Yandex(YNDX) - 2022 Q1 - Quarterly Report

Financial & Operational Performance Overview Q1 2022 Financial Highlights In Q1 2022, Yandex reported a 45% year-over-year increase in total revenues to RUB 106.0 billion, though profitability was severely impacted by geopolitical developments and a one-off personnel expense of RUB 5.9 billion | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | 73,136 | 106,010 | 45% | | Total Adjusted EBITDA | 11,021 | 1,271 | -88% | | Adjusted EBITDA (ex. one-off personnel costs) | 11,021 | 7,161 | -35% | | Net loss | (3,220) | (13,037) | n/m | | Adjusted Net Loss | 3,008 | (8,124) | n/m | | Russian search market share, % | 60.0% | 61.0% | 1.0 pp | - Operations were stable through February 23, 2022, but were adversely affected by geopolitical developments in the last five weeks of the quarter[2] - In March 2022, the company incurred a one-off personnel expense of RUB 5,890 million to support employees amid macroeconomic instability[3] Financial Outlook Due to significant uncertainty from geopolitical developments, Yandex has withdrawn its 2022 financial guidance and will only consider resuming guidance when there is greater clarity on the macroeconomic environment - The company's previous guidance for 2022 should no longer be relied upon due to high uncertainty concerning future geopolitical developments[4] Corporate and Subsequent Events The company faced significant corporate challenges, including the suspension of its Class A shares trading on Nasdaq since February 28, 2022, triggering a redemption right for holders of its $1.25 billion convertible notes, with discussions ongoing - Trading of Yandex N.V. Class A shares on Nasdaq was suspended on February 28, 2022, and the company is reviewing options, including listing on another international exchange[5] - Holders of the $1.25 billion convertible notes due 2025 gained the right to require the company to redeem their notes at par plus accrued interest, with Yandex in discussions with noteholders for a solution[6] - The company is exploring strategic options, including divestment, for its news aggregation service and Zen platform to focus on other areas like search, advertising, self-driving, cloud, ride-hailing, and e-commerce[6] Impact of Geopolitical Crisis The geopolitical crisis has created an exceptionally challenging environment, leading to ruble volatility, increased interest rates, inflation, and potential contraction in consumer spending, prompting Yandex to conserve cash and adjust capital allocation - The company is taking measures to conserve cash, consider capital allocation, and budget appropriately during the period of uncertainty[42] - Geopolitical tensions have adversely impacted the macroeconomic climate in Russia, resulting in significant ruble volatility, currency controls, and increased interest rates and inflation[41] - As of March 31, 2022, an analysis of the effect from the geopolitical crisis on goodwill and non-current assets showed no material impact[42] Segment Performance Analysis Segment Restructuring Effective Q1 2022, Yandex restructured its reporting segments, creating a new "E-commerce, Mobility and Delivery" segment by combining former MLU (Taxi) and Yandex Market with other O2O services, applying all changes retroactively - A new segment, "E-commerce, Mobility and Delivery," was introduced, combining key transactional O2O services[10] - The former MLU (Taxi) and Yandex Market segments were transferred into the new E-commerce, Mobility and Delivery segment[10] Search & Portal The Search & Portal segment achieved a 25% revenue growth to RUB 43.8 billion, driven by the Yandex Ad Network and strengthening search positions, particularly on iOS, though Adjusted EBITDA margin declined to 42.0% due to one-off personnel expenses and investments | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 34,945 | 43,834 | 25% | | Revenues Ex-TAC | 28,616 | 37,125 | 30% | | Adjusted EBITDA | 17,106 | 18,399 | 8% | | Adjusted EBITDA margin | 49.0% | 42.0% | -7.0 pp | - The Russian search market share averaged 61.0% in Q1 2022, up from 60.0% in Q1 