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Yandex Announces Second Quarter 2014 Financial Results(GlobeNewswire Via Acquire Media NewsEdge) MOSCOW and AMSTERDAM, Netherlands, July 29, 2014 (GLOBE NEWSWIRE) -- Yandex (Nasdaq:YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its financial results for the second quarter ended June 30, 2014. Q2 2014 Financial Highlights(1)(2) Revenues of RUR 12.2 billion ($361.5 million), up 32% compared with Q2 2013 (and up 35% excluding the impact of Yandex.Money)Ex-TAC revenues (excluding traffic acquisition costs) up 23% compared with Q2 2013 (and up 26% excluding the impact of Yandex.Money)Income from operations of RUR 3.6 billion ($108.0 million), up 13% compared with Q2 2013Adjusted EBITDA of RUR 5.0 billion ($149.5 million), up 17% compared with Q2 2013Operating margin of 29.9%Adjusted EBITDA margin of 41.3%Adjustedex-TAC EBITDA margin of 52.9%Net income of RUR 2.4 billion ($71.2 million), down 18% compared with Q2 2013Adjusted net income of RUR 3.3 billion ($98.7 million), up 9% compared with Q2 2013Net income margin of 19.7%Adjusted net income margin of 27.3%Adjustedex-TAC net income margin of 34.9%Cash, cash equivalents and deposits of RUR 47.3 billion ($1,405.4 million) as of June 30, 2014 "Our core text-based advertising business drove strong financial results with solid growth in advertisers and paid clicks," said Arkady Volozh, Chief Executive Officer of Yandex. "The acquisition of Auto.ru, announced earlier this month, is a strong move into classifieds which is one of the fastest growing segments of online advertising, and the admission of our shares for trading on Moscow Exchange will provide trading liquidity in our home market." The following table provides a summary of key financial results for the three months and six months ended June 30, 2013 and 2014: In RUR millionsThree months ended June 30,Six months ended June 30, 20132014Change20132014Change Revenues 9,199 12,15832% 17,198 23,04334% Ex-TAC revenues2 7,734 9,50723% 14,428 17,82424% Income from operations 3,218 3,63113% 5,671 6,34912% Adjusted EBITDA2 4,303 5,02717% 7,807 9,06916% Net income 2,915 2,396-18% 5,161 5,076-2% Adjusted net income2 3,058 3,3189% 5,468 5,8707%1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 33.6306 to $1.00, the official exchange rate quoted as of June 30, 2014 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 US GAAP measures. Q2 2014 Operational and Corporate Highlights Share of Russian search market (including mobile) averaged 61.6% in Q2 2014 (according to LiveInternet)Search queries grew 21% from Q2 2013Number of advertisers grew to more than 295,000, up 25% from Q2 2013 and up 6% from Q1 2014 Announced agreement to acquire Auto.ru, one of the leading online auto classifieds businesses in Russia Launched Yandex.City, an app and a website that helps users to find local businesses while aggregating user generated reviews Class A shares of Yandex N.V. were accepted for listing on Moscow ExchangeRepurchased 15 million shares as part of previously announced share repurchase program and increased authorization to repurchase 3 million additional sharesRevenues In RUR millionsThree months ended June 30,Six months ended June 30, 20132014Change20132014Change Advertising revenues: Text-based advertising Yandex websites 6,717 8,55927% 12,567 15,95327% Ad network 1,412 2,70592% 2,716 5,36898% Total text-based advertising 8,129 11,26439% 15,283 21,321 40% Display advertising Yandex websites 805 674-16% 1,425 1,321-7% Ad network 17 101n/m 20 177n/m Total display advertising 822 775-6% 1,445 1,498 4% Total advertising revenues 8,951 12,03934% 16,728 22,81936% Online payment commissions 200 0-100% 387 0 -100% Other 48 119148% 83 224170% Total revenues 9,199 12,15832% 17,198 23,043 34%Total revenues increased 32% compared with Q2 2013 and, on a like-for-like basis (excluding revenues received from Yandex.Money operations in Q2 2013), total revenues increased 35% compared with Q2 2013. Text-based advertising revenues accounted for 93% of total revenues in Q2 2014 and continued to determine overall top-line performance. Text-based advertising revenues from Yandex's own websites accounted for 70% of total revenues during Q2 2014, and increased 27% compared with Q2 2013. Text-based advertising revenues from our ad network increased 92% compared with Q2 2013 