OREANDA-NEWS.  Yandex (NASDAQ:YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its unaudited financial results for the second quarter ended June 30, 2017.

Q2 2017 Financial Highlights(1)(2)

  • Revenues of RUB 22.1 billion ($374.1 million), up 23% compared with Q2 2016
  • Net income of RUB 3.5 billion ($59.0 million), up 69% compared with Q2 2016; net income margin of 15.8%
  • Adjusted net income of RUB 4.0 billion ($67.5 million), up 2% compared with Q2 2016; adjusted net income margin of 18.1%
  • Adjusted EBITDA of RUB 7.2 billion ($122.1 million), up 7% compared with Q2 2016; adjusted EBITDA margin of 32.6%
  • Cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 66.2 billion ($1,120.0 million) as of June 30, 2017

Q2 2017 Operational and Corporate Highlights

  • Share of Russian search market, including mobile, averaged 54.3% in Q2 2017, compared with 54.7% in Q1 2017 (according to Yandex.Radar, a search traffic and browser usage analytics tool based on Yandex.Metrica data)
  • Search queries in Russia grew 5% compared with Q2 2016
  • Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 10% compared with Q2 2016
  • Average cost per click grew 9% compared with Q2 2016
  • Yandex.Taxi number of rides grew 425% year-on-year compared with Q2 2016

Q2 2017 Subsequent Events

  • Yandex and Uber announced an agreement to combine their ridesharing businesses in Russia and five neighboring countries
  • Yandex launched Yandex.Radar, a search traffic and browser usage analytics tool based on Yandex.Metrica data

“Our team delivered another strong quarter,” said Arkady Volozh, Chief Executive Officer of Yandex. “Our agreement with Uber to combine ridesharing operations in Russia and five neighboring countries demonstrates the potential of our business units to accelerate innovation and create substantial shareholder value.”

“We delivered solid results across all business segments in Q2, and I was pleased to see strong growth and profitability in our core business,” said Alexander Shulgin, Chief Operating Officer of Yandex. “We expect continued investments in Taxi, e-Commerce, Classifieds, and other new initiatives to drive further growth.”

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

                           
In RUB millions   Three months ended June 30,    Six months ended June 30, 
    2016   2017   Change   2016   2017   Change
Revenues   18,040   22,104   23 %   34,513   42,756   24 %
Ex-TAC revenues2   14,486   17,888   23 %   27,569   34,605   26 %
Income from operations   3,517   2,997   -15 %   5,957   6,372   7 %
Adjusted EBITDA2   6,762   7,213   7 %   12,532   14,087   12 %
Net income   2,058   3,484   69 %   3,127   4,303   38 %
Adjusted net income2   3,906   3,990   2 %   7,074   7,739   9 %

(1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 59.0855 to $1.00, the official exchange rate quoted as of June 30, 2017 by the Central Bank of the Russian Federation.
       
(2) The following measures presented in this release are “non-GAAP financial measures”: ex-TAC revenues; adjusted EBITDA; adjusted EBITDA margin; adjusted ex-TAC EBITDA margin; adjusted net income; adjusted net income margin and adjusted ex-TAC net income margin. Please see the section headed “Use of Non-GAAP Financial Measures” below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures.

Consolidated revenues breakdown

                         
In RUB millions   Three months ended June 30,    Six months ended June 30,
    2016   2017   Change   2016   2017   Change
Online advertising revenues:                        
  Yandex properties   12,562   15,531   24 %   23,966   29,887   25 %
  Advertising network   4,740   5,403   14 %   9,168   10,562   15 %
Total online advertising revenues   17,302   20,934   21 %   33,134   40,449   22 %
Other   738   1,170   59 %   1,379   2,307   67 %
Total revenues   18,040   22,104   23 %   34,513   42,756   24 %
                             

Online advertising revenues grew 21% in Q2 2017 compared with Q2 2016 and continued to determine overall top-line performance, contributing 95% of total revenues. Online advertising revenues include revenues derived from performance and brand advertising on Yandex properties and in our advertising network.

Online advertising revenues from Yandex properties increased 24% in Q2 2017 compared with Q2 2016 and accounted for 70% of total revenues.

Online advertising revenues from our advertising network increased 14% in Q2 2017 compared with Q2 2016 and contributed 24% of total revenues.

Other revenues grew 59% in Q2 2017 compared with Q2 2016, and were mainly driven by growth in Yandex.Taxi revenues.

