OREANDA-NEWS. April 26, 2012. April 26, 2012, Yandex (NASDAQ: YNDX), the leading internet company in Russia operating the country’s most popular search engine and most visited website, today announced its unaudited financial results for the quarter ended March 31, 2012.

Q1 2012 Financial Highlights


Revenues of RUR 5.9 billion (USD 200.3 million1), up 51% compared with Q1 2011

Ex-TAC revenues2 (excluding traffic acquisition costs) up 45% compared with Q1 2011

Income from operations of RUR 1.6 billion (USD 53.2 million), up 23% compared with Q1 2011

Adjusted EBITDA3 of RUR 2.4 billion (USD 81.0 million), up 38% compared with Q1 2011


Operating margin of 26.5%

Adjusted EBITDA margin2 of 40.5%

Adjusted ex-TAC EBITDA margin2 of 48.7%


Net income of RUR 1.3 billion (USD 42.9 million), up 53% compared with Q1 2011


Adjusted net income3 of RUR 1.5 billion (USD 51.3 million), up 38% compared with Q1 2011


Net income margin of 21.4%

Adjusted net income margin2 of 25.6%

Adjusted ex-TAC net income margin2 of 30.8%

“Yandex drove another strong quarter of robust growth, highlighted by particularly strong contextual advertising results as well as ongoing market and search share leadership,” said Arkady Volozh, Chief Executive Officer of Yandex. “We continued to focus on our core search product, emphasizing the integration of social media and improving the freshness of our search results to enhance user experience. We launched important new map-based services and are developing Yandex’s presence across the entire spectrum of mobile devices.”

Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 29.3282 to USD 1.00, the official exchange rate quoted as of March 31, 2012 by the Central Bank of the Russian Federation.

2 This is a non-GAAP financial measure. Please see “Use of Non-GAAP Financial Measures” below for a
discussion of how we define this non-GAAP financial measure. You will find a reconciliation of this non-GAAP financial measure to the most directly comparable US GAAP measure in the accompanying financial tables at the end of this release.

3 Adjusted EBITDA and adjusted net income are non-GAAP financial measures. Beginning with Q1 2012, our
adjusted EBITDA and adjusted net income include adjustments for the accrual of expense related to the contingent compensation that may be payable to certain employees through November 2013 in connection with our acquisition of the mobile software business of SPB Software. Please see “Use of Non-GAAP Financial Measures” below for a discussion of how we define adjusted EBITDA and adjusted net income. You will find a reconciliation of adjusted EBITDA and adjusted net income to GAAP net income, the most directly comparable US GAAP measure for both non-GAAP measures, in the accompanying financial tables at the end of this release.

Q1 2012 Operational Highlights

Share of Russian search market averaged 59.4% in Q1 2012 (according to LiveInternet)

SERPs (search engine result pages) grew 36% from Q1 2011

Number of advertisers was more than 179,000, up 40% from Q1 2011 and up 3% from Q4 2011

Average Daily Visitors in Turkey was more than 390,000 in March, up almost twice from 200,000 in January (according to comScore)

Extended social search program, partnership with Twitter making tweets available in Yandex's Blog Search

Launched Yandex Navigator for iOS and Android; Yandex.Shell for Android

Implemented Real-Time Bidding (RTB) technology for display advertising
Text-based advertising revenues, accounting for 90% of total revenues in Q1 2012, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex’s own websites accounted for 73% of total revenues during Q1 2012, and increased by 43% compared with Q1 2011. Text-based advertising revenues from our ad network increased 117% compared with Q1 2011 and contributed 17% of total revenues during Q1 2012. The enhanced performance of our Yandex ad network reflects the addition of Rambler to our ad network in mid-2011 as well as improved monetization from our contextual partner network sites due to improvements in our advertising technology.

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 61% in Q1 2012 compared with Q1 2011. This growth in paid clicks reflects our initiatives to attract new advertisers and increase the relevance of the ads on our own sites and the network. At the same time, reflecting increased affordability and efficiency of ad spend on Yandex, average cost per click decreased 5% compared with Q1 2011, making our platform more attractive to advertisers.

Display advertising revenue, accounting for 7% of total revenues during Q1 2012, increased 28% compared with Q1 2011, demonstrating significant growth over a strong Q1 2011.

Online payment commissions accounted for 2% of revenues during Q1 2012, and increased 39% compared with Q1 2011.

Operating Costs and Expenses


Yandex’s operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, including related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q1 2012, Yandex added 29 full-time employees, an increase of less than 1% from December 31, 2011, and up 25% from March 31, 2011. The total number of full-time employees was 3,341 as of March 31, 2012. Total share-based compensation expense increased 16% in Q1 2012 compared with Q1 2011.

