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 second quarter ended June 30, 2014.

Q2 2014 Financial Highlights(1)(2)

Revenues of RUR 12.2 billion (USD 361.5 million), up 32% compared with Q2 2013 (and up 35% excluding the impact of Yandex.Money)
Ex-TAC revenues (excluding traffic acquisition costs) up 23% compared with Q2 2013 (and up 26% excluding the impact of Yandex.Money)
Income from operations of RUR 3.6 billion (USD 108.0 million), up 13% compared with Q2 2013
Adjusted EBITDA of RUR 5.0 billion (USD 149.5 million), up 17% compared with Q2 2013
Operating margin of 29.9%
Adjusted EBITDA margin of 41.3%
Adjustedex-TAC EBITDA margin of 52.9%
Net income of RUR 2.4 billion (USD 71.2 million), down 18% compared with Q2 2013
Adjusted net income of RUR 3.3 billion (USD 98.7 million), up 9% compared with Q2 2013
Net income margin of 19.7%
Adjusted net income margin of 27.3%
Adjustedex-TAC net income margin of 34.9%
Cash, cash equivalents and deposits of RUR 47.3 billion (USD 1,405.4 million) as of June 30, 2014
"Our core text-based advertising business drove strong financial results with solid growth in advertisers and paid clicks," said Arkady Volozh, Chief Executive Officer of Yandex. "The acquisition of Auto.ru, announced earlier this month, is a strong move into classifieds which is one of the fastest growing segments of online advertising, and the admission of our shares for trading on Moscow Exchange will provide trading liquidity in our home market."
Q2 2014 Operational and Corporate Highlights

Share of Russian search market (including mobile) averaged 61.6% in Q2 2014 (according to LiveInternet)
Search queries grew 21% from Q2 2013
Number of advertisers grew to more than 295,000, up 25% from Q2 2013 and up 6% from Q1 2014
Announced agreement to acquire Auto.ru, one of the leading online auto classifieds businesses in Russia
Launched Yandex.City, an app and a website that helps users to find local businesses while aggregating user generated reviews
Class A shares of Yandex N.V. were accepted for listing on Moscow Exchange
Repurchased 15 million shares as part of previously announced share repurchase program and increased authorization to repurchase 3 million additional shares
Total revenues increased 32% compared with Q2 2013 and, on a like-for-like basis (excluding revenues received from Yandex.Money operations in Q2 2013), total revenues increased 35% compared with Q2 2013.

Text-based advertising revenues accounted for 93% of total revenues in Q2 2014 and continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 70% of total revenues during Q2 2014, and increased 27% compared with Q2 2013.

Text-based advertising revenues from our ad network increased 92% compared with Q2 2013 and contributed 22% of total revenues during Q2 2014. Our agreement with Mail.ru to power paid search results is the principal driver of our increase in partner network revenues as well as the increase in the growth rate of the ad network.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 36% in Q2 2014 compared with Q2 2013. Our average cost per click in Q2 2014 grew 1% compared with Q2 2013.

Display advertising revenue, accounting for 6% of total revenues in Q2 2014, was down 6% compared with Q2 2013.

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 Q2 2014, Yandex added 164 full-time employees, an increase of 3% from March 31, 2014, and up 32% from June 30, 2013. The total number of full-time employees was 5,300 as of June 30, 2014. The employee numbers and growth rates are provided on a like-for-like basis, excluding Yandex.Money employees for the previous periods.
D&A expense increased 22% in Q2 2014 compared with Q2 2013, primarily reflecting investments in servers and data centers made in 2013 and early 2014.

As a result of the factors described above, income from operations was RUR 3.6 billion (USD 108.0 million) in Q2 2014, a 13% increase from Q2 2013, while adjusted EBITDA reached RUR 5.0 billion (USD 149.5 million) in Q2 2014, up 17% from Q2 2013.

Interest income, net in Q2 2014 was RUR 203 million, down from RUR 452 million in Q2 2013, mainly due to interest expenses related to our convertible notes issued in December 2013 and January 2014.

Foreign exchange loss in Q2 2014 was RUR 625 million, compared with a foreign exchange gain of RUR 35 million in Q2 2013. This loss is due to the depreciation of the U.S. dollar during Q2 2014 from RUR 35.6871 to USD 1.00 on March 31, 2014, to RUR 33.6306 to USD 1.00 on June 30, 2014. 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 in the income statement. 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 2014.

Income tax expense for Q2 2014 was RUR 821 million, up from RUR 772 million in Q2 2013. Our effective tax rate of 25.5% in Q2 2014 was higher than in Q1 2014 due to the one-time effect of certain reserves and allowances we provided for in Q2 2014. Adjusted for these reserves and allowances, our effective tax rate is 24.6%. Our effective tax rate was also higher than in 2013 quarters principally because in the six months ended June 30, 2014 we accrued for the 5% dividend withholding tax on the portion of the current year profit of our principal Russian operating subsidiary, that we considered not permanently reinvested in Russia.

Adjusted net income in Q2 2014 was RUR 3.3 billion (USD 98.7 million), a 9% increase from Q2 2013.

Adjusted net income margin was 27.3% in Q2 2014, compared with 33.2% in Q2 2013.

Net income was RUR 2.4 billion (USD 71.2 million) in Q2 2014, down 18% compared with Q2 2013. The primary reason for negative growth rate of net income in Q2 2014 was due to foreign exchange loss recorded on the depreciation of the U.S. dollar during Q2 2014.

As of June 30, 2014, Yandex had cash, cash equivalents and deposits of RUR 47.3 billion (USD 1,405.4 million).

Net operating cash flow and capital expenditures for Q2 2014 were RUR 4.0 billion (USD 119.6 million) and RUR 2.1 billion (USD 63.7 million), respectively.

The total number of shares issued and outstanding as of June 30, 2014 was 317,925,242, including 247,054,830 Class A shares, 70,870,411 Class B shares, and one Priority share and excluding 12,096,512 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 5.5 million shares, at a weighted average exercise price of USD 5.36 per share, of which options to purchase 5.1 million shares were fully vested; equity-settled share appreciation rights equal to 1.7 million shares, at a weighted average measurement price of USD 27.46, 0.3 million of which were fully vested; and restricted share units covering 3.4 million shares, of which restricted share units to acquire 0.7 million shares were fully vested.
FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These include statements regarding our anticipated revenues for full-year 2014. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the political, legal and/or regulatory environment, technological developments, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions "Risk Factors" and "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the year ended December 31, 2013, which is on file with the Securities and Exchange Commission and is available on our investor relations website at http://ir.yandex.com/sec.cfm and on the SEC website at www.sec.gov. All information in this release and in the attachments is as of July 29, 2014, and Yandex undertakes no duty to update this information unless required by law.