and contributed 22% of total revenues during Q2 2014. Our agreement with Mail.ru to power paid search results is the principal driver of our increase in partner network revenues as well as the increase in the growth rate of the ad network. Paid clicks on Yandex's and its partners' websites, in aggregate, increased 36% in Q2 2014 compared with Q2 2013. Our average cost per click in Q2 2014 grew 1% compared with Q2 2013. Display advertising revenue, accounting for 6% of total revenues in Q2 2014, was down 6% compared with Q2 2013. Operating Costs and Expenses Yandex's operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, including related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q2 2014, Yandex added 164 full-time employees, an increase of 3% from March 31, 2014, and up 32% from June 30, 2013. The total number of full-time employees was 5,300 as of June 30, 2014. The employee numbers and growth rates are provided on a like-for-like basis, excluding Yandex.Money employees for the previous periods. Costs of revenues, including traffic acquisition costs (TAC) In RUR millionsThree monthsSix months ended June 30,ended June 30, 20132014Change20132014Change TAC: Related to the Yandex ad network 890 1,804103% 1,710 3,593110% Related to distribution partners 575 84747% 1,060 1,62653% Total TAC 1,465 2,65181% 2,770 5,21988%Total TAC as a % of total revenues15.9%21.8% 16.1%22.6% Other cost of revenues 693 77612% 1,364 1,54013%Other cost of revenues as a % of revenues7.5%6.4% 7.9%6.7% Total cost of revenues 2,158 3,42759% 4,134 6,75963%Total cost of revenues as a % of revenues23.5%28.2% 24.0%29.3% TAC increased from 15.9% of total revenues in Q2 2013 to 21.8% in Q2 2014, reflecting an increase in our Yandex ad network revenues as a share of total revenues for the period. The principal driver of the TAC increase is our agreement to power paid search on Mail.ru. Partner TAC includes both traffic acquisition costs related to our text-based ad network as well as display ad network. Other cost of revenues in Q2 2014 increased 12.0% compared with Q2 2013, reflecting further growth in personnel and data center-related costs, partly offset by the absence of the cost of online payment commissions related to Yandex.Money. Product development In RUR millionsThree monthsSix months ended June 30,ended June 30, 20132014Change20132014Change Product development 1,381 2,07951% 2,709 4,08351%As a % of revenues15.0%17.1% 15.8%17.7% Growth in product development expenses in Q2 2014 primarily reflects increases in the number of developers we've hired since Q2 2013. On a like-for like basis, excluding Yandex.Money employees for the respective periods, development headcount increased 36% from 2,280 as of June 30, 2013, to 3,106 as of June 30, 2014, with 85 employees added since March 31, 2014. Selling, general and administrative (SG&A) In RUR millionsThree monthsSix months ended June 30,ended June 30, 20132014Change20132014Change Sales, general and administrative 1,530 1,90725% 2,893 3,66927%As a % of revenues16.6%15.7% 16.8%15.9% SG&A costs grew broadly in line with our advertising revenues compared to Q2 2013. 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 RUR millionsThree monthsSix months ended June 30,ended June 30, 20132014Change20132014Change SBC expense included in cost of revenues 12 2392% 23 4283% SBC expense included in product development 91 16581% 173 33594% SBC expense included in SG&A 48 8781% 106 15344% Total SBC expense 151 27582% 302 53075%As a % of revenues1.6%2.3% 1.8%2.3% Total SBC expense increased 82% in Q2 2014 compared with Q2 2013. The increase is principally related to new equity-based grants made in 2013 and 2014. Depreciation and amortization (D&A) expense In RUR millionsThree monthsSix months ended June 30,ended June 30, 20132014Change20132014Change Depreciation and amortization 912 1,11422% 1,791 2,18322%As a % of revenues9.9%9.2% 10.4%9.5% D&A expense increased 22% in Q2 2014 compared with Q2 2013, primarily reflecting investments in servers and data centers made in 2013 and early 2014. As a result of the factors described above, income from operations was RUR 3.6 billion ($108.0 million) in Q2 2014, a 13% increase from Q2 2013, while adjusted EBITDA reached RUR 5.0 billion ($149.5 million) in Q2 2014, up 17% from Q2 2013. Interest income, net in Q2 2014 was RUR 203 million, down from RUR 452 million in Q2 2013, mainly due to interest expenses related to our convertible notes issued in December 2013 and January 2014. Foreign exchange loss in Q2 2014 was RUR 625 million, compared with a foreign exchange gain of RUR 35 million in Q2 2013. This loss is due to the depreciation of the U.S. dollar during Q2 2014 from RUR 35.6871 to $1.00 on March 31, 2014, to RUR 33.6306 to $1.00 on June 30, 2014. 