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 fourth quarter and the full year ended December 31, 2016.

Q4 2016 Financial Highlights(1)(2)

  • Revenues of RUB 22.1 billion ($364.7 million), up 22% compared with Q4 2015
  • Net income of RUB 1.2 billion ($20.0 million), down 57% compared with Q4 2015; net income margin of 5.5%
  • Adjusted net income of RUB 3.2 billion ($53.6 million), down 11% compared with Q4 2015; adjusted net income margin of 14.7%
  • Adjusted EBITDA of RUB 6.7 billion ($110.5 million), up 2% compared with Q4 2015; adjusted EBITDA margin of 30.3%
  • Cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 63.0 billion ($1,039.1 million) as of December 31, 2016

FY 2016 Financial Highlights(1)(2)

  • Revenues of RUB 75.9 billion ($1,251.7 million), up 27% compared with FY 2015
  • Net income of RUB 6.8 billion ($111.8 million), down 30% compared with FY 2015; net income margin of 8.9%
  • Adjusted net income of RUB 14.1 billion ($232.7 million), up 16% compared with FY 2015; adjusted net income margin of 18.6%
  • Adjusted EBITDA of RUB 26.1 billion ($430.6 million), up 25% compared with FY 2015; adjusted EBITDA margin of 34.4%

Q4 2016 Operational Highlights

  • Share of Russian search market, including mobile, averaged 55.4% in Q4 2016 compared to 55.9% in Q3 2016 (according to LiveInternet)
  • Search queries in Russia grew 3% compared with Q4 2015
  • Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 12% compared with Q4 2015
  • Average cost per click grew 8% compared with Q4 2015
  • Yandex.Taxi number of rides grew 401% compared with Q4 2015

“Yandex delivered 27% revenue growth in 2016, driven by improving macro conditions and continued innovation across the technology stack,” said Arkady Volozh, Chief Executive Officer of Yandex. “Our deep experience with AI and machine learning is enabling us to make significant advancements in advertising technologies and continually enhance user experience.”

“We were pleased with the strong growth in Q4, especially given tough comparisons with last year,” said Alexander Shulgin, Chief Operating Officer of Yandex. “Yandex.Taxi was a real highlight, growing ride volumes in December 2016 by 452% year-over-year thanks to investments made in geographic expansion and technological infrastructure. Based on the potential we see in Taxi, E-commerce and Classifieds, we will continue to invest for growth in 2017.”

The following table provides a summary of our key consolidated financial results for the three months and twelve months ended December 31, 2015 and 2016:

                     
In RUB millions Three months ended
December 31, 		 Twelve months
ended December 31, 
    2015   2016   Change
   2015   2016   Change
Revenues   18,094   22,119   22 %   59,792   75,925   27 %
Ex-TAC revenues2   14,374   17,845   24 %   47,051   60,975   30 %
Income from operations   2,728   3,337   22 %   9,593   12,847   34 %
Adjusted EBITDA2   6,560   6,701   2 %   20,969   26,121   25 %
Net income   2,851   1,213   -57 %   9,679   6,783   -30 %
Adjusted net income2   3,632   3,249   -11 %   12,179   14,116   16 %

(1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 60.6569 to $1.00, the official exchange rate quoted as of December 31, 2016 by the Central Bank of the Russian Federation.

(2) The following measures presented in this release are “non-GAAP financial measures”: ex-TAC revenues; adjusted EBITDA; adjusted EBITDA margin; adjusted ex-TAC EBITDA margin; adjusted net income; adjusted net income margin and adjusted ex-TAC net income margin. Please see the section headed “Use of Non-GAAP Financial Measures” below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures.

Consolidated revenues breakdown

                     
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
    2015   2016   Change
   2015   2016   Change
Online advertising revenues:                    
  Yandex websites   12,883   15,487   20 %   43,099   52,888   23 %
  Advertising network   4,635   5,518   19 %   15,111   19,691   30 %
Total online advertising revenues   17,518   21,005   20 %   58,210   72,579   25 %
Other   576   1,114   93 %   1,582   3,346   112 %
Total revenues   18,094   22,119   22 %   59,792   75,925   27 %
                             

Online advertising revenues grew 20% in Q4 2016 compared with Q4 2015 and continued to determine overall top-line performance, contributing 95% of total revenues. Online advertising revenues include revenues derived from text-based and display advertising on Yandex websites and in our ad network.

