Good afternoon, ladies and gentlemen. And welcome to the Yandex First Quarter 2014 Earnings Call. My name is Maddie, and I will be your coordinator for today's conference. [Operator Instructions] I will now hand over to Mr. Gregory Abovsky, Vice President of Investor Relations, to begin today's conference. Thank you.

[indiscernible] quarter 2014 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 as well as on newswire services. Today, we have on the call our CEO, Arkady Volozh; and our CFO, Alexander Shulgin. Our call will be recorded. Recording will be available on Yandex's IR website in a few hours. We have put together a few supplementary slides, which are currently available on our IR website. Now I will quickly take 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 these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on the Form 20-F dated April 04, 2014, 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 those 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'll be referring to certain non-GAAP financial measures. These non-GAAP financial measures are now prepared in accordance with U.S. GAAP. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now I'll turn the call over to Arkady, who will give you an update of our Q1 operational activities.

Thank you, Greg. And thank you, all, for joining us for our first quarter earnings conference call. The company continues its strong performance, demonstrating steady growth of its online advertising business and making investments into future growth. I would like to highlight 3 areas today. One, we continue to make important steps forward on mobile. Two, we are making good progress on improving our core advertising technologies. And three, we are investing in talent development together with Russia's Higher School of Economics. And now in more details. Traditionally, I begin with a couple of words about our search share. According to LiveInternet, our overall share of searches in Russia across all platforms grew 30 basis points from 61.6% year ago to 61.9% in Q1 2014. Our search share in Ukraine also grew from 28% to more than 30% this year. Search share on mobile devices also grew. iOS added 2% with iPad being the major contributor for this share gain and Android added 2%. And we currently estimate our share numbers at 54%. On mobile, in Q1 2014, we released Yandex.Kit, a set of software that allows OEMs to differentiate their products with their own app store, home screen, dialer, browser, map library and cloud services. The first 2 devices with Yandex.Kit went on sale earlier in April. And they're Huawei Honor 3 and Explay Flame. We believe that Yandex.Kit is a great product and is well positioned to gain popularity among users and device sets. Another important partnership that we announced in Q1 was with Nokia. Nokia is a very popular brand in Russia with approximately 9% smartphone unit share. Now its X series smartphones, which are compatible with Android apps, are shipped into Russia and Belarus with a number of Yandex services, including Search and app store preinstalled.…

Thank you, Arkady, and thank you, all, for joining us today. In the first quarter of 2014, Yandex consolidated revenues increased 36% year-on-year to RUB 10.9 billion. Excluding the impact of Yandex.Money from Q1 2013, our total revenues grew 39%. Text-based advertising accounted for 92% of total revenues in Q1 and demonstrated a healthy growth of 41% year-on-year. The Yandex owned and operated websites consisted 68% of total revenues and grew 26% year-on-year, driven by changes made to core advertising technologies. Our text-based advertising network grew 104% year-on-year. This growth was driven by our partnership with Mail.ru that started on July 1, 2013. As a result, contribution of ad network revenues to total revenues grew from 16% in Q1 2013 to 24% in Q1 2014 and 100 [ph] basis points sequentially. Display advertising accounted for 7% of total revenues. Starting from Q1 2014, we separated display advertising into revenues generated from Yandex's websites and from the ad network. In Q1, owned and operated display grew 4%. Display ad network revenues grew RUB 76 million from RUB 3 million a year ago. All in all, display revenue grew 16% year-on-year. Other revenues tripled but still comprise less than 1% of the total revenues. Growth was primarily driven by revenues received from Yandex.Taxi. Traffic acquisition costs as it relates to the partner advertising network grew 118% at nearly similar rates as our network revenues overall. Partner TAC as percent of partner revenue was 67% in Q1 2014. That is over 430 basis points reduction compared to 71% in Q4 2013. The reduction of TAC as a percent of revenue compared to Q4 2013 is due to the efforts of our sales team's target of decreasing revenue share in percentage. Important to note that partner TAC represents revenue shared for both display and…

[Operator Instructions] And we have our first question coming through from the line of Lloyd Walmsley from Deutsch Bank.

