Eliminations represent the elimination of transaction results between the reportable segments, primarily related to advertising, brand royalties and server costs. Adjusted operating costs and expenses of reportable segments exclude share-based compensation expense, amortization of acquisition-related intangible assets, compensation expense related to contingent consideration, as well as one-off restructuring costs.

 

For the reconciliation between total adjusted operating income and net income see Note 17 — “Information about segments, revenues & geographic areas” in the Notes to our unaudited condensed consolidated financial statements  for the Three Months Ended March 31, 2019 and 2020 included elsewhere in this Report on 6-K.

 

3


 

Revenues

 

The following table presents our consolidated revenues, by source, in absolute terms and as a percentage of total revenues for the periods presented:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

 

 

 

 

RUB

 

% of Revenues

 

RUB

 

% of Revenues

 

 

 

(in millions of RUB, except percentages)

 

Online advertising revenues(1):

 

 

 

 

 

 

 

 

 

Yandex websites

 

20,912

 

56.1

%

24,246

 

51.6

%

Yandex ad network websites

 

6,128

 

16.4

 

5,863

 

12.5

 

Total online advertising revenues

 

27,040

 

72.5

 

30,109

 

64.1

 

Revenues related to Taxi segment

 

7,624

 

20.5

 

11,368

 

24.2

 

Other revenues

 

2,620

 

7.0

 

5,526

 

11.7

 

Total revenues

 

37,284

 

100.0

%

47,003

 

100.0

%

 


(1)   We record revenue net of VAT, sales agency commissions and bonuses and discounts. Because it is impractical to track commissions, bonuses and discounts for online advertising revenues generated on our own websites and on those of our partners in the Yandex ad network separately, we have allocated commissions, bonuses and discounts between our own websites and those of our partners in the Yandex ad network proportionally to their respective revenue contributions.

 

Online advertising revenues.  Total online advertising revenues increased by RUB 3,069 million, or 11.3%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. Online advertising revenue growth over the periods under review resulted primarily from growth in sales of performance based online ads, driven by an increase in the number of paid clicks on Yandex.Properties.

 

Paid clicks on our own websites together with those of our Yandex ad network partners increased 23% from the three months ended March 31, 2019 to March 31, 2020. The average cost per click on our own websites together with those of our partners in the Yandex ad network decreased 9% from the three months ended March 31, 2019 to the three months ended March 31, 2020.

 

During the periods under review, the year-over-year rates of change in paid clicks and average cost-per-click on a quarterly basis were as follows:

 

 

 

Year-over-year

 

Year-over-year

 

 

 

growth in paid

 

growth in

 

Quarter

 

clicks, %

 

cost-per-click, %

 

First Quarter 2019

 

11

 

7

 

First Quarter 2020

 

23

 

(9

)

 

The rate of change in paid clicks and average cost-per-click, and their correlation with the rate of increase in our revenues, may fluctuate from period to period based on such factors as seasonality, advertiser competition for keywords, our ability to launch enhanced advertising products that seek to deliver increasingly targeted ads, the fees advertisers are willing to pay based on how they manage their advertising costs, and general economic conditions.

 

Revenues of Yandex.Taxi.  Revenues of Yandex.Taxi mainly represent commissions for providing ride-hailing services related to our Yandex.Taxi and Uber services and commissions for food delivery services. For ride-hailing services provided to individual transportation services users, we are not a principal and report only Yandex.Taxi’s commission fees as revenue. For services provided to corporate transportation services clients we act as the principal and revenue and related costs are recorded gross. For food delivery services provided to individual service users, we report Yandex.Eats’s commission fees as revenues, while Yandex.Lavka revenues

 

4


 

are recorded gross. The increases of Yandex.Taxi revenues in the three months ended March 31, 2020 are due to the growth of our ride-hailing business, driven by an increase in the number of rides, solid performance of our food tech businesses including the contributions from Yandex.Lavka and Yandex.Eats, as well as the growth of our corporate Taxi business.

 

Other revenues. Other revenues principally represent our revenue from Yandex.Drive, our car-sharing service, revenues from Media Services and our initiatives related to IoT (Internet of Things). Other revenues increased by RUB 2,906 million, or 110.9%, from the three months ended March 31, 2019 to the three months ended March 31, 2020.

 

Revenues by reportable segment.

 

Our revenues attributable to the Search and Portal segment increased by RUB 3,017 million, or 11.1%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. The growth in this segment’s revenues is in line with the growth in our overall online advertising revenues. Search and Portal revenues accounted for 64.1% of total revenues in the three months ended March 31, 2020, compared with 72.7% in the three months ended March 31, 2019.

 

Our revenues attributable to the Taxi segment increased by RUB 3,783 million, or 49.5%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. Taxi revenues accounted for 24.3% of total revenues in the three months ended March 31, 2020, compared with 20.5% in the three months ended March 31, 2019. The increase of this segment’s share of total revenues in the three months ended March 31, 2020 is primarily due to the growth of our ride-hailing business, driven by an increase in the number of rides, solid performance of our food tech services, as well as the growth of our corporate Taxi business and Yandex.Lavka, the revenues of which we recognize on a gross basis.

 

Our revenues attributable to the Classifieds segment increased by RUB 382 million, or 34.5%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. Classifieds revenues accounted for 3.2% of total revenues in the three months ended March 31, 2020, compared with 3.0% in the three months ended March 31, 2019.

 

Our revenues attributable to the Media Services segment increased by RUB 699 million, or 95.2%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. Media Services revenues accounted for 3.0% of total revenues in the three months ended March 31, 2020, compared with 2.0% in the three months ended March 31, 2019. The increase of this segment’s share of total revenues in the three months ended March 31, 2020 is primarily due to growth in the number of subscriptions to Yandex Music and KinoPoisk services, as well as tickets commission revenues growth.

 

Our revenues attributable to the Other Bets and Experiments category increased by RUB 2,433 million, or 98.2%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. Other Bets and Experiments revenues were primarily related to Yandex.Drive, Geolocation Services and Zen and increased to 10.4% of total revenues in the three months ended March 31, 2020, compared with 6.6% in the three months ended March 31, 2019, respectively.

 

Operating Costs and Expenses

 

Our operating costs and expenses consist of cost of revenues; product development expenses; sales, general and administrative expenses and depreciation and amortization expense. In addition to the reasons discussed below with respect to each category, we generally expect our total operating costs and expenses to increase in absolute terms and as a percentage of revenues in the near term; see “—Key Trends Impacting Our Results of Operations” in our Annual Report on Form 20-F for the year ended December 31, 2019.

 

Cost of revenues.  Cost of revenues consists primarily of traffic acquisition costs, and the costs related to the Taxi segment and Yandex.Drive.