Online advertising revenues from Yandex websites increased 20% in Q4 2016 compared with Q4 2015 and accounted for 70% of total revenues.

Online advertising revenues from our ad network increased 19% in Q4 2016 compared with Q4 2015 and contributed 25% of total revenues, 70 basis points lower than in Q4 2015.

Other revenues grew 93% in Q4 2016 compared with Q4 2015, and were mainly driven by growth in Yandex.Taxi revenues.

Segment revenues

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
Revenues:            
Search and Portal 16,673   20,095   21 % 55,905   69,256   24 %
E-commerce 1,172   1,406   20 % 3,400   4,718   39 %
Taxi 395   753   91 % 984   2,313   135 %
Classifieds 261   398   52 % 894   1,304   46 %
Experiments 142   282   99 % 441   830   88 %
Eliminations (549 ) (815 ) 48 % (1,832 ) (2,496 ) 36 %
Total revenues 18,094   22,119   22 % 59,792   75,925   27 %
                         

Search and Portal segment includes all our services offered in Russia, Ukraine, Belarus and Kazakhstan, other than those described below;
E-commerce segment includes our Yandex.Market service;
Taxi segment includes 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.Radio, Yandex.Tickets, 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 transaction results 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), depreciation and amortization expenses (D&A) and goodwill impairment. Apart from D&A and goodwill impairment, each of the above expense categories includes personnel-related costs and expenses, relevant office space rental, and related share-based compensation expense. Increases across all cost categories reflect investments in overall growth. In Q4 2016 Yandex' headcount increased by 362 full-time employees. The total number of full-time employees was 6,271 as of December 31, 2016, an increase of 6% from September 30, 2016, and up 15% from December 31, 2015.

Cost of revenues, including traffic acquisition costs (TAC)

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
TAC:            
Related to the Yandex ad network 2,669   3,101   16 % 8,981   11,015   23 %
Related to distribution partners 1,051   1,173   12 % 3,760   3,935   5 %
Total TAC 3,720   4,274   15 % 12,741   14,950   17 %
Total TAC as a % of total revenues 20.6 % 19.3 %   21.3 % 19.7 %  
Other cost of revenues 1,077   1,362   26 % 4,069   4,804   18 %
Other cost of revenues as a % of revenues 6.0 % 6.2 %   6.8 % 6.3 %  
Total cost of revenues 4,797   5,636   17 % 16,810   19,754   18 %
Total cost of revenues as a % of revenues 26.5 % 25.5 %   28.1 % 26.0 %  
                     

TAC grew 15% in Q4 2016 compared with Q4 2015 and represented 19.3% of total revenues, 130 basis points lower than in Q4 2015 and flat compared with Q3 2016. The slowdown in the growth of partner TAC continued due to changes in partner revenue mix.

Other cost of revenues in Q4 2016 increased 26% compared with Q4 2015.

Product development

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
Product development 3,606   4,303   19 % 13,421   15,832   18 %
As a % of revenues 19.9 % 19.4 %   22.5 % 20.8 %  
                     

Growth in product development expenses in Q4 2016 primarily reflects salary increases in early 2016 and new hires.

Sales, general and administrative (SG&A)

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
Sales, general and administrative 4,112   6,435   56 % 11,601   17,885   54 %
As a % of revenues 22.7 % 29.1 %   19.4 % 23.6 %  
                     

SG&A expenses grew faster than revenue, increasing by 56% in Q4 2016 compared to Q4 2015 as we continued to invest in advertising and marketing to support our business units, including Taxi, E-commerce and Classifieds, as well as our core products, including search and Yandex Browser.

