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, 2016.

Q2 2016 Consolidated Financial Highlights(1)(2)

  • Revenues of RUB 18.0 billion ($280.7 million), up 30% compared with Q2 2015
  • Adjusted EBITDA of RUB 6.8 billion ($105.2 million), up 40% compared with Q2 2015, adjusted EBITDA margin of 37.5%
  • Adjusted net income of RUB 3.9 billion ($60.8 million), up 40% compared with Q2 2015, adjusted net income margin of 21.7%
  • Cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 62.9 billion ($978.5 million) as of June 30, 2016

Q2 2016 Operational and Corporate Highlights

  • Share of Russian search market (including mobile) averaged 57.0% in Q2 2016 compared to 57.6% in Q1 2016 (according to LiveInternet)
  • Search queries in Russia grew 7% compared with Q2 2015
  • Launched Zen, personalized content recommendation tool, within Yandex Browser

"We posted strong results in Q2'16 with notable contributions from our Taxi, Market, and Classifieds business units," said Arkady Volozh, Chief Executive Officer of Yandex. "Our expertise in data analysis and AI is fueling advances in ad targeting and driving the adoption of personalized products, such as Yandex Zen, by users in Russia and abroad."

"I am proud of our accomplishments across all the segments in Q2," said Alexander Shulgin, Chief Operating Officer of Yandex. "Our focus on mobile resulted in significant improvements in mobile monetization, and Yandex share on Android devices started to grow again in late June as a result of new distribution deals following the favorable FAS ruling in our case against Google."

The following table provides a summary of our key consolidated financial results for the three months and six months ended June 30, 2015 and 2016:

In RUB millions Three months Six months
ended June 30, ended June 30,
  2015 2016 Change 2015 2016 Change
Revenues 13,920  18,040    30 % 26,259  34,513    31 %
Ex-TAC revenues2 10,898  14,486    33 % 20,520  27,569    34 %
Income from operations 2,196  3,517    60 % 3,682  5,957    62 %
Adjusted EBITDA2 4,817  6,762    40 % 8,388  12,532    49 %
Net income 423  2,058    387 % 2,550  3,127    23 %
Adjusted net income2                                       2,791  3,906    40 % 5,040  7,074    40 %
                     

1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 64.2575 to $1.00, the official exchange rate quoted as of June 30, 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 Six months
ended June 30, ended June 30,
  2015 2016 Change 2015 2016 Change
Online Advertising Revenues:            
Yandex websites 10,110  12,562    24 % 19,079  23,966    26 %
Advertising network 3,451  4,740    37 % 6,545  9,168    40 %
Total online advertising revenues 13,561  17,302    28 % 25,624  33,134    29 %
Other 359  738    106 % 635  1,379    117 %
Total revenues                                                       13,920  18,040    30 % 26,259  34,513    31 %
                     

Online advertising revenues grew 28% compared with Q2 2015 and continued to drive overall top-line performance, contributing 96% of total revenues in Q2 2016. 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 24% compared with Q2 2015 and accounted for 70% of total revenues during Q2 2016.

Online advertising revenues from our ad network increased 37% compared with Q2 2015 and contributed 26% of total revenues during Q2 2016, 150 basis points higher than in Q2 2015, but 60 basis points lower than in Q1 2016.

Other revenues grew 106% compared with Q2 2015, and were mainly driven by the growth of Yandex.Taxi revenues.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 13% compared with Q2 2015.

Our average cost per click grew 14% compared with Q2 2015.

Segment revenues:

In RUB millions Three months ended June 30, Six months ended June 30,
  2015     2016   Change   2015     2016   Change
Revenues:            
Search and Portal      13,107       16,532     26 %     24,727       31,679     28 %
E-commerce      730       1,069     46 %     1,401       2,112     51 %
Taxi     194       528     172 %     355       973     174 %
Classifieds     211       313     48 %     390       554     42 %
Experiments     94       153     63 %     193       338     75 %
Eliminations     (416 )     (555 )   33 %     (807 )     (1,143 )   42 %
Total Revenues     13,920       18,040     30 %     26,259       34,513     31 %
 

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, 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), 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. The total number of full-time employees was 5,559 as of June 30, 2016 — a net increase of 95 employees compared with March 31, 2016. Our headcount is up 2% from March 31, 2016, and up 2% from June 30, 2015.