Segment revenues

             
In RUB millions
 Three months ended June 30,
   Six months ended June 30, 
 
 2016     2017     Change
   2016     2017     Change
Revenues:            
Search and Portal 16,532     20,135     22 %   31,679     38,791     22 %
E-commerce 1,069     1,168     9 %   2,112     2,463     17 %
Taxi 528     772     46 %   973     1,550     59 %
Classifieds 313     462     48 %   554     833     50 %
Experiments 153     344     125 %   338     670     98 %
Eliminations (555 )   (777 )   40 %   (1,143 )   (1,551 )   36 %
Total revenues 18,040     22,104     23 %   34,513     42,756     24 %
                                   

Search and Portal segment includes all our services offered in Russia, Belarus and Kazakhstan (and, for periods prior to the imposition of sanctions on Yandex by the government of Ukraine in May 2017, all our services offered in Ukraine), other than those described below;
E-commerce segment includes our Yandex.Market service;
Taxi segment consists of our Yandex.Taxi service;
Classifieds segment includes Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel;
Experiments segment includes Media Services (including KinoPoisk, Yandex.Music, Yandex.Afisha and Yandex.TV program), Yandex Data Factory, Discovery services (including Yandex Zen and Yandex Launcher international revenues) and Search and Portal in Turkey.
Eliminations represent the elimination of transactions between the reportable segments, primarily related to advertising.

Consolidated Operating Costs and Expenses

Yandex’s operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A) and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, relevant office space rental, and related share-based compensation expense. Increases across all cost categories reflect investments in overall growth. In Q2 2017 Yandex's headcount increased by 32 full-time employees. The total number of full-time employees was 6,517 as of June 30, 2017, unchanged compared with March 31, 2017, and up 17% from June 30, 2016.

Cost of revenues, including traffic acquisition costs (TAC)

                   
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016     2017     Change
   2016     2017     Change
TAC:                  
Related to the Yandex advertising network   2,641     3,148     19 %   5,136     6,044     18 %
Related to distribution partners   913     1,068     17 %   1,808     2,107     17 %
Total TAC   3,554     4,216     19 %   6,944     8,151     17 %
Total TAC as a % of total revenues   19.7 %   19.1 %    
   20.1 %   19.1 %    
Other cost of revenues   1,142     1,531     34 %   2,256     2,944     30 %
Other cost of revenues as a % of revenues    6.3 %   6.9 %    
   6.5 %   6.9 %    
Total cost of revenues   4,696     5,747     22 %   9,200     11,095     21 %
Total cost of revenues as a % of revenues   26.0 %   26.0 %    
   26.7 %   25.9 %    
 

TAC grew 19% in Q2 2017 compared with Q2 2016 and represented 19.1% of total revenues, 60 basis points lower than in Q2 2016 and flat compared with Q1 2017. The decrease of partner TAC as a percent of revenues from the Yandex advertising network was due to changes in partner revenue mix.

Other cost of revenues in Q2 2017 increased 34% compared with Q2 2016, primarily due to an increase in services provided to Taxi corporate clients, for which revenue and related costs are recorded on a gross basis.

Product development

               
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016     2017     Change
   2016     2017     Change
Product development   3,794     4,473     18 %   7,671     8,991     17 %
As a % of revenues   21.1 %   20.2 %       22.2 %   21.0 %    
                                 

Growth in product development expenses in Q2 2017 primarily reflects salary increases and new hires in 2016 and in early 2017.

Sales, general and administrative (SG&A)

               
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016     2017     Change
   2016     2017     Change
Sales, general and administrative    3,717     6,064     63 %   6,975     11,012     58 %
As a % of revenues   20.6 %   27.4 %       20.2 %   25.8 %    
                                 

SG&A expenses grew faster than revenue, increasing by 63% in Q2 2017 compared to Q2 2016 as we continued to invest in advertising and marketing to support our business units, primarily Taxi.

Share-based compensation (SBC) expense

SBC expense is included in each of the cost of revenues, product development, and SG&A categories discussed above.

               
In RUB millions   Three months ended June 30, 
   Six months ended June 30,  
    2016     2017     Change
   2016     2017     Change
SBC expense included in cost of revenues   46     64     39 %   95     106     12 %
SBC expense included in product development    545     542     -1 %   1,140     1,118     -2 %
SBC expense included in SG&A   290     359     24 %   537     699     30 %
Total SBC expense   881     965     10 %   1,772     1,923     9 %
As a % of revenues   4.9 %   4.4 %       5.1 %   4.5 %    
                                 

Total SBC expense increased 10% in Q2 2017 compared with Q2 2016. The increase is primarily related to new equity-based grants made in 2016-2017.

Depreciation and amortization (D&A) expense

               
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016     2017     Change
   2016     2017     Change
Depreciation and amortization   2,316     2,823     22 %   4,710     5,286     12 %
As a % of revenues   12.8 %   12.8 %    
   13.6 %   12.4 %    
                                 

D&A expense increased 22% in Q2 2017 compared with Q2 2016, primarily reflecting investments in servers and data centers made in 2016 and 2017, and was partially offset by the currency translation effect related to the D&A expense of our data center in Finland, which is denominated in euros.

