Yandex(YNDX) - 2022 Q2 - Quarterly Report

Financial Statements Unaudited Condensed Consolidated Balance Sheets As of June 30, 2022, Yandex's total assets stood at RUB 482.4 billion, a decrease from RUB 515.5 billion at the end of 2021, primarily driven by a reduction in current assets. Total liabilities decreased significantly to RUB 200.7 billion from RUB 242.6 billion, largely due to the restructuring of convertible debt. Consequently, total shareholders' equity increased to RUB 281.4 billion from RUB 272.1 billion Consolidated Balance Sheet Summary (in millions of RUB) | Balance Sheet Item | Dec 31, 2021 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | 199,975 | 166,334 | | Total Non-current Assets | 315,521 | 316,087 | | Total Assets | 515,496 | 482,421 | | Total Current Liabilities | 111,106 | 132,174 | | Total Non-current Liabilities | 131,465 | 68,553 | | Total Liabilities | 242,571 | 200,727 | | Total Shareholders' Equity | 272,056 | 281,356 | - Cash and cash equivalents decreased from RUB 79.3 billion to RUB 75.6 billion. Term deposits of RUB 23.4 billion were fully liquidated[5] - Total debt (current and non-current) decreased from RUB 88.8 billion to RUB 49.8 billion, mainly due to the restructuring of convertible debt[5][90] Unaudited Condensed Consolidated Statements of Operations For the second quarter of 2022, Yandex reported a significant turnaround, posting a net income of RUB 8.1 billion compared to a net loss of RUB 4.7 billion in Q2 2021. This was driven by a 45% increase in revenues to RUB 117.7 billion and a one-time gain of RUB 9.3 billion from the restructuring of convertible debt. For the six-month period, the company narrowed its net loss to RUB 5.0 billion from RUB 7.9 billion year-over-year Q2 Performance (in millions of RUB) | Metric | Q2 2021 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 81,402 | 117,748 | +44.6% | | Income/(Loss) from Operations | (4,723) | 8,746 | Turnaround | | Gain on Restructuring of Debt | — | 9,305 | N/A | | Net Income/(Loss) | (4,664) | 8,056 | Turnaround | | Diluted EPS (RUB) | (10.88) | (7.03) | Improved | H1 Performance (in millions of RUB) | Metric | H1 2021 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 154,538 | 223,758 | +44.8% | | Income/(Loss) from Operations | (4,990) | (3,688) | Loss Narrowed | | Net Loss | (7,884) | (4,981) | Loss Narrowed | | Diluted EPS (RUB) | (19.26) | (45.86) | Worsened | Unaudited Condensed Consolidated Statements of Cash Flows For the first six months of 2022, net cash provided by operating activities increased significantly to RUB 16.8 billion from RUB 3.7 billion in the prior year period. Net cash from investing activities turned positive at RUB 3.5 billion, compared to a usage of RUB 48.5 billion in H1 2021, mainly due to lower investments in term deposits and marketable securities. Financing activities used RUB 3.9 billion, primarily for the repayment of convertible debt, which was largely offset by proceeds from new debt issuance Cash Flow Summary for Six Months Ended June 30 (in millions of RUB) | Cash Flow Activity | 2021 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 3,688 | 16,827 | | Net Cash from Investing Activities | (48,509) | 3,470 | | Net Cash from Financing Activities | (588) | (3,935) | | Effect of Exchange Rate Changes | 877 | (19,893) | | Net Change in Cash | (44,532) | (3,531) | - The significant increase in operating cash flow was supported by adjustments for non-cash items like a RUB 9.3 billion gain on debt restructuring and improved changes in working capital[13] - Financing activities included a RUB 45.8 billion repayment of convertible debt, funded by RUB 46.8 billion in new debt proceeds[17] Unaudited Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased from RUB 272.1 billion at the end of 2021 to RUB 281.4 billion as of June 30, 2022. The increase was primarily driven by a RUB 9.9 billion increase in additional paid-in capital related to the convertible debt restructuring and a positive foreign