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 third quarter ended September 30, 2017.

Q3 2017 Financial Highlights(1)(2)

  • Revenues of RUB 23.4 billion ($404.0 million), up 21% compared with Q3 2016
  • Net income of RUB 0.9 billion ($14.7 million), down 65% compared with Q3 2016; net income margin of 3.6%
  • Adjusted net income of RUB 2.4 billion ($40.9 million), down 37% compared with Q3 2016; adjusted net income margin of 10.1%
  • Adjusted EBITDA of RUB 5.7 billion ($98.2 million), down 17% compared with Q3 2016; adjusted EBITDA margin of 24.3%
  • Cash, cash equivalents and term deposits of RUB 66.6 billion ($1,148.7 million) as of September 30, 2017

Q3 2017 Operational and Corporate Highlights

  • Share of Russian search market, including mobile, averaged 54.9% in Q3 2017, compared with 54.3% in Q2 2017, and reached 55.5% in September 2017 (according to Yandex.Radar, a search traffic and browser usage analytics tool based on Yandex.Metrica data)
  • Search share on Android in Russia was 41.2% in Q3 2017, compared with 38.2% in Q2 2017, and averaged to 43.9% October-to-date
  • Search queries in Russia grew 7% compared with Q3 2016
  • Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 6% compared with Q3 2016
  • Average cost per click grew 12% compared with Q3 2016
  • Yandex.Taxi number of rides grew 360% year-on-year compared with Q3 2016
  • Released the new Intelligent Search Algorithm “Korolyov”
  • Yandex and Uber announced an agreement to combine their ridesharing businesses in Russia and five neighboring countries
  • Yandex and Sberbank announced that the two companies have signed a non-binding term sheet to form a joint venture based on the Yandex.Market platform

Q3 2017 Subsequent Events

  • Yandex launched Alice - the first conversational intelligent assistant designed for the Russian market

"This was another strong quarter with 21% revenue growth and significant increase in our search share on Android," said Arkady Volozh, Chief Executive Officer of Yandex. "I am also very excited about the recent launch of Alice, the first conversational intelligent assistant for the Russian market.  Alice is a great demonstration of how we can apply our expertise in AI, voice recognition and synthesis technology to create products that delight our consumers."

"I am very proud of the pace of innovations in our core business. In Q3 we launched Korolyov, our new intelligent search algorithm, and introduced our Turbo technology, which significantly accelerates loading times of mobile sites," said Alexander Shulgin, Chief Operating Officer of Yandex. "We continued to invest in our business units, including in regional expansion within Yandex.Taxi and our Classifieds segment."

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

             
In RUB millions     Three months ended September 30,     Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Revenues 19,293 23,438 21 % 53,806 66,194 23 %
Ex-TAC revenues2 15,561 19,033 22 % 43,130 53,638 24 %
Income from operations                            3,553          1,847             -48 %          9,510        8,219            -14 %
Adjusted EBITDA2 6,888 5,695 -17 % 19,420 19,782 2 %
Net income 2,443 853 -65 % 5,570 5,156 -7 %
Adjusted net income2 3,793 2,371 -37 % 10,867 10,110 -7 %
                 

(1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 58.0169 to $1.00, the official exchange rate quoted as of September 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 September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Online advertising revenues:            
  Yandex properties 13,435 16,330          22 % 37,401 46,217           24 %
  Advertising network 5,005 5,551 11 % 14,173 16,113 14 %
Total online advertising revenues                       18,440     21,881         19 %   51,574   62,330    21 %
Other 853 1,557 83 % 2,232 3,864 73 %
Total revenues 19,293 23,438 21 % 53,806 66,194 23 %
                 

Online advertising revenues grew 19% in Q3 2017 compared with Q3 2016 and continued to determine overall top-line performance, contributing 93% 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 22% in Q3 2017 compared with Q3 2016 and accounted for 70% of total revenues.

Online advertising revenues from our advertising network increased 11% in Q3 2017 compared with Q3 2016 and contributed 24% of total revenues.

Other revenues grew 83% in Q3 2017 compared with Q3 2016, and were mainly driven by growth in Yandex.Taxi revenues.