2021, with search share on iOS growing significantly to 46.1% from 41.9% year-over-year[11] - Revenue growth was driven by the Yandex Ad Network and core search, with SMBs showing resilience while larger businesses were affected by the withdrawal of multinational advertisers[12] - Excluding one-off personnel expenses, the adjusted EBITDA margin would have been 46.4%[13] E-commerce, Mobility and Delivery This newly formed segment demonstrated strong top-line momentum with total revenues growing 61% to RUB 54.9 billion, fueled by a 164% surge in E-commerce GMV and a 40% increase in Mobility GMV, though investments led to an increased Adjusted EBITDA loss of RUB 8.2 billion | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | 34,132 | 54,899 | 61% | | Adjusted EBITDA | (3,161) | (8,203) | 160% | - The positive adjusted EBITDA from the Mobility business was offset by investments in fast-growing E-Commerce and other O2O services, as well as the impact of one-off personnel expenses[20] E-commerce, Mobility and Delivery - Operational Highlights The segment's operational performance was robust, with total E-commerce GMV growing 164% YoY, driven by Yandex Market's active buyers and sellers increasing by 79% and 230% respectively, and Mobility services seeing a 36% increase in rides | GMV Growth (YoY) | Q1 2022 | | :--- | :--- | | E-Commerce | 164% | | Mobility | 40% | | Other O2O services | 92% | - Yandex Market active buyers reached 10.8 million (+79% YoY) and active sellers reached 28.3 thousand (+230% YoY)[15] - The share of GMV from third-party (3P) sellers on Yandex Market increased to 81% in Q1 2022 from 66% in Q1 2021[15] E-commerce, Mobility and Delivery - Financial Performance Segment revenues grew 61% YoY, with Mobility revenues increasing 47% and E-commerce revenues growing 70%, though the segment's adjusted EBITDA loss widened to RUB 8.2 billion due to continued investments, despite improved unit economics - E-commerce revenue growth (70%) was slower than GMV growth (164%) primarily due to the shift in mix towards the 3P marketplace model[18] - Despite absolute losses increasing due to expansion, the company improved unit economics in E-commerce businesses and decreased absolute losses year-on-year in Lavka Russia and Food Delivery (Eats Restaurants)[20][21] Media Services Media Services revenue grew 67% to RUB 5.8 billion, driven by the growth in Yandex Plus subscriptions, which reached 12.2 million users, though the segment's adjusted EBITDA loss more than doubled to RUB 3.2 billion due to investments in video content and personnel costs | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 3,486 | 5,831 | 67% | | Adjusted EBITDA | (1,257) | (3,171) | 152% | - The number of Yandex Plus subscribers reached 12.2 million, a 36% increase from Q1 2021[22] - The increased adjusted EBITDA loss reflects investments in video content, one-off personnel payments, and marketing to support subscriber growth[23] Classifieds The Classifieds segment reported a 22% increase in revenue to RUB 2.2 billion, primarily driven by a 1.4x year-on-year growth in revenues from auto dealers' listings, though Adjusted EBITDA fell by 28% to RUB 277 million due to personnel and marketing expenses | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 1,783 | 2,172 | 22% | | Adjusted EBITDA | 385 | 277 | -28% | | Adjusted EBITDA margin | 21.6% | 12.8% | -8.8 pp | - Revenue growth was mainly driven by increased revenue from auto dealers' listings, which grew more than 1.4x year-on-year[25] Other Business Units and Initiatives This segment, including Yandex SDG, Cloud, Devices, and FinTech, saw revenues increase by 51% to RUB 7.3 billion, led by strong performance in Cloud and Devices, though the adjusted EBITDA loss widened significantly to RUB 6.1 billion due to investments and higher personnel costs | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 4,812 | 7,265 | 51% | | Adjusted EBITDA | (2,148) | (6,127) | 185% | - Revenue growth was mainly driven by Cloud, Devices, and Education services, with Cloud growth supported by gaining market share as international competitors