 

Traffic acquisition costs are the amounts paid to our partners in the Yandex ad network for serving our online ads on their websites and to our partners who distribute our products or otherwise direct search queries to our websites. These amounts are primarily based on revenue-sharing arrangements. Some of our distribution

 

5


 

partners are compensated on the basis of the number of installations of Yandex browser or search bars and applications.

 

Cost of revenues related to the Taxi segment primarily consists of cost of corporate taxi services represented by amounts paid to taxi partners for providing services to corporate clients and various outsourced services associated with direct operations (for example, dispatch control, call center services, testing of software security, and logistics costs for the food delivery business).

 

Cost of revenues related to Yandex.Drive consists of costs of leasing cars, gasoline costs and outsourced services such as insurance, maintenance and other services.

 

Cost of revenues also includes the expenses associated with the operation of our data centers, including related personnel costs and share-based compensation expense, rent, utilities and telecommunications bandwidth costs, as well as content acquisition costs.

 

The following table presents the primary components of our cost of revenues in absolute terms and as a percentage of revenues for the periods presented:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

 

 

(in millions of RUB, except
percentages)

 

Traffic acquisition costs:

 

 

 

 

 

Traffic acquisition costs related to the Yandex ad network

 

3,623

 

3,708

 

Traffic acquisition costs related to distribution partners

 

1,719

 

1,740

 

Total traffic acquisition costs

 

5,342

 

5,448

 

as a percentage of revenues

 

14.3

%

11.6

%

Costs related to Taxi segment:

 

2,426

 

3,936

 

as a percentage of revenues

 

6.5

%

8.4

%

Other cost of revenues

 

3,817

 

6,851

 

as a percentage of revenues

 

10.3

%

14.5

%

Total cost of revenues

 

11,585

 

16,235

 

as a percentage of revenues

 

31.1

%

34.5

%

 

Cost of revenues increased by RUB 4,650 million, or 40.1%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily due to a RUB 3,034 million increase in other cost of revenue, which is mainly related to an increase in Yandex.Drive costs (principally for car leasing), as well as due to a RUB 1,510 million increase in Yandex.Taxi costs (principally cost of corporate taxi services and costs of goods sold and logistics in our food tech businesses) and due to a RUB 106 million increase in traffic acquisition costs.

 

The majority of our traffic acquisition costs relate to the Yandex ad network, with a smaller portion relating to distribution relationships. Traffic acquisition costs relating to the Yandex ad network slightly increased by RUB 85 million from the three months ended March 31, 2019 to the three months ended March 31, 2020. Our network partner traffic acquisition costs as a percentage of network partner revenues increased to 63.2% in the three months ended March 31, 2020 compared with 59.1% in the three months ended March 31, 2019. In addition, traffic acquisition costs related to distribution partners increased by RUB 21 million from the three months ended March 31, 2019 to the three months ended March 31, 2020, due to the growth in our existing distribution relationships. As a percentage of total revenues, traffic acquisition costs decreased from 14.3% in the three months ended March 31, 2019 to 11.6% in the three months ended March 31, 2020, as a result of revenue mix effect.

 

Costs related to the Taxi segment increased by RUB 1,510 million, or 62.2%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily due to the expansion of our

 

6


 

corporate ride-hailing business, where revenues and related costs are recorded on a gross basis, and an increase of the costs of goods sold in our food tech businesses, mainly reflecting growth of Yandex.Lavka.

 

Other cost of revenues increased by RUB 3,034 million, or 79.5%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily due to increases in Yandex.Drive costs of RUB 1,855 million. Other factors driving this increase include the increase of expenses in our Media Services business due to growing transactions in Yandex. Music and content acquisition costs related to KinoPoisk and Search Portal, as well as cost of sales of our IoT devices and remuneration paid to Zen publishers.

 

Product development.  Product development expenses consist primarily of personnel costs incurred for the development, enhancement and maintenance of our search engine and other Yandex services and technology platforms. We also include rent and utilities attributable to office space occupied by development staff in product development expenses. We expense product development costs as they are incurred.

 

The following table presents our product development expenses in absolute terms and as a percentage of revenues for the periods presented:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Product development expenses

 

7,207

 

7,928

 

as a percentage of revenues

 

19.3

%

16.9

%

 

Product development expenses increased by RUB 721 million, or 10.0%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily due to increases in headcount and salaries in 2020 and 2019. Development personnel headcount increased from 4,791 as of March 31, 2019 to 5,877 as of March 31, 2020. As a percentage of revenues, product development expenses decreased by 2.4 percentage points from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily reflecting the effect of certain one-off option grants in the three months ended March 31, 2019 which resulted in a higher share-based compensation expense in that period.

 

Sales, general and administrative.  Sales, general and administrative expenses consist of compensation and office rent expenses for personnel engaged in customer service, sales, sales support, finance, human resources, facilities, information technology and legal functions; fees for professional services; and advertising and marketing expenditures.

 

The following table presents our sales, general and administrative expenses in absolute terms and as a percentage of revenues for the periods presented:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Sales, general and administrative expenses

 

10,420

 

13,542

 

as a percentage of revenues

 

28.0

%

28.8

%

 

Sales, general and administrative expenses increased by RUB 3,122 million, or 30.0%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily due to an increase in personnel expenses by RUB 1,051 million which resulted from headcount and salary increases in 2019 and 2020.

 

Additional factors contributing to the overall increase from the three months ended March 31, 2019 to the three months ended March 31, 2020 were increases in professional and outsourced services by RUB 457 million, increases of RUB 356 million in bank and payment systems commissions mainly related to Yandex.Taxi, RUB 305 million in share-based compensation expense, RUB 263 million in office rent and utilities expenses due to additional rent agreements.

 

Depreciation and amortization.  Depreciation and amortization expense relate to the depreciation of our property and equipment, mainly servers and networking equipment, leasehold improvements, data center equipment and office furniture, and the amortization of our intangible assets with definite lives.

 

7


 

The following table presents our depreciation and amortization expense in absolute terms and as a percentage of revenues for the periods presented:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Depreciation and amortization expense

 

3,257

 

4,010

 

as a percentage of revenues

 

8.7

%

8.5

%

 

Depreciation and amortization expense increased by RUB 753 million, or 23.1%, from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily due to a RUB 348 million increase in depreciation expense related to server and network equipment and infrastructure systems; a RUB 168 million increase in depreciation expense related to Yandex.Drive’s car-sharing fleet; a RUB 80 million increase in office furniture and equipment; and a RUB 60 million increase in amortization expense related to intangible assets. The increase in depreciation and amortization expense in the three months ended March 31, 2020 was primarily the result of our investments in servers and data center equipment and the expansion of Yandex.Drive’s car-sharing fleet, as well as by the increase of intangible assets (including office software).

 

Share-based compensation.  In our unaudited consolidated statements of income, share-based compensation expense is recorded in the same functional area as the expense for the recipient’s cash compensation. As a result, share-based compensation expense is allocated among our cost of revenues, product development expenses and sales, general and administrative expenses.