Costs of revenues, including traffic acquisition costs (TAC)

In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
TAC:            
Related to the Yandex ad network   2,113     2,641     25 %   3,979     5,136     29 %
Related to distribution partners   909     913     0 %   1,760     1,808     3 %
Total TAC   3,022     3,554     18 %   5,739     6,944     21 %
Total TAC as a % of total revenues   21.7 %   19.7 %     21.9 %   20.1 %  
Other cost of revenues   960     1,142     19 %   1,956     2,256     15 %
Other cost of revenues as a % of revenues   6.9 %   6.3 %     7.4 %   6.5 %  
Total cost of revenues   3,982     4,696     18 %   7,695     9,200     20 %
Total cost of revenues as a % of revenues   28.6 %   26.0 %     29.3 %   26.7 %  
                             

TAC grew 18% compared with Q2 2015 and represented 19.7% of total revenues in Q2 2016. This is 200 basis points lower than in Q2 2015 and 90 basis points lower than in Q1 2016. The slowdown in the growth of partner TAC was mostly due to changes in partner revenue mix and improvement in revenue sharing terms with some of our partners.

Other cost of revenues in Q2 2016 increased 19% compared with Q2 2015.

Product development

In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
Product development   3,300     3,794     15 %   6,647     7,671     15 %
As a % of revenues   23.7 %   21.1 %     25.3 %   22.2 %  
                             

Growth in product development costs in Q2 2016 primarily related to salary increases in early 2016 and increase in share-based compensation expense as described below.

Sales, general and administrative (SG&A)

In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
Sales, general and administrative   2,568     3,717     45 %   4,871     6,975     43 %
As a % of revenues   18.4 %   20.6 %     18.5 %   20.2 %  
                             

SG&A costs increased 45% compared to Q2 2015 as a result of growth in advertising and marketing expenses, aimed to support our segments, such as Taxi, e-Commerce and Classifieds.

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 Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
SBC expense included in cost of revenues   41     46     12 %   84     95     13 %
SBC expense included in product development   395     545     38 %   774     1,140     47 %
SBC expense included in SG&A   158     290     84 %   296     537     81 %
Total SBC expense   594     881     48 %   1,154     1,772     54 %
As a % of revenues   4.3 %   4.9 %     4.4 %   5.1 %  
                             

Total SBC expense increased 48% in Q2 2016 compared with Q2 2015. The increase is related to the material appreciation of the U.S. dollar in Q2 2016 versus Q2 2015 and to new equity-based grants made in 2015 and 2016.

Depreciation and amortization (D&A) expense

In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
Depreciation and amortization   1,874     2,316     24 %   3,364     4,710     40 %
As a % of revenues   13.5 %   12.8 %     12.8 %   13.6 %  
                             

D&A expense increased 24% in Q2 2016 compared with Q2 2015. D&A expense grew significantly slower than in previous quarters, reflecting lower investments in new servers, compared with previous year.

As a result of the factors described above, income from operations was RUB 3.5 billion ($54.7 million) in Q2 2016, a 60% increase from Q2 2015.

Adjusted EBITDA

Consolidated adjusted EBITDA

In RUB millions Three months ended June 30, Six months ended June 30,
2015 2016 Change 2015 2016 Change
Adjusted EBITDA 4,817  6,762    40 % 8,388  12,532    49 %
                     

Adjusted EBITDA by segments

In RUB millions Three months ended June 30, Six months ended June 30,
  2015     2016   Change   2015     2016   Change
Adjusted EBITDA:            
Search and Portal   4,897     6,927     41 %   8,482     12,838     51 %
E-commerce   411     325     -21 %   804     705     -12 %
Taxi   50     (153 )   -406 %   137     (153 )   -212 %
Classifieds   67     23     -66 %   77     17     -78 %
Experiments   (608 )   (360 )   41 %   (1,112 )   (875 )   21 %
Total adjusted EBITDA   4,817     6,762     40 %   8,388     12,532     49 %
                                     

Interest income, net in Q2 2016 was RUB 437 million, up from RUB 356 million in Q2 2015.

