DJ Yandex Announces Third Quarter 2023 Financial Results
Yandex N.V.
Yandex Announces Third Quarter 2023 Financial Results
27-Oct-2023 / 12:00 MSK
The issuer is solely responsible for the content of this announcement.
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Yandex Announces Third Quarter 2023 Financial Results
AMSTERDAM, the Netherlands, October 27, 2023 -- Yandex (NASDAQ and MOEX: YNDX), a Dutch public limited company and one
of Europe's largest internet businesses, today announced its unaudited financial results for the third quarter ended
September 30, 2023.
Q3 2023 Financial and Operational Highlights1,2
In RUB millions Three months ended September 30
2022 2023 Change
Total Revenues 133,163 204,769 54%
Total Adjusted EBITDA 20,003 26,528 33%
Total Group Total Adjusted EBITDA margin, % 15.0% 13.0% -2.0 pp
Net income 45,541 7,681 -83%
Adjusted Net Income 5,009 3,366 -33%
Share of Russian search market, % 62.0% 62.6% 0.6 pp
Search share on Android, % 61.9% 62.5% 0.6 pp
Search share on iOS, % 48.3% 49.8% 1.5 pp
Search and Revenues 61,151 90,442 48%
Portal Ex-TAC revenues 50,481 74,169 47%
Adjusted EBITDA 34,635 47,021 36%
Adjusted EBITDA margin, % 56.6% 52.0% -4.6 pp
Revenues 63,448 107,240 69%
E-Commerce, Mobility GMV of Mobility3 198,041 298,951 51%
and Delivery GMV of E-commerce4 72,465 121,154 67%
GMV of other O2O services5 47,001 83,952 79%
Total Adjusted EBITDA/(loss) (2,668) (4,483) 68%
Plus and Entertainment Services Yandex Plus subscribers, MM 15.8 25.8 63%
(1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars in this release at a rate of RUB 97.4147 to USD1.00, the official exchange rate quoted as of September 30, 2023 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 and adjusted net income. Please see the section “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 U.S. GAAP measures.
(3) GMV (or gross merchandise value) of Mobility is defined as the total amount paid by customers for ride-hailing, car-sharing and scooters rent services booked through our platform, including VAT.
(4) GMV of E-commerce is defined as the value of all merchandise sold through our Yandex Market marketplace and Yandex Lavka as well as the value of products sold through Yandex Eats and Market Delivery grocery service (delivered and paid for), including VAT.
(5) GMV of other O2O (online-to-offline) services includes the total amount paid by customers and partner businesses for Yandex Delivery and Yandex Fuel services, the value of orders delivered through the Yandex Eats and Market Delivery food delivery services, Lavka Israel, and several other smaller O2O experiments, including VAT.
Financial outlook
Given that uncertainty concerning future geopolitical developments and the macro environment remains high, our visibility over the short- and medium-term is limited and we remain unable to provide any forward-looking expectations at this stage. We aim to remain transparent about the current performance and key trends across our businesses.
Corporate and Subsequent Events
— Yandex’s Board of Directors remains fully committed to the goal of completing the proposed corporaterestructuring and the divestiture of the company’s core businesses, including all Russia-based businesses.We have taken a number of important, concrete steps to prepare for the consummation of the proposed divestiture,including receiving consent from the Class A shareholders for the Board to undertake preparatory corporaterestructuring steps, i.e., the merger of certain intermediate Dutch holding companies into Yandex N.V. The companyhas also obtained one of the required approvals from the Government Commission for Control over Foreign Investmentsin the Russian Federation of the internal restructuring of the group, which is a pre-requisite for the divestiture.We have also made progress towards completing other necessary steps of our corporate restructuring plan.The proposed restructuring would be subject to further shareholder approval (including separate approval by ourClass A shareholders), and the company continues to aim to bring a restructuring proposal to shareholders forapproval by the end of this year.
— Neither Yandex N.V. nor any of its group companies is a target of sanctions in the United States,European Union, Switzerland or United Kingdom, and the Yandex group is not owned or controlled by any persons whohave been designated under such sanctions. In July 2023, our “Yandex Pay” subsidiary was designated in Canada; suchdesignation does not apply to Yandex N.V. or its other group companies or operations. Yandex continues to closelymonitor developments in this regard.
Impact of the current geopolitical crisis
Ongoing geopolitical tensions and their impact on the Russian and global economy have created a challenging environment for our business, team and shareholders.
These developments have adversely impacted (and may in the future materially adversely impact) the macroeconomic climate in Russia, resulting in volatility of the ruble, including significant recent devaluation, currency controls, increased interest rates and inflation and a potential contraction in consumer spending, as well as the withdrawal of foreign businesses and suppliers from the Russian market. In addition, laws or regulations may be adopted that may adversely affect our non-Russian shareholders and the value of the shares they hold in our company. We provided detailed information on our risk exposure and possible adverse impacts on our businesses in our Annual Report on Form 20-F for the year ended December 31, 2022, which was filed on April 20, 2023.
We continue to provide services to our users and partners with no interruptions. We are taking appropriate measures to consider our capital allocation and budget appropriately during this period of uncertainty, while remaining committed to continue investing in the development of our key businesses and services. We are closely monitoring sanctions and export control developments as well as the macroeconomic climate and consumer sentiment in Russia and we are assessing contingency plans to address potential developments. Our Board and management are focused on the wellbeing of our almost 26,000 employees in Russia and abroad, while doing everything we can to safeguard the interests of our shareholders and other stakeholders.