Income from operations

                       
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016   2017   Change
   2016   2017   Change
Income from operations   3,517   2,997   -15 %   5,957   6,372   7 %
                             

Income from operations decreased 15% in Q2 2017 compared with Q2 2016, due to an increase in our advertising and marketing costs related to business units, primarily Taxi.

Adjusted EBITDA

Consolidated adjusted EBITDA

                       
In RUB millions   Three months ended June 30, 
   Six months ended June 30, 
    2016   2017   Change
   2016   2017   Change
Adjusted EBITDA   6,762   7,213   7 %   12,532   14,087   12 %
                             

Adjusted EBITDA increased 7% in Q2 2017 compared with Q2 2016.

Adjusted EBITDA by segments

             
In RUB millions Three months ended June 30, 
   Six months ended June 30, 
  2016     2017     Change
   2016     2017     Change
Adjusted EBITDA:      
        
Search and Portal 6,927     9,098     31 %   12,838     17,071     33 %
E-commerce 325     445     37 %   705     1,005     43 %
Taxi (153 )   (1,966 )   n/m
   (153 )   (3,211 )   n/m
Classifieds 23     (17 )   -174 %   17     (13 )   -176 %
Experiments (360 )   (347 )   -4 %   (875 )   (765 )   -13 %
Total adjusted EBITDA 6,762     7,213     7 %   12,532     14,087     12 %
                                   

Adjusted EBITDA of Taxi was negative RUB 1,966 million in Q2 2017, compared with negative RUB 1,245 million in Q1 2017, and was mainly related to an increase in our advertising and marketing costs, primarily driven by expansion to the new cities, introduction of minimum fare guarantees to drivers in Q3 2016 as well as discounts and coupons to our users.

Interest income in Q2 2017 was RUB 688 million, down from RUB 735 million in Q2 2016.

Interest expense in Q2 2017 was RUB 217 million, down from RUB 298 million in Q2 2016.

Foreign exchange gain in Q2 2017 was RUB 1,273 million, compared with a foreign exchange loss of RUB 958 million in Q2 2016. This gain reflects the depreciation of the Russian ruble during Q2 2017 from RUB 56.3779 to $1.00 on March 31, 2017, to RUB 59.0855 to $1.00 on June 30, 2017. Yandex's Russian operating subsidiaries' functional currency is the Russian ruble, and therefore changes due to exchange rate fluctuations in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies are recognized as foreign exchange gains or losses within the Other gain, net line in the condensed consolidated statements of income. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities was not impacted by these currency fluctuations, they resulted in an upward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q2 2017.

Income tax expense for Q2 2017 was RUB 1,373 million, up from RUB 1,054 million in Q2 2016. Our effective tax rate of 28.3% in Q2 2017 was higher than in Q2 2016, primarily due to provision of certain reserves resulting from sanctions in Ukraine, partly offset by the effects of certain provisions reversed in Q2 2017 related to the results of prior years’ tax audits. Adjusted for these effects and SBC expense, our effective tax rate for Q2 2017 was 23.1%, compared with 23.4% for full year 2016 as adjusted for SBC expense and similar provisions in that year.

Net income was RUB 3.5 billion ($59.0 million) in Q2 2017, up 69% compared with Q2 2016, mainly due to foreign exchange gain in Q2 2017.

Adjusted net income in Q2 2017 was RUB 4.0 billion ($67.5 million), a 2% increase from Q2 2016.

Adjusted net income margin was 18.1% in Q2 2017, compared with 21.7% in Q2 2016.

As of June 30, 2017, Yandex had cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 66.2 billion ($1,120.0 million).

Net cash flow provided by operating activities for Q2 2017 was RUB 7.2 billion ($121.4 million) and capital expenditures were RUB 3.9 billion ($65.4 million).

During Q2 2017, we repurchased $4.0 million in principal of our 1.125% convertible senior notes due 2018 for approximately $3.9 million.

Redeemable noncontrolling interests presented in our condensed consolidated balance sheets relate to the equity incentive arrangements we have made available to the senior employees of the Taxi, Classifieds and E-commerce segments, pursuant to which such persons are eligible to acquire depositary receipts, or receive options to acquire depositary receipts, which entitle them to economic interests in the respective business unit subsidiaries.

The total number of shares issued and outstanding as of June 30, 2017 was 325,021,108 including 280,167,373 Class A shares, 44,853,734 Class B shares, and one Priority share and excluding 5,035,646 Class A shares held in treasury and all Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares. All such Class C shares will be cancelled.

