Nebius Group NV (NBIS) 2015 Q3 法說會逐字稿

Good day and welcome to the Yandex 2015 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Katya Zhukova, Director of Investor Relations.

Hello, everyone, and welcome to Yandex's third quarter 2015 earnings call.

We distributed our earnings release earlier today. You can find a copy of the press release on the Company's Investor Relations website and on Newswire services. On the call today, we have Arkady Volozh, our Chief Executive Officer; Alexander Shulgin, our Chief Operating Officer; and Greg Abovsky, our Chief Financial Officer. Our call will be recorded. The recording will be available on Yandex's IR website in a couple of hours. We've 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'll 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 these 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 April 30, 2015, 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 certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US 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 Arkady.

Thank you, Katya, and hello, everyone. Thank you all for joining our quarterly earnings call.

The first quarter was an important turning point for the Company for a number of reasons. Starting from mid-summer, we reversed our search share trend and grew our share on the Russian market. We also successfully switched to the VCG auction and the new ranking rules for paid search. We increased our market share in Turkey. We signed a strategic co-operation with Microsoft to offer Yandex as the default search for Windows 10 in Russia, Ukraine and several other markets including Turkey. And then specifically grateful to our excellent legal team for their hard and professional work. We achieved a positive decision from the Russian anti-monopoly service that we hope will return fare competition to the market.

On the financial front, in Q3 we grew our total revenues by 18% year-over-year. And now we're increasing our revenue growth outlook for 2015. Previously, we are expecting revenue growth of 11% to 13%. Now, we expect that our consolidated revenues in 2015 will grow in the range of 14% to 16% compared to previous year. Our search share increased approximately 70 basis points from June to 57.3% in September, mostly due to the growth of Yandex.Browser across all platforms and improvements over our search share on Android phones.

We estimate that in Q3, our share on Android was 40% compared to 39% in Q2. Our search share on iOS devices averaged 45% in Q3 compared to 46% a quarter earlier. Share of mobile in our overall search traffic in Q3 was 26%, 2.5 percentage points up from Q2. In terms of revenues, mobile generated 21% in Q3 compared to 20% of our search share revenues a quarter earlier. During the quarter, we added approximately 2 percentage points to our market share in Turkey. Our share their reached 7% according to comScore. We are on track with our initial target for this year and we are cautiously optimistic about our business in Turkey.

Another important milestone for the Company was the newly signed deal with Microsoft to become the default search on Windows 10. The co-operation extends to Russia, Ukraine, Turkey and several other markets. Windows 10 has already proven to be a success globally and has significant growth potential. We will be promoting Windows 10 on our websites.

With these, I'm turning the call over to Sasha who will take you through the implementation of VCG auction, the results of the anti-trust case in Russia, and several other achievements of the past quarter.

Hello, everyone.

On September 1, we've reached to a new VCG auction for advertising on Yandex.Search and implemented the new relevant ranking formula of base search in our website as well as on the websites of our partners for whom we power paid search. The main goals of the switch from the generalized second-price auction was to provide our advertising clients with a simpler and easier to manage bidding process and to reward bidding for higher positions by charging premiums for incremental clicks only, while driving more high quality traffic to advertisers' websites.

The results of these implementations were different for different advertisers. For those clients who have been carefully watching the growth of their ads and the relevancy of their [lending] pages, CPC decreased significantly. This decrease was driven not only by the more efficient approach to pricing, but also by the new relevance to ranking formula that allows clients with high quality ads to pay lower CPCs and still get to higher positions within the ad block.

For some advertisers, CPCs increased in September. We think that the new auction will incentivize this group to more closely monitor the quality of their ads, as well as the quality of their [lending] pages, pushing up their ads to higher positions and paying lower CPCs. In aggregate, these implementations led to monthly sequential decrease of our average cost per click on search. Then on a year-over-year basis, CPCs still grew slightly compared to September 2014.

Today, we also see evidence of increased interest from clients, bidding for higher positions in our paid search results, including those clients who are using minimum bidding strategies before. The number of advertisers who are bidding upward grew 24% over the last eight weeks. All in all, we believe that the new implementations will lead to more robust bidding activity, improved advertiser ROIs and will generally increase the attractiveness of search advertising in the long term.