Share-based compensation (SBC) expense

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

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
SBC expense included in cost of revenues 43   48   12 % 168   193   15 %
SBC expense included in product development 629   566   -10 % 1,860   2,238   20 %
SBC expense included in SG&A 221   251   14 % 690   991   44 %
Total SBC expense 893   865   -3 % 2,718   3,422   26 %
As a % of revenues 4.9 % 3.9 %   4.5 % 4.5 %  
                     

Total SBC expense decreased 3% in Q4 2016 compared with Q4 2015. The decrease reflects the appreciation of Russian ruble, since equity-based grants are denominated in USD.

Depreciation and amortization (D&A) expense

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
Depreciation and amortization 2,275   2,408   6 % 7,791   9,607   23 %
As a % of revenues 12.6 % 10.9 %   13.0 % 12.7 %  
                     

D&A expense increased 6% in Q4 2016 compared with Q4 2015, primarily reflecting investments in servers and data centers made in 2015 and 2016, and was partially offset by the currency translation effect related to D&A expense on our data center in Finland which is denominated in Euro.

Goodwill impairment

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016 Change 2015   2016 Change
Goodwill impairment 576   - n/m 576   - n/m
As a % of revenues 3.2 % n/m   1.0 % n/m  
                 

The goodwill impairment recorded in Q4 2015 of RUB 576 million related to the KinoPoisk acquisition and was a result of the Company’s annual goodwill impairment test reflecting more conservative projected free cash flows from this business.

Income from operations

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015 2016 Change 2015 2016 Change
Income from operations 2,728 3,337 22 % 9,593 12,847 34 %
                 

Income from operations increased 22% in Q4 2016 compared with Q4 2015.

Adjusted EBITDA

Consolidated adjusted EBITDA

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015 2016 Change 2015 2016 Change
Adjusted EBITDA 6,560 6,701 2 % 20,969 26,121 25 %
                 

Adjusted EBITDA increased 2% in Q4 2016 compared with Q4 2015. The growth was impacted by our investments in advertising and marketing, primarily related to Yandex.Taxi, as well as salary increases and new hiring.

Adjusted EBITDA by segments

             
In RUB millions Three months ended
December 31, 		 Twelve months ended
December 31, 
  2015   2016   Change 2015   2016   Change
Adjusted EBITDA:            
Search and Portal  7,128    8,123   14 %  21,651    28,445   31 %
E-commerce  486    329   -32 %  1,726    1,420   -18 %
Taxi  (19 )  (1,300 ) n/m  162    (2,086 ) n/m
Classifieds  (14 )  (97 ) n/m  146    (54 ) -137 %
Experiments  (1,021 )  (354 ) -65 %  (2,716 )  (1,604 ) -41 %
Total adjusted EBITDA  6,560    6,701   2 %  20,969    26,121   25 %
                         

Interest income, net in Q4 2016 was RUB 344 million, down from RUB 489 million in Q4 2015.

Foreign exchange loss in Q4 2016 was RUB 1,163 million, compared with a foreign exchange gain of RUB 1,109 million in Q4 2015. This loss reflects the appreciation of the Russian ruble during Q4 2016 from RUB 63.1581 to $1.00 on September 30, 2016, to RUB 60.6569 to $1.00 on December 31, 2016. 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 Other income/(loss), net line in the condensed consolidated statements of income. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities was not impacted by these currency fluctuations, they resulted in a downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q4 2016.

Income tax expense for Q4 2016 was RUB 1,314 million, down from RUB 1,503 million in Q4 2015. Our effective tax rate of 52.0% in Q4 2016 was higher than in Q4 2015, primarily due to the effects of certain provisions recognized in Q4 2016 related to the results of prior years’ tax audits. Adjusted for these effects and SBC expense, our effective tax rate for Q4 2016 was 22.2%, and our effective tax rate for full-year 2016 was 23.4%, compared with 22.7% for full year 2015 as adjusted for SBC expense and one-off effects in that year.

Net income was RUB 1.2 billion ($20.0 million) in Q4 2016, down 57% compared with Q4 2015, mainly due to foreign exchange loss and an increase in SG&A, which grew faster than total revenue.

Adjusted net income in Q4 2016 was RUB 3.2 billion ($53.6 million), a 11% decrease from Q4 2015.

Adjusted net income margin was 14.7% in Q4 2016, compared with 20.1% in Q4 2015.