Consolidated Results
The following table provides a summary of our key consolidated financial results for the three and nine months ended September 30, 2022 and 2023:
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues 133,163 204,769 54% 356,921 550,539 54%
Ex-TAC revenues 123,940 190,100 53% 334,216 512,124 53%
Income from operations 10,797 12,084 12% 7,109 25,548 259%
Adjusted EBITDA 20,003 26,528 33% 46,968 64,068 36%
Net income 45,541 7,681 -83% 40,560 28,097 -31%
Adjusted net income 5,009 3,366 -33% 10,019 15,583 56%
Our segment disclosure is provided in the Segment financial results section below.
Cash and cash equivalents as of September 30, 2023:
— RUB 85.4 billion (USD876.8 million) on a consolidated basis.
Segment financial results
Search & Portal
Our Search and Portal segment includes Search, Geo, Weather and a number of other services offered in Russia, Belarus and Kazakhstan. Key operational trends:
— Share of Russian search market, including mobile, averaged 62.6% in Q3 2023, up 0.6 pp from 62.0% in Q32022 and seasonally down from 63.6% in Q2 2023, according to Yandex Radar
— Search share on Android in Russia was 62.5% in Q3 2023, up 0.6 pp from 61.9% in Q3 2022 and seasonallydown from 63.4% in Q2 2023, according to Yandex Radar
— Search share on iOS in Russia was 49.8% in Q3 2023, up 1.5 pp from 48.3% in Q3 2022 and stable comparedto 49.7% in Q2 2023, according to Yandex Radar
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— Mobile search traffic was 70.8% of our total search traffic in Q3 2023. Mobile revenues represented 62.9%of our search revenues in Q3 2023
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues 61,151 90,442 48% 156,163 236,403 51%
Ex-TAC revenues 50,481 74,169 47% 130,021 193,984 49%
Adjusted EBITDA 34,635 47,021 36% 83,637 122,745 47%
Adjusted EBITDA margin 56.6% 52.0% -4.6 pp 53.6% 51.9% -1.7 pp
Revenues increased by 48% and Ex-TAC revenues grew by 47% year-on-year in Q3 2023. This growth was mainly driven by the solid performance of our core search business and the Yandex Advertising Network on the back of our investments in the expansion of advertising inventory, along with development and efficiency improvements of our ad-products and technologies.
Adjusted EBITDA margin came to 52.0% in Q3 2023 compared with 56.6% in Q3 2022. The solid margin mainly reflects a positive operating leverage effect on the back of strong ad revenue growth, while the year-on-year dynamic is driven by an increase in personnel as well as marketing and advertising expenses from the low base of last year. E-commerce, Mobility and Delivery The E-commerce, Mobility and Delivery segment includes our transactional O2O businesses, which consist of (i) the mobility businesses, including ride-hailing in Russia and other countries across CIS and EMEA, Yandex Drive, our car-sharing business, and scooters; (ii) the E-commerce businesses in Russia and CIS, including Yandex Market, our multi-category e-commerce marketplace, Yandex Lavka Russia, our hyperlocal convenience store delivery service, and the grocery delivery services of Yandex Eats and Market Delivery (acquired in September 2022 and previously known as Delivery Club); and (iii) our other O2O businesses, including Yandex Delivery, our last- and middle-mile logistics solution for individuals, enterprises and SMB; Yandex Eats and Market Delivery, our ready-to-eat delivery from restaurants services; Lavka Israel, our hyperlocal convenience store delivery service; and Yandex Fuel, our contactless payment service at gas stations, and several smaller experiments. Key operational trends:
— Total E-Commerce GMV increased by 67% year-on-year in Q3 2023
Yandex Market
— The share of GMV sold by third-party sellers on our Yandex Market marketplace reached 87% in Q3 2023compared to 82% in Q3 2022
— Marketplace’s assortment was 58.5 million SKUs as of the end of Q3 2023, up from 49.3 million SKUs as ofthe end of Q3 2022
— The number of active buyers6 on the Yandex Market marketplace increased by 40% year-on-year and reached17.6 million as of the end of Q3 2023
— The number of active sellers7 on Yandex Market marketplace increased by 95% year-on-year and reached 68.4thousand as of the end of Q3 2023
Mobility
— GMV of Mobility services grew 51% compared to Q3 2022
(6) An active buyer is a buyer who made at least 1 purchase in the last 12 months prior to the reporting date. (7) An active seller is a seller who made at least 1 sale in the last 1 month prior to the reporting date.
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
GMV:
Mobility 198,041 298,951 51% 544,422 777,897 43%
E-Commerce 72,465 121,154 67% 195,614 339,467 74%
First party (1P) business model 19,835 27,492 39% 56,431 90,895 61%
Third party (3P) commission business model 52,630 93,662 78% 139,183 248,572 79%
Other O2O services 47,001 83,952 79% 125,470 226,463 80%
Revenues:
Mobility 31,015 45,151 46% 87,514 115,854 32%
E-Commerce 23,520 42,209 79% 63,918 123,221 93%
Revenues from sale of goods (1P)8 15,944 22,019 38% 45,643 72,752 59%
Commission and other e-commerce revenues9 7,576 20,190 166% 18,275 50,469 176%
Other O2O services 10,444 22,105 112% 27,910 57,758 107%
Eliminations (1,531) (2,225) 45% (3,970) (6,168) 55%
Total revenues 63,448 107,240 69% 175,372 290,665 66%
Adjusted EBITDA loss E-commerce, Mobility and (2,668) (4,483) 68% (9,102) (21,402) 135%
Delivery:
(8) Revenues related to sales of goods include revenues from Yandex Market 1P sales, revenues from Yandex Lavka 1P sales in Russia, where we use a first-party (1P) business model and act as a direct retailer, and exclude delivery fee revenues related to these businesses. (9) Commission and other e-commerce revenues include Yandex Market marketplace (3P) commission, delivery, service fee and advertising revenues of grocery delivery services of Yandex Eats and Maket Delivery, as well as delivery fee and advertising revenue of Yandex Lavka in Russia and other revenues.
