OREANDA-NEWS. Yandex (Nasdaq:YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its financial results for the fourth quarter and the full year ended December 31, 2012.

Q4 2012 Financial Highlights
Revenues of RUR 8.8 billion (USD 290.4 million1), up 37% compared with Q4 2011
Ex-TAC revenues2 (excluding traffic acquisition costs), up 36% compared with Q4 2011
Income from operations of RUR 3.1 billion (USD 102.3 million), up 19% compared with Q4 2011
Adjusted EBITDA 3 of RUR 4.3 billion (USD 140.1 million), up 30% compared with Q4 2011
Operating margin of 35.2%
Adjusted EBITDA margin2 of 48.2%
Adjustedex-TAC EBITDA margin2 of 57.5%
Net income of RUR 2.7 billion (USD 88.6 million), up 27% compared with Q4 2011
Adjusted net income3 of RUR 3.0 billion (USD 97.6 million), up 35% compared with Q4 2011
Net income margin of 30.5%
Adjusted net income margin2 of 33.6%
Adjustedex-TAC net income margin2 of 40.1%
Cash, deposits and investments in debt securities of RUR 27.2 billion (USD 895.3 million) as of December 31, 2012

FY 2012 Financial Highlights
Revenues of RUR 28.8 billion (USD 947.1 million1), up 44% compared with FY 2011
Ex-TAC revenues2 (excluding traffic acquisition costs), up 41% compared with FY 2011
Income from operations of RUR 9.5 billion (USD 311.2 million), up 34% compared with FY 2011
Adjusted EBITDA3 of RUR 13.1 billion (USD 432.7 million), up 42% compared with FY 2011
Operating margin of 32.9%
Adjusted EBITDA margin2 of 45.7%
Adjustedex-TAC EBITDA margin2 of 54.8%
Net income of RUR 8.2 billion (USD 270.7 million), up 42% compared with FY 2011
Adjusted net income3 of RUR 8.8 billion (USD 288.7 million), up 46% compared with FY 2011
Net income margin of 28.6%
Adjusted net income margin2 of 30.5%
Adjustedex-TAC net income margin2 of 36.6%

 "Yandex delivered strong fourth quarter and full year 2012 results with robust revenue growth, solid search share and a continuing stream of important innovations," said Arkady Volozh, Chief Executive Officer of Yandex. "In Q4, we launched key products aimed at improving the user experience, including new mobile apps, personalized search and our Yandex.Browser, which has already captured a considerable share of the Russian browser market. I am also proud to report that, for the first time ever, we became the fourth largest search engine in the world, according to comScore."

1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 30.3727 to USD 1.00, the official exchange rate quoted as of December 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. Beginning with Q3 2012, our adjusted net income includes adjustment for gains from the sale of our equity investments. 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.
Q4 2012 Operational Highlights
 Share of Russian search market (including mobile) averaged 60.5% in Q4 2012 (according to LiveInternet)
 Search queries grew 26% from Q4 2011
 Number of advertisers grew to more than 213,000, up 22% from Q4 2011 and up 5% from Q3 2012
 Rolled out a new search platform code-named Kaliningrad
 Launched Yandex.Browser
 Launched Yandex.Search app for the iPad
 Announced the formation of a Yandex.Money joint venture with Sberbank


Text-based advertising revenues, accounting for 87% of total revenues in Q4 2012, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 70% of total revenues during Q4 2012, and increased 40% compared with Q4 2011. Text-based advertising revenues from our ad network increased 41% compared with Q4 2011 and contributed 17% of total revenues during Q4 2012. Our advertising network grew generally in line with Yandex's own websites given that a full year has passed since we made several changes to the monetization algorithms and added Rambler to our partner network.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 26% in Q4 2012 compared with Q4 2011 and grew 20% sequentially. As with growth rates in network ad revenues, lower growth rates in paid clicks reflects the fact that a full year has passed since we made several changes to the monetization algorithms and added Rambler to our partner network. Additionally, growth in paid clicks during each of the previous four quarters benefited from the initiatives that we launched in Q3 2011, which aimed to lower CPCs in the regions. Our average cost per click in Q4 2012 increased 11% compared with Q4 2011.