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 in the income statement. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities was not impacted by these currency fluctuations, they resulted in a downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q2 2014. Income tax expense for Q2 2014 was RUR 821 million, up from RUR 772 million in Q2 2013. Our effective tax rate of 25.5% in Q2 2014 was higher than in Q1 2014 due to the one-time effect of certain reserves and allowances we provided for in Q2 2014. Adjusted for these reserves and allowances, our effective tax rate is 24.6%. Our effective tax rate was also higher than in 2013 quarters principally because in the six months ended June 30, 2014 we accrued for the 5% dividend withholding tax on the portion of the current year profit of our principal Russian operating subsidiary, that we considered not permanently reinvested in Russia. Adjusted net income in Q2 2014 was RUR 3.3 billion ($98.7 million), a 9% increase from Q2 2013. Adjusted net income margin was 27.3% in Q2 2014, compared with 33.2% in Q2 2013. Net income was RUR 2.4 billion ($71.2 million) in Q2 2014, down 18% compared with Q2 2013. The primary reason for negative growth rate of net income in Q2 2014 was due to foreign exchange loss recorded on the depreciation of the U.S. dollar during Q2 2014. As of June 30, 2014, Yandex had cash, cash equivalents and deposits of RUR 47.3 billion ($1,405.4 million). Net operating cash flow and capital expenditures for Q2 2014 were RUR 4.0 billion ($119.6 million) and RUR 2.1 billion ($63.7 million), respectively. The totalnumber of shares issued and outstanding as of June 30, 2014 was 317,925,242, including 247,054,830 Class A shares, 70,870,411 Class B shares, and one Priority share and excluding 12,096,512 Class A shares held in treasury and all Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also employee share options outstanding to purchase up to an additional 5.5 million shares, at a weighted average exercise price of $5.36 per share, of which options to purchase 5.1 million shares were fully vested; equity-settled share appreciation rights equal to 1.7 million shares, at a weighted average measurement price of $27.46, 0.3 million of which were fully vested; and restricted share units covering 3.4 million shares, of which restricted share units to acquire 0.7 million shares were fully vested. Outlook for 2014 On a like-for-like basis, excluding the revenue associated with Yandex.Money from 2013 results, Yandex expects to achieve full year ruble-based revenue growth of 25% to 30% in 20141. Conference Call Information Yandex's management will hold an earnings conference call on July 29, 2014 at 8:00 AM U.S. Eastern Time (4:00 PM Moscow time; 1:00 PM London time). To access the conference call live, please dial: US: +1 212 999 6659 UK: +44 (0) 20 3003 2666 Russia: 8 10 800 24902044 Passcode: Yandex A replay of the call will be available through August 5, 2014. To access the replay, please dial: US: +1 866 583 1039, Russia/International: +44 (0) 20 8196 1998 Passcode: 6513417# A live and archived webcast of this conference call will be available at http://www.media-server.com/m/p/ugcgw58j 1 In 2013, Yandex recognized total revenue of RUR 39,502 million, including RUR 394 million in payment commissions related to Yandex.Money and RUR 39,108 million in advertising and other revenues. Starting July 4, 2013, when the sale of a 75% interest in Yandex.Money was completed, Yandex stopped recognizing revenue related to Yandex.Money in its consolidated revenues. ABOUT YANDEX Yandex (Nasdaq:YNDX) is one of the largest European internet companies, providing a wide variety of search and other online services. Yandex's mission is to help users solve their everyday problems by building people-centric products and services. Based on innovative technologies, the company provides the most relevant, locally tailored experience on all digital platforms and devices. Yandex operates Russia's most popular search engine and also serves Ukraine, Belarus, Kazakhstan and Turkey. More information on Yandex can be found at http://company.yandex.com. 