Clearly, the revenue numbers you're putting out suggest the business remains quite healthy. Curious if you're looking out, have seen any shifts in ad budgets in general with a kind of slowing macro environment in Russia? And then specifically, can you talk about what you're seeing from some of your largest customers as you integrate some of these new features, like multicurrency bidding, common account? That would be great.

This is Alexander speaking. So talking about macro, the growth rate of the Russian GDP is projected be below 1% in this quarter in Q1 2014. And [indiscernible] project the full year GDP growth to be at 0.5%, which is a substantial decrease compared to previous years. So clearly, the trading environment becomes more challenging over the last few quarters. But coming back to our business, text-based advertising, which accounts for 92% of our total revenues, continues to demonstrate healthy trends, which is why we are comfortable with reiterating our revenue guidance range. So while we looked at the industry mix in text-based advertising, we saw a small reduction in automobile industry spend and a small pickup in finance and insurance, while all other industries are largely stable year-over-year. It is also important to know that revenues coming from foreign clients based outside of Russia grow faster than from the local customers since foreign customers continue to see interest in the Russian market. Talking about largest customers, in text-based, this remains quite stable. In display, as you can see, the growth rate has slowed down compared to Q4 since display advertising is much more volatile to economic downturns or even perception of economic downturns. And big customers in display are willing to cut back on their advertising, resulting in short-term impact on their sales. So just to summarize, we remain healthy in contextual advertising and display is weaker.

And just as a follow-up, have you seen a lot of your customers take advantage of the ability to upload more than 10 times the number of keywords and integrate multiple campaigns into 1 account? Is that something you're seeing actively or expect to see a lot of adoption there? And what kind of impact do you think you can have?

Absolutely. Actually, this feature was implemented based on requests from our biggest advertisers, local and national ones together. I think it will be difficult to see immediate impact of this implementation in our revenue trends. But this has definitely helped in our biggest customers to run better and more effective campaigns.

And our next question comes from the line of Edward Hill-Wood from Morgan Stanley.

I have a question on OpEx and your margins. Just judging from the comments you've been making on the call on the pace of hiring, maybe some commentary around the distribution TAC and social taxes. It seems implied that you would expect a meaningful improvement within the margin as we go through the year. I just want you to give us some commentary around how and some confidence that some of the initiatives you're putting through, particularly on the distribution TAC side, will aid the margin, the relative margin progression as we go through this year and whether or not you still believe that the company can deliver margins within sort of 1 or 2 points off of 2013 still at this point, please.

Sure, Ed. Thanks for the question. This is again Alexander speaking. So talking about the Q1 EBITDA margin. It was negatively impacted by increase in personnel cost and TAC boost on partner network in the distribution front. Partner TAC is impacted only by Mail.ru deal, which particularly reduced some margin. On distribution TAC, we saw some increase compared to Q4 2013, but our distribution team has already taken steps to optimize the mix of distribution partners and revenue-sharing terms. And we expect to start seeing the effect of these sections later in this year hopefully, starting from Q2. On personnel costs, the increase was driven primarily by our hirings made in the second half of 2013 in product development and commercial teams. But on a sequential basis, our cash operating expenses increased only 4%. And this is solely because of the social tax, which is front-loaded in Q1. Compared to Q4 last year, we reduced our hiring rate by more than half and intend to keep our personnel costs to annual ratio within 20%, as we discussed. So moving on to full year adjusted EBITDA margin. Our view that we expect the adjusted EBITDA margin to be around 100 to 150 basis points lower than it was in 2013 full year, given that the overall trading environment has become incrementally more challenging over the last few months. In a more difficult trading environment, we will likely experience lower revenue growth. And given that we have many fixed costs in our business and we are committed to keep many products and services, EBITDA margin could be down by -- from 200 to 300 basis points compared to 2013 if we come in near the lower end of our revenue guidance range.

Okay. That's extremely helpful. Just as a -- can I just have a follow-up on paid click growth and CPCs? You've given some commentary around paid click growth of the business. I was wondering if you could give the similar commentary over the O&O business, which you provided for the last previous 2 quarters, please, as well just to see how the trends are there.

The growth rate of paid clicks was quite close between partner network and O&O. In O&O, it was driven by improvements in CTR and technology and also ads layout. In the network, growth was driven primarily by Mail.ru deal.