As of December 31, 2016, Yandex had cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 63.0 billion ($1,039.1 million).

Net cash flow provided by operating activities for Q4 2016 was RUB 5.3 billion ($87.9 million) and capital expenditures were RUB 2.9 billion ($48.2 million), respectively.

During Q4 2016, we repurchased $59.7 million in principal of our 1.125% convertible senior notes due 2018 for approximately $57.4 million.

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

The total number of shares issued and outstanding as of December 31, 2016 was 322,616,941 including 277,579,206 Class A shares, 45,037,734 Class B shares, and one Priority share and excluding 7,439,813 Class A shares held in treasury and all Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares; all such Class C shares will be cancelled.

There were also employee share options outstanding to purchase up to an additional 2.2 million shares, at a weighted average exercise price of $5.29 per share, substantially all of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $30.21, substantially all of which were fully vested; and restricted share units (RSUs) covering 9.1 million shares, of which RSUs to acquire 2.2 million shares were fully vested. Equity awards in respect of business unit subsidiares are described under Redeemable noncontrolling interests above.

Please note, that historical information on revenues and adjusted EBITDA of our segments is provided in the supplementary slides accompanying our Q4 2016 earnings release, including quarterly data for the eight quarters from Q1 2015 through Q4 2016 and annual data for the four years from 2013 through 2016.

Financial outlook

We expect our consolidated revenue to grow in the range of 16% to 19% in the full year 2017 compared with 2016.

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.

 

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.

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 2017. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, macroeconomic and geopolitical developments affecting the Russian economy, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the political, legal and/or regulatory environment, technological developments, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2015, which is on file with the U.S. Securities and Exchange Commission (SEC) and is available on our investor relations website at http://ir.yandex.com/sec.cfm and on the SEC website at www.sec.gov. All information in this release and in the attachments is as of February 16, 2017, and Yandex undertakes no duty to update this information unless required by law.

USE OF NON-GAAP FINANCIAL MEASURES

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

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

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

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

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

TAC

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

SBC

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

Acquisition-related costs

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

Foreign exchange 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.

Gain from repurchases of convertible debt

Adjusted net income also excludes a gain from the repurchase of $59.7 million in principal of our 1.125% convertible senior notes due 2018 for approximately $57.4 million that we recorded in Q4 2016. We have eliminated this gain from adjusted net income as it 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 U.S. GAAP financial measure.

YANDEX N.V.
 
Unaudited Condensed Consolidated Balance Sheets
 
(in millions of Russian rubles and U.S. dollars, except share and per share data)
 
    As of
    December 31,    December 31,    December 31, 
    2015*   2016     2016  
    RUB   RUB   $
ASSETS            
Current assets:            
Cash and cash equivalents   24,238     28,232     465.4  
Term deposits   15,150     31,769     523.7  
Investments in debt securities   2,915     3,033     50.0  
Accounts receivable, net   5,586     7,741     127.6  
Prepaid expenses   1,505     1,481     24.6  
Other current assets   3,835     2,714     44.7  
Total current assets   53,229     74,970     1,236.0  
             
Property and equipment, net   20,860     18,817     310.2  
Intangible assets, net   5,988     5,514     90.9  
Goodwill   8,581     8,436     139.1  
Long-term prepaid expenses   1,488     1,385     22.8  
Restricted cash, non-current   533     442     7.3  
Term deposits, non-current   18,399     -     -  
Investments in non-marketable equity securities   1,122     1,513     24.9  
Deferred tax assets   226     662     10.9  
Other non-current assets   1,392     2,369     39.1  
TOTAL ASSETS    111,818      114,108      1,881.2  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable and accrued liabilities   6,994     9,532     157.2  
Taxes payable   2,800     2,963     48.8  
Deferred revenue   1,875     2,127     35.1  
Total current liabilities   11,669     14,622     241.1  
Convertible debt   27,374     18,750     309.1  
Deferred tax liabilities   1,552     1,040     17.1  
Other accrued liabilities   1,126     1,104     18.2  
Total liabilities   41,721     35,516     585.5  
             