Our sales team did an amazing job in [convincing] the benefits of these changes to our advertisers before the launch. As a result, the switch went smooth than we expected and it took only around two weeks for advertisers to adjust their principal bidding strategies.

Now, touching upon our non-search businesses. Auto.ru continues to focus on its non-advertising revenues, which grew nicely with (inaudible) now representing roughly 50% of Auto.ru revenues. I am also excited about the user growth. In Q3, average monthly audience of Auto.ru grew over 30% year-over-year, while number of mobile users almost doubled. Yandex.Taxi business is doing great. For example, the number (inaudible) our second largest CPM grew more than 70% from June to September. Moscow, our largest and most mature city also continues robust growth. Overall Yandex.Taxi is now up and running in 12 cities within Russia.

We also launched the new version of KinoPoisk with integrated online video streaming of legal high quality movies supplied by online cinemas and television companies. The new version is available in beta and we will gradually roll it out to a wider audience while incorporating user feedback.

And now, let me turn to the recent groundbreaking decision by the Russian anti-monopoly service (FAS) relating to Google's anti-competitive practice on Android. We view this decision as a huge step toward leveling playing field allowing developers to compete on the quality of their products rather than through contractual restrictions. As we have mentioned many times before, we believe that Google has been using its dominant position in Android outsource market to obtain an unfair distribution advantage, favoring its own apps to the detriment of its competitors.

For several years, Android distribution efforts have been inhibited by the restrictions imposed by Google on Android device manufacturers. Last year, the impact of these practices reached the pinnacle where our long-term distribution partners [sifted] the business with us, because of contractual restrictions imposed by Google upon them.

At this point, we felt we have no alternative but to seek a legal resolution of the matter. And in February, we filed a complaint with FAS, requesting them to investigate these practices. We were encouraged in our submission to FAS that others in the industry who were objecting to Google's practices on Android as well. Those objections ultimately led the European Union Commission to broaden its investigation of Google to cover this alleged anti-competitive practices. In September, after several months of thorough investigation involving many hearings and review of thousands of pages of evidence, FAS announced its decision in the case against Google.

We're very pleased by the decision because all of the practices that we objected to were condemned by FAS as violating Russian competition laws. FAS concluded that Google was illegally abusing its market dominance by imposing conditions on OEMs access to the [must-have] Google Play app store. These conditions required OEMs to bundle Google Play with a suite of other apps and services make Google the default search, give placement preference to Google's apps and refrain from dealing with Google's competitors. In this decision, FAS ordered Google to stop these practices and not engage in them in the future. As part of the decision, FAS has instructed Google to remove offending restrictions from its agreements with OEMs by November 18, 2015. FAS has also requested Google to provide a notice directly to the mobile devices of Russia based Android users, essentially informing them about the possibility to de-activate pre-installed Google Apps, change the default search in Google Chrome, replace Google's search widgets and other apps that are part of [GMA suite] and change the arrangement of icons on the screen.

All in all, we're happy with the decision and we'll look forward to working with device manufacturers in this new environment to further strengthen the distribution of our products, services and apps to Russian users.

With this, I'm turning the microphone over to Greg.

Thank you, Sasha and thank you all for joining our call today.

While the overall economic and geopolitical environment remain challenging, we continue to see signs of stabilization that I discussed with you in the last call. In the quarter, our consolidated revenues grew 18% year-on-year and reached RUB15.4 billion. Text-based advertising accounted for 92% of total revenues and increased 18% year-on-year.

Yandex's owned and operated websites constituted 68% of total revenues and grew 13% year-on-year, accelerating nicely compared to Q2, despite facing tougher comps. Our text-based industry mix remains diversified. Q3 trends were mostly unchanged compared to the first half of the year. We continue to see weakness in ad spend in auto and financial services. Both of these categories are still shrinking year-over-year, although at a much slower rate than we saw in the first half of the year. Excluding these two segments, our text-based revenues would have grown in the mid-20s.