There were also employee share options outstanding to purchase up to an additional 1.3 million shares, at a weighted average exercise price of $5.30 per share, all of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $31.95, all of which, excluding SARs for approximately 1,000 shares, were fully vested; and restricted share units (RSUs) covering 9.8 million shares, of which RSUs to acquire 2.0 million shares were fully vested. Equity awards in respect of business unit subsidiaries are described under Redeemable noncontrolling interests above.

Please note that historical information on revenues and adjusted EBITDA of our segments is provided in the supplementary slides accompanying our Q2 2017 earnings release, including quarterly data for the ten quarters from Q1 2015 through Q2 2017 and annual data for the four years from 2013 through 2016.

Financial outlook

Based on the solid first half of the year, we currently expect our ruble-based revenue to grow in the range of 18% to 21% for the full year 2017.
This outlook reflects our current view, based on the trends that we see at this time, and may change in light of market and economic developments in the business sectors and jurisdictions in which we operate.

Conference Call Information

Yandex’s management will hold an earnings conference call on July 28, 2017 at 8:00 AM U.S. Eastern Time (3:00 PM Moscow time; 1:00 PM London time).

To access the conference call live, please dial:

US: +1 877 280 2296
UK/International: +44 20 3427 1904
Russia: 8 800 500 9311
Passcode: 1461276#

A replay of the call will be available until Aug 3, 2017. To access the replay, please dial:

US: +1 866 932 5017
UK/International: +44 20 3427 0598
Russia: 810 800 2870 1012
Passcode: 1461276#

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

https://edge.media-server.com/m6/p/j28o33g4 

ABOUT YANDEX

Yandex (NASDAQ:YNDX) is a technology company that builds intelligent products and services powered by machine learning. Our goal is to help consumers and businesses better navigate the online and offline world. Since 1997, we have delivered world-class, locally relevant search and information services. Additionally, we have developed market-leading on-demand transportation services, navigation products, and other mobile applications for millions of consumers across the globe. Yandex, which has 17 offices worldwide, has been listed on the NASDAQ since 2011.
More information on Yandex can be found at https://yandex.com/company. 

 

USE OF NON-GAAP FINANCIAL MEASURES

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we present the following non-GAAP financial measures: ex-TAC revenues, adjusted EBITDA, adjusted EBITDA margin, adjusted ex-TAC EBITDA margin, adjusted net income, adjusted net income margin and adjusted ex-TAC net income margin. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP financial measures to the nearest comparable U.S. GAAP measures”, included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:

  • Ex-TAC revenues means U.S. GAAP revenues less total traffic acquisition costs (TAC)
  • Adjusted EBITDA means U.S. GAAP net income plus (1) depreciation and amortization, (2) SBC expense, (3) accrual of expense related to the contingent compensation that may be payable to employees in connection with certain business combinations, (4) interest expense, (5) other loss/(gain), net, (6) operating losses resulting from sanctions in Ukraine imposed in May 2017 and (7) provision for income taxes, less interest income
  • Adjusted EBITDA margin means adjusted EBITDA divided by U.S. GAAP revenues
  • Adjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenues
  • Adjusted net income means U.S. GAAP net income plus (1) SBC expense adjusted for the income tax reduction attributable to SBC expense, (2) accrual of expense related to the contingent compensation that may be payable to certain employees in connection with certain business combinations, (3) foreign exchange losses/gains adjusted for reduction/increase in income tax attributable to the foreign exchange losses/gains, (4) gains/losses from repurchases of our convertible notes adjusted for the related increase/reduction in income tax, (5) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax and (6) losses resulting from sanctions in Ukraine imposed in May 2017
  • Adjusted net income margin means adjusted net income divided by U.S. GAAP revenues
  • Adjusted ex-TAC net income margin means adjusted net income divided by ex-TAC revenues

These non-GAAP financial measures are used by management for evaluating financial performance as well as decision-making. Management believes that these metrics reflect the organic, core operating performance of the company, and therefore are useful to analysts and investors in providing supplemental information that helps them understand, model and forecast the evolution of our operating business.

Although our management uses these non-GAAP financial measures for operational decision-making and considers these financial measures to be useful for analysts and investors, we recognize that there are a number of limitations related to such measures. In particular, it should be noted that several of these measures exclude some recurring costs, particularly share-based compensation. In addition, the components of the costs that we exclude in our calculation of the measures described above may differ from the components that our peer companies exclude when they report their results of operations.

Below we describe why we make particular adjustments to certain U.S. GAAP financial measures:

TAC

We believe that it may be useful for investors and analysts to review certain measures both in accordance with U.S. GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from U.S. GAAP revenues. By presenting revenue, adjusted EBITDA margin and adjusted net income margin net of TAC, we believe that investors and analysts are able to obtain a clearer picture of our business without the impact of the revenues we share with our partners.