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 2014. 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, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the political, legal and/or regulatory environment, technological developments, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions "Risk Factors" and "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the year ended December 31, 2013, which is on file with the Securities and Exchange Commission and is available on our investor relations website at http://ir.yandex.com/sec.cfm and on the SEC website at www.sec.gov. All information in this release and in the attachments is as of July 29, 2014, and Yandex undertakes no duty to update this information unless required by law. USE OF NON-GAAP FINANCIAL MEASURES To supplement our consolidated financial statements, which are prepared and presented in accordance with US GAAP, we present the following non-GAAP financial measures: ex-TAC revenue, 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 US 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 US GAAP measures", included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows: Ex-TAC revenue means US GAAP revenues less total traffic acquisition costs (TAC)Adjusted EBITDA means net income plus (1) depreciation and amortization, (2) share-based compensation expense, (3) accrual of expense related to the contingent compensation that was payable to employees in connection with our acquisition of the mobile software business of SPB Software and our acquisition of KitLocate (described below) and (4) provision for income taxes, less (A) interest income and (B) other income/(expense)Adjusted EBITDA margin means adjusted EBITDA divided by US GAAP revenuesAdjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenueAdjusted net income means US 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 was payable to certain employees in connection with our acquisition of the mobile software business of SPB Software and our acquisition of KitLocate (described below), (3) foreign exchange losses (less foreign exchange gains) adjusted for the (reduction) increase in income tax attributable to the foreign exchange losses (gains) and (4) amortization of debt discount related to our convertible debt adjusted for the reduction in income taxes attributable to the amortization of debt discount; less gain from the sale and deconsolidation of equity investmentsAdjusted net income margin means adjusted net income divided by US GAAP revenuesAdjusted 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 costs, particularly share-based compensation, that are recurring. 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 US GAAP financial measures: TAC We believe that it may be useful for investors and analysts to review certain measures both in accordance with US GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from US 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 clear 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 were required under US GAAP to accrue as expense the contingent compensation that was payable to certain employees in connection with our acquisition of the mobile software business of SPB Software in November 2011 and our acquisition of KitLocate, the developer of an energy efficient geolocation technology for mobile devices, in March 2014. The aggregate amount of such contingent compensation paid in connection with SPB Software acquisition was $14.1 million, $7.1 million of which was paid in November 2012, $4.1 million of which was paid in February 2013, and $2.9 million of which was paid in November 2013. The maximum aggregate amount of contingent compensation to be paid in connection with KitLocate acquisition is $3.9 million payable upon the continued employment of the sellers. We have eliminated these acquisition-related expenses from adjusted EBITDA and adjusted net income to provide management and investors a tool for comparing on a period-to-period basis our operating performance in the ordinary course of operations. Foreign exchange gains and losses Because we hold significant assets in currencies other than