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, 2013.

Q4 2013 Financial Highlights(1)(2)

Revenues of RUR 12.1 billion (USD 369.3 million), up 37% compared with Q4 2012 (and up 40% excluding the impact of Yandex.Money)
Ex-TAC revenues (excluding traffic acquisition costs) up 25% compared with Q4 2012 (and up 28% excluding the impact of Yandex.Money)
Income from operations of RUR 3.9 billion (USD 119.8 million), up 26% compared with Q4 2012
Adjusted EBITDA of RUR 5.1 billion (USD 157.3 million), up 21% compared with Q4 2012
Operating margin of 32.4%
Adjusted EBITDA margin of 42.6%
Adjustedex-TAC EBITDA margin of 55.6%
Net income of RUR 3.3 billion (USD 102.2 million), up 24% compared with Q4 2012
Adjusted net income of RUR 3.5 billion (USD 107.5 million), up 19% compared with Q4 2012
Net income margin of 27.7%
Adjusted net income margin of 29.1%
Adjustedex-TAC net income margin of 38.0%
Cash and deposits of RUR 48.6 billion (USD 1,484.1 million) as of December 31, 2013
FY 2013 Financial Highlights(1)(2)

Revenues of RUR 39.5 billion (USD 1,206.9 million), up 37% compared with FY 2012 (and up 39% excluding the impact of Yandex.Money)
Ex-TAC revenues (excluding traffic acquisition costs) up 32% compared with FY 2012 (and up 35% excluding the impact of Yandex.Money)
Income from operations of RUR 12.8 billion (USD 392.2 million), up 36% compared with FY 2012
Adjusted EBITDA of RUR 17.4 billion (USD 530.6 million), up 32% compared with FY 2012
Operating margin of 32.5%
Adjusted EBITDA margin of 44.0%
Adjustedex-TAC EBITDA margin of 54.9%
Net income of RUR 13.5 billion (USD 411.7 million), up 64% compared with FY 2012
Adjusted net income of RUR 12.1 billion (USD 370.9 million), up 38% compared with FY 2012
Net income margin of 34.1%
Adjusted net income margin of 30.7%
Adjustedex-TAC net income margin of 38.4%
"Yandex delivered strong fourth quarter and full year 2013 results," said Arkady Volozh, Chief Executive Officer of Yandex. "We continued to grow our search share on desktop and mobile. We implemented significant changes in our paid search algorithms, substantially grew the number of advertisers on our platform, and broadened the reach of our partner network. We will continue to create services that benefit our users across the markets in which we operate."

1 Pursuant to SEC rules regarding convenience translations, Russian ruble (RUR) amounts have been translated into U.S. dollars at a rate of RUR 32.7292 to USD 1.00, the official exchange rate quoted as of December 31, 2013 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 US GAAP measures.
Q4 2013 Operational and Corporate Highlights

Share of Russian search market (including mobile) averaged 61.9% in Q4 2013 (according to LiveInternet)
SERPs (search engine result pages) grew 19% from Q4 2012
Number of advertisers grew to more than 270,000, up 30% from Q4 2012 and up 10% from Q3 2013
Acquisition of KinoPoisk, the largest and most comprehensive Russian-language website dedicated to movies, television shows and celebrities
Enhanced the functionality of Yandex.Market with Cost Per Action advertising
Yandex.Maps moved to a new unified platform and now provide detailed maps and routing features globally
Placed USD 600 Million of 1.125% Convertible Senior Notes Due 2018 in December 2013 and additional USD 90 million in January 2014
Repurchased 10 million shares as of February 18, 2014, as part of the previously announced share repurchase program, and increased authorization to repurchase a total of up to 15 million shares
Subsequent Events

Cooperation agreement with MultiShip, a logistics service aggregator
Partnership with Facebook - access to a "firehose" of public data in Russia, CIS and Turkey.

otal revenues increased 37% compared with Q4 2012, and on a like-for-like basis (excluding revenues received from Yandex.Money operations in Q4 2012), total revenues increased 40% compared with Q4 2012.

Text-based advertising revenues, accounting for 90% of total revenues in Q4 2013, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 66% of total revenues during Q4 2013, and increased 30% compared with Q4 2012.

Text-based advertising revenues from our ad network increased 94% compared with Q4 2012 and contributed 23% of total revenues during Q4 2013. The increase of partner network revenues as a share of total revenues, together with an increase in the growth rate of the ad network, reflect our agreement with Mail.ru to power paid search results on Mail.ru properties.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 52% in Q4 2013 compared with Q4 2012 and grew 22% sequentially. Our average cost per click in Q4 2013 decreased 7% compared with Q4 2012.