Segment revenues

             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Revenues:            
Search and Portal                                                17,482          21,117              21 %   49,161      59,908            22 %
E-commerce 1,200   1,060   -12 % 3,312   3,523   6 %
Taxi 587   1,150   96 % 1,560   2,700   73 %
Classifieds 352   556   58 % 906   1,389   53 %
Experiments 210   412   96 % 548   1,082   97 %
Eliminations (538 ) (857 ) 59 % (1,681 ) (2,408 ) 43 %
Total revenues 19,293   23,438   21 % 53,806   66,194   23 %
                         

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 Q3 2017 Yandex's headcount increased by 379 full-time employees. The total number of full-time employees was 6,896 as of September 30, 2017, increased by 6% compared with June 30, 2017, and up 17% from September 30, 2016.

Cost of revenues, including traffic acquisition costs (TAC)

             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
TAC:            
Related to the Yandex advertising network 2,778   3,296   19 % 7,914   9,340   18 %
Related to distribution partners 954   1,109   16 % 2,762   3,216   16 %
Total TAC 3,732   4,405   18 % 10,676   12,556   18 %
Total TAC as a % of total revenues 19.3 % 18.8 %   19.8 % 19.0 %  
Other cost of revenues 1,186   1,640   38 % 3,442   4,584   33 %
Other cost of revenues as a % of revenues 6.1 % 7.0 %   6.4 % 6.9 %  
Total cost of revenues 4,918   6,045   23 % 14,118   17,140   21 %
Total cost of revenues as a % of revenues 25.5 % 25.8 %   26.2 % 25.9 %  
                     

TAC grew 18% in Q3 2017 compared with Q3 2016 and represented 18.8% of total revenues, 50 basis points lower than in Q3 2016 and 30 compared with Q2 2017.

Other cost of revenues in Q3 2017 increased 38% compared with Q3 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, growth in outsourced services related to the increased usage of our crowdsourcing platform Toloka and content acquisition costs related to Media Services.

Product development

             
In RUB millions         Three months ended September 30,     Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Product development                                               3,858                4,569                 18 %               11,529             13,560                  18 %
As a % of revenues 20.0 % 19.5 %   21.4 % 20.5 %  
                     

Growth in product development expenses in Q3 2017 primarily reflects new hires and salary increases in late 2016 and in 2017.

Sales, general and administrative (SG&A)

             
In RUB millions         Three months ended September 30,         Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Sales, general and administrative                    4,475               8,047                  80 %         11,450           19,059                    66 %
As a % of revenues 23.2 % 34.3 %   21.3 % 28.8 %  
                     

SG&A expenses grew faster than revenue, increasing by 80% in Q3 2017 compared to Q3 2016 as we continued to invest in advertising and marketing to support our business units, primarily Taxi, as well as due to our extensive advertising and marketing campaign related to Search.

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 September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
SBC expense included in cost of revenues 50   36   -28 % 145   142   -2 %
SBC expense included in product development 532   548   3 % 1,672   1,666   0 %
SBC expense included in SG&A 203   292   44 % 740   991   34 %
Total SBC expense 785   876                  12 %   2,557           2,799                   9 %
As a % of revenues                 4.1 %              3.7 %               4.8 %           4.2 %                    
                     

Total SBC expense increased 12% in Q3 2017 compared with Q3 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 September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Depreciation and amortization 2,489   2,930                    18 %            7,199                 8,216                   14 %
As a % of revenues              12.9 %              12.5 %   13.4 % 12.4 %  
                     

D&A expense increased 18% in Q3 2017 compared with Q3 2016, primarily reflecting investments in servers and data centers made in 2016 and 2017.

Income from operations

             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Income from operations            3,553      1,847           -48 %        9,510       8,219              -14 %
                 

Income from operations decreased 48% in Q3 2017 compared with Q3 2016, due to an increase in our advertising and marketing costs related to business units, primarily Taxi, and our extensive advertising and marketing campaign related to Search.

Adjusted EBITDA

Consolidated adjusted EBITDA

             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Adjusted EBITDA    6,888  5,695          -17 %  19,420  19,782            2 %
                 

Adjusted EBITDA decreased 17% in Q3 2017 compared with Q3 2016.

Adjusted EBITDA by segments

             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Adjusted EBITDA:            
Search and Portal                     7,484                  8,922                        19 %          20,322               25,993                       28 %
E-commerce 386   223   -42 % 1,091   1,228   13 %
Taxi (633 ) (3,168 ) n/m   (786 ) (6,379 ) n/m  
Classifieds 26   49   88 % 43   36   -16 %
Experiments (375 ) (331 ) -12 % (1,250 ) (1,096 ) -12 %
Total adjusted EBITDA 6,888   5,695   -17 % 19,420   19,782   2 %
                         

Adjusted EBITDA of Taxi was negative RUB 3,168 million in Q3 2017, compared with negative RUB 1,966 million in Q2 2017. The increase in Taxi spending was mainly related to an increase in our advertising and marketing costs, related to geographical expansion, as well as one-off accruals for professional services, related to the Yandex.Taxi and Uber transaction.