our Russian ruble operating currency, and because foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance. Amortization of debt discount We also adjust net income for interest expense representing amortization of the debt discount related to our convertible notes issued in Q4 2013 and Q1 2014. We have eliminated this expense from adjusted net income as it is non-cash in nature and is not indicative of our ongoing operating performance. The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use to the most directly comparable US GAAP financial measure. YANDEX N.V.Unaudited Consolidated Balance Sheets(in millions of Russian rubles and U.S. dollars, except share and per share data) As of December 31, 2013*June 30, 2014June 30, 2014 RURRUR$ASSETS Current assets: Cash and cash equivalents 33,394 20,836 619.6 Marketable securities 87 -- -- Term deposits -- 1,682 50.0 Accounts receivable, net 2,785 2,872 85.4 Prepaid expenses 689 1,047 31.1 Assets held for sale -- 75 2.2 Deferred tax assets 596 488 14.5 Other current assets 1,332 3,016 89.7 Total current assets 38,883 30,016 892.5 Property and equipment, net 9,729 11,631 345.8 Intangible assets, net 633 659 19.6 Goodwill 2,946 3,001 89.2 Long-term prepaid expenses 1,042 1,278 38.1 Restricted cash 104 244 7.3 Term deposits 15,180 24,747 735.8 Investments in non-marketable equity securities 1,250 1,350 40.1 Investments in debt securities 2 2 0.1 Deferred tax assets 3 3 0.1 Other non-current assets 1,539 972 28.9TOTAL ASSETS 71,311 73,903 2,197.5 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities 3,710 4,181 124.4 Taxes payable 1,688 1,432 42.6 Deferred revenue 1,501 1,306 38.8 Deferred tax liabilities 16 21 0.6 Total current liabilities 6,915 6,940 206.4 Convertible debt 16,429 19,757 587.5 Deferred tax liabilities 1,245 1,235 36.7 Other accrued liabilities 125 241 7.1 Total liabilities 24,714 28,173 837.7 Commitments and contingencies Shareholders' equity: Priority share: €1 par value; 1 share authorized, issued and outstanding — — — Preference shares: €0.01 par value; 2,000,000,001 and 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: 2,000,000,000 and 1,000,000,000, Class B: 102,115,140 and 71,870,411, and Class C: 102,115,140 and 71,870,411); shares issued (Class A: 256,998,306 and 259,151,342, Class B: 72,923,447 and 70,870,411, and Class C: 23,110,819 and 25,263,855, respectively); shares outstanding (Class A: 250,732,061 and 247,054,830, Class B: 72,923,447 and 70,870,411, and Class C: nil) 242 233 6.9 Treasury shares at cost (Class A: 6,266,245 and 12,096,512) (6,886) (13,695) (407.2) Additional paid-in capital 15,701 16,243 483.0 Accumulated other comprehensive income 2,042 2,375 70.6 Retained earnings 35,498 40,574 1,206.5 Total shareholders' equity 46,597 45,730 1,359.8TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 71,311 73,903 2,197.5 * Derived from audited financial statements YANDEX N.V.UnauditedCondensed Consolidated Statements of Income(in millions of Russian rubles and U.S. dollars, except share and per share data) Three months ended June 30, 201320142014 RURRUR$ Revenues 9,199 12,158 361.5 Operating costs and expenses: Cost of revenues(1) 2,158 3,427 101.9 Product development(1) 1,381 2,079 61.8 Sales, general and administrative(1) 1,530 1,907 56.7 Depreciation and amortization 912 1,114 33.1 Total operating costs and expenses 5,981 8,527 253.5 Income from operations 3,218 3,631 108.0 Interest income, net 452 203 6.0 Other income, net 17 (617) (18.3) Net income before income taxes 3,687 3,217 95.7 Provision for income taxes 772 821 24.5 Net income 2,915 2,396 71.2 Net income per Class A and Class B share: Basic 8.91 7.51 0.22 Diluted 8.70 7.37 0.22 Weighted average number of Class A and Class B shares outstanding Basic 327,270,521 319,072,616 319,072,616 Diluted 335,106,587 325,231,096 325,231,096 (1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of: Cost of revenues 12 23 0.7 Product development 91 165 4.9 Sales, general and administrative 48 87 2.6 YANDEX N.V.Unaudited Condensed Consolidated Statements of Income(in millions of Russian rubles and U.S. dollars, except share and per share data) Six months ended June 30, 201320142014 RURRUR$ Revenues 17,198 23,043 685.2 Operating costs and expenses: Cost of revenues(1) 4,134 6,759 201.0 Product development(1) 2,709 4,083 121.4 Sales, general and administrative(1) 