Nebius Group N.V. (NBIS) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Yandex N.V. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to John Boynton, Chairman of the Board of Directors of Yandex. Mr. Boynton, the floor is yours.

Thank you. Dear shareholders, welcome to the First Virtual Annual General Meeting of Shareholders of the company. My name is John Boynton. I'm the Chairman of the Board of Directors of Yandex N.V. And in accordance with the Articles of Association, I will chair today's General Meeting of the Shareholders. Let me please introduce the company's Chief Executive Officer and member of the company's Board of Directors, Mr. Arkady Volozh; members of the company's Board, including Rogier Rijnja and Alexey Komissarov; the company's Chief Operating Officer and Chief Financial Officer, Mr. Greg Abovsky; and the company's Investor Relations Director, Ms. Yulia Gerasimova, who are participating in our AGM today. I would also like to introduce our outside counsel who are here with us today, Mr. Timothy Corbett from Morgan, Lewis & Bockius; and Mr. Roel Botter from Van Doorne. In accordance with the company's Articles of Association, I appoint the company's Secretary, Ms. Maria Klimashevskaya, to keep meeting -- to keep the minutes of this meeting. This meeting has been called in accordance with the Articles of Association of the company and Dutch law. On the 13th of October 2020, a notice of the AGM with an agenda and explanatory notes were made public and sent to all registered shareholders of the company. In the notice, it was also mentioned that the company's 2019 statutory annual accounts were made available for inspection by shareholders at the company's offices. As we mentioned in the notice, shareholders will not be able to vote in real time at the webcast of the AGM. Instead, shareholders were requested to vote in advance. According to the available information, about 73.25% of Class A shareholders and 99.7% of Class B shareholders voted prior to the AGM. Thus, I state that the quorum for making decisions on the agenda items has been reached and the decisions made are valid. Before we move to the agenda items and the results of the voting, we would like to briefly inform our shareholders on the results for the 9 months of 2020. As you know, we have postponed the AGM according to the Dutch Temporary Act COVID-19 Justice and Safety. Given that now it is the end of October 2020, it seems too late to talk about the results of 2019. As you know, the company has already announced its financial results for full year 2019 first quarter, second quarter and yesterday disclosed its third quarter financial results. We would like to make a short presentation for those who did not attend the company's investor call held on October 28. I give the floor to Greg Abovsky.