The growth in GMV of Mobility reached 51% year-on-year in Q3 2023, driven by an increase in the number of rides, growing share of non-economy tariffs due to the shift of new vehicles supply on the market towards upper-class models and continued driver undersupply on our domestic market, as well as forex effect from our operations in CIS and EMEA markets. The growth in GMV of E-commerce was 67% year-on-year in Q3 2023 supported by organic growth in the user base and assortment expansion. GMV of other O2O services grew by 79% year-on-year in Q3 2023, with Yandex Delivery and Yandex Food Delivery services including Market Delivery, being the largest contributors reporting growth of 109% year-on-year.
E-commerce, Mobility and Delivery segment revenues increased by 69% year-on-year in Q3 2023. The increase was mainly driven by E-commerce services (where Yandex Market was the largest contributor to the growth in absolute terms, followed by Yandex Lavka). Mobility revenues increased by 46%, which is lower than GMV growth, on the back of higher investment into driver supply. E-commerce revenues increased by 79%, greater than the increase in GMV, reflecting an improvement of 3P take rates and a growing share of advertising revenue. Other O2O services revenues delivered 112% year-on-year growth where Food Delivery was the key contributor to the growth, followed by our Delivery business.
Eliminations related to the E-commerce, Mobility and Delivery segment represent the eliminations of intercompany revenues between different businesses within the segment. The year-on-year dynamic was mainly attributed to our expansion of intercompany synergies with a higher volume of E-commerce and Food Delivery orders fulfilled by our Yandex Delivery business compared to a year ago.
Adjusted EBITDA loss of E-commerce, Mobility and Delivery was RUB 4,483 million in Q3 2023 compared to loss of RUB 2,668 million in Q3 2022. This dynamic was primarily driven by the growing scale of Yandex Market business, as well as contraction of Adj EBITDA margin of the Mobility business on the back of increased investments into driver supply. Plus and Entertainment Services The Plus and Entertainment Services segment includes our subscription service Yandex Plus, Yandex Music, Kinopoisk, Yandex Afisha, Bookmate and our production center Plus Studio. Key operational trends:
— Number of Yandex Plus subscribers reached 25.8 million as of the end of Q3 2023, up 63% from the end ofQ3 2022
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues 7,817 17,402 123% 19,798 46,261 134%
Adjusted EBITDA/(loss) (1,498) 1,040 169% (7,264) 2,614 136%
Adjusted EBITDA margin -19.2% 6.0% 25.2 pp -36.7% 5.7% 42.4 pp
Plus and Entertainment Services revenues grew 123% in Q3 2023 compared with Q3 2022. The increase was primarily driven by the growth of subscription revenue on the back of the expanding base of paid subscribers and changes in tariff mix, as well as solid trends in other revenue streams, including advertising. Adjusted EBITDA remained positive for the second quarter in a row reaching RUB 1.0 billion, compared with a loss of RUB 1.5 billion in Q3 2022 driven by a positive operating leverage effect on the back of the subscription revenue growth (which increased by 92% year-on-year) as well as cost-efficiency improvements.
Classifieds
The Classifieds segment includes Auto.ru, Yandex Realty, Yandex Rent and Yandex Travel.
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues 3,371 7,125 111% 8,350 17,136 105%
Adjusted EBITDA 237 235 -1% 903 72 -92%
Adjusted EBITDA margin 7.0% 3.3% -3.7 pp 10.8% 0.4% -10.4 pp
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Classifieds revenues increased by 111% in Q3 2023 compared with Q3 2022. The revenue growth was primarily driven by the solid performance of Auto.ru due to a low base effect of the last year, dealer base expansion, growth of new projects and improvement in monetization; as well as by Yandex Travel due to the strengthened market position on the back of increasing demand for our travel aggregator service. Adjusted EBITDA in Q3 2023 remained flat compared to the corresponding period last year and amounted to RUB 0.2 billion: a year-on-year improvement of profitability in Auto.ru was offset by our continuing investments in the expansion of Yandex Travel and Yandex Rent.
Other Business Units and Initiatives
The Other Business Units and Initiatives category includes our self-driving vehicles business (Yandex SDG), Yandex Cloud and Yandex 360, Yandex Education (Practicum and other education initiatives), Devices and Alice, FinTech (including Yandex Pay and Yandex ID) and a number of other experiments as well as unallocated corporate expenses.
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues 11,203 18,805 68% 29,877 47,882 60%
Adjusted EBITDA loss (10,786) (17,684) 64% (21,437) (41,042) 91%
Adjusted EBITDA loss margin -96.3% -94.0% 2.3 pp -71.8% -85.7% -13.9 pp
Other Business Units and Initiatives revenues increased 68% year-on-year in Q3 2023, driven mainly by Yandex Cloud, Devices and Alice, and Fintech. Yandex Cloud revenue grew 60% year-on-year, supported by product portfolio expansion as well as improvement in our market share on the back of increasing demand for our services. The Devices and Alice revenue increased 94% year-on-year to RUB 7.2 billion in Q3 2023 due to devices sales growth supported by our efficient targeted marketing activities and the expansion in the range of models available.
The adjusted EBITDA loss amounted to RUB 17.7 billion compared to RUB 10.8 billion in Q3 2022. The loss increase was mainly attributed to segregation of unallocated corporate expenses from reportable segments’ adjusted EBITDA and their inclusion in the Other Business Units and Initiatives category (since September 2022), investments into growth of the Yandex Cloud business and Yandex SDG (where adjusted EBITDA loss came to RUB 2.9 billion in Q3 2023), and development of other verticals. Eliminations Eliminations related to our revenues represent the elimination of transactions between the reportable segments, including advertising revenues, intercompany revenues related to brand royalties, data centers, devices sales and others.