SBC

SBC is a significant expense item, and an important part of our compensation and incentive programs. As it is a non-cash charge, however, and highly dependent on our share price at the time of equity award grants, we believe that it is useful for investors and analysts to see certain financial measures excluding the impact of these charges in order to obtain a clearer picture of our operating performance.

Acquisition-related costs

We may incur expenses in connection with acquisitions that are not indicative of our recurring core operating performance. In particular, we are required under U.S. GAAP to accrue as expense the contingent compensation that is payable to certain employees in connection with certain business combinations. We eliminate these acquisition-related expenses from adjusted EBITDA and adjusted net income to provide management and investors a tool for comparing on a period-to-period basis our operating performance in the ordinary course of operations.

Foreign exchange gains and losses

Because we hold significant assets and liabilities in currencies other than our Russian ruble operating currency, and because foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance.

Amortization of debt discount

We also adjust net income for interest expense representing amortization of the debt discount related to our convertible notes issued in Q4 2013 and Q1 2014.We have eliminated this expense from adjusted net income as it is non-cash in nature and is not indicative of our ongoing operating performance.

Gains and losses from repurchases of convertible debt

Adjusted net income is also adjusted for a loss from the repurchase of $4.0 million in principal of our 1.125% convertible senior notes due 2018 for approximately $3.9 million that we recorded in Q2 2017. We have eliminated this loss from adjusted net income as it is not indicative of our ongoing operating performance.

Losses resulting from sanctions in Ukraine

We also adjusted our net income and EBITDA for losses and gains from write-off of assets and liabilities in our Ukrainian legal entities. In May 2017, the government of Ukraine imposed sanctions on our Ukrainian operations. The sanctions resulted in the freezing of the assets held by our Ukrainian legal entities and restricting our services in Ukraine. We believe that it is useful to present adjusted net income and adjusted EBITDA measures excluding the one-off impact of these events, which are not related to our operating activities.

The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use to the most directly comparable U.S. GAAP financial measure.

YANDEX N.V.

Unaudited Condensed Consolidated Balance Sheets

(in millions of Russian rubles and U.S. dollars, except share and per share data)
             
    As of
    December 31,   June 30,    June 30, 
    2016*   2017    2017 
    RUB   RUB   $
ASSETS            
Current assets:            
Cash and cash equivalents   28,232     14,606     247.2  
Term deposits   31,769     45,255     765.9  
Investments in debt securities   3,033     1,182     20.0  
Accounts receivable, net   7,741     7,784     131.7  
Prepaid expenses   1,481     1,558     26.5  
Other current assets   2,714     2,998     50.7  
Total current assets   74,970     73,383     1,242.0  
             
Property and equipment, net   18,817     22,355     378.4  
Intangible assets, net   5,514     5,549     93.9  
Goodwill   8,436     8,689     147.1  
Long-term prepaid expenses   1,385     1,488     25.0  
Term deposits, non-current   -     5,135     86.9  
Investments in non-marketable equity securities   1,513     1,741     29.5  
Deferred tax assets   662     1,173     19.9  
Other non-current assets   2,811     3,163     53.5  
TOTAL ASSETS    114,108      122,676      2,076.2  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable and accrued liabilities   9,532     10,840     183.4  
Taxes payable   2,963     3,774     63.9  
Deferred revenue   2,127     2,150     36.4  
Total current liabilities   14,622     16,764     283.7  
Convertible debt   18,750     17,947     303.7  
Deferred tax liabilities   1,040     1,224     20.7  
Other accrued liabilities   1,104     1,127     19.1  
Total liabilities   35,516     37,062     627.2  
             
Commitments and contingencies            
Redeemable noncontrolling interests   1,506     4,970     84.1  
Shareholders’ equity:            
Priority share: €1.00 par value; 1 share authorized, issued and outstanding   —     —     —  
Preference shares: €0.01 par value; 1,000,000,001 shares authorized, nil
shares issued and outstanding		   —     —     —  
Ordinary shares: par value (Class A €0.01, Class B €0.10 and Class C
€0.09); shares authorized (Class A: 1,000,000,000, Class B: 46,997,887 and
Class C: 46,997,887); shares issued (Class A: 285,019,019 and
285,203,019, Class B: 45,037,734 and 44,853,734, and Class C: 560,235 and
744,235, respectively); shares outstanding (Class A: 277,579,206 and 280,167,373,
Class B: 45,037,734 and 44,853,734, and Class C: nil)		   284     284     4.8  
Treasury shares at cost (Class A: 7,439,813 and 5,035,646, respectively)   (8,368 )   (5,174 )   (87.6 )
Additional paid-in capital   16,579     15,489     262.1  
Accumulated other comprehensive income   896     1,511     25.7  
Retained earnings   67,695     68,534     1,159.9  
Total shareholders’ equity   77,086     80,644     1,364.9  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY    114,108      122,676      2,076.2  
                   

* Derived from audited consolidated financial statements

YANDEX N.V.