Our ad network grew 35% year-on-year, as we added new partners and improved targeted capabilities. Contribution of ad network revenues to total increased 300 basis points compared to Q3 of last year, but remained fairly stable compared to the previous quarter. Display advertising revenue decreased 1% contributing 5% of our total revenues. Display revenues from our own websites decreased 11% year-on-year. Please note that this quarter, we reclassified some of the display network revenue. If not for this one-time requests our network display revenue would have grown 13%.

In Q3, the number of advertisers served by Yandex continued to increase growing 18% year-over-year. Other revenues increased 2.6 times and comprised over 2% of total revenues. The main driver of growth for the segment was Yandex.Taxi. Traffic acquisition cost related to partner advertising network grew 28% slightly slower than our text-based partner network revenue. Partner TAC as a percent of partner text-based revenue was 62.4% compared to 65.8% in Q3 of last year. The decrease was mostly due to the change in our partner mix. Distribution TAC increased 1% year-on-year and constituted 9% of text-based revenues from our website, compared to 9.7% in Q2 of 2015, and 10.1% a year before. Total TAC increased 19% year-on-year, in line with our overall revenue growth. Paid clicks grew 15%, while cost per click increased 3%.

Turning to our cost structure. Our total OpEx excluding TAC and G&A grew 45% in Q3 versus the previous year. Excluding stock-based comp, expenses grew 40%. Growth was primarily driven by increase in office rent, salary increases as well as by growth in advertising and marketing expenses. Personnel costs still remain our largest cost item. In Q3, our headcount declined by 46 people versus June 30. However, we continue viewing the current economic situation as good opportunities to add talent. As we mentioned before, we are focusing on strengthening the mobile team as well as the team working on Yandex.Browser.

In Q3, our personnel costs were 20% of revenues. While during the first nine months of the year, they totaled 23%. Stock-based comp which is part of personnel expenses increased 121% due to ForEx, new grants and the RSU exchange program that we executed in Q2 and Q3 of this year. G&A expense for the quarter increased 97% due to ruble depreciation as well as increases in our data center spent. Our adjusted EBITDA increased 2% year-on-year, adjusted EBITDA margin was 39%, which is down approximately 6 percentage points from the previous year. This quarter, the impact from ForEx was a gain of RUB1.9 billion related to dollar denominated assets and liabilities in our balance sheet. Our effective income tax rate was 24.6% on US GAAP-basis, generally in line with the effective tax rate in Q3 2014.

Adjusted net income was down 10% and adjusted net income margin was 22.7%. Our CapEx was RUB2.5 billion or 16% of Q3 revenues. This compares with CapEx at 34% of sales in the first half. As I mentioned in the previous calls, our CapEx this year is very much weighted towards the first half of the year. As you know, a significant part of our CapEx is denominated in US dollars, therefore adversely impacting the CapEx to revenue ratio.

We continue to buy back convertible bonds that were issued in December 2013. In Q3, we bought back another RUB42 million face value of the bonds. Since inception of the buyback program, we bought approximately RUB244 million face value of the bonds.

We ended the quarter with approximately $832 million of equivalents using the exchange rate as of September 30. The currency split was approximately 40% rubles and 60% dollars and euro.

Now, turning to guidance. As Arkady has mentioned in his remarks, we are now increasing our outlook for revenue growth to a range of 14% to 16% on a year-over-year basis. This compares to our previous guidance of 11% to 13%.

And with this, I'll turn the call over to the operator for the Q&A session.

(Operator Instructions) Edward Hill-Wood, Morgan Stanley.

I've got three questions, if I may. Firstly on the guidance, you've issued revenue guidance, but no margin guidance. I was wondering if that's linked to the anti-trust ruling in a sense that you have the opportunity to -- you have a relatively variable rate of potential OpEx, depending on how successful you are in renegotiating contracts, if you could just discuss that phenomenon.

Secondly, the mobile monetization rate seems to have reduced fairly significantly Q2 to Q3, actually to where it was in the Q1 level. Could you just discuss that as how the unbundling is going and what not is being sort of broadening of the dynamic there?

And thirdly, just on the taxi service, obviously the three main players in the market, there are two local players. Do you think that there is the logic, potentially in the long term of some form of consolidation with -- potentially with local partners.

Hey, Ed, it's Greg. I'll try to take all three, if I can.