 

The following table presents our aggregate share-based compensation expense in absolute terms and as a percentage of revenues for the periods presented:

 

 

 

Three months ended March 31, 

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Share-based compensation expense

 

2,689

 

2,751

 

as a percentage of revenues

 

7.2

%

5.9

%

 

Share-based compensation expense increased by RUB 62 million, or 2.3%, from the three months ended March 31, 2019 to the three months ended March 31, 2020, primarily following new equity-based awards to new and existing employees granted in 2019 and 2020.

 

The share-based compensation expense for the three months ended March 31, 2019 and March 31, 2020 includes RUB 102 million and RUB 40 million, respectively, related to Business Unit Equity Awards as described in Note 16 to our unaudited condensed consolidated financial statements.

 

We anticipate that share-based compensation expense will increase in absolute terms in the near term because of new equity-based awards to new and existing employees.

 

Adjusted operating costs and expenses by reportable segments.

 

Our adjusted operating costs and expenses attributable to the Search and Portal segment increased by RUB 1,648 million, or 9.8%, from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily due to an increase in depreciation and amortization expenses, one-off expenses related to the three months ended March 31, 2019, professional services costs as well as expenses related to our IoT initiatives and content acquisition costs.

 

Our adjusted operating costs and expenses attributable to the Taxi segment increased by RUB 3,574 million, or 45.8%, from the three months ended March 31, 2019 to the three months ended March 31, 2020. The

 

8


 

primary factor contributing to the overall increase was the growth of Yandex.Eats and Yandex.Lavka and corporate ride-hailing businesses (with growth in cost of revenues in line with revenue growth), as well as investments in autonomous vehicles (“AV”) as we expanded our AV fleet. The other factors are increases in personnel expenses and allocable office rent and utilities resulting from growth in headcount over the periods as we continue to invest in the development of the service.

 

Our adjusted operating costs and expenses attributable to the Classifieds segment increased by RUB 155 million, or 10.8%, from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily due to increases in personnel expenses and allocable office rent and utilities, as well as an increase in content and software expenses.

 

Our adjusted operating costs and expenses attributable to the Media Services segment increased by RUB 974 million, or 82.3%, from the three months ended March 31, 2019 to the three months ended March 31, 2020 mainly due to increases of content acquisition costs and advertising and marketing expenses, as well as increases of personnel expenses.

 

Our adjusted operating costs and expenses attributable to the Other Bets and Experiments category increased by RUB 3,362 million, or 84.9%, from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily due to rapid growth of Yandex.Drive and continued investment in Geolocation Services, Zen, Education, as well as Yandex.Cloud.

 

Interest Income

 

Interest income decreased from RUB 827 million in the three months ended March 31, 2019 to RUB 728 million in the three months ended March 31, 2020, principally as a result of a decrease of average interest rates of our RUB and USD-nominated investments.

 

Interest Expense

 

Interest expense increased from RUB 1 million in the three months ended March 31, 2019 to RUB 225 million in the three months ended March 31, 2020, mostly due to a RUB 144 million increase in amortization of debt discount related to our convertible notes issued in March 2020.

 

Other (Loss)/Income, net

 

Our other (loss)/income, net primarily consists of foreign exchange losses and gains generally resulting from changes in the value of the U.S. dollar compared with the Russian ruble, and other non-operating gains and losses, including gains from the sale of equity securities and loss from repurchases of convertible notes.

 

The following table presents the components of our other (loss)/income, net in absolute terms and as a percentage of revenues, for the periods presented:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Foreign exchange (losses)/gains

 

(279

)

4,439

 

Other

 

44

 

82

 

Total other (loss)/income, net

 

(235

)

4,521

 

Total other income (loss)/income, net, as a percentage of revenues

 

(0.6

)%

9.6

%

 

Because the functional currency of our operating subsidiaries in Russia is the Russian ruble, changes in the ruble value of these subsidiaries’ monetary assets and liabilities that are denominated in other currencies (primarily the U.S. dollar) due to exchange rate fluctuations are recognized as foreign exchange gains or losses in our unaudited condensed consolidated statements of income. In the three months ended March 31, 2020, because of the material depreciation of the ruble, we recorded foreign exchange gains of RUB 5,762 million in our Russian subsidiaries as other income, net, arising mainly from changes in the value of the U.S. dollar compared with the Russian ruble during that period. In the three months ended March 31, 2019, because of the material appreciation of the ruble, we recorded foreign exchange losses of RUB 371 million in our Russian subsidiaries as other loss, net, arising mainly from changes in the value of the U.S. dollar compared with the Russian ruble during that period.

 

9


 

Although the U.S. dollar values of our U.S. dollar denominated cash, cash equivalents and term deposits are not impacted by these currency fluctuations, they result in upward and downward revaluations of the ruble equivalent of these U.S. dollar denominated monetary assets.

 

Items recognized as “Other” in “Other (loss)/income, net” include changes in the fair value of derivative instruments and other non-operating gains and losses.

 

Income Tax Expense

 

The following table presents our income tax expense and effective tax rate for the periods presented:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

(in millions of RUB,

 

 

 

except percentages)

 

Income Tax Expense

 

2,214

 

3,711

 

Effective Tax Rate

 

46.4

%

40.3

%

 

Our income tax expense increased by RUB 1,497 million from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily as a result of increases in taxable income.

 

Our effective tax rate decreased by 6.1 percentage points from the three months ended March 31, 2019 to the three months ended March 31, 2020 primarily due to the effect of certain one-off option grants in the three months ended March 31, 2019 which resulted in a higher share-based compensation expense in that period. Adjusted for share-based compensation expense and certain losses from the share of Yandex.Market’s financial results which are non-deductible, as well as certain tax provisions recognized, our effective tax rate would have been 26.8% and 28.0% in the three months ended March 31, 2019 and March 31, 2020, respectively.

 

See “Critical Accounting Policies, Estimates and Assumptions—Tax Provisions” in our Annual Report on Form 20-F for the year ended December 31, 2019 for additional information about our income tax expense.

 

A reconciliation of our statutory income tax rate to our effective tax rate is set forth in Note 11 of our unaudited condensed consolidated financial statements.

 

Liquidity and Capital Resources

 

Unless otherwise noted, all conversions from RUB to U.S. dollars and from U.S. dollars to RUB in this Report were made at a rate of RUB 68.6745 to $1.00, the official exchange rate quoted by the Central Bank of the Russian Federation as of June 10, 2020. June 10, 2020 is the most recent practicable date used for convenience translation of RUB amounts due to significant changes of exchange rate from RUB 77.7325 to $1.00 as of March 31, 2020.