Foreign exchange loss in Q2 2016 was RUB 958 million, compared with a foreign exchange loss of RUB 1,869 million in Q2 2015. This loss reflects the appreciation of the Russian ruble during Q2 2016 from RUB 67.6076 to $1.00 on March 31, 2016, to RUB 64.2575 to $1.00 on June 30, 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 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 Q2 2016.

Income tax expense for Q2 2016 was RUB 1,054 million, up from RUB 342 million in Q2 2015. Our effective tax rate of 33.9% in Q2 2016 was lower than in Q2 2015. Adjusted for SBC expense, our effective tax rate for Q2 2016 was 26.4%, compared with 22.7% in 2015 as adjusted for SBC expense and one-off effects in 2015. The increase in the adjusted effective tax rate was primarily driven by some provisions that we have taken related to certain past tax audits and a change in the contributions to our earnings before tax from different jurisdictions.

Adjusted net income in Q2 2016 was RUB 3.9 billion ($60.8 million), a 40% increase from Q2 2015.

Adjusted net income margin was 21.7% in Q2 2016, compared with 19.2% in Q1 2016 and 20.1% in Q2 2015.

Net income was RUB 2.1 billion ($32.0 million) in Q2 2016, up 387% compared with Q2 2015 when our net income was adversely affected by a weak macroeconomic environment, and increased operating expenses as a result of ruble depreciation.

As of June 30, 2016, Yandex had cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 62.9 billion ($978.5 million).

Net operating cash flow for Q2 2016 was an inflow of RUB 8.3 billion ($129.3 million) and capital expenditures were RUB 2.5 billion ($38.7 million).

In Q2 2016, there were no repurchases of our 1.125% convertible senior notes due 2018.

The total number of shares issued and outstanding as of June 30, 2016 was 320,930,459, including 275,332,489 Class A shares, 45,597,969 Class B shares, and one Priority share and excluding 9,126,295 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 3.0 million shares, at a weighted average exercise price of $5.15 per share, all of which, excluding options for approximately 2,000 shares, were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $29.59, all of which, excluding SARs for approximately 6,000 shares, were fully vested; and restricted share units (RSUs) covering 8.2 million shares, of which RSUs to acquire 2.1 million shares were fully vested.

In May 2016, we offered the non-executive directors an opportunity to exchange their outstanding share option awards for new RSUs awards, based on an exchange ratio of 2:1. The replacement RSUs are subject to an additional 12-month vesting period beyond the original vesting schedule of the exchanged options. In addition, no exercise of the replacement RSUs will be permitted for a 12-month period starting the date of exchange. As a result of the exchange, 7 directors exchanged 196,000 share options for an aggregate of 98,000 RSUs in Q2 2016. This exchange is reflected in the outstanding equity award numbers as of June 30, 2016 set out above.

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

Financial outlook

Based on our strong H1 2016 results, we are raising revenue gross outlook for the calendar year 2016. We now expect our revenue to grow in the range of 19% to 22% in 2016 compared with 2015.

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 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.

