Hello, everyone and welcome to Yandex’s First Quarter 2016 Earnings Call. We distributed our earnings release earlier today. You can find the copy of the press release on the company’s Investor Relations website and on Newswire services. On the call today, we have Alexander Shulgin, our Chief Operating Officer and Greg Abovsky, our Chief Financial Officer. Arkady Volozh, our Chief Executive Officer will join the Q&A session. The call will be recorded. The recording will be available on our IR website in a couple of hours. We have also put together a few supplementary slides currently available on our IR website. And now, I will quickly walk you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by the forward-looking statements, as a result of various important factors, including those discussed in the risk factors section of our Annual Report on Form 20-F dated March 21, 2016 which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. During this call, we will be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now, I am turning the call over to Alexander.

Hello, everyone and welcome to our Q1 earnings call. We delivered a solid set of results with revenues up 34%, ex-TAC revenues up 36% and adjusted EBITDA up 62%. At the same time, our investment in our business units is continuing to deliver results as TAC share revenues were up 176%. Yandex.Market revenues were up 55% and Classifieds revenues grew 35%. Let me now turn to our search share in Russia, which averaged 57.6% in Q1 compared to 57.3% a quarter earlier. Sequential improvement was driven by our gains in Chrome, higher market share of Yandex.Browser and our partnership with Microsoft. Our mobile share remains stable in Q1, 40% on Android and approximately 45% on iOS. Now, back to products. Yandex.Browser is steadily gaining share across all platforms on the Russian browsing market. The most noticeable gains in Q1 2016 were recorded on desktop and on Android devices, where Yandex.Browser gained approximately 170 basis points of market share compared to the previous quarter. On iOS, Yandex.Browser gained approximately 60 basis points of market share. Market share gains were driven by increased market and support as well as significant product performance. Six months ago, we introduced our protect technology, which automatically protects users from phisher effects, viruses, unencrypted WiFi networks, malware and suspicious sites. During this period, we have continued to add new features such as DMS script and online payment protection. Our Browser product is an important direction for the company and we will continue to invest incremental resources in product development and market and support over the course of the year. Let me now turn to our business units. As you can see from today’s release and from the 20-F Form, which we filed back in March, we have increased level of transparency into the performance of business units.…

Thank you, Sasha and thank you all for joining our call today. The year is off to a great start. Our consolidated revenues grew 34% year-on-year and reached RUB16.5 billion. Online advertising revenues accounted for 96% of total revenues in Q1 and increased 31% year-on-year. As online advertising performance continued to converge, we will no longer provide tax-based and display advertising revenues separately. However, we will continue to separately present revenues from Yandex websites and revenues from our ad network. Yandex’s owned and operated websites, which now include both tax-based and display revenues, grew 27% year-on-year mainly driven by revenue growth of tax-based ads. Our ad network which now includes revenues from tax-based and display partner networks grew 43% year-on-year benefiting from the addition of new partners improved targeting capabilities that were all implemented late in 2015. We also see that our existing partners are allocating more of their inventory, both desktop and mobile to ads powered by Yandex.Direct or those ads coming through our own real-time bidding AdExchange. Ad network comprised 26.9% of total revenues in the quarter. Contribution of ad network revenues to total revenues increased by approximately 180 basis points compared to Q1 of last year and was approximately 130 basis points, up from Q4 of 2015. In Q1, we saw growth of ad budgets across all advertising categories, including auto and financial services. Travel performed slower than other ad categories, but still grew approximately 20%. The best performers were real estate, auto, home and garden, apparel and FMCG. Other revenues grew 132% primarily driven by the growth of Yandex.Taxi. Traffic acquisition costs related to partner advertising network grew 34%, slower than ad network revenues due to the change in our partner mix. As a result, in Q1, our partner TAC comprised 56.3% of our ad network…

Thank you, sir. [Operator Instructions] We will take our first question from Lloyd Walmsley from Deutsche Bank. Please go ahead. Your line is open.

Thanks for taking the question. Two if I may, first just when you look at the strength and then I guess the new segment reporting O&O advertising revenue, I know you are changing how you report that, but can you give us some additional color just on how that strength broke out between the search side and the display side of O&O perhaps directionally. And then I guess second one would just be, if you look at the share gains in the Yandex.Browser, how much of that today is coming from perhaps the increased flexibility on doing pre-installs with OEMs and wireless carriers or is most of the potential market share benefit of the increased flexibility coming from that FAS ruling against Google as most of that to be coming in the future, any color you can share there would be great? Thanks.

