OREANDA-NEWS. MOSCOW and AMSTERDAM, Netherlands, Oct. 23, 2014 (GLOBE NEWSWIRE) --Yandex (Nasdaq:YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its financial results for the third quarter ended September 30, 2014.

Q3 2014 Financial Highlights

Revenues of RUR 13.1 billion (USD 331.5 million), up 28% compared with Q3 2013

Ex-TAC revenues (excluding traffic acquisition costs) up 29% compared with Q3 2013

Income from operations of RUR 4.5 billion (USD 114.1 million), up 39% compared with Q3 2013

Adjusted EBITDA of RUR 5.9 billion (USD 149.9 million), up 34% compared with Q3 2013

Operating margin of 34.4%

Adjusted EBITDA margin of 45.2%

Adjusted ex-TAC EBITDA margin of 57.4%

Net income of RUR 4.4 billion (USD 111.0 million), down 12% compared with Q3 2013

Adjusted net income of RUR 3.9 billion (USD 99.4 million), up 24% compared with Q3 2013

Net income margin of 33.5%

Adjusted net income margin of 30.0%

Adjusted ex-TAC net income margin of 38.0%

Cash, cash equivalents and deposits of RUR 43.8 billion (USD 1,112.4 million) as of September 30, 2014

"Q3 was another strong quarter notable for an acceleration in growth of our owned and operated properties and excellent cost control," said Arkady Volozh, Chief Executive Officer of Yandex. "We launched a number of new products designed to make people's lives easier and better and continued to provide market-leading advertising technologies to our customers."

Q3 2014 Operational and Corporate Highlights

Share of Russian search market (including mobile) averaged 60.3% in Q3 2014 (according to LiveInternet)

Search queries grew 13% from Q3 2013

Number of advertisers grew to more than 300,000, up 20% from Q3 2013

Acquired AdFox, an advertising technology platform

Completed the acquisition of Auto.ru

Launched Yandex.Master, an online marketplace for accomplishing domestic projects

Re-launched our Yandex.

Text-based advertising revenues accounted for 93% of total revenues in Q3 2014 and continued to determine overall top-line performance.

Text-based advertising revenues from Yandex's own websites accounted for 71% of total revenues during Q3 2014, and increased 33% compared with Q3 2013, accelerating by approximately 540 basis points compared with the previous quarter.

Text-based advertising revenues from our ad network increased 19% compared with Q3 2013 and contributed 21% of total revenues during Q3 2014. Growth rates decelerated compared with Q2 2014 as we entered the second full year of the agreement pursuant to which we power paid search on Mail.ru.

Paid clicks on Yandex's and its partners' websites, in aggregate, increased 19% in Q3 2014 compared with Q3 2013. Our average cost per click in Q3 2014 grew 8% compared with Q3 2013.

Display advertising revenue, accounting for 6% of total revenues in Q3 2014, was up 6% compared with Q3 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, and related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q3 2014, Yandex added 214 full-time employees, an increase of 4% from June 30, 2014, and up 25% from September 30, 2013. The total number of full-time employees was 5,514 as of September 30, 2014.

TAC decreased slightly as percent of total revenues from 22.0% in Q3 2013 to 21.2% in Q3 2014, due to slower growth of revenue from the ad networks than from Yandex's own sites. Partner TAC includes traffic acquisition costs related to both our text-based ad network and our display ad network.

Other cost of revenues in Q3 2014 increased 19% compared with Q3 2013, reflecting growth in data center-related costs.

Growth in product development expenses in Q3 2014 primarily reflects increases in headcount as we continue to invest in new products. Development headcount increased 28% from 2,549 as of September 30, 2013, to 3,272 as of September 30, 2014, with 166 employees added since June 30, 2014.

SG&A costs grew modestly in Q3 2014 compared to Q3 2013 due to decrease in advertising and marketing spend.