Commitments and contingencies            
Redeemable noncontrolling interests   —     1,506     24.8  
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: 61,295,523 and 46,997,887 and Class C: 61,295,523 and 46,997,887); shares issued (Class A: 282,161,148 and 285,019,019, Class B: 47,895,605 and 45,037,734, and Class C: 12,000,000 and 560,235, respectively); shares outstanding (Class A: 271,356,566 and 277,579,206, Class B: 47,895,605 and 45,037,734, and Class C: nil)   75     284     4.7  
Treasury shares at cost (Class A: 10,804,582 and 7,439,813, respectively)   (12,531 )   (8,368 )   (138.0 )
Additional paid-in capital   17,257     16,579     273.3  
Accumulated other comprehensive income   3,099     896     14.9  
Retained earnings   62,197     67,695     1,116.0  
Total shareholders’ equity   70,097     77,086     1,270.9  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY    111,818      114,108      1,881.2  
 
* 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 December 31, 
    2015   2016     2016  
    RUB   RUB   $
             
Revenues   18,094   22,119     364.7  
Operating costs and expenses:            
Cost of revenues(1)   4,797   5,636     92.9  
Product development(1)   3,606   4,303     70.9  
Sales, general and administrative(1)   4,112   6,435     106.1  
Depreciation and amortization   2,275   2,408     39.7  
Goodwill impairment   576   -     -  
Total operating costs and expenses   15,366   18,782     309.6  
Income from operations   2,728   3,337     55.1  
Interest income, net   489   344     5.7  
Other income/(loss), net   1,137   (1,154 )   (19.1 )
Net income before income taxes   4,354   2,527     41.7  
Provision for income taxes   1,503   1,314     21.7  
Net income   2,851   1,213     20.0  
Net loss attributable to noncontrolling interests   -   15     0.2  
Net income attributable to Yandex N.V.   2,851   1,228     20.2  
Net income per Class A and Class B share:            
Basic   8.93   3.81     0.06  
Diluted   8.82   3.76     0.06  
Weighted average number of Class A and Class B shares outstanding            
Basic   319,101,598   322,036,640     322,036,640  
Diluted   323,077,175   327,013,212     327,013,212  
             
 
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:
 
Cost of revenues   43   48     0.8  
Product development   629   566     9.3  
Sales, general and administrative   221   251     4.2  
                 
YANDEX N.V.  
   
Unaudited Condensed Consolidated Statements of Income  
   
(in millions of Russian rubles and U.S. dollars, except share and per share data)  
   
    Twelve months ended December 31,   
    2015*   2016     2016    
    RUB   RUB   $  
               
Revenues   59,792   75,925     1,251.7    
Operating costs and expenses:              
Cost of revenues(1)   16,810   19,754     325.7    
Product development(1)   13,421   15,832     261.0    
Sales, general and administrative(1)   11,601   17,885     294.8    
Depreciation and amortization   7,791   9,607     158.4    
Goodwill impairment    576    -      -    
Total operating costs and expenses   50,199   63,078     1,039.9    
Income from operations   9,593   12,847     211.8    
Interest income, net   1,744   1,655     27.3    
Other income/(loss), net    2,259    (3,395 )    (56.0 )  
Net income before income taxes   13,596   11,107     183.1    
Provision for income taxes   3,917   4,324     71.3    
Net income   9,679   6,783     111.8    
Net loss attributable to noncontrolling interests    -   15     0.2    
Net income attributable to Yandex N.V.   9,679   6,798     112.0    
Net income per Class A and Class B share:              
Basic   30.39   21.19     0.35    
Diluted   29.90   20.84     0.34    
Weighted average number of Class A and Class B shares outstanding              
Basic   318,541,887   320,788,967     320,788,967    
Diluted   323,713,437   326,136,949     326,136,949    
               
 
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:
 
Cost of revenues   168   193     3.2    
Product development   1,860   2,238     36.9    
Sales, general and administrative   690   991     16.3    
                   
* Derived from audited financial statements                   
                   
YANDEX N.V.
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
(in millions of Russian rubles and U.S. dollars)
 