Display advertising revenue, accounting for 11% of total revenues during Q4 2012, increased 12% compared with Q4 2011, considerably faster than the 4% growth posted by the market overall. As anticipated, the growth rate in display advertising was significantly lower than in text-based advertising partially due to increased supply of TV ad inventory at attractive rates.

Online payment commissions accounted for 2% of revenue during Q4 2012, and increased 55% compared with Q4 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 Q4 2012, Yandex added 154 full-time employees, an increase of 4% from September 30, 2012, and up 14% from December 31, 2011. The total number of full-time employees was 3,761 as of December 31, 2012. Total share-based compensation expense increased 37% in Q4 2012.
As a result of the factors described above, income from operations was RUR 3.1 billion (USD 102.3 million) in Q4 2012, a 19% increase from Q4 2011, while adjusted EBITDA reached RUR 4.3 billion (USD 140.1 million) in Q4 2012, up 30% from Q4 2011.

Interest income in Q4 2012 was RUR 333 million, up from RUR 105 million in Q4 2011, principally as a result of investing more of our cash provided by operating activities in Russia, where our investments earn higher returns.

Foreign exchange gain in Q4 2012 was RUR 17 million, compared to a foreign exchange gain of RUR 6 million in Q4 2011. 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 due to exchange rate fluctuations are recognized as foreign exchange gains or losses in the income statement. Although 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, they resulted in upward revaluations of the ruble equivalent of these U.S. dollar-denominated monetary assets in Q4 2012 and Q4 2011.

Income tax expense for Q4 2012 was RUR 791 million, up from RUR 573 million in Q4 2011. Our effective tax rate increased from 21.3% in Q4 2011 to 22.7% in Q4 2012 and was in line with our effective tax rate of 22.5% in Q3 2012.

Adjusted net income in Q4 2012 was RUR 3.0 billion (USD 97.6 million), a 35% increase from Q4 2011, broadly in line with the revenue growth.

Adjusted net income margin was 33.6% in Q4 2012, compared to 34.1% in Q4 2011.

Net income was RUR 2.7 billion (USD 88.6 million) in Q4 2012, up 27% compared with Q4 2011. The slower growth in net income compared with adjusted net income was primarily the result of the accrual of expense related to the contingent compensation paid and potentially payable to certain employees in connection with our acquisition of the mobile software business of SPB Software. We adjust for this expense in our non-GAAP adjusted net income measure.

 As of December 31, 2012, Yandex had cash and cash equivalents, term deposits (including long-term deposits) and long-term debt securities of RUR 27.2 billion (USD 895.3 million).

Net operating cash flow and capital expenditures for Q4 2012 were RUR 3.9 billion (USD 126.8 million) and RUR 1.0 billion (USD 32.9 million), respectively.

 The totalnumber of shares issued and outstanding as of December 31, 2012 was 327,760,083, including 202,318,864 Class A shares, 125,441,218 Class B shares, one Priority share, and excluding 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 stock options outstanding to purchase up to an additional 10.4 million shares, at a weighted average exercise price of USD 4.30 per share, of which options to purchase 7.9 million shares were fully vested; equity-settled share appreciation rights equal to 0.9 million shares, at a weighted average measurement price of USD 20.21, none of which were vested; and restricted share units equal to 1.9 million shares, of which restricted share units to purchase 0.1 million shares were fully vested.

Outlook for 2013

 On a like-for-like basis, excluding the revenue associated with Yandex.Money from 2012 and 2013 results, Yandex expects to achieve full year ruble-based revenue growth of 28% to 32% in 20131.

1 In 2012, Yandex recognized total revenue of RUR 28,767 million, including RUR 552 million in payments commissions related to Yandex.Money and RUR 28,215 million in advertising revenue and other revenue. Yandex will continue to recognize revenue related to Yandex.Money until the Joint Venture with Sberbank is completed. We currently expect to complete this transaction in Q2 2013.