Interest income  in Q3 2017 was RUB 732 million, up from RUB 646 million in Q3 2016.

Interest expense in Q3 2017 was RUB 226 million, down from RUB 295 million in Q3 2016.

Foreign exchange loss in Q3 2017 was RUB 609 million, compared with a foreign exchange loss of RUB 432 million in Q3 2016. This loss reflects the appreciation of the Russian ruble during Q3 2017 from RUB 59.0855 to $1.00 on June 30, 2017, to RUB 58.0169 to $1.00 on September 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 downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q3 2017.

Income tax expense for Q3 2017 was RUB 874 million, down from RUB 1,243 million in Q3 2016. Our effective tax rate of 50.6% in Q3 2017 was higher than in Q3 2016, primarily due to the effects of certain tax provisions recognized in Q3 2017. Adjusted for these effects and SBC expense, our effective tax rate for Q3 2017 was 26.2%, compared with 23.4% for full year 2016 as adjusted for SBC expense and similar provisions in that year. The increase in the adjusted effective tax rate was primarily driven by a change in the contributions to our earnings before tax from different jurisdictions.

Net income was RUB 0.9 billion ($14.7 million) in Q3 2017, down 65% compared with Q3 2016, mainly due to increase of SGA expenses in Q3 2017.

Adjusted net income in Q3 2017 was RUB 2.4 billion ($40.9 million), a 37% decrease from Q3 2016.

Adjusted net income margin was 10.1% in Q3 2017, compared with 19.7% in Q3 2016.

As of September 30, 2017, Yandex had cash, cash equivalents and term deposits of RUB 66.6 billion ($1,148.7 million).

Net cash flow provided by operating activities for Q3 2017 was RUB 3.3 billion ($56.3 million) and capital expenditures were RUB 2.1 billion ($36.1 million).

During Q3 2017 there were no repurchases of convertible debt notes. 

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 September 30, 2017 was 325,775,802 including 280,922,067 Class A shares, 44,853,734 Class B shares, and one Priority share and excluding 4,280,952 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 1.1 million shares, at a weighted average exercise price of $5.35 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 $32.03, all of which, excluding SARs for approximately 1,000 shares, were fully vested; and restricted share units (RSUs) covering 9.4 million shares, of which RSUs to acquire 1.9 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 Q3 2017 earnings release, including quarterly data for the eleven quarters from Q1 2015 through Q3 2017 and annual data for the four years from 2013 through 2016.

Financial outlook

Based on our current outlook, we are raising our revenue growth outlook for the calendar year 2017. We currently expect our ruble-based revenue to grow 22% to 23% 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 October 24, 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 1254
UK/International: +44(0)20 3427 1904
Russia: 8 800 500 9312
Passcode: 5253089#

A replay of the call will be available until October 30, 2017. To access the replay, please dial:

US: +1 719 457 0820
UK/International: +44 (0)20 7984 7568
Russia: 810 800 2702 1012
Passcode: 5253089#

 

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.

 

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, 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 adjusted for reduction in income tax attributable to the foreign exchange losses, (4) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax and (5) losses resulting from sanctions in Ukraine imposed in May 2017 less gains/losses from repurchases of our convertible notes adjusted for the related increase/reduction 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 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 for Q3 2016 also excludes a gain from the repurchase of $4.6 million in principal of our 1.125% convertible senior notes due 2018 for approximately $4.5 million. We have eliminated this gain from adjusted net income as it is not indicative of our ongoing operating performance.

Losses resulting from sanctions in Ukraine

Adjusted net income and adjusted EBITDA exclude losses and gains from write-off of assets and liabilities in our Ukrainian legal entities that we recorded in Q2 2017. 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,
2016*		   September 30, 
2017		   September 30, 
2017
    RUB   RUB   $
ASSETS            
Current assets:            
Cash and cash equivalents   28,232     23,591     406.6  
Term deposits   31,769     38,015     655.2  
Investments in debt securities   3,033     -     -  
Accounts receivable, net   7,741     8,417     145.1  
Prepaid expenses   1,481     1,100     19.0  
Other current assets   2,714     3,490     60.2  
Total current assets   74,970     74,613     1,286.1  
             