 

As of March 31, 2020, we had RUB 197,192 million ($2,871.4 million) in cash, cash equivalents and term deposits. Cash equivalents consist of bank deposits with original maturities of three months or less. We keep a sufficiently balanced currency basket depending on expected expenses in currencies different from the Russian ruble with the aim at mitigating foreign exchange risks. The currency split between the Russian ruble and the U.S. dollar varies and is subject to regular adjustment by management based on market conditions. We maintain our U.S. dollar-denominated accounts principally in the Netherlands and in Russia. Our U.S. dollar-denominated holdings as of March 31, 2020 accounted for 83.5% of our cash, cash equivalents and term deposits.

 

On March 3, 2020, we issued $1,250.0 million principal amount (RUB 82,909 million as of the issue date) 0.75% convertible notes due March 3, 2025 (the “2025 Notes”), for net proceeds of $1,237.0 million (RUB 82,050 million as of the issue date).

 

Other than the proceeds from our convertible note offerings, our principal source of liquidity has been cash flow generated from the operations of our Russian subsidiaries. Under current Russian legislation, there are no restrictions on our ability to distribute dividends from our Russian operating subsidiaries to our parent other

 

10


 

than a requirement that dividends be limited to the cumulative net profits of our Russian operating subsidiaries, calculated in accordance with Russian accounting principles, which differs from the cumulative net profit calculated in accordance with U.S. GAAP primarily due to the treatment of accrued expenses (such as rent, sales agency commissions and bonuses, etc.), deferred taxes and differences arising from the capitalization and depreciation of property and equipment and amortization of intangible assets. In addition, these dividends cannot result in negative net assets in our Russian subsidiaries or render them insolvent. Pursuant to applicable Russian statutory rules, the amount that our principal Russian operating subsidiary would be permitted to pay as a dividend to our parent company as of March 31, 2020 was RUB 111,633 million ($1,625.5 million).

 

We are required to pay 5% withholding tax on all dividends paid from our Russian operating subsidiaries to our parent company. Starting in 2014, we began to accrue for a 5% dividend withholding tax on the portion of the current year profit of our principal Russian operating subsidiary that is considered not to be permanently reinvested in Russia. We also provided in 2017 for a 5% dividend withholding tax on the portion of the profit for 2013 of our principal Russian operating subsidiary that was considered not to be indefinitely reinvested in Russia. As of March 31, 2020, the cumulative amount of unremitted earnings upon which dividend withholding taxes have not been provided is RUB 92,553 million ($1,347.7 million). We estimate that the amount of the unrecognized deferred tax liability related to these earnings is RUB 4,628 million ($67.4 million). See “Risk Factors— Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-Russia tax treaty” in our Annual Report on Form 20-F for the year ended December 31, 2019.

 

As of March 31, 2020, we had no outstanding indebtedness, other than the 2025 Notes. We do not currently use any line of credit or other similar source of liquidity.

 

Cash Flows

 

In summary, our cash flows were:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

(in millions of RUB)

 

Net cash provided by operating activities

 

10,527

 

7,694

 

Net cash used in investing activities

 

(22,321

)

(36,857

)

Net cash (used in)/provided by financing activities

 

(39

)

73,457

 

Effect of exchange rate changes on cash and cash balances

 

(3,184

)

24,442

 

 

Cash provided by operating activities.  Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation and amortization expense, amortization of contents assets, operating lease right-of-use assets amortization, amortization of debt discount and issuance costs, share-based compensation expense, deferred income taxes, foreign exchange gains and losses, losses from equity method investments, and the effect of changes in working capital.

 

Cash provided by operating activities decreased by RUB 2,833 million from the three months ended March 31, 2019 to the three months ended March 31, 2020. This decrease was primarily due to an increase in cash used by changes in working capital of RUB 2,310 million and a decrease of RUB 523 million in net cash from operations before changes in working capital. Cash used in working capital was RUB 4,268 million in the three months ended March 31, 2020 and increased from the prior period primarily due to a significant increase in cash outflow related to a change in accounts payable and accrued liabilities, primarily arising from the amendement in terms of operating lease agreements and change in our intent to exercise the right to early terminate the lease of certain car fleet items due to COVID-19 and an increase in cash outflow from a change in content liabilities, partly compensated by an increase in cash inflow related to accounts receivable, as well as a decrease in cash outflow related to prepaid expenses and other assets, in the three months ended March 31, 2020, compared with the three months ended March 31, 2019.

 

We believe that our existing cash, cash equivalents and cash generated from operations will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months. To the extent that our cash, cash equivalents and cash from operating activities are insufficient to fund our future

 

11


 

activities, we may be required to raise additional funds through equity or debt financings, including bank credit arrangements. Additional financing may not be available on terms favorable to us or at all.

 

Cash used in investing activities.

 

Cash used in investing activities in the three months ended March 31, 2020 increased by RUB 14,536 million compared to the three months ended March 31, 2019, primarily as a result of increases in investment in term deposits (net of maturities) of RUB 14,446 million.

 

Our total capital expenditures were RUB 2,405 million in the three months ended March 31, 2020 and RUB 1,981 million in the three months ended March 31, 2019. Our capital expenditures have historically consisted primarily of the purchases of servers and networking equipment. We also incurred significant capital expenditures in the three months ended March 31, 2019 and March 31, 2020 related to the construction of one of our large data centers. To manage enhancements in our search technology, expected increases in internet traffic, advertising transactions and new services, and to support our overall business expansion, we will continue to invest in data center operations, technology, corporate facilities and information technology infrastructure in 2020 and thereafter. Moreover, we may spend a significant amount of cash on acquisitions and licensing transactions from time to time.

 

Cash (used in)/provided by financing activities.

 

For the three months ended March 31, 2020, cash inflow from financing activities was RUB 73,457 million, primarily reflecting RUB 82,046 million of proceeds from issuance of convertible debt, net in March 2020, partly offset by a cash outflow of RUB 8,446 million used for repurchase of ordinary shares, as well as RUB 114 million paid for finance leases.

 

For the three months ended March 31, 2019, cash outflow from financing activities was RUB 39 million.

 

12


 

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: June 23, 2020

By:

/s/ Greg Abovsky

 

 

Greg Abovsky

 

 

Chief Financial Officer and Chief Operating Officer

 

13


 

YANDEX N.V.

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Page

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2020

 

F-2

Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2020

 

F-3

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2020

 

F-4

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2020

 

F-5

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2020

 

F-6

Notes to the Unaudited Condensed Consolidated Financial Statements

 

F-7

 

F-1


 

YANDEX N.V.