Hey Lloyd, it’s Greg. I will take the first question and Sasha will take the second question. Just to give you a sense, so display grew much slower and so it was up about high single-digits with the rest coming from the growth of text based. Okay?

That’s helpful.

Lloyd, hi. This is Alexander speaking. So I will start on the last question on Yandex.Browser. The growth in market share comes primarily from our investments in product development. So we are basically doing a better product and also from our connectivities. The effect from pre-installations with OEMs has not yet filtered through the retail chain, so it – hopefully we will see the impact from better placement on devices by the end of the year. So, we have some positive movements there. And for us devices was a better place to Yandex search service coming to trade now. On FAS, just a quick overview of what is happening. So as I said in my script, Google has appealed to the Court on the FAS decision in December 2015. And in mid-March, there are some Court of first instance upheld the FAS decision and now Google has appealed once again into appellate court. So hopefully this case will be fully resolved by the end of the year. What is also interesting is that on April 20, the European Commission published its statement of objections on android on Google, objections on to Google on android operating system and its use. So basically the European Commission alleged Google on items which are very similar to the findings of the Russian FAS which is a very positive thing for us. So what exactly you said that Google is required OEMs to pre-install Google Search and Google Chrome browser and requires OEMs to set Google Search as default search service on their devices as a condition to license short-term Google proprietary apps basically Google Play. Google is also preventing manufacturers. Again, this is EU Commission statement of objections from the smartphones or computer operating system based on android open source code. And Google is also giving financial incentives to manufacturers and mobile network operators on conditions that they exclusively pre-install Google Search on their devices. All these findings are very similar to what Russian FAS was saying and this is in a way this befitting the forces our position against Google in this case. So, we expect the positive impact from this litigation with Google to be realized in better placement of Yandex apps and Yandex search service throughout this year and given that they spent to produce these devices and sell them in the retail chain and takes them to replace the devices which are used by people by the end of this year and hopefully first half of 2017.

Okay, thank you for that color. Appreciate it.

We will now take our next question from Edward Hill-Wood from Morgan Stanley. Please go ahead.

Hi, good afternoon everyone. So, I have got two questions just based on the outlook. You obviously had a very strong Q1. The guidance has been raised, but only by a very modest amount. I was wondering if you could just give us some color on the trajectory of particularly revenues into Q2 and whether or not you are just factoring in the degree of conservatism in terms of tougher comps and whether or not there has been some dynamic change as we entered the second quarter to make it more conservative by the full year outlook? And secondly, on margin I mean in the last call, you I think broadly guided to margins being broadly flat in the core with some additional 2 or 3 points of investment in Taxi and others and given the traction you are seeing, particularly in Taxi and the operational gearing you are now seeing in the core business, do you think it’s possible that you could be essentially you could have more investment within the Taxi segment for the balance of this year and offset that with improvements in the core and still come out with broadly the same result. I just want to give some color on how you are thinking about cost investment and operational gearing? Thanks.

Hey, Ed. It’s Greg. Thanks for the questions. So, on guidance, yes, you are quite right that the comps do get a little bit tougher over the course of the year as the year evolves. So, in Q2, there will be 1 point tougher and Q3 it will be slightly more. And by September 1 onward, we will be comping the introduction of VCG auction. So, what we wanted to do is we are looking at the guidance as we are looking at the overall economic environment, which is still somewhat challenged. I think it’s starting to stabilize, it’s starting to improve a little bit, but we are certainly not out of the woods yet I think. We do want to be cautious. We do want to make sure that the guidance that we put out is conservative. And so as we go through the year hopefully we can try to do a little bit better than that. But it’s a combination like I said of VCG auction introduction tougher comps throughout the year and overall kind of caution around the overall macroeconomic conditions. On the question of margins, yes, so in the last call, I was saying that we probably see overall margins compressing around 200 basis points as we keep the margins within the search portal roughly flat year-on-year between 2016 and 2050. And as we look to invest the incremental operational gearing of the business back into the business units and that still is the case today. Frankly, the results that we are seeing in many of our business units are probably a lot better than what we were anticipating even at the start of 2016. Some of the things that they are doing are actually kind of really hitting the ball out of the park and so we will invest more. I think overall margins are maybe down 300 basis points maybe a little more as most of the excess operational gearing of the business is invested in the business units. Taxi will be the largest recipient of those following closely by classifieds and market.

That’s great. Maybe just follow-up on the first one again in terms of the current trajectory as you said into Q2 whether or not that you are still seeing similar at this point, it’s still very early, they have similar sort of broad trends as of Q1?

Yes, the conditions are largely unchanged from Q1.

Great, thanks very much.

Thanks, Ed.