Property and equipment, net   18,817     22,450     387.0  
Intangible assets, net   5,514     5,160     88.9  
Goodwill   8,436     8,689     149.8  
Long-term prepaid expenses   1,385     1,429     24.6  
Term deposits, non-current   -     5,042     86.9  
Investments in non-marketable equity securities   1,513     1,818     31.3  
Deferred tax assets   662     1,786     30.8  
Other non-current assets   2,811     3,631     62.6  
TOTAL ASSETS    114,108      124,618      2,148.0  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable and accrued liabilities   9,532     11,404     196.6  
Taxes payable   2,963     3,057     52.7  
Deferred revenue   2,127     2,234     38.5  
Total current liabilities   14,622     16,695     287.8  
Convertible debt   18,750     17,792     306.7  
Deferred tax liabilities   1,040     1,141     19.7  
Other accrued liabilities   1,104     1,269     21.8  
Total liabilities   35,516     36,897     636.0  
             
Commitments and contingencies            
Redeemable noncontrolling interests   1,506     5,408     93.2  
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 5,000, respectively); shares outstanding (Class A: 277,579,206 and 280,922,067,
Class B: 45,037,734 and 44,853,734, and Class C: nil)		   284     284     4.9  
Treasury shares at cost (Class A: 7,439,813 and 4,280,952, respectively)   (8,368 )   (4,359 )   (75.1 )
Additional paid-in capital   16,579     15,594     268.8  
Accumulated other comprehensive income   896     1,845     31.8  
Retained earnings   67,695     68,949     1,188.4  
Total shareholders’ equity   77,086     82,313     1,418.8  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY    114,108      124,618      2,148.0  
                   
* 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 September 30, 
    2016   2017   2017
    RUB   RUB   $
             
Revenues   19,293     23,438     404.0  
Operating costs and expenses:            
Cost of revenues(1)   4,918     6,045     104.2  
Product development(1)   3,858     4,569     78.8  
Sales, general and administrative(1)   4,475     8,047     138.7  
Depreciation and amortization   2,489     2,930     50.5  
Total operating costs and expenses   15,740     21,591     372.2  
Income from operations   3,553     1,847     31.8  
Interest income   646     732     12.6  
Interest expense   (295 )   (226 )   (3.9 )
Other loss, net   (218 )   (626 )   (10.7 )
Net income before income taxes   3,686     1,727     29.8  
Provision for income taxes   1,243     874     15.1  
Net income   2,443     853     14.7  
Net loss attributable to noncontrolling interests   -     47     0.8  
Net income attributable to Yandex N.V.   2,443     900     15.5  
Net income per Class A and Class B share:            
Basic   7.60     2.77     0.05  
Diluted   7.47     2.72     0.05  
Weighted average number of Class A and Class B shares outstanding            
Basic   321,342,428     325,341,670     325,341,670  
Diluted   326,825,443     330,979,488     330,979,488  
             
             
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-
based compensation expenses of:
             
Cost of revenues   50     36     0.6  
Product development   532     548     9.4  
Sales, general and administrative   203     292     5.1  
 
YANDEX N.V.
               
Unaudited Condensed Consolidated Statements of Income
               
(in millions of Russian rubles and U.S. dollars, except share and per share data)
               
    Nine months ended September 30,   
    2016   2017   2017  
    RUB   RUB   $  
               
Revenues   53,806     66,194     1,140.9    
Operating costs and expenses:              
Cost of revenues(1)   14,118     17,140     295.4    
Product development(1)   11,529     13,560     233.7    
Sales, general and administrative(1)   11,450     19,059     328.6    
Depreciation and amortization   7,199     8,216     141.6    
Total operating costs and expenses   44,296     57,975     999.3    
Income from operations   9,510     8,219     141.6    
Interest income   2,254     2,129     36.7    
Interest expense   (943 )   (671 )   (11.6 )  
Other loss, net   (2,241 )   (1,492 )   (25.6 )  
Net income before income taxes   8,580     8,185     141.1    
Provision for income taxes   3,010     3,029     52.2    
Net income   5,570     5,156     88.9    
Net loss attributable to noncontrolling interests   -     94     1.6    
Net income attributable to Yandex N.V.   5,570     5,250     90.5    
Net income per Class A and Class B share:              
Basic   17.39     16.19     0.28    
Diluted   17.11     15.89     0.27    
Weighted average number of Class A and Class B shares outstanding              
Basic   320,370,040     324,321,917     324,321,917    
Diluted   325,618,354     330,365,639     330,365,639    
               