Share-based compensation (SBC) expense

Total SBC expense increased 33% in Q3 2014 compared with Q3 2013. The increase is primarily related to new equity-based grants made in 2013-2014.

D&A expense increased 20% in Q3 2014 compared with Q3 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 4.5 billion (USD 114.1 million) in Q3 2014, a 39% increase from Q3 2013, while adjusted EBITDA reached RUR 5.9 billion (USD 149.9 million) in Q3 2014, up 34% from Q3 2013.

Interest income, net in Q3 2014 was RUR 224 million, down from RUR 483 million in Q3 2013, mainly due to interest expenses related to our convertible notes issued in December 2013 and January 2014.

Foreign exchange gain in Q3 2014 was RUR 1,824 million, compared with a foreign exchange loss of RUR 2 million in Q3 2013. This gain is due to the appreciation of the U.S. dollar during Q3 2014 from RUR 33.6306 to USD 1.00 on June 30, 2014, to RUR 39.3866 to USD 1.00 on September 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 an upward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q3 2014.

Income tax expense for Q3 2014 was RUR 1,418 million, up from RUR 783 million in Q3 2013. Our effective tax rate of 24.5% in Q3 2014 was in line with the effective tax rate in Q2 2014, adjusted for the one-time effect of certain reserves and allowances in Q2 2014. Our effective tax rate was higher in 2014 than in 2013 quarters as we began to accrue for a 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. In Q3 2013, our effective tax rate adjusted for significant non-taxable gain from the sale of Yandex.Money was 21.1%.

Adjusted net income in Q3 2014 was RUR 3.9 billion (USD 99.4 million), a 24% increase from Q3 2013.

Adjusted net income margin was 30.0% in Q3 2014, compared with 30.9% in Q3 2013.

Net income was RUR 4.4 billion (USD 111.0 million) in Q3 2014, down 12% compared with Q3 2013. The decline in net income reflects the gain of RUR 2.0 billion that we recognized in Q3 2013 following the sale of a 75% stake in Yandex.Money to Sberbank, partly offset by a foreign exchange gain of RUR 1.4 billion (net of tax) that we recognized in Q3 2014.

As of September 30, 2014, Yandex had cash, cash equivalents and deposits of RUR 43.8 billion (USD 1,112.4 million).

Net operating cash flow and capital expenditures for Q3 2014 were RUR 5.2 billion (USD 132.0 million) and RUR 2.5 billion (USD 62.7 million), respectively.

As of September 30, 2014, we had repurchased USD 50 million of our 1.125% convertible senior notes due 2018 for approximately USD 45.6 million.

The total number of shares issued and outstanding as of September 30, 2014 was 318,315,550, including 248,818,138 Class A shares, 69,497,411 Class B shares, and one Priority share and excluding 11,706,204 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 5.2 million shares, at a weighted average exercise price of USD 5.41 per share, of which options to purchase 4.9 million shares were fully vested; equity-settled share appreciation rights equal to 2.3 million shares, at a weighted average measurement price of USD 28.10 per share, 0.5 million of which were fully vested; and restricted share units covering 3.3 million shares, of which restricted share units to acquire 0.8 million shares were fully vested.

Outlook for 2014

We are narrowing our full-year 2014 ruble-based revenue guidance and currently expect year-on-year revenue growth of 27%-30%.

Conference Call Information

Yandex's management will hold an earnings conference call on October 23, 2014 at 8:00 AM U.S. Eastern Time (4:00 PM Moscow time; 1:00 PM London time).

To access the conference call live, please dial: U.S.: +1 877 280 1254

UK: +44 (0) 20 3427 1909

Russia: 8 800 500 9311

Passcode: 8590675#

A replay of the call will be available through October 30, 2014. To access the replay, please dial: U.S.: +1 866 932 5017

Russia/International: +44 (0) 20 3427 0598

Passcode: 8590675#

A live and archived webcast of this conference call will be available at http://www.media-server.com/m/p/8p8inev6>