 

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) other loss, net and (5) provision for income taxes, less interest income, net
  • Adjusted EBITDA margin means adjusted EBITDA divided by U.S. GAAP revenues
  • Adjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenues
  • Adjusted net income means U.S. GAAP net income plus (1) SBC expense adjusted for the income tax reduction attributable to SBC expense, (2) accrual of expense related to the contingent compensation that may be payable to certain employees in connection with certain business combinations, (3) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax, and (4) foreign exchange losses adjusted for the decrease in income tax attributable to the foreign exchange losses; less 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 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 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 for Q2 2015 also excludes a gain from the repurchase of $24.3 million in principal amount of our 1.125% convertible senior notes due 2018 for approximately $21.4 million. 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,   June 30,   June 30,
  2015*     2016       2016  
  RUB   RUB   $
ASSETS          
Current assets:        
Cash and cash equivalents   24,238       29,506       459.2  
Term deposits   15,150       32,083       499.3  
Investments in debt securities   2,915       1,285       20.0  
Accounts receivable, net   5,586       5,637       87.7  
Prepaid expenses   1,505       1,397       21.7  
Other current assets   3,835       3,552       55.3  
Total current assets   53,229       73,460       1,143.2  
           
Property and equipment, net   20,860       19,638       305.6  
Intangible assets, net   5,988       6,102       95.0  
Goodwill   8,581       8,479       132.0  
Long-term prepaid expenses   1,488       1,155       18.0  
Restricted cash, non-current   533       469       7.3  
Term deposits, non-current   18,399       -       -  
Investments in non-marketable equity securities   1,122       1,435       22.3  
Deferred tax assets   226       309       4.8  
Other non-current assets   1,392       1,602       24.9  
TOTAL ASSETS    111,818        112,649        1,753.1  
           
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:        
Accounts payable and accrued liabilities   6,994       8,174       127.2  
Taxes payable   2,800       2,865       44.6  
Deferred revenue   1,875       1,814       28.2  
Total current liabilities   11,669       12,853       200.0  
Convertible debt   27,374       23,249       361.8  
Deferred tax liabilities   1,552       1,374       21.4  
Other accrued liabilities   1,126       1,027       16.0  
Total liabilities   41,721       38,503       599.2  
           
Commitments and contingencies      
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 284,458,784, Class B: 47,895,605 and 45,597,969, and Class C: 12,000,000
and 14,297,636, respectively); shares outstanding (Class A: 271,356,566 and
275,332,489, Class B: 47,895,605 and 45,597,969, and Class C: nil)		   75       285       4.4  
Treasury shares at cost (Class A: 10,804,582 and 9,126,295, respectively)   (12,531 )     (10,520 )     (163.7 )
Additional paid-in capital   17,257       16,990       264.4  
Accumulated other comprehensive income   3,099       2,067       32.2  
Retained earnings   62,197       65,324       1,016.6  
Total shareholders' equity   70,097       74,146       1,153.9  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     111,818         112,649         1,753.1  
           
* 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,
      2015       2016       2016  
    RUB   RUB   $
             
Revenues     13,920       18,040       280.7  
Operating costs and expenses:            
Cost of revenues(1)     3,982       4,696       73.1  
Product development(1)     3,300       3,794       59.0  
Sales, general and administrative(1)     2,568       3,717       57.9  
Depreciation and amortization     1,874       2,316       36.0  
Total operating costs and expenses     11,724       14,523       226.0  
Income from operations     2,196       3,517       54.7  
Interest income, net     356       437       6.8  
Other loss, net     (1,787 )     (842 )     (13.1 )
Net income before income taxes     765       3,112       48.4  
Provision for income taxes     342       1,054       16.4  
Net income     423       2,058       32.0  
Net income per Class A and Class B share:            
Basic     1.33       6.42       0.10  
Diluted     1.31       6.30       0.10  
Weighted average number of Class A and Class B shares outstanding            
Basic     318,514,686       320,323,089       320,323,089  
Diluted     323,533,386       326,836,136       326,836,136  
             
(1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:
             
Cost of revenues     41       46       0.7  
Product development     395       545       8.5  
Sales, general and administrative     158       290       4.5  
                         
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,
      2015       2016       2016  
    RUB   RUB   $
             