Unaudited Condensed Consolidated Statements of Income

(in millions of Russian rubles and U.S. dollars, except share and per share data)
             
    Three months ended June 30, 
    2016   2017   2017
    RUB   RUB   $
             
Revenues   18,040     22,104     374.1  
Operating costs and expenses:            
Cost of revenues(1)   4,696     5,747     97.3  
Product development(1)   3,794     4,473     75.7  
Sales, general and administrative(1)   3,717     6,064     102.6  
Depreciation and amortization   2,316     2,823     47.8  
Total operating costs and expenses   14,523     19,107     323.4  
Income from operations   3,517     2,997     50.7  
Interest income   735     688     11.6  
Interest expense   (298 )   (217 )   (3.7 )
Other (loss)/income, net   (842 )   1,389     23.6  
Net income before income taxes   3,112     4,857     82.2  
Provision for income taxes   1,054     1,373     23.2  
Net income   2,058     3,484     59.0  
Net loss attributable to noncontrolling interests   -     30     0.5  
Net income attributable to Yandex N.V.   2,058     3,514     59.5  
Net income per Class A and Class B share:            
Basic   6.42     10.83     0.18  
Diluted   6.30     10.65     0.18  
Weighted average number of Class A and Class B shares outstanding            
Basic   320,323,089     324,355,605     324,355,605  
Diluted   326,836,136     330,036,917     330,036,917  
             
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-
based compensation expenses of:
               
Cost of revenues   46   64   1.1  
Product development   545   542   9.2  
Sales, general and administrative   290   359   6.0  
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,   
    2016    2017    2017   
    RUB   RUB   $  
               
Revenues   34,513     42,756     723.6    
Operating costs and expenses:              
Cost of revenues(1)   9,200     11,095     187.8    
Product development(1)   7,671     8,991     152.2    
Sales, general and administrative(1)   6,975     11,012     186.3    
Depreciation and amortization   4,710     5,286     89.5    
Total operating costs and expenses   28,556     36,384     615.8    
Income from operations   5,957     6,372     107.8    
Interest income   1,608     1,397     23.6    
Interest expense    (648 )    (445 )    (7.5 )  
Other loss, net    (2,023 )    (866 )    (14.6 )  
Net income before income taxes   4,894     6,458     109.3    
Provision for income taxes   1,767     2,155     36.5    
Net income   3,127     4,303     72.8    
Net loss attributable to noncontrolling interests    -     46     0.8    
Net income attributable to Yandex N.V.   3,127     4,349     73.6    
Net income per Class A and Class B share:              
Basic   9.78     13.43     0.23    
Diluted   9.59     13.20     0.22    
Weighted average number of Class A and Class B shares outstanding              
Basic   319,878,504     323,803,590     323,803,590    
Diluted   326,019,560     329,455,881     329,455,881    
               
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-
based compensation expenses of:
             
Cost of revenues   95   106   1.8
Product development   1,140   1,118   18.9
Sales, general and administrative   537   699   11.8
YANDEX N.V.

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions of Russian rubles and U.S. dollars)
             
    Three months ended June 30, 
    2016*   2017   2017
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income   2,058     3,484     59.0  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment   1,847     2,205     37.3  
Amortization of intangible assets   469     618     10.5  
Amortization of debt discount and issuance costs   225     165     2.8  
Share-based compensation expense   881     965     16.3  
Deferred income taxes   (98 )   (249 )   (4.2 )
Foreign exchange losses/(gains)   958     (1,273 )   (21.5 )
Losses from repurchases of convertible debt   -     3     0.1  
Other   (112 )   (39 )   (0.7 )
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net   (87 )   (172 )   (2.9 )
Prepaid expenses and other assets   525     (72 )   (1.3 )
Accounts payable and accrued liabilities   1,377     1,384     23.4  
Deferred revenue   100     152     2.6  
Net cash provided by operating activities    8,143      7,171      121.4  
CASH FLOWS USED IN INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets   (2,486 )   (3,864 )   (65.4 )
Proceeds from sale of property and equipment   43     14     0.2  
Acquisitions of businesses, net of cash acquired   -     (364 )   (6.2 )
Investments in non-marketable equity securities   (22 )   (69 )   (1.2 )
Proceeds from maturity of debt securities   -     1,702     28.8  
Investments in term deposits   (12,157 )   (18,224 )   (308.4 )
Maturities of term deposits   8,310     8,122     137.5  
Loans granted   (50 )   (41 )   (0.6 )
Net cash used in investing activities    (6,362 )    (12,724 )    (215.3 )
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:            
Proceeds from exercise of share options   164     167     2.8  
Repurchases of convertible debt   -     (220 )   (3.7 )
Other financing activities   -     (63 )   (1.1 )
Net cash provided by/(used in) financing activities    164      (116 )    (2.0 )
Effect of exchange rate changes on cash and cash balances   (719 )   345     5.8  
Net change in cash and cash balances    1,226      (5,324 )    (90.1 )
Cash and cash balances at beginning of period   28,907     20,524     347.4  
Cash and cash balances at end of period   30,133     15,200     257.3  
             