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Revenues:
Segment revenues 146,990 241,014 64% 389,560 638,347 64%
Eliminations (13,827) (36,245) 162% (32,639) (87,808) 169%
Total revenues 133,163 204,769 54% 356,921 550,539 54%
Adjusted EBITDA:
Segment adjusted EBITDA 19,920 26,129 31% 46,737 62,987 35%
Eliminations 83 399 381% 231 1,081 368%
Total adjusted EBITDA 20,003 26,528 33% 46,968 64,068 36%
Eliminations related to our revenues increased 162% in Q3 2023 compared with Q3 2022. The increase was mainly attributed to the increased intercompany revenue between our businesses (related to cross service advertising and marketing activities, the usage of data centers, other IT infrastructure, and other centralized services by all business units), as a result of greater integration of services and overall growth across the Group.
Consolidated Operating Costs and Expenses Our operating costs and expenses consist of cost of revenues (COS), product development expenses (PD), sales, general and administrative expenses (SG&A), depreciation and amortization expenses (D&A) and goodwill impairment. Personnel-related costs, including share-based compensation expenses, are included in the COS, PD and SG&A categories and represent a significant part of our operating expenses. Increases across all cost categories reflect investments in overall growth. In Q3 2023, our headcount increased by 1,421 full-time employees. The total number of full-time employees was 25,703 as of September 30, 2023, up by 6% compared with June 30, 2023, and up 29% from September 30, 2022, which was primarily driven by the accelerated pace of hiring in Search and Portal, Yandex Cloud and Yandex Market, as well as by the growth of Plus and Entertainment Services and Mobility among others.
Operating Expenses
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Cost of revenues 55,654 88,205 58% 155,386 244,864 58%
Cost of revenues as a % of revenues 41.8% 43.1% 1.3 pp 43.5% 44.5% 1.0 pp
including TAC 9,223 14,669 59% 22,705 38,415 69%
TAC as a % of revenues 6.9% 7.2% 0.3 pp 6.4% 7.0% 0.6 pp
Product development 17,058 26,237 54% 53,045 72,452 37%
As a % of revenues 12.8% 12.8% 0 pp 14.9% 13.2% -1.7 pp
Sales, general and administrative 42,186 67,003 59% 118,733 177,676 50%
As a % of revenues 31.7% 32.7% 1.0 pp 33.3% 32.3% -1.0 pp
Depreciation and amortization 7,468 11,240 51% 22,648 28,863 27%
As a % of revenues 5.6% 5.5% -0.1 pp 6.3% 5.2% -1.1 pp
Goodwill impairment - - n/m - 1,136 n/m
As a % of revenues - - n/m - 0.2% 0.2 pp
Total operating expenses 122,366 192,685 57% 349,812 524,991 50%
As a % of revenues 91.9% 94.1% 2.2 pp 98.0% 95.4% -2.6 pp
Total operating expenses increased by 57% in Q3 2023 compared with Q3 2022. The increase was mainly due to the ?ost of revenues related to E-commerce, Mobility and Delivery businesses, Devices and Alice, as well as Search and Portal, and growth of headcount and related personnel expenses across most of our business units due to the overall expansion of operations.
TAC grew 59% in Q3 2023 compared with Q3 2022 and represented 7.2% of total revenues, 23 basis points higher than in Q3 2022. The year-on-year growth of TAC as a share of revenue was primarily driven by TAC related to our distribution partners and the growing contribution of ad revenues related to the Yandex Advertising Network.
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
SBC expense included in cost of revenues 169 172 2% 449 513 14%
SBC expense included in product development 3,771 3,370 -11% 11,237 9,839 -12%
SBC expense included in SG&A 2,523 2,350 -7% 7,537 6,839 -9%
Total SBC expense 6,463 5,892 -9% 19,223 17,191 -11%
As a % of revenues 4.9% 2.9% -2.0 pp 5.4% 3.1% -2.3 pp
Total SBC expenses decreased by 9% in Q3 2023 compared with Q3 2022. The decrease was primarily related to the replacement of new RSU grants during 2022 and 2023 with an increase in salaries and bonuses as well as settlement of Business Unit Equity Awards in cash in Q3 2022, which led to additional cost recognized in Q3 2022; partly offset by the material appreciation of the U.S. dollar against the ruble. In light of the ongoing halt of trading in our Class A shares on Nasdaq, during 2022 and 2023, participants have received and will continue to receive cash compensation on the vesting dates of the relevant RSU equity awards, in an amount equal to the target value of each tranche of such awards. In Q3 2023, RUB 2.8 billion of the total RUB 5.9 billion in SBC expenses related to RSU equity awards settled in cash were recorded as part of personnel expenses, which reduced consolidated adjusted EBITDA.