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In millions of Russian rubles (“RUB”) and U.S. dollars (“$”), except share and per share data)

 

 

 

 

 

As of

 

 

 

Notes

 

December 31,
2019

 

March 31,
2020

 

March 31,
2020

 

 

 

 

 

RUB

 

RUB

 

$

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

5

 

56,415

 

125,142

 

1,822.2

 

Term deposits

 

 

 

31,891

 

72,050

 

1,049.2

 

Accounts receivable, net

 

5

 

17,832

 

16,842

 

245.2

 

Prepaid expenses

 

 

 

3,315

 

4,755

 

69.2

 

Funds receivable, net

 

 

 

1,226

 

793

 

11.5

 

Other current assets

 

5

 

9,605

 

8,527

 

124.2

 

Total current assets

 

 

 

120,284

 

228,109

 

3,321.5

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

8

 

47,856

 

48,721

 

709.4

 

Operating lease right-of-use assets

 

9

 

21,218

 

12,686

 

184.7

 

Intangible assets, net

 

10

 

10,365

 

10,151

 

147.8

 

Non-current content assets, net

 

12

 

3,295

 

3,604

 

52.5

 

Goodwill

 

10

 

52,205

 

52,205

 

760.2

 

Long-term prepaid expenses

 

 

 

2,289

 

2,259

 

32.9

 

Investments in non-marketable equity securities

 

5

 

28,073

 

27,173

 

395.7

 

Deferred tax assets

 

 

 

1,847

 

2,020

 

29.5

 

Other non-current assets

 

5

 

3,694

 

4,020

 

58.6

 

TOTAL ASSETS

 

 

 

291,126

 

390,948

 

5,692.8

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

5

 

34,978

 

35,662

 

519.3

 

Income and non-income taxes payable

 

5

 

8,020

 

8,413

 

122.5

 

Deferred revenue

 

 

 

3,542

 

3,624

 

52.8

 

Total current liabilities

 

 

 

46,540

 

47,699

 

694.6

 

Convertible debt

 

14

 

 

86,029

 

1,252.7

 

Deferred tax liabilities

 

 

 

1,951

 

2,874

 

41.8

 

Operating lease liabilities

 

9

 

10,841

 

7,514

 

109.4

 

Other accrued liabilities

 

 

 

2,359

 

1,401

 

20.4

 

Total liabilities

 

 

 

61,691

 

145,517

 

2,118.9

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

13

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

 

14,246

 

14,235

 

207.3

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Priority share: €1.00 par value; shares authorized (1 and 1); shares issued (1 and 1); shares outstanding (nil and 1)

 

 

 

 

 

 

Preference shares: €0.01 par value; nil shares authorized, issued and outstanding

 

 

 

 

 

 

Ordinary shares: par value (Class A €0.01, Class B €0.10 and Class C €0.09); shares authorized (Class A: 500,000,000, Class B: 37,138,658 and Class C: 37,748,658); shares issued (Class A: 293,527,655 and 294,478,655, Class B: 37,138,658 and 37,137,658, and Class C: 610,000 and 1,000, respectively); shares outstanding (Class A: 292,719,508 and 290,544,563, Class B: 37,138,658 and 37,137,658, and Class C: nil)

 

 

 

261

 

262

 

3.8

 

Treasury shares at cost (Class A: 808,147 and 3,934,092, Priority share: 1 and nil, respectively)

 

 

 

(411

)

(5,730

)

(83.4

)

Additional paid-in capital

 

 

 

68,050

 

74,074

 

1,078.6

 

Accumulated other comprehensive income

 

 

 

4,841

 

13,155

 

191.6

 

Retained earnings

 

 

 

122,187

 

127,697

 

1,859.5

 

Total equity attributable to Yandex N.V.

 

 

 

194,928

 

209,458

 

3,050.1

 

Noncontrolling interests

 

 

 

20,261

 

21,738

 

316.5

 

Total shareholders’ equity

 

 

 

215,189

 

231,196

 

3,366.6

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

291,126

 

390,948

 

5,692.8

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

F-2


 

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 March 31,

 

 

 

Notes

 

2019

 

2020

 

2020

 

 

 

 

 

RUB

 

RUB

 

$

 

Revenues

 

16

 

37,284

 

47,003

 

684.4

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenues(1)

 

 

 

11,585

 

16,235

 

236.4

 

Product development(1)

 

 

 

7,207

 

7,928

 

115.4

 

Sales, general and administrative(1)

 

 

 

10,420

 

13,542

 

197.2

 

Depreciation and amortization

 

 

 

3,257

 

4,010

 

58.4

 

Total operating costs and expenses

 

 

 

32,469

 

41,715

 

607.4

 

Income from operations

 

 

 

4,815

 

5,288

 

77.0

 

Interest income

 

 

 

827

 

728

 

10.6

 

Interest expense

 

 

 

(1

)

(225

)

(3.3

)

Loss from equity method investments

 

 

 

(638

)

(1,106

)

(16.1

)

Other (loss)/income, net

 

5

 

(235

)

4,521

 

65.8

 

Income before income tax expense

 

 

 

4,768

 

9,206

 

134.0

 

Income tax expense

 

11

 

2,214

 

3,711

 

54.0

 

Net income

 

 

 

2,554

 

5,495

 

80.0

 

Net loss attributable to noncontrolling interests

 

 

 

398

 

366

 

5.3

 

Net income attributable to Yandex N.V.

 

 

 

2,952

 

5,861

 

85.3

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

 

 

Basic

 

3

 

9.08

 

17.76

 

0.26

 

Diluted

 

3

 

8.87

 

17.33

 

0.25

 

Weighted average number of Class A and Class B shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

3

 

325,140,744

 

330,099,251

 

330,099,251

 

Diluted

 

3

 

332,713,737

 

337,591,226

 

337,591,226

 

 


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

 

Cost of revenues

 

 

 

68

 

76

 

1.1

 

Product development

 

 

 

1,933

 

1,682

 

24.5

 

Sales, general and administrative

 

 

 

688

 

993

 

14.5

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

F-3


 

YANDEX N.V.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

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

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

2020

 

 

 

RUB

 

RUB

 

$

 

Net income

 

2,554

 

5,495

 

80.0

 

Foreign currency translation adjustment:

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax of nil

 

(2,958

)

10,211

 

148.7

 

Foreign currency translation adjustment, net of tax of nil

 

(2,958

)

10,211

 

148.7

 

Total other comprehensive (loss)/income

 

(2,958

)

10,211

 

148.7

 

Total comprehensive (loss)/income

 

(404

)

15,706

 

228.7

 

Total comprehensive loss/(income) attributable to noncontrolling interests

 

1,028

 

(1,531

)

(22.3

)

Total comprehensive income attributable to Yandex N.V.