               
(1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-  
based compensation expenses of:  
               
Cost of revenues   145     142     2.4    
Product development   1,672     1,666     28.7    
Sales, general and administrative   740     991     17.1    
YANDEX N.V.
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
(in millions of Russian rubles and U.S. dollars)
             
    Three months ended September 30, 
    2016*   2017   2017
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income   2,443     853     14.7  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment   1,972     2,427     41.8  
Amortization of intangible assets   517     503     8.7  
Amortization of debt discount and issuance costs   223     173     3.0  
Share-based compensation expense   785     876     15.1  
Deferred income taxes   23     (697 )   (12.0 )
Foreign exchange losses   432     609     10.5  
Gain from sale of equity securities   (157 )   -     -  
Other   1     (78 )   (1.3 )
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net   (669 )   (646 )   (11.1 )
Prepaid expenses and other assets   (383 )   (428 )   (7.5 )
Accounts payable and accrued liabilities   973     (408 )   (7.0 )
Deferred revenue   29     82     1.4  
Net cash provided by operating activities    6,189      3,266      56.3  
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets   (2,761 )   (2,097 )   (36.1 )
Proceeds from sale of property and equipment   93     10     0.2  
Investments in non-marketable equity securities   (119 )   (10 )   (0.2 )
Investments in debt securities   (1,906 )   -     -  
Proceeds from maturity of debt securities   2,525     1,185     20.4  
Investments in term deposits   (3,554 )   (11,600 )   (199.9 )
Maturities of term deposits   22,836     18,308     315.6  
Loans granted   (167 )   (66 )   (1.2 )
Net cash provided by investing activities    16,947      5,730      98.8  
CASH FLOWS (USED IN)/PROVIDED BY FINANCING ACTIVITIES:            
Proceeds from exercise of share options   121     52     0.9  
Repurchases of convertible debt   (589 )   -     -  
Other financing activities   (17 )   16     0.3  
Net cash (used in)/provided by financing activities    (485 )    68      1.2  
Effect of exchange rate changes on cash and cash balances   (475 )   (103 )   (1.9 )
Net change in cash and cash balances    22,176      8,961      154.4  
Cash and cash balances at beginning of period   30,133     15,200     262.0  
Cash and cash balances at end of period   52,309     24,161     416.4  
             
Reconciliation of cash and cash balances:            
Cash and cash equivalents, beginning of period   29,506     14,606     251.8  
Restricted cash, beginning of period   627     594     10.2  
Cash and cash balances, beginning of period   30,133     15,200     262.0  
             
Cash and cash equivalents, end of period   51,695     23,591     406.6  
Restricted cash, end of period   614     570     9.8  
Cash and cash balances, end of period   52,309     24,161     416.4  
 
* 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)
             
    Nine months ended September 30, 
    2016   2017   2017
    RUB   RUB   $
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:            
Net income   5,570     5,156     88.9  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation of property and equipment   5,742     6,597     113.7  
Amortization of intangible assets   1,457     1,619     27.9  
Amortization of debt discount and issuance costs   710     511     8.8  
Share-based compensation expense   2,557     2,799     48.2  
Deferred income taxes   (191 )   (929 )   (16.0 )
Foreign exchange losses   2,671     1,541     26.6  
Gain from sale of equity securities   (157 )   -     -  
(Gains)/losses from repurchases of convertible debt   (53 )   6     0.1  
Other   (147 )   (40 )   (0.7 )
Changes in operating assets and liabilities excluding the effect of acquisitions:            
Accounts receivable, net   (872 )   (674 )   (11.6 )
Prepaid expenses and other assets   659     (1,427 )   (24.6 )
Accounts payable and accrued liabilities   2,019     928     16.0  
Deferred revenue   (8 )   94     1.6  
Net cash provided by operating activities    19,957      16,181      278.9  
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:            
Purchases of property and equipment and intangible assets   (6,702 )   (9,826 )   (169.4 )
Proceeds from sale of property and equipment   158     30     0.5  
Acquisitions of businesses, net of cash acquired   -     (364 )   (6.3 )
Investments in non-marketable equity securities   (361 )   (113 )   (1.9 )
Proceeds from sale of equity securities   -     216     3.7  
Investments in debt securities   (1,906 )   -     -  
Proceeds from maturity of debt securities   2,525     2,887     49.8  
Investments in term deposits   (37,396 )   (70,082 )   (1,208.0 )
Maturities of term deposits   55,815     57,868     997.4  
Loans granted   (273 )   (105 )   (1.7 )
Net cash provided by/(used in) investing activities    11,860      (19,489 )    (335.9 )
CASH FLOWS USED IN FINANCING ACTIVITIES:            
Proceeds from exercise of share options   331     310     5.3  
Repurchases of convertible debt   (2,079 )   (668 )   (11.4 )
Payment for contingent consideration   (593 )   (195 )   (3.4 )
Other financing activities   (17 )   26     0.4  
Net cash used in financing activities    (2,358 )    (527 )    (9.1 )
Effect of exchange rate changes on cash and cash balances   (2,778 )   (814 )   (14.1 )
Net change in cash and cash balances    26,681      (4,649 )    (80.2 )
Cash and cash balances at beginning of period   25,628     28,810     496.6  
Cash and cash balances at end of period   52,309     24,161     416.4  
             