currency translation adjustment of RUB 7.1 billion, which offset the net loss for the period - The adoption of accounting standard ASU 2020-06 on January 1, 2022, resulted in a reclassification from additional paid-in capital (decrease of RUB 8.6 billion) to retained earnings (increase of RUB 2.5 billion) and debt[25][35] - The convertible debt restructuring in Q2 2022 added RUB 9.9 billion to additional paid-in capital[21][25] - Accumulated other comprehensive income increased from RUB 16.2 billion to RUB 23.3 billion during the first half of 2022, mainly due to positive foreign currency translation adjustments[25] Notes to Financial Statements Note 1: Business Description and Accounting Policies Yandex is a technology company and a leading search and ride-hailing provider in Russia. The financial statements are prepared under U.S. GAAP. A significant event was the resolution of a 'going concern' issue; a potential default on convertible notes was averted through a successful debt restructuring in June 2022, ensuring sufficient liquidity for the next twelve months. The company also adopted ASU 2020-06, simplifying the accounting for convertible instruments, which impacted the balance sheet upon adoption on January 1, 2022 - The suspension of trading on NASDAQ triggered a redemption right for convertible note holders, which the company could not meet, raising substantial doubt about its ability to continue as a going concern[28] - In June 2022, the company restructured the notes and secured new debt financing, which resolved the going concern issue[28][29] - Effective January 1, 2022, the company adopted ASU 2020-06, which eliminated the separation of liability and equity components for its convertible notes. This resulted in an increase to the debt liability and retained earnings, and a decrease to additional paid-in capital[35][38] Note 7: Goodwill and Intangible Assets, Net As of June 30, 2022, Goodwill stood at RUB 118.5 billion, a slight increase from year-end 2021, with the largest allocations to the Ride-hailing (RUB 55.2 billion) and Yandex Market (RUB 51.8 billion) segments. Net intangible assets decreased to RUB 18.9 billion from RUB 22.4 billion. The company recognized a RUB 2.7 billion impairment loss on customer relationship assets within the E-commerce, Mobility and Delivery segment during the quarter Goodwill by Segment (in millions of RUB) | Segment | June 30, 2022 | | :--- | :--- | | Ride-hailing | 55,211 | | Yandex Market | 51,836 | | Classifieds | 6,382 | | Search and Portal | 2,719 | | Total Goodwill | 118,521 | - In June 2022, the company recognized a RUB 2.74 billion impairment loss on customer relationship intangible assets related to its E-commerce, Mobility and Delivery segment[74] Intangible Assets, Net (in millions of RUB) | Asset Type | Dec 31, 2021 | June 30, 2022 | | :--- | :--- | :--- | | Acquisition-related intangibles | 17,188 | 13,173 | | Other intangibles (Tech, etc.) | 5,171 | 5,756 | | Total Intangibles, Net | 22,359 | 18,929 | Note 10: Commitments and Contingencies The company faces significant challenges from the current geopolitical crisis, though neither Yandex N.V. nor its subsidiaries are directly sanctioned. Co-founder Arkady Volozh resigned from all executive positions after being personally sanctioned by the EU. The company has identified potential, un-accrued contingencies related to non-income taxes in Russia amounting to approximately RUB 14.4 billion as of June 30, 2022, a decrease from RUB 24.4 billion at year-end 2021 - Co-founder Arkady Volozh resigned from all executive roles in June 2022 following his personal designation under EU sanctions. The company states that these sanctions do not apply to Yandex N.V. or its subsidiaries[87][88] - The company estimates possible, but not probable, contingencies related to non-income taxes in Russia to be up to approximately RUB 14.4 billion ($281.0 million) as of June 30, 2022[88] - The company accrued RUB 593 million for contingencies related to