And our next question comes from the line of Olga Bystrova from Crédit Suisse Europe. Olga Bystrova - Crédit Suisse AG, Research Division: Just a follow-up maybe on the question of macro impact. Growth in the number of advertisers has slowed a little bit in the first quarter. And first quarter typically seems to be seasonably weaker. But is that an indication of the client activity that you're seeing? And do you think or do you see anything worsening already sort of in the beginning of April now that we're at the end of the month? And a related question, I guess. Do you see some more cautious view on the market with activity from small and medium enterprises and particularly in the regions?

Olga. This is Alexander speaking again. Thanks for the question. So on customer growth, the growth rate in Q1 last year was also slowing down compared to Q4. So we attributed purely due to seasonality. Because as you know, Q1 is weak from the sales and advertising perspective in Russia. Given that we see strong and robust revenue growth trend in contextual advertising network, I mean in text-based advertising overall, I would assume the productivity of small and medium enterprises remains high as usual. Because text-based advertising for this customers is usually a very important sales channel. So, as long as, they continue to have demand from their customers, they continue to spend on text-based advertising, especially on search. Olga Bystrova - Crédit Suisse AG, Research Division: Okay, thank you. And the regional behavior hasn't changed at all from, let's say, fourth quarter last year?

No material changes in the trends. Our regions continue to grow faster than Moscow, but we see solid revenue growth trend in Moscow as well. Olga Bystrova - Crédit Suisse AG, Research Division: Okay, thank you. And also, would you mind us -- sort of a related question, would you mind giving maybe a breakdown of the sector exposure? You mentioned that although it has slowed down a little bit, finances has improved. What are the percentages that outer [ph] sector contributes to your revenues and maybe couple of other sectors that to which you have the biggest exposure?

Well, it's quite evenly spread between multiple and very different industries. I could say that no single factor accounts for more than 15% of our deferred revenues, and as I said, very well spread out between different industries. So again from, say, [indiscernible] consumer goods to B2B sector.

And our next question comes from the line of Anna Lepetukhina from Sberbank.

I actually, I just wanted to continue the topic of macroeconomic influence on your revenues growth. Can you probably clarify, I mean, how dependent you on large customers. Mainly, you have a small and medium customers. But maybe you can break down, one, what percentage, let's say top 10 advertisers account in your revenues? Also, I mean recently, Video International assumed that contextual advertising is growing due to inflow of money that before the advertising market hasn't seen. Do you agree with this and do you see inflow of money from small companies that previously spent money on something else? And also, my third question, can you please explain what is the reason for the decline in TAC related to partner networks as a percentage of revenues, because it's declined quarter-on-quarter, can you please give some color?

Hi, I'm -- this is Alexander again. Thank you for 3 questions. So, talking about our exposure to large customers. As you know, our display advertising revenues accounts for 7%, and it comes primarily from big multinational corporations, as well as, big local companies. In text-based, it's very well spread out and no single customer accounts for more than 1% of our total revenues. And given that we have 280,000 active customers, you can assume that, say, each one of them is relatively -- doesn't account for a big share of our revenues and comes from very different industries and different regions. Talking about partner TAC, the decrease in partner TAC, as a percentage of partner network revenues is the result of activity of our commercial team by optimizing the revenue share in terms.

And can you probably give some example, if possible?

So -- This is Greg speaking. So basically what we talked, as we try to optimize our mixed partner TAC, for certain partners, where we were able to negotiate better deals for ourselves. We have done so. And we have done that for a very large portion of our overall partner network. We are obviously have similar efforts underway to do the same thing on a distribution front as Alexander mentioned. Although, those efforts are still in process, some of them have already taken place, but will only start to show up in the numbers in Q2 and later.

And our next question comes from the line of Anastasia Obukhova from VTB Capital.

Can you just elaborate more on your Yandex.Market initially, if it's just possible, please? I'm just thinking there are a number of shops we see still the publicity more though, do you have any lease out from your initiatives regarding CPA? And if possible, the second question, the contribution, you mentioned that, Arkady mentioned that you already concluded some agreements with platforms from providing your operating system et cetera. So what -- where do you think your other revenues share, as a percentage of total revenues, by the end of 2014, and maybe in the '15 as well?