Income from operations
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Income from operations 10,797 12,084 12% 7,109 25,548 259% Income from operations amounted to RUB 12.1 billion in Q3 2023 compared to RUB 10.8 billion in Q3 2022. This dynamic was mainly driven by the improved profitability of our Search and Portal, Plus and Entertainment segments, as well as the Food Delivery business. Other income, net for Q3 2023 amounted to RUB 7,209 million, up from RUB 4,053 million in Q3 2022. Other income, net includes foreign exchange gains of RUB 7,500 million in Q3 2023 and RUB 4,242 million in Q3 2022. Foreign exchange gains dynamics reflect changes of USD denominated monetary assets in our Russian subsidiaries and RUB denominated monetary assets in our foreign subsidiaries on the back of a stronger depreciation of the Russian ruble in absolute terms against the US dollar in the third quarter of 2023 compared to the third quarter of 2022. Income tax expense for Q3 2023 was RUB 7,704 million, up from RUB 6,818 million in Q3 2022. Our effective tax rate of 50.1% in Q3 2023 was higher
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than 13.0% in Q3 2022. The Group’s tax provision for income taxes for interim periods is determined based on the tax rate effective during that period. The major factors influencing changes in the effective tax rates in Q3 2023 and Q3 2022 were: differences in foreign tax rates of our subsidiaries (including reduced tax rate in certain Russian subsidiaries), deferred tax asset valuation allowances, non-deductible SBC expenses, statutory expenses not deductible for income tax purposes, tax provision recognized, tax on dividends, as well as tax effects of the News and Zen deconsolidation in Q3 2022. Net income was RUB 7.7 billion in Q3 2023, compared with RUB 45.5 billion in Q3 2022. The latter included a one-off non-cash gain recognized on the News and Zen deconsolidation in the amount of RUB 38,051 million. Cash provided by operating activities was RUB 22.3 billion and cash paid for property and equipment, intangible assets and assets to be leased was RUB 31.1 billion for Q3 2023. The total number of shares issued and outstanding as of September 30, 2023 was 361,482,282, including 325,783,607 Class A shares, 35,698,674 Class B shares, and one Priority share and excluding 558,663 Class A shares held in treasury. There were also employee share options outstanding to purchase up to an additional 2.9 million shares, at a weighted average exercise price of USD44.32 per share, 2.3 million of which were fully vested; equity-settled share appreciation rights (SARs) for 0.1 million shares, at a weighted average measurement price of USD32.85, all of which were fully vested; restricted share units (RSUs) covering 8.9 million shares, of which RSUs to acquire 6.2 million shares were fully vested; and performance share units (PSUs) for 0.2 million shares. In addition, we have outstanding awards in respect of our various Business Units, including options and synthetic options, for 6.0 million shares, 2.5 million of which were fully vested and are settled in equity of our Business Units, cash or Yandex Class A shares.
ABOUT YANDEX
Yandex (NASDAQ and MOEX: YNDX) is a technology company registered in the Netherlands that builds intelligent products and services powered by machine learning. Our goal is to help consumers and businesses better navigate the online and offline world. Since 1997, we have delivered world-class, locally relevant search and navigation products, while also expanding into mobility, e-commerce, online entertainment, cloud computing and other markets to assist millions of consumers in Russia and a number of international markets. More information on Yandex can be found at https://ir.yandex/.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements that involve risks and uncertainties. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our future financial and business performance, our business and strategy and the impact of the current geopolitical and macroeconomic developments on our industry, business and financial results, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “guide,” “intend,” “likely,” “may,” “will” and similar expressions and their negatives are intended to identify forward-looking statements. 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, macroeconomic and geopolitical developments affecting the Russian economy or our business, changes in the political, legal and/or regulatory environment and regulatory and business responses to that crisis, including international economic sanctions and export controls, competitive pressures, changes in advertising patterns, changes in user preferences, 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, 2022 and “Risk Factors” in the Shareholder Circular filed as Exhibit 99.2 to our Current Report on Form 6-K, which were filed with the U.S. Securities and Exchange Commission (SEC) on April 20, 2023 and November 18, 2019, respectively, and are available on our investor relations website at https:// ir.yandex/sec-filings and on the SEC website at https://www.sec.gov/. All information in this release and in the attachments is as of October 27, 2023, and Yandex undertakes no duty to update this information unless required by law.
USE OF NON-GAAP FINANCIAL MEASURES
To supplement the financial information prepared and presented in accordance with U.S. GAAP, we present the following non-GAAP financial measures: ex-TAC revenues, Adjusted EBITDA/(loss), Adjusted EBITDA margin and Adjusted net income/(loss). The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP financial measures to the nearest comparable U.S. GAAP measures”, included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:
— Ex-TAC revenues means U.S. GAAP revenues less total traffic acquisition costs (TAC).
— Adjusted EBITDA/(loss) means U.S. GAAP net income/(loss) plus (1) depreciation and amortization, (2) certain SBC expense, (3) interest expense, (4) income tax expense, (5) expenses (reversal of expenses) related tothe contingent compensation payable to employees in connection with certain business combinations, (6) loss fromequity method investments, (7) one-off restructuring and other expenses, and (8) impairment of goodwill and otherintangible assets less (1) interest income, (2) other income/(loss), net, (3) gain on restructuring of convertibledebt and (4) effect of the News and Zen deconsolidation.
— Adjusted EBITDA margin means adjusted EBITDA/(loss) divided by U.S. GAAP revenues.
— Adjusted net income means U.S. GAAP net income plus (1) certain SBC expense, (2) expenses (reversal ofexpenses) related to the contingent compensation payable to certain employees in connection with certain businesscombinations, (3) one-off restructuring and other expenses, (4) impairment of goodwill and other intangible assets,and (5) amortization of debt discount and issuance costs related to our convertible debt, less (1) foreign exchangegains, (2) gain on restructuring of convertible debt and (3) effect of the News and Zen deconsolidation. Taxeffects related to the listed adjustments are excluded from adjusted net income.
These non-GAAP financial measures are used by management for evaluating financial performance as well as decision-making. Management believes that these metrics reflect the organic, core operating performance of the company, and therefore are useful to analysts and investors in providing supplemental information that helps them understand, model and forecast the evolution of our operating business.
Although our management uses these non-GAAP financial measures for operational decision-making and considers these financial measures to be useful for analysts and investors, we recognize that there are a number of limitations related to such measures. In particular, it should be noted that several of these measures exclude some recurring costs, particularly share-based compensation. In addition, the components of the costs that we exclude in our calculation of the measures described above may differ from the components that our peer companies exclude when they report their results of operations.
Below we describe why we make particular adjustments to certain U.S. GAAP financial measures:
TAC
We believe that it may be useful for investors and analysts to review certain measures both in accordance with U.S. GAAP and net of the effect of TAC, which we view as comparable to sales bonuses but, unlike sales bonuses, are not deducted from U.S. GAAP revenues. By presenting revenue, net of TAC, we believe that investors and analysts are able to obtain a clearer picture of our business without the impact of the revenues we share with our partners.