    Three months ended December 31, 
    2015     2016     2016  
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income    2,851      1,213      20.0  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment    1,800      1,913      31.5  
Amortization of intangible assets    475      495      8.2  
Amortization of debt discount and issuance costs    235      201      3.3  
Share-based compensation expense    893      865      14.3  
Deferred income taxes    (87 )    (673 )    (11.1 )
Foreign exchange (gains)/losses    (1,109 )    1,163      19.2  
Goodwill impairment    576      -      -  
Gain from repurchases of convertible debt    (67 )    -      -  
Other    13      107      1.8  
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net    (900 )    (1,513 )    (24.9 )
Prepaid expenses and other assets    106      (545 )    (9.0 )
Accounts payable and accrued liabilities    499      1,798      29.6  
Deferred revenue    215      306      5.0  
Net cash provided by operating activities    5,500      5,330      87.9  
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets    (1,659 )    (2,923 )    (48.2 )
Proceeds from sale of property and equipment    60      19      0.3  
Acquisitions of businesses, net of cash acquired    (212 )    -      -  
Investments in non-marketable equity securities    (35 )    (130 )    (2.1 )
Investments in debt securities    (2,564 )    (1,253 )    (20.7 )
Investments in term deposits    (15,150 )    (33,034 )    (544.6 )
Maturities of term deposits    20,044      12,632      208.3  
Loans granted    (38 )    (277 )    (4.6 )
Net cash provided by/(used in) investing activities    446      (24,966 )    (411.6 )
CASH FLOWS USED IN FINANCING ACTIVITIES:            
Proceeds from exercise of share options    29      100      1.6  
Repurchases of convertible debt    (1,187 )    (3,318 )    (54.7 )
Payment for contingent consideration    (35 )    (87 )    (1.4 )
Other financing activities    29      114      1.9  
Net cash used in financing activities    (1,164 )    (3,191 )    (52.6 )
Effect of exchange rate changes on cash and cash equivalents    1,417      (636 )    (10.6 )
Net change in cash and cash equivalents    6,199      (23,463 )    (386.9 )
Cash and cash equivalents at beginning of period    18,039      51,695      852.3  
Cash and cash equivalents at end of period    24,238      28,232      465.4  
 
YANDEX N.V.
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
(in millions of Russian rubles and U.S. dollars)
 
    Twelve months ended December 31, 
    2015*   2016     2016  
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income   9,679     6,783     111.8  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment   6,197     7,655     126.2  
Amortization of intangible assets   1,594     1,952     32.2  
Amortization of debt discount and issuance costs   967     911     15.0  
Share-based compensation expense   2,718     3,422     56.4  
Deferred income taxes   (188 )   (864 )   (14.2 )
Foreign exchange (gains)/losses   (1,903 )   3,834     63.2  
Gain from sale of equity securities   -     (157 )   (2.6 )
Goodwill impairment   576     -     -  
Gain from repurchases of convertible debt   (310 )   (53 )   (0.9 )
Other   (83 )   (40 )   (0.6 )
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net   (1,763 )   (2,385 )   (39.3 )
Prepaid expenses and other assets   888     276     4.6  
Accounts payable and accrued liabilities   1,160     3,817     62.9  
Deferred revenue   44     298     4.9  
Net cash provided by operating activities    19,576      25,449      419.6  
CASH FLOWS USED IN INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets   (13,045 )   (9,625 )   (158.7 )
Proceeds from sale of property and equipment   95     177     2.9  
Acquisitions of businesses, net of cash acquired   (398 )   -     -  
Investments in non-marketable equity securities   (110 )   (491 )   (8.1 )
Investments in debt securities   (2,564 )   (3,159 )   (52.1 )
Proceeds from maturity of debt securities   3,426     2,525     41.6  
Investments in term deposits   (41,760 )   (70,430 )   (1,161.1 )
Maturities of term deposits   42,682     68,447     1,128.4  
Loans granted   (60 )   (550 )   (9.0 )
Escrow cash deposit   58     -     -  
Net cash used in investing activities    (11,676 )    (13,106 )    (216.1 )
CASH FLOWS USED IN FINANCING ACTIVITIES:            
Proceeds from exercise of share options   168     431     7.1  
Repurchases of convertible debt   (6,096 )   (5,397 )   (89.0 )
Payment for contingent consideration   (124 )   (152 )   (2.5 )
Other financing activities   29     97     1.6  
Net cash used in financing activities    (6,023 )    (5,021 )    (82.8 )
Effect of exchange rate changes on cash and cash equivalents   4,716     (3,328 )   (54.9 )
Net change in cash and cash equivalents    6,593      3,994      65.8  
Cash and cash equivalents at beginning of period   17,645     24,238     399.6  
Cash and cash equivalents at end of period   24,238     28,232     465.4  
                   