This is Arkady. I'll try not mention the numbers since the project is in full, is planned to be launched later this year, as we promised. Now we see a growing number of customers of CPA, cost production. It is growing. We see a lot of customers switch to MultiShip to the company, which we acquired and are making part of this project. MultiShip allows to track delivery for all end users. And now, we have more than 400 Yandex.Market clients already participating in MultiShip. And just yesterday, we launched the CPA bidding for beta testing for our test partners. So all in all, we were still -- we still continues to develop the product, the full launch is scheduled later for this year as we promise to our supporters.

And regarding other revenues, I mean, other term from Yandex.Market, again, the direct other than kind of existing ones. So maybe, from B2B kind of increments?

We are now working on the numbers out of advertising models. The one which we usually mention, as you know, is taxi. And now our Yandex.Taxi business is growing very well. It's the most popular taxi location here, at least, 6 to 8x larger than any other application on the market. We are also experimenting with other models, which we are not ready to report now, but hope to report in the later quarters.

And our next question comes from the line of Ulyana Lenvalskaya from UBS.

My first question will be on the cash pile. Given how big it is now, almost $1.5 billion and this is, say, 15% of the market cap, can you please talk a bit on, maybe, opportunities or acquisitions -- potential acquisitions you might see or opportunities for development.

Ulyana, this is Greg. I think our policy and outlook with respect to our shareholders retrench policy is unchanged. We continue to prefer share buybacks as the optimal way of returning cash to shareholders at this point. Although we continue to evaluate all sorts of different ways of returning cash to shareholders. In terms of M&A, I think our policy very much remains one of tuck-in acquisitions, where we are adding talented teams or interesting technologies on products to our core stack. The acquisition of KitLocate, which was fairly small, but significant, we think, in terms of capabilities that it does add to Search and Advertising, as well on a mobile devices. We're quite excited about technology and we're working on integrating that into our mobile search product. I think you will see more of the same in terms of the types of acquisitions we are making.

Okay, thank you. And my second question will be about the legislation changes. There was some news about the requirements to store some sizeable amount of data. Could you please comment if this should lead for higher CapEx for Yandex in the coming years? Or you have enough data centers to store this data according to the law?

Ulyana, this is Alexander speaking. So the law was just recently introduced. So we are evaluating the impact of this law on our CapEx. What I could say at this point in time is that based on current exchange rate, we expect our full year CapEx to be between 14% to 16% of revenue, close to the upper range of the guidance. And this in back of new laws to be evaluated and reported back in Q3.

And our next question comes from the line of Alexander Vengranovich from Otkritie Capital.

First of all, a traditional question. Can you share the percentage of revenues generated by mobile devices this quarter and what share of Search requests was also generated by mobile devices? And the second question, have you already seen the impact on your market shares of Search requests on the back of the introduction of Yandex.Kit and agreements with Nokia, and if not, do you expect to demonstrate some visible impact on your Search market share in the upcoming quarters?

Yes, Alexander, it's Arkady talking. We see continued growth of the share of mobiles [indiscernible]. We launched more than 18% of searches coming from mobile devices, which is 2 percentage points up from Q4. And we now have 13% of our revenues coming from mobile, which is up 1% from Q4. On the Yandex.Kit, as I already mentioned, we have these first 2 models, we launch with -- they have been launched just couple of weeks ago in Q2. We don't know the results of sales yet. And we just launched the Nokia devices and we hope that, that will be a mass market product, Nokia X, the new devices all powered by Yandex. So we will hope very much that these kind of Android devices will bring us some more market share. As I mentioned again, our market share in Android is more than half, 54%, which is up from 52% last quarter. And we're also growing in Apple, as well because of the Yandex.Browser, distribution and so on.

Okay. And just a quick follow-up on Yandex.Kit. So I've seen there was a big stand in Barcelona of Yandex promoting -- fully like devoted to Yandex.Kit actually. Did you get like any, say, big interests from the devices producers in that product? So what's your, say, initial thoughts? So I understand that you have already 2 products, 2 devices launched. Should be working on it, but should we expect, like any additional big deals coming from their products pretty soon?