Reconciliation of cash and cash balances:            
Cash and cash equivalents, beginning of period   28,075     19,983     338.2  
Restricted cash, beginning of period   832     541     9.2  
Cash and cash balances, beginning of period   28,907     20,524     347.4  
             
Cash and cash equivalents, end of period   29,506     14,606     247.2  
Restricted cash, end of period   627     594     10.1  
Cash and cash balances, end of period   30,133     15,200     257.3  
 
* In Q1 2017, Yandex elected to early adopt Accounting Standards Update ("ASU") No. 2016-18—Statement of Cash Flows (Topic
230): Restricted Cash, which provided revised guidance on the classification and presentation of restricted cash in the statement of
cash flows on a retrospective basis. Prior periods have been adjusted accordingly.
YANDEX N.V.

Unaudited Condensed Consolidated Statements of Cash Flows

(in millions of Russian rubles and U.S. dollars)
             
    Six months ended June 30, 
    2016    2017    2017 
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income    3,127      4,303      72.8  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment    3,770      4,170      70.6  
Amortization of intangible assets    940      1,116      18.9  
Amortization of debt discount and issuance costs    487      338      5.7  
Share-based compensation expense    1,772      1,923      32.5  
Deferred income taxes    (214 )    (232 )    (3.9 )
Foreign exchange losses    2,239      932      15.8  
(Gains)/losses from repurchases of convertible debt    (53 )    6      0.1  
Other    (148 )    38      0.7  
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net    (203 )    (28 )    (0.5 )
Prepaid expenses and other assets    1,042      (999 )    (16.9 )
Accounts payable and accrued liabilities    1,046      1,336      22.6  
Deferred revenue    (37 )    12      0.2  
Net cash provided by operating activities    13,768      12,915      218.6  
CASH FLOWS USED IN INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets    (3,941 )    (7,729 )    (130.8 )
Proceeds from sale of property and equipment    65      20      0.3  
Acquisitions of businesses, net of cash acquired    -      (364 )    (6.2 )
Investments in non-marketable equity securities    (242 )    (103 )    (1.7 )
Proceeds from sale of equity securities    -      216      3.7  
Proceeds from maturity of debt securities    -      1,702      28.8  
Investments in term deposits    (33,842 )    (58,482 )    (989.8 )
Maturities of term deposits    32,979      39,560      669.5  
Loans granted    (106 )    (39 )    (0.6 )
Net cash used in investing activities    (5,087 )    (25,219 )    (426.8 )
CASH FLOWS USED IN FINANCING ACTIVITIES:            
Proceeds from exercise of share options    210      258      4.4  
Repurchases of convertible debt    (1,490 )    (668 )    (11.4 )
Payment for contingent consideration    (593 )    (195 )    (3.3 )
Other financing activities    -      10      0.2  
Net cash used in financing activities    (1,873 )    (595 )    (10.1 )
Effect of exchange rate changes on cash and cash balances    (2,303 )    (711 )    (12.0 )
Net change in cash and cash balances    4,505      (13,610 )    (230.3 )
Cash and cash balances at beginning of period    25,628      28,810      487.6  
Cash and cash balances at end of period    30,133      15,200      257.3  
             
Reconciliation of cash and cash balances:            
Cash and cash equivalents, beginning of period    24,238      28,232      477.8  
Restricted cash, beginning of period    1,390      578      9.8  
Cash and cash balances, beginning of period    25,628      28,810      487.6  
             
Cash and cash equivalents, end of period    29,506      14,606      247.2  
Restricted cash, end of period    627      594      10.1  
Cash and cash balances, end of period    30,133      15,200      257.3  
                   
* In Q1 2017, Yandex elected to early adopt Accounting Standards Update ("ASU") No. 2016-18—Statement of Cash Flows (Topic
230): Restricted Cash, which provided revised guidance on the classification and presentation of restricted cash in the statement of
cash flows on a retrospective basis. Prior periods have been adjusted accordingly.
YANDEX N.V.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE NEAREST COMPARABLE U.S. GAAP MEASURES

Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues
             
In RUB millions Three months ended June 30,  Six months ended June 30, 
  2016 2017 Change 2016 2017 Change
Total revenues 18,040 22,104 23 % 34,513 42,756 24 %
Less: traffic acquisition costs (TAC)  3,554 4,216 19 % 6,944 8,151 17 %
Ex-TAC revenues 14,486 17,888 23 % 27,569 34,605 26 %
Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income
             
In RUB millions Three months ended June 30,  Six months ended June 30, 
  2016   2017   Change 2016   2017   Change
Net income  2,058    3,484   69 %  3,127    4,303   38 %
Add: depreciation and amortization  2,316    2,823   22 %  4,710    5,286   12 %
Add: share-based compensation expense  881    965   10 %  1,772    1,923   9 %
Add: compensation expense related to contingent consideration  48    41   -15 %  93    119   28 %
Less: interest income  (735 )  (688 ) -6 %  (1,608 )  (1,397 ) -13 %
Add: interest expense  298    217   -27 %  648    445   -31 %
Add: other loss/(gain), net  842    (1,389 ) n/m  2,023    866   -57 %
Add: provision for income taxes  1,054    1,373   30 %  1,767    2,155   22 %
Add: operating losses resulting from sanctions in Ukraine  -    387   n/m  -    387   n/m
Adjusted EBITDA  6,762    7,213   7 %  12,532    14,087   12 %
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
             
In RUB millions Three months ended June 30,  Six months ended June 30, 
  2016   2017   Change 2016   2017   Change
Net income  2,058    3,484   69 %  3,127    4,303   38 %
Add: SBC expense  881    965   10 %  1,772    1,923   9 %
Less: reduction in income tax attributable
to SBC expense		  (10 )  (16 ) 60 %  (24 )  (28 ) 17 %
Add: compensation expense related to
contingent consideration		  48    41   -15 %  93    119   28 %
Add: foreign exchange losses/(gains)  958    (1,273 ) n/m  2,239    932   -58 %
Less: (decrease)/increase in income tax
attributable to foreign exchange (losses)/gains		  (198 )  270   n/m  (458 )  (161 ) -65 %
Add: (gains)/losses from repurchases of convertible debt  -    3   n/m  (53 )  6   -111 %
Less: increase/(reduction) in income tax
attributable to (losses)/gains from
repurchases of convertible debt		  -    -   n/m  13    (1 ) -108 %
Add: amortization of debt discount  225    165   -27 %  487    338   -31 %
Less: reduction in income tax
attributable to amortization of debt discount		  (56 )  (42 ) -25 %  (122 )  (85 ) -30 %
Add: losses resulting from sanctions in Ukraine  -    393   n/m  -    393   n/m
Adjusted net income  3,906    3,990   2 %  7,074    7,739   9 %
Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to U.S. GAAP Net Income Margin
             
In RUB millions          
  U.S.
GAAP
Actual
Net
Income		 Net
Income
Margin
(1)		 Adjustment
(2)		 Adjusted
EBITDA		 Adjusted
EBITDA
Margin
(3)		 Adjusted
Ex-TAC
EBITDA
Margin (4)
Three months ended June 30, 2017 3,484 15.8 % 3,729 7,213 32.6 % 40.3 %
Six months ended June 30, 2017 4,303 10.1 % 9,784 14,087 32.9 % 40.7 %
                   
                   
(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, interest expense, other loss/(gain), net, operating losses resulting from sanctions in
Ukraine 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 U.S. GAAP revenues, please see the table above.
Reconciliation of Adjusted Net Income Margin and Adjusted Ex-TAC Net Income Margin to U.S. GAAP Net Income Margin
             
In RUB millions          
  U.S.
GAAP
Actual
Net
Income		 Net
Income
Margin
(1)		 Adjustment
(2)		 Adjusted
Net
Income		 Adjusted
Net
Income
Margin
(3)		 Adjusted
Ex-TAC
Net
Income
Margin (4)
Three months ended June 30, 2017  3,484 15.8 %  506  3,990 18.1 % 22.3 %
Six months ended June 30, 2017  4,303 10.1 %  3,436  7,739 18.1 % 22.4 %
                   
                   
(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 losses/(gains) as adjusted for the reduction/increase in income tax
attributable to the losses/(gains), (gains)/losses from repurchases of convertible debt (as adjusted for the related
increase/reduction in income tax), amortization of debt discount (as adjusted for the related reduction in income tax) and
losses resulting from sanctions in Ukraine. 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 U.S. GAAP revenues, please see the table above.