 

624

 

14,175

 

206.4

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

F-4


 

YANDEX N.V.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

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

 

 

 

 

 

Three months ended March 31,

 

 

 

Notes

 

2019

 

2020

 

2020

 

 

 

 

 

RUB

 

RUB

 

$

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net income

 

 

 

2,554

 

5,495

 

80.0

 

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

 

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

 

2,640

 

3,333

 

48.5

 

Amortization of intangible assets

 

 

 

617

 

677

 

9.9

 

Amortization of contents assets

 

12

 

164

 

587

 

8.5

 

Operating lease right-of-use assets amortization

 

 

 

1,912

 

2,642

 

38.5

 

Amortization of debt discount and issuance costs

 

 

 

 

144

 

2.1

 

Share-based compensation expense

 

 

 

2,689

 

2,751

 

40.1

 

Deferred income tax expense/(benefit)

 

 

 

988

 

(427

)

(6.2

)

Foreign exchange losses/(gains)

 

 

 

279

 

(4,439

)

(64.6

)

Loss from equity method investments

 

 

 

638

 

1,106

 

16.1

 

Other

 

 

 

4

 

93

 

1.4

 

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

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

(668

)

1,027

 

15.0

 

Prepaid expenses and other assets

 

 

 

(2,370

)

(708

)

(10.3

)

Accounts payable and accrued liabilities

 

 

 

1,551

 

(2,828

)

(41.2

)

Deferred revenue

 

 

 

(222

)

40

 

0.6

 

Change in content assets

 

12

 

(932

)

(1,086

)

(15.8

)

Change in content liabilities

 

 

 

683

 

(713

)

(10.4

)

Net cash provided by operating activities

 

 

 

10,527

 

7,694

 

112.2

 

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

 

 

(1,981

)

(2,405

)

(35.0

)

Proceeds from sale of property and equipment

 

 

 

7

 

9

 

0.1

 

Acquisitions of businesses, net of cash acquired

 

 

 

(347

)

 

 

Investments in non-marketable equity securities

 

 

 

 

(15

)

(0.2

)

Investments in term deposits

 

 

 

(20,000

)

(61,745

)

(899.1

)

Maturities of term deposits

 

 

 

 

27,299

 

397.5

 

Net cash used in investing activities

 

 

 

(22,321

)

(36,857

)

(536.7

)

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

 

 

 

 

 

 

 

 

 

Proceeds from exercise of share options

 

 

 

31

 

14

 

0.2

 

Proceeds from issuance of convertible debt, net

 

14

 

 

82,046

 

1,194.7

 

Repurchases of ordinary shares

 

 

 

 

(8,446

)

(123.0

)

Payment for contingent consideration

 

 

 

(33

)

(10

)

(0.1

)

Proceeds from sale of noncontrolling interests

 

 

 

20

 

 

 

Payment for finance leases

 

 

 

 

(114

)

(1.7

)

Other financing activities

 

 

 

(32

)

(33

)

(0.5

)

Purchase of redeemable noncontrolling interests

 

 

 

(25

)

 

 

Net cash (used in)/provided by financing activities

 

 

 

(39

)

73,457

 

1,069.6

 

Effect of exchange rate changes on cash and cash balances

 

 

 

(3,184

)

24,442

 

355.9

 

Net change in cash and cash equivalents

 

 

 

(15,017

)

68,736

 

1,001.0

 

Cash and cash equivalents at beginning of period

 

 

 

68,886

 

56,453

 

822.0

 

Cash and cash equivalents at end of period

 

 

 

53,869

 

125,189

 

1,823.0

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash and cash balances:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

 

68,798

 

56,415

 

821.5

 

Restricted cash, beginning of period

 

 

 

88

 

38

 

0.5

 

Cash and cash balances, beginning of period

 

 

 

68,886

 

56,453

 

822.0

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

 

53,825

 

125,142

 

1,822.3

 

Restricted cash, end of period

 

 

 

44

 

47

 

0.7

 

Cash and cash balances, end of period

 

 

 

53,869

 

125,189

 

1,823.0

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

 

 

2,822

 

3,292

 

47.9

 

Cash paid for acquisitions

 

4

 

351

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

 

Change in accounts payable for property and equipment

 

 

 

4,259

 

1,956

 

28.5

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

F-5


 

YANDEX N.V.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

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

 

 

 

Priority Share

 

Ordinary Shares

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Redeemable

 

 

 

Issued and

 

Issued and

 

Treasury

 

Additional

 

Other

 

 

 

Non-

 

 

 

non-

 

 

 

Outstanding *

 

Outstanding

 

shares at

 

Paid-In

 

Comprehensive

 

Retained

 

redeemable

 

 

 

controlling

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

cost

 

Capital

 

Income/(Loss)

 

Earnings

 

NCI

 

Total

 

interests

 

 

 

 

 

RUB

 

 

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

Balance as of December 31, 2018

 

1

 

 

324,727,023

 

263

 

(10,769

)

69,729

 

8,182

 

111,465

 

22,736

 

201,606

 

13,035

 

Share-based compensation expense

 

 

 

 

 

 

2,689

 

 

 

 

2,689

 

 

Exercise of share options

 

 

 

930,450

 

 

 

33

 

 

 

 

33

 

 

Tax withholding related to exercise of share awards

 

 

 

 

 

 

(24

)

 

 

 

(24

)

 

Reissue of shares for options exercised

 

 

 

 

 

1,491

 

(1,491

)

 

 

 

 

 

Repurchase of share options

 

 

 

 

 

 

 

 

73

 

 

73

 

(98

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(2,328

)

 

(614

)

(2,942

)

(16

)

Other

 

 

 

 

 

 

 

 

10

 

 

10

 

 

Net income / (loss)

 

 

 

 

 

 

 

 

2,952

 

(373

)

2,579

 

(25

)

Change in redemption value of redeemable noncontrolling interests

 

 

 

 

 

 

 

 

(154

)

 

(154

)

154

 

Balance as of March 31, 2019

 

1

 

 

325,657,473

 

263

 

(9,278

)

70,936

 

5,854

 

114,346

 

21,749

 

203,870

 

13,050

 

 

 

 

Priority Share

 

Ordinary Shares

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Redeemable

 

 

 

Issued and

 

Issued and

 

Treasury

 

Additional

 

Other

 

 

 

Non-

 

 

 

non-

 

 

 

Outstanding *

 

Outstanding

 

shares at

 

Paid-In

 

Comprehensive

 

Retained

 

redeemable

 

 

 

controlling

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

cost

 

Capital

 

Income

 

Earnings

 

NCI

 

Total

 

interests

 

 

 

 

 

RUB

 

 

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

RUB

 

Balance as of December 31, 2019

 

1

 

 

329,858,166

 

261

 

(411

)

68,050

 

4,841

 

122,187

 

20,261

 

215,189

 

14,246

 

Effect of adoption of ASU 2016-13 (Note 2)

 

 

 

 

 

 

 

 

(248

)

(16

)

(264

)

 

Adjusted balance as of January 1, 2020

 

1

 

 

329,858,166

 

261

 

(411

)

68,050

 

4,841

 

121,939

 

20,245

 

214,925

 

14,246

 

Share-based compensation expense

 

 

 

 

 

 

2,302

 

 

 

 

2,302

 

 

Exercise of share options

 

 

 

1,320,043

 

 

 

16

 