Display advertising revenue, accounting for 10% of total revenues in Q4 2013, increased 20% compared with Q4 2012.

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 2013, Yandex added 493 full-time employees, an increase of 11% from September 30, 2013, and up 41% from December 31, 2012. The total number of full-time employees was 4,902 as of December 31, 2013.  The employee numbers and growth rates are provided on a like-for-like basis, excluding Yandex.Money employees for the previous periods.
TAC increased from 18.5% of text-based revenues in Q4 2012 to 26.1% in Q4 2013, representing the increase in our Yandex ad network revenues as a share of total revenues for the period. The principal driver of the TAC increase was our agreement to power paid search on Mail.ru.

Other cost of revenues in Q4 2013 increased 8% compared with Q4 2012, reflecting further growth in personnel and data center-related costs partly offset by absence of the cost of online payment commissions related to Yandex.Money.
Growth in product development expenses in Q4 2013 primarily reflects increases in the number of developers. Development headcount increased 49% from 1,956 as of December 31, 2012, to 2,924 as of December 31, 2013, with 375 employees added since September 30, 2013, on a like-for-like basis, excluding Yandex.Money employees for the prior period.
D&A expense increased 15% in Q4 2013 compared with Q4 2012, primarily reflecting further investments in servers and data centers made this year.

As a result of the factors described above, income from operations was RUR 3.9 billion (USD 119.8 million) in Q4 2013, a 26% increase from Q4 2012, while adjusted EBITDA reached RUR 5.1 billion (USD 157.3 million) in Q4 2013, up 21% from Q4 2012.

Interest income in Q4 2013 was RUR 414 million, up from RUR 333 million in Q4 2012, principally as a result of investing our cash provided by operating activities in Russia, where our investments earn higher returns partly offset by interest expenses related to our convertible debt.

Foreign exchange gain in Q4 2013 was RUR 99 million, compared with a foreign exchange gain of RUR 17 million in Q4 2012. This gain is due to the appreciation of the U.S. dollar during Q4 2013 from RUR 32.3451 to USD 1.00 on September 30, 2013 to RUR 32.7292 to USD 1.00 on December 31, 2013. 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 assets and liabilities were not impacted by these currency fluctuations, they resulted in an upward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q4 2013.

Income tax expense for Q4 2013 was RUR 1,083 million, up from RUR 791 million in Q4 2012. Our effective tax rate of 24.5% in Q4 2013 was significantly higher than in previous quarters due to one-time effect of certain reserves and allowances we have provided for in Q4 2013. Adjusted for these reserves and allowances, our effective tax rate is 21.6%. This compares with an effective tax rate of 21.1% in Q3 2013, adjusted for a non-taxable gain on the sale of a 75% interest in Yandex.Money in Q3 2013.

Adjusted net income in Q4 2013 was RUR 3.5 billion (USD 107.5 million), a 19% increase from Q4 2012.

Adjusted net income margin was 29.1 % in Q4 2013, compared with 33.6% in Q4 2012.

Net income was RUR 3.3 billion (USD 102.2 million) in Q4 2013, up 24% compared with Q4 2012.

As of December 31, 2013, Yandex had cash, cash equivalents and long-term deposits of RUR 48.6 billion (USD 1,484.1 million).

Net operating cash flow and capital expenditures for Q4 2013 were RUR 4.8 billion (USD 146.3 million) and RUR 1.7 billion (USD 50.8 million), respectively.

The totalnumber of shares issued and outstanding as of December 31, 2013 was 323,655,509, including 250,732,061 Class A shares, 72,923,447 Class B shares, and one Priority share and excluding 6,266,245 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 6.0 million shares, at a weighted average exercise price of USD 5.11 per share, of which options to purchase 5.2 million shares were fully vested; equity-settled share appreciation rights equal to 1.6 million shares, at a weighted average measurement price of USD 26.75, 0.2 million of which were fully vested; and restricted share units covering 2.9 million shares, of which restricted share units to acquire 0.4 million shares were fully vested.

Outlook for 2014

On a like-for-like basis, excluding the revenue associated with Yandex.Money from 2013 results, Yandex expects to achieve full year ruble-based revenue growth of 25% to 30% in 20141.

1 In 2013, Yandex recognized total revenue of RUR 39,502 million, including RUR 394 million in payments commissions related to Yandex.Money and RUR 39,108 million in advertising and other revenues. Starting July 4, 2013, when the sale of a 75% interest in Yandex.Money was completed, Yandex stopped recognizing revenue related to Yandex.Money in its consolidated revenues.