On the question of guidance, as you know, we've never issued EBITDA guidance in the past and this quarterly call is no exception. I think as you've heard me sort of talk about our EBITDA outlook over the course of this year. If you recall, we started the year off saying that we think our margins could be down as much as 900 basis points. When we spoke again on the Q2 earnings call, I mentioned that as we brought our cost structure closer into alignment with the current economic environment and reduced our spending, we think that EBITDA margins could be around 700 basis points lower than previous year.

I think as we look out today, we think we should be able to do slightly better than that 700 basis point bogey and I think that's kind of where we are. On the question of mobile monetization, I would say that there's nothing incrementally different from the previous quarter. Last quarter, there was sort of significantly abnormal month in terms of monetization and things are sort of now back on track and there's no real differences. I think most of the stuff you guys observe is grounding and that's basically it.

And then the question of Taxi, yes there are three players, all of them provide excellent service and all of them strive to improve the services that they provide to their customers. I think each one will ultimately be judged on the time that it takes to get a car delivered to you. The availability of cars within various parts of Moscow, I think some of our competitors concentrate just on the very inner city, whereas we have much broader coverage than they do with excellent prices and a very short time for arrival.

So, I don't know how the market will evolve. But we're just focusing on serving the consumer. And I think that covers all the questions. Right?

Yes, just on that first question again, just on the OpEx issue around the anti-trust ruling, would you expect if there was any sort of formal or shift in negotiations with handset manufacturers, any potential OpEx fall into 2015, or are we sort of broadly talking about 2016 as sort of a time frame for anything meaningful to occur from a OpEx perspective?

Yes, I think it's highly unlikely that the impact of that will show up in 2015. As you can imagine, negotiating agreements with OEMs takes some time and then it takes further time for devices to be rolled out, purchased, used and so on. So it's a slightly longer process, maybe it doesn't impact 2015 numbers.

Lloyd Walmsley, Deutsche Bank.

So you guys saw a nice growth in, who knows, search reaccelerating despite the harder comp. Can you kind of give us your best sense as to whether the strong results and outlook is a reflection of an improved macro environment in Russia and how much of it is a function of things you're either doing at the auction level or to drive (inaudible) with that quality, kind of parse out the impact as best you can on this?

Hello, Lloyd, it's Greg again. Look, I think the overall economic situation is still challenging. I think, I would sort of echo the comments that I made on the Q2 earnings call that we are seeing signs of stabilization. I don't think we're seeing growth yet or sort of return to normalcy is kind of how we describe it. We aren't there unfortunately, but things are starting to stabilize. I mean, if you look at sort of our industry mix by categories, we still have the same two industry categories declining on a year-over-year basis we had in the first and second quarter, and that is auto and financial services. However, the magnitude of the decline is lower than it was in Q2 and considerably lower than it was in Q1. So I would say that, yes, the economic situation is stabilizing. And you were to exclude those two categories from the base, you'd see that all the other categories combined are growing sort of in the mid to low-20s, which is pretty robust.

I think our results are sort of a combination of some of the benefits of the VCG auction, I think stabilization in the overall environment and sort of good work from our engineers in terms of helping stabilize our market share. I think all of those things are to be taken together.

And I guess just a second, if I may, you talked about in terms of the market share stabilization, seeing nice gains in Yandex.Browser, you're also seeing stabilization within the Chrome browser. Can you just give us a sense for what's behind some of that stabilization? And kind of how sustainable you think that is outside of the new deal with Microsoft and the anti-trust victory.

Sure, I'll pass the mic to Sasha to answer that.

Hello, Lloyd, this is Sasha speaking. So to give some background on our market share, on desktop, we gained about 30 basis points of share compared to previous quarter. We also gained share about 100 basis points on Android. Our browser became the clear number two in the Russian market with 15% combined share on desktop and we're also gaining share across all mobile platforms. So I guess it speaks both to quality of our products and also our marked connectivity that we were having, who are supporting our Yandex.Browser with promotional campaigns.

Let me just jump in with sort of one more thing, which is I don't know if you noticed or not, but we recently launched a new feature of Yandex.Browser called Protect, which helps protect our users from various dangers out in the Internet such as Wi-Fi theft which is the interception of your stream by Wi-Fi points, anti-viruses and so on. And so I think that's helping -- that product differentiation is helping us as well.