* Derived from audited financial statements                  
                   
YANDEX N.V.
 
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE NEAREST COMPARABLE U.S. GAAP MEASURES
 
Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues
                         
In RUB millions Three months ended December 31,  Twelve months ended December 31, 
  2015
 2016
 Change
 2015
 2016
 Change
Total revenues 18,094   22,119   22%   59,792   75,925   27%  
Less: traffic acquisition costs (TAC) 3,720   4,274   15%   12,741   14,950   17%  
Ex-TAC revenues 14,374   17,845   24%   47,051   60,975   30%  
 
Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income
             
In RUB millions Three months ended December 31,  Twelve months ended December 31, 
  2015 2016 Change
 2015 2016 Change
Net income  2,851    1,213   -57%
    9,679    6,783   -30%  
Add: depreciation and amortization  2,275    2,408   6%
    7,791    9,607   23%  
Add: share-based compensation expense  893    865   -3%
    2,718    3,422   26%  
Add: compensation expense related to contingent consideration  88    91   3%
    291    245   -16%  
Add: goodwill impairment  576    -   -100%
    576    -   -100%  
Less: interest income, net  (489 )  (344 ) -30%
    (1,744 )  (1,655 ) -5%  
Less: other (income)/loss, net  (1,137 )  1,154   n/m
    (2,259 )  3,395   n/m  
Add: provision for income taxes  1,503    1,314   -13%
    3,917    4,324   10%  
Adjusted EBITDA  6,560    6,701   2%
    20,969    26,121   25%  
 
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
             
In RUB millions Three months ended December 31,  Twelve months ended December 31, 
  2015 2016 Change 2015 2016 Change
Net income  2,851    1,213   -57%    9,679    6,783   -30%  
Add: SBC expense  893    865   -3%    2,718    3,422   26%  
Less: reduction in income tax attributable to SBC expense  (11 )  -   -100%    (41 )  (36 ) -12%  
Add: compensation expense related to contingent consideration  88    91   3%    291    245   -16%  
Less: foreign exchange (gains)/losses  (1,109 )  1,163   n/m    (1,903 )  3,834   n/m  
Add: increase/(decrease) in income tax attributable to foreign exchange gains/(losses)  216    (234 ) n/m    355    (775 ) n/m  
Add: goodwill impairment  576    -   -100%    576    -   -100%  
Less: gain from repurchases of convertible debt  (67 )  -   -100%    (310 )  (53 ) -83%  
Add: increase in income tax attributable to gain from repurchases of convertible debt  16    -   -100%    77    13   -83%  
Add: amortization of debt discount  235    201   -14%    967    911   -6%  
Less: reduction in income tax attributable to amortization of debt discount  (56 )  (50 ) -11%    (230 )  (228 ) -1%  
Adjusted net income  3,632    3,249   -11%    12,179    14,116   16%  
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 December 31, 2016  1,213   5.5%    5,488    6,701   30.3%   37.6%  
Twelve months ended December 31, 2016  6,783   8.9%    19,338    26,121   34.4%   42.8%  
 
(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 loss, 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 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 December 31, 2016  1,213   5.5%    2,036    3,249   14.7%   18.2%  
Twelve months ended December 31, 2016  6,783   8.9%    7,333    14,116   18.6%   23.2%  
 
(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 (as adjusted for the decrease in income tax attributable to the losses), gain from repurchases of convertible debt (as adjusted for the increase in income tax attributable to the gain) 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 U.S. GAAP revenues, please see the table above.