Revenues     26,259       34,513       537.1  
Operating costs and expenses:            
Cost of revenues(1)     7,695       9,200       143.2  
Product development(1)     6,647       7,671       119.4  
Sales, general and administrative(1)     4,871       6,975       108.5  
Depreciation and amortization     3,364       4,710       73.3  
Total operating costs and expenses     22,577       28,556       444.4  
Income from operations     3,682       5,957       92.7  
Interest income, net     840       960       14.9  
Other loss, net     (954 )     (2,023 )     (31.4 )
Net income before income taxes     3,568       4,894       76.2  
Provision for income taxes     1,018       1,767       27.5  
Net income     2,550       3,127       48.7  
Net income per Class A and Class B share:            
Basic     8.02       9.78       0.15  
Diluted     7.90       9.59       0.15  
Weighted average number of Class A and Class B shares outstanding            
Basic     318,125,930       319,878,504       319,878,504  
Diluted     322,884,490       326,019,560       326,019,560  
             
(1)These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:
             
Cost of revenues     84       95       1.5  
Product development     774       1,140       17.7  
Sales, general and administrative     296       537       8.4  
                         
YANDEX N.V.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions of Russian rubles and U.S. dollars)
             
    Three months ended June 30,
      2015       2016       2016  
    RUB   RUB   $
CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net income   423       2,058       32.0  
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation of property and equipment   1,513       1,847       28.7  
Amortization of intangible assets   361       469       7.3  
Amortization of debt discount and issuance costs   218       225       3.5  
Share-based compensation expense   594       881       13.7  
Deferred income taxes   230       (98 )     (1.5 )
Foreign exchange losses   1,869       958       14.9  
Gain from repurchases of convertible debt   (40 )     -       -  
Other     (65 )     (112 )     (1.6 )
Changes in operating assets and liabilities excluding the effect of acquisitions:                        
Accounts receivable, net   58       (87 )     (1.4 )
Prepaid expenses and other assets   1,212       689       10.7  
Accounts payable and accrued liabilities   141       1,377       21.4  
Deferred revenue   (128 )     100       1.6  
Net cash provided by operating activities     6,386         8,307         129.3  
CASH FLOWS USED IN INVESTING ACTIVITIES:    
Purchases of property and equipment and intangible assets   (4,026 )     (2,486 )     (38.7 )
Proceeds from sale of property and equipment   27       43       0.7  
Acquisitions of businesses, net of cash acquired   (118 )     -       -  
Investments in non-marketable equity securities   (43 )     (22 )     (0.3 )
Proceeds from maturity of debt securities   521       -       -  
Investments in term deposits   (18,683 )     (12,157 )     (189.2 )
Maturities of term deposits   9,114       8,310       129.3  
Loans granted   -       (50 )     (0.8 )
Net cash used in investing activities     (13,208 )       (6,362 )       (99.0 )
CASH FLOWS (USED IN)/ PROVIDED BY FINANCING ACTIVITIES:                    
Proceeds from exercise of share options   63       164       2.6  
Repurchases of convertible debt   (1,336 )     -       -  
Net cash (used in)/provided by financing activities     (1,273 )       164         2.6  
Effect of exchange rate changes on cash and cash equivalents   (909 )     (678 )     (10.6 )
Net change in cash and cash equivalents     (9,004 )       1,431         22.3  
Cash and cash equivalents at beginning of period   18,434       28,075       436.9  
Cash and cash equivalents at end of period   9,430       29,506       459.2  
             
YANDEX N.V.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions of Russian rubles and U.S. dollars)
             
