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

 

 

(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 $1.00, 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 corporate restructuring 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 corporate restructuring steps, i.e., the merger of certain intermediate Dutch holding companies into Yandex N.V. The company has also obtained one of the required approvals from the Government Commission for Control over Foreign Investments in 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 our Class A shareholders), and the company continues to aim to bring a restructuring proposal to shareholders for approval 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 who have been designated under such sanctions. In July 2023, our “Yandex Pay” subsidiary was designated in Canada; such designation does not apply to Yandex N.V. or its other group companies or operations. Yandex continues to closely monitor 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 ($876.8 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 Q3 2022 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 seasonally down 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 compared to 49.7% in Q2 2023, according to Yandex Radar
• 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 2023 compared 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 of the end of Q3 2022
• The number of active buyers6 on the Yandex Market marketplace increased by 40% year-on-year and reached 17.6 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 68.4 thousand 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 Delivery:	(2,668)	(4,483)	68%	(9,102)	(21,402)	135%

 

(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 of Q3 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

 

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 сost 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 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 $44.32 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 $32.85, 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 /.

 

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 /sec-filings and on the SEC website at /. 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 to the contingent compensation payable to employees in connection with certain business combinations, (6) loss from equity method investments, (7) one-off restructuring and other expenses, and (8) impairment of goodwill and other intangible assets less (1) interest income, (2) other income/(loss), net, (3) gain on restructuring of convertible debt 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 of expenses) related to the contingent compensation payable to certain employees in connection with certain business combinations, (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 exchange gains, (2) gain on restructuring of convertible debt and (3) effect of the News and Zen deconsolidation. Tax effects 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

 

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 $1.25 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 31,		September 30,		September 30,
		2022*		2023		2023
		RUB		RUB		$
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 €0.01, Class B €0.10 and Class C €0.09); 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: 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)		282		282		2.9
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		$		RUB		RUB		$
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 administrative(1)		42,186		67,003		687.8		118,733		177,676		1,823.9
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
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 convertible debt		-		-		-		9,305		-		-
Effect of the News and Zen deconsolidation		38,051		-		-		38,051		-		-
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 noncontrolling interests		(2,373)		-		-		(6,049)		(1,905)		(19.5)
Net income attributable to Yandex N.V.		43,168		7,681		78.8		34,511		26,192		268.9
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		$
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 of Delivery Club		1,795		-		-
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 cash equivalents		4,027		1,646		16.9
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 period		75,867		72,622		745.5
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		$
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
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 and		4,270		6,472		66.4
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		(30,296)		(52,031)		(534.1)
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 of Delivery Club		1,795		-		-
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 cash equivalents		(15,866)		10,162		104.3
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 period		79,398		84,441		866.8
Cash and cash equivalents, and restricted cash and cash equivalents, end of period		101,016		86,671		889.7