Thank you. We will now take our next question from Alex Balakhnin from Goldman Sachs. Please go ahead.

Yes, good afternoon. I have two questions if I may. One is on the Yandex.Market, can you probably provide some background behind the acceleration of the revenue growth there in particular, was there any like shift in the category mix there? Was there any pricing change or that is just organic acceleration which we saw in the fourth quarter? And my second question is following up on ad and grab your comments on up to 300 basis points year-on-year change. I was just wondering that implies quite a substantial ramp up in costs across the board and it seems that you have started scaling down your activity in Turkey. Correct me, if – and it looks like it’s probably a little bit too on a conservative side to expect the sequential EBITDA margin erosion in 2016. So, maybe some more details, because I mean you start the year with 60% EBITDA margin increase. I just struggled to see how this will end up with the margin pressure. So, your thoughts will be helpful. Thank you?

Hi, Alex. Thanks for your questions. I guess I will take Yandex.Market first. So, the drivers of the acceleration have been primarily driven by incremental traffic, which has been coming through both search, as well as through incremental marketing activities undertaken by market. Pricing itself hasn’t really moved much. So, it’s more or less a function of increase in gross merchandise value as well coming through the platform. I do think that there is a lot more that we can do in Yandex.Market, but I think let’s see how the rest of this year evolves and to what extent can we drive up GMV, can we drive up revenues, how much can we invest in marketing there and in terms of improving the product. We have actually done a fair amount already in terms of improving the product. We are trying to be more aggressive about switching certain categories over to the CPU model as we sort of always talked about at this point. We are experimenting with one or two categories where we are doing it sort of wholesale, i.e., there is no cost per click model anymore within one or two categories. And if that’s successful, you will see us rolling that our more widely. On the question of margins, you are absolutely right about taking some of the costs out of the Turkish business and scaling that business again sort of the opportunity there. What we are doing and I think this is similar to what I have told on Ed’s question is we are really stepping up massively in the investment in Taxi, because the results that we are seeing the way that we can scale up cities now very, very quickly is it gives us confidence to invest much more. So, that’s where it’s all going to go.

Thank you. And if I may ask you a quick follow-up, I mean, now you disclosed quite a bit of information on your Taxi business and how do you think your cost base in Taxi compares to what get Taxi spending. I mean, do you think it’s comparable or you are substantially ahead of them?

I honestly don’t really know. All I can guess is those guys have raised a lot more capital historically and raising more capital on top of it and Steve spent it somewhere whereas we have been EBITDA positive up until I think Q4 of last year. So, that it kind of gives us kind of a sense as to the differentials in terms of investment. And look the other places that we are going to invest are also the other business units. Frankly, classifieds will get a lot more investment. What we have seen is we are making really large strides in terms of growing our listings base compared to Avito here in Russia. We have increased the number of listings by 34 percentage points year-over-year. So, I think right now we have about 60% as many listings as Avito does on a nationwide basis. Clearly, we are considerably larger than them in Moscow. We are about on par with them in St. Petersburg but generating a lot more calls per listing than they are either in Moscow or at St. Pete. So, that’s another area where we are going to invest substantially in terms of scaling this classifieds platform out into the regions.

Thank you.

Thank you. We will now take our next question from Cesar Tiron from Bank of America/Merrill Lynch. Please go ahead. Your line is open.

Yes, thank you. I have actually two questions. The first question is on Yandex.Taxi, can you please tell us into how many cities did you year-to-date roll out this service and in how many cities you are actually already charging the drivers. And the second question would be on Turkey, can you please tell us what was the roll of negative contribution of the Turkey spend to the consolidated margin? Thank you so much.

Hi, Cesar. It’s Greg again. I guess I will take the second question, first. So Turkey is inside the experimental segment as disclosed in the earnings release. And they are – the majority – the overwhelming majority of that I would say. So, that should give you some sense. In terms of cities that we have started to-date, I can’t remember off the top of my head and I am sure I can get back to you offline. My guess is we have probably ramped up about 8 to 10 cities year-to-date and maybe something like that. And we are really monetizing it only a handful at this point.

Thank you.

Thanks.

Thank you. Our next question comes from Vladimir Bespalov from VTB Capital. Please go ahead.

Hello, congratulations on great results and thank you taking my questions. My first question is on your real estate deal, could you update how the things are developing is the timeline the same and given that you have a pretty huge cash pile, are you still playing to play half of the debt once the deal is closed or you might be considering like redeeming the full amount from the closure of the deal. And the second question is on your headcount, your headcount hasn’t changed over the past year, but do you think you would be able sustain this growth and develop in your business units with the same amount of personnel or you see some changes in this area through the end of the year? Thank you.