Certain SBC expense
SBC is a significant expense item, and an important part of our compensation and incentive programs. As it is highly dependent on our share price at the time of equity award grants, we believe that it is useful for investors and analysts to see certain financial measures excluding the impact of these charges in order to obtain a clearer picture of our operating performance. However, because we settled the RSU equity awards of our employees in cash during 2022 and 2023, starting from Q3 2022 we no longer eliminate the relevant SBC expense corresponding to the cash payment from adjusted EBITDA and adjusted net income.
Foreign exchange gains
Because we hold significant assets and liabilities in currencies other than our Russian ruble operating currency, and because foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted EBITDA, adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance.
Amortization of debt discount and issuance costs
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We also adjust net income/(loss) for interest expense representing amortization of the debt discount related to our convertible senior notes due 2025 issued in Q1 2020. We have eliminated this expense from adjusted net income as it is non-cash in nature and is not indicative of our ongoing operating performance. We have repurchased substantially all of the outstanding notes to date.
Expenses related to contingent consideration
We may incur expenses in connection with acquisitions that are not indicative of our recurring core operating performance. In particular, we are required under U.S. GAAP to accrue as an expense the contingent compensation that is payable to certain employees in connection with certain business combinations. We eliminate these acquisition-related expenses from adjusted EBITDA and adjusted net income to provide management and investors a tool for comparing on a period-to-period basis our operating performance in the ordinary course of operations.
Goodwill and other intangible assets impairment
We adjust our net income and EBITDA to exclude a loss from goodwill and intangible assets impairment, as well as any related income tax effects. Excluding these expenses, allow us to provide a clearer picture of our business performance, without being distracted by one-off expenses that are not directly related to our operating activities.
Gain on restructuring of convertible debt
Adjusted net income, adjusted EBITDA and related margin measures for 9 months ended September 30, 2022 exclude gain on restructuring of our convertible debt and income tax effect attributable to this gain.
In June 2022, we completed the purchase of 93.2% in aggregate principal amount of our USD1.25 billion 0.75% Convertible Notes due 2025. As a result of the restructuring, a gain in the amount of RUB 9,305 million and a related income tax expense in the amount of RUB 751 million were recognized. We have repurchased substantially all of the outstanding notes to date.
One-off restructuring and other expenses
We believe that it is useful to present adjusted net income, adjusted EBITDA and related margin measures excluding impacts not related to our operating activities. Adjusted net income and adjusted EBITDA exclude expenses related to the proposed corporate restructuring and other similar one-off expenses.
Effect of the News and Zen deconsolidation
We have adjusted net income, EBITDA and related margin measures for the one-off gain as a result of the News and Zen deconsolidation completed in Q3 2022, in the amount of RUB 38,051 million. We have eliminated this gain from adjusted net income and adjusted EBITDA as we believe that it is useful to present adjusted net income, adjusted EBITDA and related margins measures excluding impacts not related to our operating activities.
The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use from the most directly comparable U.S. GAAP financial measure.
YANDEX N.V.
Unaudited Condensed Consolidated Balance Sheets
(in millions of Russian rubles and U.S. dollars, except share and per share data)
As of
December September 30, September 30,
31,
2022* 2023 2023
RUB RUB USD
ASSETS
Cash and cash equivalents 83,131 85,411 876.8
Accounts receivable 58,014 69,345 711.9
Sales financing receivable 5,738 8,778 90.1
Prepaid expenses 16,968 25,588 262.6
Inventory 28,220 22,745 233.5
Funds receivable 8,290 10,839 111.3
VAT reclaimable 22,602 24,930 255.9
Other current assets 16,971 19,070 195.7
Total current assets 239,934 266,706 2,737.8
Property and equipment 127,706 164,744 1,691.2
Operating lease right-of-use assets 28,646 35,265 362.0
Intangible assets 31,766 35,493 364.3
Content assets 16,844 21,969 225.5
Goodwill 143,778 142,840 1,466.3
Equity method investments 2,118 1,160 11.9
Investments in non-marketable equity securities 6,746 9,033 92.7
Deferred tax assets 3,904 7,470 76.7
Other non-current assets 15,277 27,387 281.2
Total non-current assets 376,785 445,361 4,571.8
TOTAL ASSETS 616,719 712,067 7,309.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued and other liabilities 122,816 162,573 1,668.8
Debt, current portion 21,306 82,654 848.5
Income and non-income taxes payable 28,137 33,311 342.0
Deferred revenue 15,585 20,070 206.0
Total current liabilities 187,844 298,608 3,065.3
Debt, non-current portion 29,885 26,703 274.1
Deferred tax liabilities 5,473 8,501 87.3
Operating lease liabilities 17,609 24,576 252.3
Finance lease liabilities 21,185 26,184 268.8
Other accrued liabilities 16,545 25,507 261.8
Total non-current liabilities 90,697 111,471 1,144.3
Total liabilities 278,541 410,079 4,209.6
Commitments and contingencies
Shareholders' equity:
Ordinary shares: par value (Class A EUR0.01, Class B EUR0.10 and Class C
EUR0.09); shares authorized (Class A: 500,000,000, Class B: 37,138,658 and
Class C: 37,748,658); shares issued (Class A: 326,342,270, Class B: 282 282 2.9
35,698,674 and Class C: 10,000 and nil, respectively); shares outstanding
(Class A: 325,783,607, Class B: 35,698,674, and Class C: nil)
Treasury shares at cost (Class A: 558,663) (1,393) (1,393) (14.3)
Additional paid-in capital 119,464 84,997 872.5
Accumulated other comprehensive income 24,258 18,199 186.9
Retained earnings 173,697 199,887 2,051.9
Total equity attributable to Yandex N.V. 316,308 301,972 3,099.9
Noncontrolling interests 21,870 16 0.1
Total shareholders' equity 338,178 301,988 3,100.0
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 616,719 712,067 7,309.6
* Derived from audited consolidated financial statements
YANDEX N.V.