2,893 3,669 109.1 Depreciation and amortization 1,791 2,183 64.9 Total operating costs and expenses 11,527 16,694 496.4 Income from operations 5,671 6,349 188.8 Interest income, net 820 375 11.2 Other income, net 43 51 1.5 Net income before income taxes 6,534 6,775 201.5 Provision for income taxes 1,373 1,699 50.6 Net income 5,161 5,076 150.9 Net income per Class A and Class B share: Basic 15.74 15.82 0.47 Diluted 15.38 15.51 0.46 Weighted average number of Class A and Class B shares outstanding Basic 327,820,231 320,768,126 320,768,126 Diluted 335,669,392 327,326,564 327,326,564 (1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of: Cost of revenues 23 42 1.2 Product development 173 335 10.0 Sales, general and administrative 106 153 4.5 YANDEX N.V.Unaudited Condensed Consolidated Statements of Cash Flows(in millions of Russian rubles and U.S. dollars) Three months ended June 30, 201320142014 RURRUR$ CASH FLOWS FROM OPERATING ACTIVITIES: Net income 2,915 2,396 71.2 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 890 1,076 32.0 Amortization of acquisition-related intangible assets 22 38 1.1 Amortization of debt discount and issuance costs -- 190 5.6 Share-based compensation expense 151 275 8.2 Deferred income taxes (161) (72) (2.1) Foreign exchange (gains)/losses (35) 625 18.6 Other 17 -- -- Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable, net (274) (169) (5.0) Prepaid expenses and other assets (412) (984) (29.3) Accounts payable and accrued liabilities 756 650 19.4 Deferred revenue 163 (4) (0.1) Assets held for sale (96) -- -- Liabilities related to assets held for sale 59 -- -- Net cash provided by operating activities 3,995 4,021 119.6 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment (685) (2,146) (63.7) Investments in non-marketable equity securities -- (36) (1.1) Investments in term deposits (6,230) (1,717) (51.1) Maturities of term deposits 3,470 -- -- Loans granted (35) (178) (5.3) Net cash used in investing activities (3,480) (4,077) (121.2) CASH FLOWS USED IN FINANCING ACTIVITIES: Proceeds from exercise of share options 123 38 1.1 Repurchases of ordinary shares (2,521) (3,576) (106.3) Net cash used in financing activities (2,398) (3,538) (105.2) Effect of exchange rate changes on cash and cash equivalents 287 (1,321) (39.3) Net change in cash and cash equivalents (1,596) (4,915) (146.1) Cash and cash equivalents at beginning of period 7,757 25,751 765.7 Cash and cash equivalents at end of period 6,161 20,836 619.6 YANDEX N.V.Unaudited Condensed Consolidated Statements of Cash Flows(in millions of Russian rubles and U.S. dollars) Six months ended June 30, 201320142014 RURRUR$ CASH FLOWS FROM OPERATING ACTIVITIES: Net income 5,161 5,076 150.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 1,746 2,109 62.7 Amortization of acquisition-related intangible assets 45 74 2.2 Amortization of debt discount and issuance costs -- 373 11.1 Share-based compensation expense 302 530 15.7 Deferred income taxes (214) (49) (1.5) Foreign exchange (gains)/losses (42) (22) (0.7) Other (8) (26) (0.8) Changes in operating assets and liabilities excluding the effect of acquisitions: Accounts receivable, net (356) (106) (3.2) Prepaid expenses and other assets (412) (1,489) (44.3) Accounts payable and accrued liabilities 431 336 10.3 Deferred revenue 41 (184) (5.5) Assets held for sale (155) -- -- Liabilities related to assets held for sale 86 -- -- Net cash provided by operating activities 6,625 6,622 196.9 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment (1,544) (4,211) (125.2) Acquisitions of businesses, net of cash acquired -- (146) (4.3) Investments in non-marketable equity securities -- (36) (1.2) Proceeds from sale of equity securities -- 120 3.6 Investments in term deposits (11,450) (11,926) (354.6) Maturities of term deposits 7,070 -- -- Loans granted (35) (209) (6.2) Escrow cash deposit 130 (137) (4.1) Net cash used in investing activities (5,829) (16,545) (492.0) CASH FLOWS USED IN FINANCING ACTIVITIES: Proceeds from exercise of share options 255 86 2.6 Proceeds from issuance of convertible debt -- 2,981 88.6 Payment of debt discount and issuance costs -- (42) (1.2) Repurchases of ordinary shares (2,764) (7,334) (218.1) Net cash used in financing activities (2,509) (4,309) (128.1) Effect of exchange rate changes on cash and cash equivalents 449 1,674 49.8 Net change