non-income taxes that are considered probable[88] Note 11: Debt The company's debt profile changed dramatically in H1 2022. The suspension of NASDAQ trading triggered a delisting event for its $1.25 billion convertible notes, giving holders the right to demand immediate repayment, which the company could not fulfill. In June 2022, Yandex successfully restructured this debt by entering a purchase agreement with holders of 93.2% of the notes. The purchase was funded by a new RUB-denominated loan. This troubled debt restructuring resulted in a recognized gain of RUB 9.3 billion - A delisting event on NASDAQ allowed holders of the $1.25 billion convertible notes to demand full redemption, which the company did not have the funds to cover[91] - The company agreed to purchase 93.2% of the notes for a price of $140,000 in cash and 957 Class A shares for each $200,000 in principal[91][92] - The transaction was accounted for as a troubled debt restructuring, leading to a recognized gain of RUB 9.3 billion ($177.4 million)[93] Note 12: Share-Based Compensation Total share-based compensation expense was RUB 6.5 billion in Q2 2022, up from RUB 4.9 billion in Q2 2021. In March 2022, the company offered to exchange outstanding RSUs vesting in 2022 for cash bonuses, with approximately 3.3 million RSUs being exchanged. This was accounted for as a modification, reclassifying the value from equity to a liability. As of June 30, 2022, there was RUB 22.3 billion of unamortized compensation expense expected to be recognized over a weighted average period of 2.78 years Share-Based Compensation Expense (in millions of RUB) | Period | 2021 | 2022 | | :--- | :--- | :--- | | Q2 | 4,862 | 6,495 | | H1 | 10,666 | 12,760 | - In March 2022, the company exchanged approximately 3.3 million outstanding RSUs for cash bonuses, accounted for as a modification with a total effect of RUB 13.65 billion[101] - As of June 30, 2022, unamortized share-based compensation expense related to unvested awards was RUB 22.3 billion[101] Note 13: Segment Information Yandex realigned its reporting segments in 2022. In Q2 2022, Search and Portal remained the core profit driver with an adjusted EBITDA of RUB 28.5 billion. The newly formed E-commerce, Mobility and Delivery segment showed a dramatic improvement, swinging from a RUB 9.1 billion loss in Q2 2021 to a positive adjusted EBITDA of RUB 2.1 billion. Plus and Entertainment Services continued to invest heavily, with its adjusted EBITDA loss widening to RUB 2.6 billion - The company restructured its segments, creating a new 'E-commerce, Mobility and Delivery' segment and renaming 'Media Services' to 'Plus and Entertainment Services'. Prior periods were restated for comparability[108] Segment Revenues for Q2 (in millions of RUB) | Segment | Q2 2021 | Q2 2022 | | :--- | :--- | :--- | | Search and Portal | 39,212 | 51,233 | | E-commerce, Mobility and Delivery | 37,007 | 56,474 | | Plus and Entertainment Services | 4,094 | 6,150 | | Classifieds | 1,995 | 2,085 | | Other Business Units and Initiatives | 4,929 | 10,185 | Segment Adjusted EBITDA for Q2 (in millions of RUB) | Segment | Q2 2021 | Q2 2022 | | :--- | :--- | :--- | | Search and Portal | 18,543 | 28,461 | | E-commerce, Mobility and Delivery | (9,062) | 2,139 | | Plus and Entertainment Services | (1,732) | (2,595) | | Classifieds | 728 | 541 | | Other Business Units and Initiatives | (2,779) | (2,896) | Note 14: Subsequent Events Subsequent to the reporting period, in August 2022, Yandex entered into a significant strategic transaction with VK. The company agreed to divest its news aggregation platform (News) and infotainment service (Zen) to VK. In exchange, Yandex will acquire 100% of the food delivery service Delivery Club. The deal is subject to regulatory approval - In August 2022, Yandex entered a binding agreement to sell its News and Zen services to VK[116] - As the sole consideration for the divestment, Yandex will acquire 100% of the food delivery service Delivery Club from VK[116]