TAC increased from 15.5% of text-based revenues in Q1 2011 to 18.7% in Q1 2012, representing our Yandex ad network partners’ share in an increased amount of Yandex ad network revenue for the period.

Other cost of revenues in Q1 2012 increased 47% compared with Q1 2011, reflecting principally an increase in datacenter-related costs and utilities, personnel expenses and content acquisition costs.
D&A expense increased 75% in Q1 2012 compared with Q1 2011, primarily reflecting our considerable recent investments in servers and data centers.

As a result of the factors described above, income from operations was RUR 1.6 billion (USD 53.2 million) in Q1 2012, a 23% increase from Q1 2011, while adjusted EBITDA reached RUR 2.4 billion (USD 81.0 million) in Q1 2012, up 38% from Q1 2011.

Interest income in Q1 2012 was RUR 167 million, up from RUR 34 million in Q1 2011, principally as a result of investing more of our cash provided by operating activities in Russia, where our investments earn higher returns. Additionally, we earned significantly more interest income in the Netherlands due to the investment of our IPO proceeds.

Foreign exchange loss in Q1 2012 was RUR 114 million, compared to a foreign exchange loss of RUR 254 million in Q1 2011. This loss is due to the depreciation of the U.S. dollar during Q1 2012 from RUR 32.1961 to USD 1.00 on December 31, 2011 to RUR 29.3282 to USD 1.00 on March 31, 2012. Yandex’s Russian operating subsidiaries’ functional currency is the Russian ruble, and therefore changes in the ruble value of these subsidiaries’ monetary assets and liabilities that are denominated in other currencies (primarily U.S. dollar-denominated cash, cash equivalents and term deposits maintained in Russia) due to exchange rate fluctuations are recognized as foreign exchange gains or losses in the income statement. The U.S. dollar value of Yandex’s U.S. dollar-denominated cash, cash equivalents and term deposits was not impacted by these currency fluctuations, but they resulted in downward revaluations of the ruble equivalent of these U.S. dollar-denominated monetary assets in both Q1 2012 and Q1 2011.

Income tax expense for Q1 2012 was RUR 344 million, up from RUR 232 million in Q1 2011. Our effective tax rate decreased from 22.1% in Q1 2011 to 21.5% in Q1 2012, primarily reflecting a change in our treasury policy following the IPO in Q2 2011. In recent years, Yandex’s principal Russian operating subsidiary had been paying dividends to its Netherlands parent company and incurred a 5% withholding tax in Russia when these dividends were paid. Under the new treasury policy, however, management does not currently expect this Russian operating subsidiary to pay dividends to the parent company out of 2011 or 2012 earnings. Therefore, no accrual for dividend withholding tax was required for Q1 2012.

Adjusted net income in Q1 2012 was RUR 1.5 billion (USD 51.3 million), a 38% increase from Q1 2011, broadly in line with the underlying operating results. It was positively impacted by a change in the effective income tax rate resulting from the elimination of the dividend withholding tax accrual.

Adjusted net income margin was 25.6% in Q1 2012, compared to 28.1% in Q1 2011.

Net income was RUR 1.3 billion (USD 42.9 million) in Q1 2012, up 53% compared with Q1 2011. The higher growth in net income compared with adjusted net income was primarily the result of SBC expenses representing a smaller portion of other operating costs and expenses and a decrease in foreign exchange losses when comparing Q1 2012 to Q1 2011.

As of March 31, 2012, Yandex had cash, cash equivalents, term deposits (including long-term deposits) and long-term debt securities of RUR 20.6 billion (USD 703.6 million).

Net operating cash flow and capital expenditures for Q1 2012 were RUR 1.8 billion (USD 62.3 million) and RUR 0.8 billion (USD 26.2 million), respectively.

The total number of shares issued and outstanding as of March 31, 2012 was 325,547,254, including 167,726,170 Class A shares, 157,821,083 Class B shares, and one Priority share and excluding Class C shares outstanding solely as a result of conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also options outstanding to purchase up to an additional 12.8 million shares, at a weighted average exercise price of USD 4.20 per share, of which options to purchase 8.7 million shares were fully vested; and equity-settled share appreciation rights equal to 0.8 million shares, at a weighted average measurement price of USD 20.77, none of which were vested.

Outlook for 2012


We reaffirm our revenue guidance for the full-year 2012, and continue to expect year-on-year ruble-based revenue growth of 40-45%.