Cesar Tiron, Bank of America.

I have a question on the implementation of the FAS decision, especially for existing Android users. Am I right in believing that, for example, if I have an Android phone then for example the way to apply the decision would be that, I would need to have an application installed that would be forced. And then I would be able to select for example the Yandex.Browser into Google Chrome and if that happens, and if that happens and if I select it on my own, am I right in believing that you would not incur any acquisition cost on those people moving to the Yandex.Browser -- to the Yandex search engine?

Hello, Cesar, thank you for the question. This is Alexander speaking. So talking about the existing users of Android phones, FAS has requested Google, as I said, to provide a notice directly to the users -- to the phone screens of the users of Android in Russia informing them that they can do certain changes in the operating system like deactivating Google apps, changing the default browser and replacing the Google Search widget with another widget.

It doesn't mean that this decision for the existing users gives us possibility to somehow upload our apps on the phones. For the existing users, who will use our (inaudible) communicate with them and convince them to download our apps, then the search browser and other applications.

But now for the new phones that will be sold from 2016 and on, FAS' decision gives us an opportunity to make deals with OEMs to pre-install our applications on the phones which are produced for the Russian market. And this is really important, because we know that we monetize well and based on marketing and revenue sharing deals and the promotional support we can provide to OEMs for their equipment in Russia from our website, we can increase our market share on Android.

Just to be absolutely clear on the process going forward, I have to say that Google still can appeal the decision of FAS and the deadline for appeal is December 18. We don't know, if Google will decide to do so, but technically they have a right to do so. Yes, basically that's it.

Ulyana Lenvalskaya, UBS.

Congratulations on good numbers. Firstly, I have a follow-up question on Lloyd's question on the top line growth. Even VCG auction has been just launched in September, would that be fair to assume that September was the strongest month within the quarter?

Hello, Ulyana, this is Greg. That's not necessarily the right assumption because it's also a question of comping, we're actually -- in September, we were comping the strongest growth of the quarter from a year ago.

Greg, could you please also update us on Yandex.Market [this summer] and what would be the top line growth without Yandex.Market, if possible?

Sure. I think overall on Yandex.Market, the rate of growth is similar to the overall rate of growth, although it seems to be doing slightly better of recent. And I think that the holiday season will be a very telling quarter for Yandex.Market and we'll report back to you on that in Q4. And I think, if your question is what is the impact of VCG and what is the implication of your guidance for the rest of the year, I just want to sort of remind people that Q4 is the largest quarter that we have in terms of revenue and obviously forecasting it is often most difficult, and so our revenue guidance attempts to be prudent and conservative as we sort of look out.

Clearly VCG auction, as well as other changes that we implemented such as the ranking changes do benefit our advertisers in terms of driving higher ROIs to them in terms of encouraging them to bid more aggressively for higher positions. And so all those things should get reflected in the numbers, but we just want to be cautious obviously given that the overall economic situation is still not completely recovered and we're still kind of in the period of stabilization.

And a question to Arkady, probably. What were the drivers behind the improvement of market share in Turkey? Was it the agreement with the football club or agreement with Microsoft or anything else?

As usual, any improvements on market share first derives from the product quality, as you understand. This quarter, yes, there was this unique deal with the football club. Microsoft has not materialized yet, it's [only] in the months to come. And on the football club as you know, we made an unique deal with Fenerbahce, one of the most popular clubs in Turkey. And this is -- I think maybe one of this maybe the first to deal in sports sponsorship which is performance based, which means that the more Fenerbahce funds are converted to Yandex, the more pay to the club. And we see a lot of growth from that deal.

And on Microsoft, is it possible for you to provide any estimates of potential market share improvements purely on account of Windows 10 updates?

Sure, Ulyana. Let me try to take a stab at that. First of all, in terms of timing, while the deal was announced a little while ago, it actually doesn't roll-out in terms of the new version of Windows -- the new patch to Windows 10 until sometime in November. That's why you kind of don't see it show up in the numbers yet, it will start showing up in the numbers from that point on.