suspended activities[28] - The increase in negative adjusted EBITDA was mainly attributed to investments in Yandex SDG (loss of RUB 1.8 billion), Devices, and Zen[29] Consolidated Financial Analysis Consolidated Results For Q1 2022, Yandex's consolidated revenues grew 45% to RUB 106.0 billion, but the company swung to a loss from operations of RUB 12.4 billion and a net loss of RUB 13.0 billion, with Adjusted EBITDA falling 88% to RUB 1.3 billion | In RUB millions | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | 73,136 | 106,010 | 45% | | Loss from operations | (267) | (12,434) | n/m | | Adjusted EBITDA | 11,021 | 1,271 | -88% | | Net loss | (3,220) | (13,037) | n/m | - As of March 31, 2022, consolidated cash, cash equivalents, and term deposits totaled RUB 88.0 billion ($1,047.1 million)[9] Operating Costs and Expenses Total operating expenses surged 61% YoY to RUB 118.4 billion, representing 111.7% of revenues, driven by higher personnel costs, including a one-off expense and a 47% YoY increase in headcount to 19,061 employees, as well as increased marketing activities | In RUB millions | Three months ended March 31, 2022 | As a % of revenues | YoY Change | | :--- | :--- | :--- | :--- | | Cost of revenues | 51,011 | 48.1% | 50% | | Product development | 19,161 | 18.1% | 74% | | Sales, general and administrative | 40,805 | 38.5% | 77% | | Total operating expenses | 118,444 | 111.7% | 61% | - Total headcount reached 19,061 as of March 31, 2022, up 47% from March 31, 2021, with expansion primarily in Search & Portal, E-commerce businesses, Ride-hailing, and FinTech[32] - Total Share-Based Compensation (SBC) expense increased 8% to RUB 6.3 billion, reflecting new equity grants and the material appreciation of the U.S. dollar against the ruble[35] Profitability and Cash Flow The company's profitability deteriorated significantly in Q1 2022, with a loss from operations of RUB 12.4 billion and a net loss of RUB 13.0 billion, driven by investments in high-growth segments and a one-off salary payment, resulting in net cash used in operating activities of RUB 4.0 billion - Loss from operations was RUB 12.4 billion, a significant increase from a loss of RUB 0.3 billion in Q1 2021, reflecting investments in growing businesses and additional salary payments[36] - Adjusted EBITDA declined 88%, driven by reinvestment of Search and Portal's EBITDA into E-commerce, Mobility, Other Business Units, and Media Services, as well as one-off personnel expenses[37] - Net cash flow used in operating activities was RUB 4.0 billion ($48.2 million), and capital expenditures were RUB 18.0 billion ($213.9 million)[39] Supplementary Information Use of Non-GAAP Financial Measures Yandex uses non-GAAP financial measures such as ex-TAC revenues, Adjusted EBITDA, and Adjusted Net Income to supplement its U.S. GAAP results, providing a clearer picture of core operating performance by excluding items like traffic acquisition costs and non-cash share-based compensation - The company presents non-GAAP measures like ex-TAC revenues, Adjusted EBITDA, and Adjusted Net Income to help investors understand, model, and forecast the evolution of the operating business[45] - Adjustments are made for items such as Traffic Acquisition Costs (TAC), Share-Based Compensation (SBC), foreign exchange gains/losses, and amortization of debt discount to provide a clearer view of operating performance[48][49][50] Financial Statements and Reconciliations The report includes unaudited condensed consolidated financial statements for the period ended March 31, 2022, comprising Balance Sheets, Statements of Operations, and Statements of Cash Flows, along with detailed reconciliations between U.S. GAAP and non-GAAP measures - The report contains the Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022, and December 31, 2021[52] - The Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022, and 2021 are provided[56] - The report includes detailed reconciliations of non-GAAP financial measures, such as Ex-TAC Revenues, Adjusted EBITDA, and Adjusted Net Income, to their nearest comparable U.S. GAAP measures[60]