 

 

 

16

 

 

Tax withholding related to exercise of share awards

 

 

 

 

 

 

(34

)

 

 

 

(34

)

 

Repurchases of shares

 

 

 

(3,495,988

)

 

(8,683

)

 

 

 

 

(8,683

)

 

Reissue of shares for options exercised

 

 

 

 

 

3,365

 

(3,365

)

 

 

 

 

 

Repurchase of share options

 

 

 

 

 

 

168

 

 

(16

)

 

152

 

(151

)

Issuance of convertible debt (Note 14)

 

 

 

 

 

 

6,791

 

 

 

 

6,791

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

8,314

 

 

1,845

 

10,159

 

52

 

Repurchases of business unit equity awards

 

 

 

 

 

 

(619

)

 

 

 

(619

)

 

Effect of recognition of deferred tax asset

 

 

 

 

 

 

764

 

 

 

 

764

 

 

Other

 

 

 

 

1

 

(1

)

1

 

 

 

14

 

15

 

 

Net income / (loss)

 

 

 

 

 

 

 

 

5,861

 

(366

)

5,495

 

1

 

Change in redemption value of redeemable noncontrolling interests

 

 

 

 

 

 

 

 

(87

)

 

(87

)

87

 

Balance as of March 31, 2020

 

1

 

 

327,682,221

 

262

 

(5,730

)

74,074

 

13,155

 

127,697

 

21,738

 

231,196

 

14,235

 

Balance as of March 31, 2020, $

 

 

 

 

 

 

3.8

 

(83.4

)

1,078.6

 

191.6

 

1,859.5

 

316.5

 

3,366.6

 

207.3

 

 


*   Priority share was held in treasury as of December 31, 2019 and was transferred to Public Interest Foundation upon formation as of March 10, 2020.

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

F-6


 

YANDEX N.V.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

1.              ORGANIZATION AND DESCRIPTION OF THE BUSINESS

 

Yandex N.V., together with its consolidated subsidiaries (together, the “Company”), is a technology company that builds intelligent products and services powered by machine learning. The Company generates a substantial part of its revenues from online advertising, while the share of other revenues, primarily represented by the commission-based revenues of its Taxi business, continues to increase as a portion of the Company’s total revenues.

 

Yandex N.V. was incorporated under the laws of the Netherlands in June 2004 and is the holding company of Yandex LLC, incorporated in the Russian Federation in October 2000, and other subsidiaries.

 

2.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. As such, the information included in these unaudited condensed consolidated financial statements for the three-month period ended March 31, 2020 should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 20-F for the year ended December 31, 2019.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been included, and the Company believes that the disclosures are adequate to ensure the information is not misleading.

 

The Company’s significant accounting policies have not changed since December 31, 2019 except for an update reflecting the new accounting standard related to the measurement and recognition of expected credit losses.

 

The evolving nature of the novel strain of coronavirus pandemic (“COVID-19”) and the extent of its impact across industries and geographies, including the duration and spread of the outbreak, are uncertain and cannot be predicted. Therefore, the results of operations for the three months ended March 31, 2020 may not be indicative of the results to be expected for subsequent quarters and the full fiscal year.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. The most significant estimates relate to impairment assessments of investments in non-marketable equity securities, redeemable noncontrolling interests, impairment assessments of goodwill and intangible assets, useful lives of property and equipment and intangible assets, accounts receivable allowance, fair values of share-based awards, deferred tax assets recoverability, operating lease incremental borrowing rate, fair values of financial instruments, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions, the results of which form the basis for making judgments about the carrying values of assets and liabilities, that are believed to be reasonable. These estimates are inherently subject to judgment and actual results could differ from those estimates. The Company considered the impacts of the COVID-19 pandemic on the assumptions and other inputs supporting these estimates and judgments, in particular, the Company’s determination of the fair values when assessing recoverability of certain equity method investments, goodwill and long-lived assets as well as estimation of redeemable noncontrolling interests and allowance for credit losses as outlined below. The extent of uncertainties and volatility in the global financial markets and economies resulting from the pandemic as well as the uncertainties related to the impact of the pandemic on the Company’s and its investees’ operations and financial performance means that these estimates may change in future periods, as new events occur and additional information is obtained.

 

F-7


 

Convenience Translation

 

Translations of amounts from RUB into U.S. dollars for the convenience of the reader have been made at the exchange rate of RUB 68.6745 to $1.00, the prevailing exchange rate as of June 10, 2020. June 10, 2020 is the most recent practicable date used for convenience translation of RUB amounts due to significant changes of exchange rate from RUB 77.7325 to $1.00 as of March 31, 2020. No representation is made that the RUB amounts could have been, or could be, converted into U.S. dollars at such rate.

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the FASB issued an ASU 2016-13 which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost to be presented at the net amount expected to be collected. This ASU replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The Company adopted the standard effective January 1, 2020, using the modified retrospective method with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.

 

The following table presents the impact of adopting current expected credit losses on January 1, 2020 on the Company’s financial assets, retained earnings and non-redeemable NCI:

 

 

 

December 31, 2019

 

Transition
Adjustment

 

January 1, 2020

 

 

 

RUB

 

RUB

 

RUB

 

Accounts receivable, net

 

17,832

 

(214

)

17,618

 

Prepaid expenses

 

3,315

 

(12

)

3,303

 

Other current assets

 

9,605

 

(43

)

9,562

 

Long-term prepaid expenses

 

2,289

 

(28

)

2,261

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

Decrease to retained earnings, pre-tax

 

 

 

(297

)

 

 

Tax effect

 

 

 

49

 

 

 

Decrease to retained earnings, net of tax effect

 

 

 

(248

)

 

 

Non-redeemable NCI

 

 

 

(16

 

 

 

In August 2018, the FASB issued an ASU 2018-13 which modifies the disclosure requirements in ASC 820. The Company adopted the standard effective January 1, 2020 on a prospective basis. The adoption of the new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements apart from more detailed disclosure of the the fair value measurement of the redeemable noncontrolling interests (Note 7).

 

No other recent accounting pronouncements were issued by the FASB or the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.

 

Accounts Receivable and Allowance for Credit Losses

 

The Company maintains an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable, and changes in such amounts are classified as general and administrative expenses in the unaudited condensed consolidated statements of income. The Company determined that the expected loss rates should be calculated using the historical loss rates adjusted by current market conditions and reasonable and supportable forecasts of future economic conditions such as changes in unemployment rates to inform adjustments to historical loss data. The historical rates are calculated for each of the aging categories used for pooling trade receivables. To determine the collected portion of each bucket, the collection time of each trade receivable is identified. To determine the appropriate allowance for expected credit losses, the Company considers certain historical information, credit quality indicators, such as aging, collection history, and creditworthiness of debtors. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability issues.