In terms of potential impact on us, it will clearly depend on the rate of uptake of Windows 10. So far the rate of uptake of Windows 10 has been very good. It also depends on the usage of various browsers inside of Windows 10, something that we obviously cannot control to the extent that people choose to use native Windows 10 browsers, such as Internet Explorer or Edge that should benefit us more to the extent they choose to use Yandex.Browser, it will benefit us as well.

So I think it's kind of hard to predict. But at any rate, it's not a large impact, but it's definitely observable. And I think it'll take probably six to nine months for that effect to kind of roll through and become kind of observable to the naked eye.

(Operator Instructions) Alexander Vengranovich, Otkritie Capital.

First question is a follow-up on negotiations with OEMs. So can you please update us on the status, I mean did you make any progress within OEMs, you've been talking? I mean in case you have -- I know you had some agreements before, the whole situation this Google started, and it looks like for these OEMs it could be easier, but are there any new smart phone producers which are also interested in co-operating with Yandex going forward, did anything change for last year? So any information that could be interesting?

And then second, actually I've seen that the Yandex text-based ad network revenue growth accelerated for like a second quarter in a row from 24% last quarter to 55% this quarter. And you've said that the reason for this growth was like some additions of the new partners. Can you please a little bit elaborate here, are there any big partners added or it's just like natural overall improvement, so you're kind of getting new partners which are going forward will be also positively impacting your revenue and it's nothing special to report at this stage?

Hello, Alexander. Thank you for the question. This is Alexander Shulgin, speaking again. So on OEMs, [with this, they see a] change in the attitude and openness to discuss distribution deals with us. [They seem to have] interest in making business with Yandex and pre-installing Yandex apps. I cannot, at this point in time, say that we have anything specific to declare on this call because it takes time, B2B deals are -- they don't happen immediately so fast as we do in advertising industry. But, yes, we see signs of progress there.

And on the second question, Greg will comment.

Sure. Alexander, on your question about the partner network, yes, we've added some new partners to the network. All of those partners were added quite a while ago. So they've been in the base for many quarters, not just this one. I think the acceleration, the rate of growth is a combination of A, higher -- better targeting and B, the fact that you do have those advertisers sign those partners on the base that are helping you. Partner network is continuing to grow at a good clip and I think our outlook forward is fairly upbeat.

And just a quick question also. You were cutting the headcount for four quarters in a row and what they think will back your decision to get back to the hiring trajectory like you had before. So basically, that's driven by the overall market improvements or like specific projects you have inside the Company?

Alexander, this is Alex speaking again. So on the headcount, I would say that we'll rather shift in headcount between different products and our total headcount was much closer to be stable this year rather than decreased. We were adding people in the key important projects like Yandex.Browser, for example our mobile search and also in some specific business unions, while reducing headcount in other products. So this is my view on the current situation.

If the market like recovers fast, you don't need to hire additional big amounts of people. So it basically driven by your internal focus and not by the overall markets improvement. Correct?

Look, we always are hiring people and we're always on the lookout for talented engineers especially anyone who can help our efforts on Yandex.Browser and our mobile product or with our business units which are all growing rapidly, whether it's Yandex.Auto, Taxi, Yandex.Market or KinoPoisk. I think overall, we're trying to be judicious in terms of controlling the overall headcount, but that also means that you shift resources from one to the other as Sasha has said. So I think you should expect our headcount to increase but very gradually if the economy does recover and if we feel like do we can support sort of a larger headcount base.

Vladimir Bespalov, VTB Capital.

I have a couple of things to ask. First, I'd like to ask you about your project where (inaudible). We haven't heard for awhile about this project. Is that abandoned or are you developing how these things are developing here?

The second question is on your rent payments. Is there still a chance to renegotiate payments into rubles or you're going to (inaudible) the situation as it is now, where the payments [are USD linked].

And the last probably, question, you have a pretty big cash pile if you were to take cash and term deposits on our balance sheet. Are there any plans how are you going to deploy this cash?

Hello, Vladimir. On the question of logistics, no, it's not abandoned at all. In fact, we are working closely with a number of smaller merchants to provide the logistics services under the brand of Yandex.Market. So that's very much still intact and ramping, but it's still quite small. So nothing to sort of report at this time in terms of actual metrics, but it's not abandoned, it is an important area that we believe in and we'll work to provide those services to smaller merchants.