Hi Vladimir, I will take the first question and Alexander will take the second question. On the headquarters acquisition, it’s still looking like October 2016, no real changes there. And in terms of how exactly we are going to pay down the debt or keep the debt or swap it out or whatever, we are still talking to banks and exploring various ideas that we have. I think the operating assumption is still to pay down roughly half of it, but it might evolve over time. I will let Sasha answer second question.

Vladimir, talking about headcount, so as Greg said we are putting our investments behind the opportunities where we see growth, business units are clearly growth opportunities, so we are going to support them both with investments and product, which is primarily people, so good software developers which are built in the product, sales and marketing, admin teams and so on. And we are also supporting them with investment in marketing. There are also growth opportunities in search, specifically on mobile for example or in maps. And we are also planning to add certain number of people in these growth opportunities. This year – so in 2015 our headcount was broadly flat compared to previous year slightly down. This year we plan to add some number of headcount.

Thank you very much.

Thank you. We will now take our next question from Maria Sukhanova from Sberbank. Please go ahead.

Yes. Hello, thank you. So I have two questions, first of all taxi, could you please share with us some operating numbers like number of trips in Moscow overall something like this. And also you have just recently produced differential condition for your drivers, what effect do you expect from this? And second about the way you changed – you changed the methodology for disclosing revenues. So thank you for showing classifieds and other businesses. But what the point in not showing display and tax based advertising, isn’t the pool of advertisers very different in this two segments like you said the first quarter the dynamics are very different, so could you maybe give more color on that please?

Maria, this is Alexander. Let me answer the second question and then Greg will talk about taxi. So on display and tax based advertising the logic is very simple. These two advertisement channels they eventually converge and here with – now with growth in programmatic display or display which is sold based on auction system. So the differentiation between display and text base becomes a bit artificial. So we think that long-term and currently at this point in time it makes more sense from investor disclosure standpoint to combine these two revenue streams.

And I would just add to that that’s also similar to how most of our competitors disclose their results as well, so it’s to be consistent with industry practices. On the question of Taxi, as I have said since we don’t monetize in most cities with the exception of Moscow and St. Pete you can assume that the number of trips grew much faster than revenues. With respect to your question about commissions, yes there – our commission structure is we believe unique and it helps us achieve certain results such as get more drivers to serve certain tariffs, I guess that’s all I want to say about that.

Okay, thank you.

Thank you. [Operator Instructions] We will now take our next question from Alex Balakhnin from Goldman Sachs. Please go ahead.

Yes. Thanks for taking a couple of questions from me. You tend to disclose the share of mobile in revenues and traffic, just I was wondering if you can do this at this time as well. And also actually the ad network revenues is growing quite fast, but as you used to have the expansion of the partners, are you pretty much there with this expansion of your ad network or its still ongoing, i.e. will ad network revenues grow faster for a couple of more quarters or not really? Thanks.

Hi Sasha. Yes, happy to give you details about search queries and search revenues on mobile. Search queries were 27%, so about the same as last quarter. Search revenues on mobile were about 21%. So, I think it’s just a little bit less than the last quarter, but still good, no real sort of change and just seasonal factors and whatnot playing around with it. Speaking of monetization on mobile, I think we are definitely getting a lot more interest from advertisers for mobile advertising and mobile - better targeting on mobile. And I think we should be able to improve monetization there sort of by the end of this year. And then I guess your other question was about…

Well, the size of ad network which has been growing quite rapidly and I was just wondering if you exceed pretty much the size of ad network, you said it’s fine, we know it’s still growing, i.e., will that line of revenues grow faster than business upon average?

I think it will grow faster. I think it’s more a function of getting more inventory within a partner as opposed to just expanding the size of the partner network. What we have seen happened over the last few quarters is our partners were allocating more and more of their inventory to both Yandex.Direct and Yandex real time bidding products and that’s accelerating the growth there. And we sort expect that to continue over the course of the year.

Okay, thank you.

Just a couple of points to add, so we see opportunities to grow our ad network on mobile. I think we are just starting to monetize mobile advertising network. And also we see opportunity to provide products with improved conversion rates, so more fine tuned products for biggest advertisers. And that’s another opportunity to increase monetization of inventory that is available to Yandex advertising network.

Thank you.

Thank you. There are no further questions. At this time I would like to turn the call back to the speakers for any additional or closing remarks.

Thank you all for joining us today. We hope to see you on our Q2 earnings call in late July. In the meanwhile you definitely can reach out to us at our ask IR e-mail address or by phone. Our contacts are available on our IR website. Goodbye.

That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.