Unaudited Condensed Consolidated Statements of Operations
(in millions of Russian rubles and U.S. dollars, except share and per share data)
Three months ended September 30, Nine months ended September 30,
2022 2023 2023 2022 2023 2023
RUB RUB USD RUB RUB USD
Revenues 133,163 204,769 2,102.0 356,921 550,539 5,651.5
Operating costs and expenses:
Cost of revenues(1) 55,654 88,205 905.5 155,386 244,864 2,513.6
Product development(1) 17,058 26,237 269.3 53,045 72,452 743.7
Sales, general and 42,186 67,003 687.8 118,733 177,676 1,823.9
administrative(1)
Depreciation and amortization 7,468 11,240 115.4 22,648 28,863 296.3
Goodwill impairment - - - - 1,136 11.7
Total operating costs and expenses 122,366 192,685 1,978.0 349,812 524,991 5,389.2
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Income from operations 10,797 12,084 124.0 7,109 25,548 262.3 Interest income 1,127 1,289 13.2 3,526 3,612 37.1 Interest expense (779) (3,781) (38.8) (2,508) (6,927) (71.1) Gain on restructuring of - - - 9,305 - - convertible debt Effect of the News and Zen 38,051 - - 38,051 - - deconsolidation Loss from equity method investments (890) (1,416) (14.5) (1,341) (1,657) (17.0) Other income/(loss), net 4,053 7,209 74.0 (514) 22,086 226.6 Net income before income taxes 52,359 15,385 157.9 53,628 42,662 437.9 Income tax expense 6,818 7,704 79.1 13,068 14,565 149.5 Net income 45,541 7,681 78.8 40,560 28,097 288.4 Net income attributable to (2,373) - - (6,049) (1,905) (19.5) noncontrolling interests Net income attributable to 43,168 7,681 78.8 34,511 26,192 268.9 Yandex N.V. Net income per Class A and Class B share: Basic 116.38 20.71 0.21 94.02 70.63 0.73 Diluted 116.23 20.63 0.21 69.62 70.40 0.72 Weighted average number of Class A and Class B shares used in per share computation Basic 370,925,704 370,834,420 370,834,420 367,071,728 370,837,699 370,837,699 Diluted 371,390,423 372,293,060 372,293,060 375,794,547 372,028,664 372,028,664 (1) These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of: Cost of revenues 169 172 1.8 449 513 5.3 Product development 3,771 3,370 34.6 11,237 9,839 101.0 Sales, general and administrative 2,523 2,350 24.1 7,537 6,839 70.2
YANDEX N.V.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions of Russian rubles and U.S. dollars)
Three months ended September
30,
2022 2023 2023
RUB RUB USD
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income 45,541 7,681 78.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment 5,630 8,073 82.9
Amortization of intangible assets 1,838 3,167 32.5
Amortization of content assets 2,051 1,807 18.5
Operating lease right-of-use assets reduction and the lease liability accretion 3,376 3,614 37.1
Share-based compensation expense (excluding cash settled awards of RUB 5,745 and 718 3,492 35.8
RUB 2,399, respectively)
Deferred income tax expense 1,084 325 3.3
Foreign exchange gains (4,242) (7,500) (77.0)
Loss from equity method investments 890 1,416 14.5
Effect of the News and Zen deconsolidation - -
(38,051)
Provision for expected credit losses 731 1,225 12.6
Other 320 2,663 27.4
Changes in operating assets and liabilities excluding the effect of acquisitions:
Accounts receivable (8,836) (4,779) (49.1)
Prepaid expenses (2,734) (4,966) (50.9)
Inventory (1,461) (1,807) (18.5)
Accounts payable, accrued and other liabilities and taxes payable 23,978 13,064 134.1
Deferred revenue 960 1,387 14.2
Other assets 762 5,295 54.4
VAT reclaimable (2,148) (503) (5.2)
Funds receivable 709 (4,446) (45.6)
Sales financing receivable (1,050) (3,091) (31.7)
Content assets (2,519) (4,846) (49.7)
Content liabilities (1,087) 1,075 11.0
Net cash provided by operating activities 26,460 22,346 229.4
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment and intangible assets (4,609)
(26,862) (275.7)
Purchase of assets to be leased - (4,217) (43.3)
Investments in term deposits (1,235) - -
Net cash acquired as a result of the News and Zen deconsolidation and our acquisition 1,795 - -
of Delivery Club
Loans granted (144) (2,303) (23.6)
Bank deposits and loans to customers - (1,621) (16.6)
Proceeds from repayments of loans - 443 4.5
Other investing activities (265) 693 7.1
Net cash used in investing activities (4,458)
(33,867) (347.6)
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,447 79,787 819.0
Repayment of debt (3,532)
(63,246) (649.2)
Bank deposits and liabilities - 8,255 84.7
Payment for finance leases (435) (872) (9.0)
Other financing activities (360) - -
Net cash provided by/(used in) financing activities (880) 23,924 245.5
Effect of exchange rate changes on cash and cash equivalents, and restricted cash and 4,027 1,646 16.9
cash equivalents
Net change in cash and cash equivalents, and restricted cash and cash equivalents 25,149 14,049 144.2
Cash and cash equivalents, and restricted cash and cash equivalents, beginning of 75,867 72,622 745.5
period
Cash and cash equivalents, and restricted cash and cash equivalents, end of period 101,016 86,671 889.7
YANDEX N.V.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions of Russian rubles and U.S. dollars)
Nine months ended September 30,
2022 2023 2023
RUB RUB USD
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income 40,560 28,097 288.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment 17,279 20,995 215.5
Amortization of intangible assets 5,369 7,868 80.8