On your question of rents, yes, clearly, we are not terribly ecstatic about our rent situation, and we are trying to do something about it to reduce our payments to recast the measurables or whatever else we can. However, it's obviously difficult when you have commercial agreements and things are as they are. And we've also been trying to reduce our overall square meters wherever we can and kind of getting rid of office space that we think is extraneous both in smaller offices inside of Moscow as wells as in regions. And I think your last question was on -- remind me, Vladimir.

On cash on your balance sheet. If we take cash and cash deposits, it's something about RUB38 billion, I guess. So, how are you going to stand this cash, what are you going to do with this?

Sure. So on the balance sheet right now we have $832 million equivalent of cash. We've been using it to buyback our convertible bonds, which we think is an attractive use of capital. We also are able to buyback our stock, which we might do from time to time. And beyond that there is sort of no immediate plans of what to do with that.

Mitch Mitchell, BCS.

I actually want to follow-up on two questions that have been asked previously. Let me just start with personnel. As I look back at the trend over the last couple of years, sort of 20% of your revenue going to personnel is significantly lower than we saw at the beginning of the year. And I know it's higher year-on-year, but I'm just wondering, you talk about this being a good time to invest in talent, but it seems like you're sort of relentlessly trying to cut personnel costs. And I'm just -- if you can help me reconcile those two comments and let me stop there and then give the next question.

I think as we said before, we slowed down our overall rate of hiring. And we've basically kept our overall headcount essentially unchanged. If you look back to a year ago, our headcount is down about 100, if you look back sort of from quarter-to-quarter, it's just down very modestly. And our personnel cost as a percentage of sales is actually up year-over-year.

Okay. It still looks a little strange to me, but I'll take your word for it. And then I just wanted to go back to the negotiations, the potential negotiations with equipment manufacturers. The current status under the FAS ruling is it, Google should change the contracts with manufacturers by November 18, but you said that they have actually have until mid-December to appeal the case. At what point can you actually sit down and start talking to the manufacturers? What point would it be realistic to sign an agreement with them? Could that happen on November 19 or do you actually in fact have to wait until Google loses the right to appeal the decision?

Mitch, this is Alexander speaking. So, of course we have started discussions with OEMs right now, immediately after the FAS decision. We were in contact with them before, but (inaudible). So currently we see lot of interest from OEMs, but they are cautious a bit -- looking forward what the court's reaction would be. But still to understand that the FAS ruling is here and Google probably could appeal, but yet FAS decisions tells that there is -- the government is looking into it and current Google's practice is considered being unfair and illegal. So I expect us to have something more concrete to say about potential OEM deals on the next call. But of course, we're working with OEMs with our partners right now.

Svetlana Sukhanova, Sberbank.

May I place two questions? First question is about your potential dividends. You have quite a pile of cash on your balance sheet. Would you consider to announce dividend policy in the coming future and pay stable dividends?

This is probably obviously much better question for our Board of Directors. Given the fluctuations in the exchange rates which impact our business both vis-a-vis our office rent, as well as vis-a-vis CapEx which is dollar denominated, we kind of felt like it was a little premature to [revisit] a policy of dividends. I think if we were to see some stability in the exchange rate, I think we would definitely look back to bringing this issue up with the Board and revisiting it. I think that obviously good and strong healthy company should be paying dividends and that's a kind of how we feel.

My second question would be about next year. We are pretty march through the current year and you see that we see some kinds of stabilization. What would you expect next year in terms of advertisers in terms of -- recovery of advertising spend and advertisers' impact, and in terms of top line growth?

Sure. Look, I think it's obviously premature to comment on next year and we will leave that for our Q4 earnings call. But as I said before, I do think that the economic situation starting to stabilize somewhat and hopefully the trends of -- sort of the current trends will continue.

That will conclude today's Q&A session, I would now like to hand the call back to speakers for any additional or closing remarks.

Thank you once again for joining us today. We will update you on our full year 2015 results in February 2016, and you know how to reach out to us. Please feel free to reach out with your questions. Goodbye.

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