in cash and cash equivalents (1,264) (12,558) (373.4) Cash and cash equivalents at beginning of period 7,425 33,394 993.0 Cash and cash equivalents at end of period 6,161 20,836 619.6 YANDEX N.V.RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES TO THE NEAREST COMPARABLE US GAAP MEASURES Reconciliation of Ex-TAC Revenues to US GAAP Revenues In RUR millionsThree months ended June 30,Six months ended June 30, 20132014Change20132014Change Total revenues 9,199 12,15832% 17,198 23,04334%Less: traffic acquisition costs (TAC) 1,465 2,65181% 2,770 5,21988% Ex-TAC revenues 7,734 9,50723% 14,428 17,82424% Reconciliation of Adjusted EBITDA to US GAAP Net Income In RUR millionsThree months ended June 30,Six months ended June 30, 20132014Change20132014Change Net income 2,915 2,396-18% 5,161 5,076-2%Add: depreciation and amortization 912 1,11422% 1,791 2,18322%Add: share-based compensation expense 151 27582% 302 53075%Add: compensation expense related to contingent consideration 22 7n/m 43 7n/mLess: interest income, net (452) (203)-55% (820) (375)-54%Less: other income, net (17) 617n/m (43) (51)n/mAdd: provision for income taxes 772 8216% 1,373 1,69924% Adjusted EBITDA 4,303 5,02717% 7,807 9,06916% Reconciliation of Adjusted Net Income to US GAAP Net Income In RUR millionsThree months ended June 30,Six months ended June 30, 20132014Change20132014Change Net income 2,915 2,396-18% 5,161 5,076-2%Add: SBC expense 151 27582% 302 53075%Less: reduction in income tax attributable to SBC expense (2) (5)n/m (4) (10)n/mAdd: compensation expense related to contingent consideration 22 7n/m 43 7n/mLess: foreign exchange (gain)/loss (35) 625n/m (42) (22)n/mAdd: increase/(reduction) in income tax attributable to foreign exchange (gain)/loss 7 (125)n/m 8 4n/mAdd: amortization of debt discount -- 190n/m -- 373n/mLess: reduction in income tax attributable to amortization of debt discount -- (45)n/m -- (88)n/m Adjusted net income 3,058 3,3189% 5,468 5,8707% Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to US GAAP Net Income Margin In RUR millions US GAAP Actual Net IncomeNet Income Margin (1)Adjustment (2)Adjusted EBITDAAdjusted EBITDA Margin (3)Adjusted Ex-TAC EBITDA Margin (4) Three months ended June 30, 2014 2,396 19.7% 2,631 5,027 41.3% 52.9% Six months ended June 30, 2014 5,076 22.0% 3,993 9,069 39.4% 50.9% (1) Net income margin is defined as net income divided by total revenues. (2) Adjusted to eliminate depreciation and amortization expense, SBC expense, expense related to contingent compensation, interest income, net, other (expense)/income, net, and provision for income taxes. For a reconciliation of adjusted EBITDA to net income, please see the table above. (3) Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenues. (4) Adjusted ex-TAC EBITDA margin is defined as adjusted EBITDA divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to GAAP revenues, please see the table above. Reconciliation of Adjusted Net Income Margin and Adjusted Ex-TAC Net Income Margin to US GAAP Net Income Margin In RUR millions US GAAP Actual Net IncomeNet Income Margin (1)Adjustment (2)Adjusted Net IncomeAdjusted Net Income Margin (3)Adjusted Ex-TAC Net Income Margin (4) Three months ended June 30, 2014 2,396 19.7% 922 3,318 27.3% 34.9% Six months ended June 30, 2014 5,076 22.0% 794 5,870 25.5% 32.9% (1) Net income margin is defined as net income divided by total revenues. (2) Adjusted to eliminate SBC expense (as adjusted for the income tax reduction attributable to SBC expense), expense related to contingent compensation, foreign exchange (gain)/loss (as adjusted for the reduction in income tax attributable to the (gain)/loss) and amortization of debt discount (as adjusted for the reduction in income tax attributable to the expense). For a reconciliation of adjusted net income to net income, please see the table above. (3) Adjusted net income margin is defined as adjusted net income divided by total revenues. (4) Adjusted ex-TAC net income margin is defined as adjusted net income divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to US GAAP revenues, please see the table above. CONTACT: Investor Relations Greg Abovsky, Katya Zhukova Phone: +7 495 974-35-38 E-mail: [email protected] Media Relations Ochir Mandzhikov, Vladimir Isaev Phone: +7 495 739-70-00 E-mail: [email protected] Source: Yandex 2014 GlobeNewswire, Inc. |