    Six months ended June 30,
      2015       2016       2016  
    RUB   RUB   $
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income   2,550       3,127       48.7  
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation of property and equipment   2,648       3,770       58.7  
Amortization of intangible assets   716       940       14.6  
Amortization of debt discount and issuance costs   491       487       7.6  
Share-based compensation expense   1,154       1,772       27.6  
Deferred income taxes   (105 )     (214 )     (3.3 )
Foreign exchange losses   1,153       2,239       34.8  
Gain from repurchases of convertible debt   (150 )     (53 )     (0.8 )
Other     (65 )     (148 )     (2.4 )
Changes in operating assets and liabilities excluding the effect of acquisitions:                        
Accounts receivable, net   (783 )     (203 )     (3.2 )
Prepaid expenses and other assets   661       1,200       18.7  
Accounts payable and accrued liabilities   (733 )     1,046       16.3  
Deferred revenue   (44 )     (37 )     (0.6 )
Net cash provided by operating activities     7,493         13,926         216.7  
CASH FLOWS USED IN INVESTING ACTIVITIES:                    
Purchases of property and equipment and intangible assets   (8,862 )     (3,941 )     (61.3 )
Proceeds from sale of property and equipment   27       65       1.0  
Acquisitions of businesses, net of cash acquired   (186 )     -       -  
Investments in non-marketable equity securities   (54 )     (242 )     (3.8 )
Proceeds from maturity of debt securities   2,844       -       -  
Investments in term deposits   (21,910 )     (33,842 )     (526.7 )
Maturities of term deposits   15,375       32,979       513.2  
Loans granted   -       (106 )     (1.6 )
Escrow cash deposit   58       -       -  
Net cash used in investing activities     (12,708 )       (5,087 )       (79.2 )
CASH FLOWS USED IN FINANCING ACTIVITIES:                    
Proceeds from exercise of share options   91       210       3.3  
Repurchases of convertible debt   (2,717 )     (1,490 )     (23.2 )
Payments of contingent consideration   -       (65 )     (1.0 )
Net cash used in financing activities     (2,626 )       (1,345 )       (20.9 )
Effect of exchange rate changes on cash and cash equivalents   (374 )     (2,226 )     (34.6 )
Net change in cash and cash equivalents     (8,215 )       5,268         82.0  
Cash and cash equivalents at beginning of period   17,645       24,238       377.2  
Cash and cash equivalents at end of period   9,430       29,506       459.2  
                       
Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues
             
In RUB millions Three months Six months
ended June 30, ended June 30,
  2015 2016 Change 2015 2016 Change
Total revenues 13,920  18,040    30 % 26,259  34,513    31 %
Less: traffic acquisition costs (TAC) 3,022  3,554    18 % 5,739  6,944    21 %
Ex-TAC revenues 10,898  14,486    33 % 20,520  27,569    34 %
                     
Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income
             
In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
Net income   423     2,058     387 %   2,550     3,127     23 %
Add: depreciation and amortization   1,874     2,316     24 %   3,364     4,710     40 %
Add: share-based compensation expense   594     881     48 %   1,154     1,772     54 %
Add: compensation expense related to contingent consideration   153     48     -69 %   188     93     -51 %
Less: interest income, net   (356 )   (437 )   23 %   (840 )   (960 )   14 %
Add: other loss, net   1,787     842     -53 %   954     2,023     112 %
Add: provision for income taxes   342     1,054   n/m   1,018     1,767     74 %
Adjusted EBITDA   4,817     6,762     40 %   8,388     12,532     49 %
                                     
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
             
In RUB millions Three months Six months
ended June 30, ended June 30,
    2015     2016   Change   2015     2016   Change
Net income   423     2,058     387 %   2,550     3,127     23 %
Add: SBC expense   594     881     48 %   1,154     1,772     54 %
Less: reduction in income tax attributable to SBC expense   (11 )   (10 )   -9 %   (20 )   (24 )   20 %
Add: compensation expense related to contingent consideration   153     48     -69 %   188     93     -51 %
Add: foreign exchange losses   1,869     958     -49 %   1,153     2,239     94 %
Less: decrease in income tax attributable to foreign exchange losses   (374 )   (198 )   -47 %   (247 )   (458 )   85 %
Less: gain from repurchases of convertible debt   (40 )   -     -100 %   (150 )   (53 )   -65 %
Add: increase in income tax attributable to gain from repurchases of convertible debt   11     -     -100 %   38     13     -66 %
Add: amortization of debt discount   218     225     3 %   491     487     -1 %
Less: reduction in income tax attributable to amortization of debt discount   (52 )   (56 )   8 %   (117 )   (122 )   4 %
Adjusted net income   2,791     3,906     40 %   5,040     7,074     40 %