Reconciliation of cash and cash balances:            
Cash and cash equivalents, beginning of period   24,238     28,232     486.6  
Restricted cash, beginning of period   1,390     578     10.0  
Cash and cash balances, beginning of period   25,628     28,810     496.6  
             
Cash and cash equivalents, end of period   51,695     23,591     406.6  
Restricted cash, end of period   614     570     9.8  
Cash and cash balances, end of period   52,309     24,161     416.4  
                   
* 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 September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Total revenues 19,293 23,438 21% 53,806 66,194 23%
Less: traffic acquisition costs (TAC) 3,732 4,405 18% 10,676 12,556 18%
Ex-TAC revenues 15,561 19,033 22% 43,130 53,638 24%
 
 
Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income
             
In RUB millions Three months ended September 30,  Nine months ended September 30, 
  2016 2017 Change 2016 2017 Change
Net income 2,443 853 -65% 5,570 5,156 -7%
Add: depreciation and amortization 2,489 2,930 18% 7,199 8,216 14%
Add: share-based compensation expense 785 876 12% 2,557 2,799 9%
Add: compensation expense related to contingent consideration 61 42 -31% 154 161 5%
Less: interest income (646) (732) 13% (2,254) (2,129) -6%
Add: interest expense 295 226 -23% 943 671 -29%
Add: other loss, net 218 626 187% 2,241 1,492 -33%
Add: provision for income taxes 1,243 874 -30% 3,010 3,029 1%
Add: operating losses resulting from sanctions in Ukraine - - n/m - 387 n/m
Adjusted EBITDA 6,888 5,695 -17% 19,420 19,782 2%
 
 
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
             
In RUB millions Three months ended September 30,  Nine months ended September 30,
  2016 2017 Change 2016 2017 Change
Net income 2,443 853 -65% 5,570 5,156 -7%
Add: SBC expense 785 876 12% 2,557 2,799 9%
Less: reduction in income tax attributable to SBC expense (12) (18) 50% (36) (46) 28%
Add: compensation expense related to contingent consideration 61 42 -31% 154 161 5%
Add: foreign exchange losses 432 609 41% 2,671 1,541 -42%
Less: decrease in income tax attributable to foreign exchange losses (83) (121) 46% (541) (282) -48%
Less: (gains)/losses from repurchases of convertible debt - - n/m (53) 6 -111%
Add: increase/(reduction) in income tax attributable to (losses)/gains from repurchases of convertible debt - - n/m 13 (1) -108%
Add: amortization of debt discount 223 173 -22% 710 511 -28%
Less: reduction in income tax attributable to amortization of debt discount (56) (43) -23% (178) (128) -28%
Add: losses resulting from sanctions in Ukraine - - n/m - 393 n/m
Adjusted net income 3,793 2,371 -37% 10,867 10,110 -7%
 
 
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 September 30, 2017 853 3.6% 4,842 5,695 24.3% 29.9%
Nine months ended September 30, 2017 5,156 7.8% 14,626 19,782 29.9% 36.9%
                   
                   
(1) Net income margin is defined as net income divided by total revenues.
(2) Adjusted to eliminate depreciation and amortization expense, SBC expense, expense related to contingent compensation, interest income, interest expense, other loss, 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 September 30, 2017 853 3.6% 1,518 2,371 10.1% 12.5%
Nine months ended September 30, 2017 5,156 7.8% 4,954 10,110 15.3% 18.8%
                   
                   
(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 reduction in income tax attributable to the losses, (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.