Thank you, John, and hello, everybody. As John mentioned, I would like to just run through some of the recent trends that we are seeing as well as the performance of our business in Q3. First of all, I would like to begin by talking about the Search and Portal segment. Our Search and Portal segment exhibited ex TAC revenue trends, which improved materially to plus 8% year-over-year in Q3 from minus 9% in Q2. We're very pleased with this growth, and we believe that it's achieved on the back of very proactive steps that we're taking to optimize our distribution and ad network partnerships. Total advertising revenue on a like-for-like basis, including Yandex.Market price comparison in both full Q3 2020 and Q3 2019, came to 2% year-over-year. And then adjusted to exclude the negative impacts from terminating our search contract with Mail, our total advertising revenue growth in Q3 would have been 4% year-over-year. The best-performing industries were FMCG, IT and telecom, finance and insurance as well as health care, while the worst performing are still travel due to the ongoing restrictions and categories where ad budgets didn't recover due to products being out of stock, such as in autos, or where consumer demand is particularly strong on its own and doesn't need extensive marketing support at the moment. For example, real estate, domestic services as well as eating out and food delivery. SMEs continued to drive the recovery ahead of large enterprises. October has revealed some slowdown of ex TAC revenue growth due to -- down to mid-single digits on a month-to-date basis, which reflects increased uncertainty on the back of the growing number of COVID cases, which we're witnessing in Russia, especially in the Russian regions. The growth has begun to recover towards the end of the month. And last week, we've seen an acceleration to high single-digit growth on an ex TAC basis. Profitability-wise, we have managed to deliver the strongest margins ever of 52.6%, which was primarily driven by strict cost controls, optimization of TAC rates and improved operational efficiency. This is also the strongest quarter seasonally. Overall, we believe that the level of around 50% margin is sustainable. However, we may decide to reinvest a certain part of our profit to support the growth of our ecosystem and to improve our market position. Moving on to Taxi. Starting from this quarter, we've included Drive into the Taxi Group, while we've excluded Self-Driving Group. Taxi Group revenues increased by 58% year-on-year driven by the solid recovery in our mobility businesses, ride-hailing and car sharing as well as continued strong growth of our FoodTech services. Revenues of ride-hailing and FoodTech services grew 64% year-on-year, an acceleration from 41% growth in Q2. Q3 was another impressive quarter in terms of adjusted EBITDA. Let me highlight a few things here. Adjusted EBITDA of our ride-hailing and FoodTech businesses amounted to RUB 1.7 billion, a material increase compared to the RUB 998 million that we saw in Q2. And this was driven by a couple of things. It was driven by the further margin expansion in the ride-hailing business on the back of our cost-saving initiatives and improved revenue growth, supported by a recovery in rides and average check and by reaching breakeven at Eats, our food delivery business, due to improved efficiency of operations. And I believe this is a great achievement from the team given how tough the competition is and in light of additional support which we provide to restaurants during these difficult times. These 2 factors helped us to offset higher investments in Yandex.Lavka and in B2B logistics. In addition to Eats, Yandex.Drive also delivered positive adjusted EBITDA for the first time in its history, which was enabled by increased demand and higher car utilization post-lockdown, optimization of lease expenses and rigorous cost control. Let me now give you an update on the performance of Yandex.Market on a full Q3 basis. Total e-commerce revenue amounted to RUB 6.9 billion, which implies 55% year-over-year growth. Price comparison accounted for about 1/3 of total Yandex.Market revenues and grew by 23% year-over-year in Q3. And we see similar trends in October month-to-date. GMV of the marketplace increased 2.3x in Q3, which reflects an expected normalization of growth rates post the peak demand during the lockdown months in Q2. The trends in October remained solid with GMV growth of around 2x month-to-date. Adjusted EBITDA loss of e-commerce was RUB 1.2 billion for the full quarter, which is a material improvement from the more than RUB 1.8 billion loss in Q3 of last year. The upturn in profitability was driven by improving efficiency of operations primarily in delivery and fulfillment costs on the back of the development of our own courier platform, improving stock replenishment and availability as well as economies of scale due to the growing number of orders. Turning to other businesses. For Media Services, it was another quarter of strong performance with top line growth of 92% year-on-year driven primarily by a 131% increase in subscription revenue. In October month-to-date, the total revenue growth is comparable to Q3. The level of investment grew by a little in Q3 compared to the previous quarter as we continue to invest in quality content to meet the demands of our rapidly growing subscriber base. Revenue in Classifieds recovered to plus 16% year-over-year from more than 30% decline in the previous quarter, supported by a rapid bounce-back in demand for cars post the reopening of auto dealerships as well as by our market share gains. Against the backdrop of increased demand, combined with COVID-related supply chain disruptions, dealerships have kind of run out of stock at this point. This has limited the pace of our recovery, and growth in October so far has remained in the mid-teens, in line with Q3 trends. On the profitability side, we've further expanded our adjusted EBITDA margin both year-over-year and quarter-over-quarter as a result of positive operating leverage effect and cost-saving initiatives. Finally, on to Other Bets and Experiments. Revenues increased by 50% primarily driven by the recovery in Geo and Zen as well as due to continuing growth of our Cloud business. The adjusted EBITDA loss amounted to RUB 1.9 billion, up from a loss of RUB 1.2 billion in Q3 of 2019 primarily due to RUB 800 million being invested into self-driving and higher costs related to the development of our education platform. We maintain ample financial flexibility with RUB 3.2 billion in cash as of the end of September, including over RUB 200 million added with the consolidation of Yandex.Market. We feel confident in our ability to fund our key strategic priorities as well as to respond quickly to new potential opportunities as well as changing market conditions. This concludes my quick overview of Q3 results. And I'll hand it back to John to continue the presentation for the AGM.

Thanks a lot, Greg, for that update. Now I'd like to move to our agenda items. The agenda of today's AGM contains 9 items. And those shareholders who joined our webcast today can see them on the special slide on our shareholder experience website. As you know, all these items are standard for our AGMs, among them, approval of the annual statutory accounts, discharging of the Board members from their liability related to the company, reappointment of 2 Board members, appointment of the external auditor, cancellation of Class C shares and general authorizations to the Board of Directors. As shareholders provided their votes in advance and we have the results of the voting, I can conclude that all proposed decisions have been adopted with requisite majorities. I'll go on. According to the rules of the virtual General Meeting of Shareholders, we offered our shareholders the opportunity to ask questions in advance of the AGM. However, we did not receive any questions by October 26 and have not received any follow-up questions or any other questions during this meeting. So I would like to thank everyone for voting and joining our first virtual AGM, and the meeting is hereby adjourned.

This does conclude the meeting. You may now disconnect.