Amortization of content assets 6,677 6,347 65.2
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Operating lease right-of-use assets reduction and the lease liability accretion 11,087 10,408 106.8
Amortization of debt discount and issuance costs 585 - -
Share-based compensation expense (excluding cash settled awards of RUB 14,953 4,270 6,472 66.4
and
RUB 10,718, respectively)
Deferred income tax expense/(benefit) 1,399 (52) (0.5)
Foreign exchange gains (11) (22,378) (229.7)
Loss from equity method investments 1,341 1,657 17.0
Effect of the News and Zen deconsolidation - -
(38,051)
Gain on restructuring of convertible debt (9,305) - -
Impairment of long-lived assets 3,644 1,199 12.3
Provision for expected credit losses 1,769 3,488 35.8
Other 801 3,469 35.6
Changes in operating assets and liabilities excluding the effect of acquisitions:
Accounts receivable (4,296) (11,778) (120.9)
Prepaid expenses (5,129) (6,007) (61.7)
Inventory (7,526) 2,453 25.2
Accounts payable, accrued and other liabilities and taxes payable 22,870 18,287 187.7
Deferred revenue 1,654 3,941 40.5
Other assets 568 1,776 18.2
VAT reclaimable (1,983) (1,459) (15.0)
Funds receivable 1,658 (2,033) (20.9)
Sales financing receivable (1,785) (4,068) (41.8)
Content assets (8,718) (11,270) (115.7)
Content liabilities (1,440) 1,018 10.5
Net cash provided by operating activities 43,287 58,430 599.7
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment and intangible assets (52,031) (534.1)
(30,296)
Purchase of assets to be leased - (12,806) (131.5)
Acquisitions of businesses, net of cash acquired (820) - -
Net cash acquired as a result of the News and Zen deconsolidation and our acquisition 1,795 - -
of Delivery Club
Proceeds from sale of marketable equity securities 5,859 - -
Investments in term deposits (3,235) (6) (0.1)
Maturities of term deposits 25,769 160 1.7
Loans granted (169) (3,300) (33.8)
Proceeds from repayments of loans 480 1,641 16.8
Bank deposits and loans to customers - (1,621) (16.6)
Other investing activities (371) 874 9.0
Net cash used in investing activities (988) (67,089) (688.6)
CASH FLOWS PROVIDED/(USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of debt 50,228 161,468 1,657.5
Repayment of debt
(49,364) (103,581) (1,063.3)
Repayments of overdraft borrowings (2,940) - -
Purchase of non-redeemable noncontrolling interests - (57,337) (588.6)
Payment of contingent consideration and holdback amount (195) (77) (0.8)
Payment for finance leases (1,154) (2,327) (23.9)
Bank deposits and liabilities - 8,255 84.7
Other financing activities (1,390) (5,674) (58.1)
Net cash provided by/(used in) financing activities (4,815) 727 7.5
Effect of exchange rate changes on cash and cash equivalents, and restricted cash and 10,162 104.3
cash equivalents (15,866)
Net change in cash and cash equivalents, and restricted cash and cash equivalents 21,618 2,230 22.9
Cash and cash equivalents, and restricted cash and cash equivalents, beginning of 79,398 84,441 866.8
period
Cash and cash equivalents, and restricted cash and cash equivalents, end of period 101,016 86,671 889.7
YANDEX N.V.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE NEAREST COMPARABLE U.S. GAAP MEASURES
Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues
In RUB millions Three months ended September 30, Nine months ended September 30,
2022 2023 Change 2022 2023 Change
Total revenues 133,163 204,769 54% 356,921 550,539 54%
Less: traffic acquisition costs (TAC) 9,223 14,669 59% 22,705 38,415 69%
Ex-TAC revenues 123,940 190,100 53% 334,216 512,124 53%
Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income
In RUB millions Three months ended September Nine months ended
30, September 30,
2022 2023 Change 2022 2023 Change
Net income 45,541 7,681 -83% 40,560 28,097 -31%
Add: depreciation and amortization 7,468 11,240 51% 22,648 28,863 27%
Add: certain SBC expense 1,738 3,111 79% 14,498 8,154 -44%
Add: one-off restructuring and other expenses - 93 n/m - 304 n/m
Add: reversal of compensation expense related to contingent - - n/m (27) - n/m
consideration
Less: gain on restructuring of convertible debt - - n/m (9,305) - n/m
Less: effect of the News and Zen deconsolidation (38,051) - n/m (38,051) - n/m
Less: interest income (1,127) (1,289) 14% (3,526) (3,612) 2%
Add: interest expense 779 3,781 385% 2,508 6,927 176%
Add: loss from equity method investments 890 1,416 59% 1,341 1,657 24%
Less: other income/(loss), net (4,053) (7,209) 78% 514 (22,086) n/m
Add: impairment of goodwill and other intangible assets - - n/m 2,740 1,199 -56%
Add: income tax expense 6,818 7,704 13% 13,068 14,565 11%
Adjusted EBITDA 20,003 26,528 33% 46,968 64,068 36%
Reconciliation of Adjusted Net Income to U.S. GAAP Net Income
In RUB millions Three months ended September Nine months ended
30, September 30,
2022 2023 Change 2022 2023 Change
Net income 45,541 7,681 -83% 40,560 28,097 -31%
Add: certain SBC expense 1,738 3,111 79% 14,498 8,154 -44%
Add: reversal of compensation expense related to contingent - - n/m (27) - n/m
consideration
Less: foreign exchange gains (4,242) (7,500) 77% (11) (22,378) n/m
Add: one-off restructuring and other expenses - 93 n/m - 304 n/m
Less: effect of the News and Zen deconsolidation (38,051) - n/m (38,051) - n/m
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