Well as soon as we have anything to announce, of course, we will. Just recently announced deals I just mentioned. And, of course, we hope that more is coming. We hope very much for this product.

And our next question comes from the line of Mitch Mitchell from BCS.

Another traditional question. Can you give us an update on your Turkey initiative?

Well, we continue to grow in the market and the public data on our market share are -- is available. And we're extremely positive on what's going on there. And maybe that's enough for this quarter. We'll discuss later.

And our next question comes from the line of Olga Bystrova from Crédit Suisse U.S. Olga Bystrova - Crédit Suisse AG, Research Division: Sorry for the follow-up. But on the distribution TAC, in the fourth quarter conference call, you were talking about basic distribution TAC normalizing through the year. Maybe I misunderstood a little bit and I thought it sort of, it will start normalizing towards last year's level already in the first quarter. Or perhaps, you had other initiatives that you -- basically happen, for example, Nokia partnership, or maybe some others, your Yandex.Browser distribution, events that are actually potentially positive for your business going forward? If you could comment on that, so basically, what has changed from your guidance in the fourth quarter? And the second follow-up on CapEx, given your guidance, 14% to 16%, but clearly, for first quarter, at 19%, which is typically not the highest capital spend quarter, is there anything specific that's happened in the first quarter? Was it deferred CapEx, or is there any risk, upside risk to CapEx numbers for 2014 potentially?

Olga, this is Alexander speaking once again. So on distribution TAC, as percentage of annual revenue, we said that we expect 2014 distribution TAC as percentage of annual revenue to be close to 2007. The activities that we are implementing now on optimizing the revenue share in terms of capital [ph] longer, it's obvious because it takes time to negotiate with many -- multiple partners that we have. And that's why, as I said previously, we expect to see results of those activities in Q2 and later in 2004. So we still intend to manage the distribution TAC as a percentage of overall revenue. Coming back to CapEx, just to remind our CapEx to revenue ratio 2013 was lower than we initially expected because of the shift of CapEx between from Q4 to Q1. And that's why you see that Q1 is higher than the guidance that we provide for the full year.

And we have a follow-up question from the line of an Anna Lepetukhina from Sberbank.

I have just a general question. Just if you were to look, going forward, 2 to 3 years, I mean, you're exploring various directions and launching services. Where do you see the fastest growth and what can be the driver for your growth going forward, whether it's e-commerce, Atom -- Yandex Atom, Big Data or something else? If you can share your view, that would be great?

Well, we're working in different directions here. It's too early to say which one. It will be best playing off in 3 years. We know that we are working on -- in e-commerce, we're working in geographical expansion, and Turkey is one of the markets. We work in the area of expanding our core competencies in Big Data machine into other industries. We are experimenting with new business models, like Yandex.Taxi. It's too early to say which one will be the best model for us in 3 years from now. I would say that we are now at the stage of experimentation. We're just like 15 years ago. We're trying to find the next expansion path.

And our final question comes from the line of Ulyana Lenvalskaya from UBS.

I have a couple of technical follow-ups. First, Arkady was mentioning several times, the addition of market share with iOS device by 3 percentage points. Could you please provide us with the market share, the estimated market share of the iOS?

Our current market share in Apple is something like 45%. It's actually is hard to say because the measurement tools here were very weak and they change several times a quarter. But it's growing.

Okay. Another follow-up will be on the Yandex.Market. There was some news about M.Video trying to fight against Yandex.Market, and kind of accusing sales of gray electronics. What's your view on the news? Is it just a negative PR, or is it a real threat to the business?

This is Alexander speaking. We definitely do not think it's a threat to our business. And it's more like a misunderstanding because Yandex.Market is advertising platform and Yandex is not setting any goals. So we're absolutely confident that our position is correct, and hope to resolve this conflict. There was -- M.Video was out resulting to court litigation, so something like that.

Thank you, and we have no further questions coming through. So I'll hand you back to Greg Abovsky to conclude today's conference. Thank you.

Thank you, everybody, again, for listening in and dialing in to our call. And we look forward to updating you on our progress among many different fronts on Q2 earnings conference call in July.