 

The Company has certain concentrations of outstanding receivables in international locations that impact the Company’s assessment of the credit quality of receivables. The Company monitors the macroeconomic and political environment in each of these locations in its assessment of the credit quality of receivables.

 

F-8


 

3.              NET INCOME PER SHARE

 

Basic net income per Class A and Class B ordinary share for the three months ended March 31, 2019 and 2020 is computed on the basis of the weighted average number of ordinary shares outstanding using the two class method. Basic net income per share is computed using the weighted average number of ordinary shares outstanding during the period, including restricted shares. Diluted net income per ordinary share is computed using the effect of the outstanding Share-Based Awards calculated using the “treasury stock” method.

 

The computation of the diluted net income per Class A share assumes the conversion of Class B shares, while the diluted net income per Class B share does not assume the conversion of those shares. The net income per share amounts are the same for Class A and Class B shares because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. The number of Share-Based Awards excluded from the diluted net income per ordinary share computation, because their effect was anti-dilutive for the three months ended March 31, 2019 and 2020, was 3,015,185 and 4,297,007, respectively. The effects of Business Unit Equity Awards were excluded from the diluted net income per ordinary share computation for the three months ended March 31, 2019, because the effects were not significant.

 

The Company’s outstanding convertible debt provides for a flexible settlement feature. The convertible debt is included in the calculation of diluted net income per share if its inclusion is dilutive under the treasury stock method. The convertible debt was anti-dilutive in the three months ended March 31, 2020.

 

The components of basic and diluted net income per share were as follows:

 

 

 

Three Months ended March 31,

 

 

 

2019

 

2020

 

 

 

Class A

 

Class B

 

Class A

 

Class A

 

Class B

 

Class B

 

 

 

RUB

 

RUB

 

RUB

 

$

 

RUB

 

$

 

Net income, allocated for basic

 

2,609

 

343

 

5,202

 

75.7

 

659

 

9.6

 

Reallocation of net income as a result of conversion of Class B to Class A shares

 

343

 

 

659

 

9.6

 

 

 

Reallocation of net income to Class B shares

 

 

(7

)

 

 

(15

)

(0.2

)

Dilution in Classifieds

 

 

 

(9

)

(0.1

)

 

 

Net income, allocated for diluted

 

2,952

 

336

 

5,852

 

85.2

 

644

 

9.4

 

Weighted average ordinary shares outstanding—basic

 

287,309,753

 

37,830,991

 

292,961,208

 

292,961,208

 

37,138,043

 

37,138,043

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Class B to Class A shares

 

37,830,991

 

 

37,138,043

 

37,138,043

 

 

 

Share-Based Awards

 

7,572,993

 

 

7,491,975

 

7,491,975

 

 

 

Weighted average ordinary shares outstanding—diluted

 

332,713,737

 

37,830,991

 

337,591,226

 

337,591,226

 

37,138,043

 

37,138,043

 

Net income per share attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

9.08

 

9.08

 

17.76

 

0.26

 

17.76

 

0.26

 

Diluted

 

8.87

 

8.87

 

17.33

 

0.25

 

17.33

 

0.25

 

 

F-9


 

4.              BUSINESS COMBINATIONS AND INVESTMENT TRANSACTIONS

 

Acquisitions in 2020

 

The Company did not complete any business combinations in the three months ended March 31, 2020.

 

Acquisition in 2019

 

TheQuestion

 

In March 2019, the Company completed the acquisition of assets and assumption of liabilities of Znanie Company Limited (Cyprus) and its two subsidiaries, Znanie Development Company Limited (Cyprus) and Znanie LLC (Russia) (“TheQuestion”). TheQuestion is an internet-based question-and-answer social network. The primary purpose of the acquisition of TheQuestion was to enlarge the database of answers to specific search queries and to enhance the quality of search results provided by Yandex’s Search portal. The fair value of the consideration transferred totaled  RUB 384, including cash consideration of RUB 351 and deferred consideration of RUB 33. The deferred consideration arrangement requires the Company to pay additional cash consideration to the former investors within a four-year period. No additional consideration has been paid to date. The Company accounted for the acquisition as a business combination.

 

Set out below is the condensed balance sheet of TheQuestion as of March 11, 2019, reflecting an allocation of the purchase price to net assets acquired:

 

 

 

March 11, 2019

 

 

 

RUB

 

ASSETS:

 

 

 

Intangible assets

 

113

 

Other current assets

 

5

 

Goodwill

 

295

 

Total assets

 

413

 

Current liabilities

 

6

 

Deferred tax liabilities

 

23

 

Total liabilities

 

29

 

Net assets

 

384

 

Total purchase consideration

 

384

 

 

The RUB 295 assigned to goodwill is attributable to the Search and Portal reportable segment and is primarily attributable to expected synergies that result from convergence with TheQuestion’s unique question-and-answer data. RUB 113 assigned to intangible assets relates to software that has been amortized over a period of 1 year.

 

5.              UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DETAILS

 

Cash and Cash Equivalents

 

Cash and cash equivalents as of December 31, 2019 and March 31, 2020 consisted of the following:

 

F-10


 

 

 

December
31, 2019

 

March 31,
2020

 

March 31,
2020

 

 

 

RUB

 

RUB

 

$

 

Cash

 

35,829

 

30,749

 

447.8

 

Cash equivalents:

 

 

 

 

 

 

 

Bank deposits

 

20,192

 

94,387

 

1,374.3

 

Investments in money market funds

 

3

 

5

 

0.1

 

Other cash equivalents

 

391

 

1

 

 

Total cash and cash equivalents

 

56,415

 

125,142

 

1,822.2

 

 

Accounts Receivable, Net

 

Accounts receivable as of December 31, 2019 and March 31, 2020 consisted of the following:

 

 

 

December
31, 2019

 

March 31,
2020

 

March 31,
2020

 

 

 

RUB

 

RUB

 

$

 

Trade accounts receivable

 

18,647

 

18,074

 

263.1

 

Allowance for credit losses

 

(815

)

(1,232

)

(17.9

)

Total accounts receivable, net

 

17,832

 

16,842

 

245.2

 

 

Movements in the allowance for expected current credit losses on trade receivables for the three months ended March 31, 2019 and 2020 are as follows:

 

 

 

Three months ended March 31,

 

 

 

2019

 

2020

 

2020

 

 

 

RUB

 

RUB

 

$

 

Balance at the beginning of the period

 

(670

)

(815

)

(11.9

)

Adoption of ASU No. 2016-13 (Note 2)

 

 

(214

)

(3.1

)

Current period provision for expected credit losses

 

(138

)

(143

)

(2.0

)

Foreign exchange difference

 

13

 

(60

)

(0.9

)

Balance at the end of the period

 

(795

)

(1,232

)

(17.9

)

 

Other Current Assets

 

Other current assets as of December 31, 2019 and March 31, 2020 consisted of the following:

 

 

 

December
31, 2019