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Edited Transcript of FTD earnings conference call or presentation 14-Mar-19 12:00pm GMT

Q4 2018 FTD Companies Inc Earnings Call

DOWNERS GROVE Apr 2, 2019 (Thomson StreetEvents) -- Edited Transcript of FTD Companies Inc earnings conference call or presentation Thursday, March 14, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Scott D. Levin

FTD Companies, Inc. - President, CEO & Director

* Steven D. Barnhart

FTD Companies, Inc. - Executive VP & CFO

* Rachel Perkins

FTD Companies, Inc. - IR, ICR, Inc.

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Presentation

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Operator [1]

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Greetings, and welcome to the FTD Fourth Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rachel Perkins, Investor Relations for FTD. Thank you, you may begin.

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Rachel Perkins, FTD Companies, Inc. - IR, ICR, Inc. [2]

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Thank you. Good morning, and welcome to FTD Companies' Fourth Quarter and Full Year 2018 Earnings Conference Call and Webcast.

With me today are -- on the call are Scott Levin, President Chief Executive Officer; and Steve Barnhart, Executive Vice President and Chief Financial Officer. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws that address the company's expected future business, financial performance and financial condition.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in our forward-looking statements. In addition to the company's reports filed with the Securities and Exchange Commission, please refer to the text in the company's press release issued today for a discussion of the risks and uncertainties associated with such forward-looking statements.

Also please note on today's call, management will refer to certain non-GAAP financial measures, including adjusted EBITDA, free cash flow and constant currency comparisons. The company believes these non-GAAP financial measures provide useful information for investors. Please refer to today's press release for definitions and calculations of these non-GAAP performance measures as well as reconciliations of the non-GAAP performance measures to the company's GAAP financial results. Now, I would like to turn the call over to Scott Levin.

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Scott D. Levin, FTD Companies, Inc. - President, CEO & Director [3]

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Thanks, Rachel. Good morning, everyone, and thank you for joining us on today's call. I will start with a brief business overview, then Steve will discuss our fourth quarter financial results and provide an update on our outlook for 2019. For the 2018 fourth quarter and full year, we did not achieve our financial objectives. We are disappointed with these results, which were largely due to our business performance during the fourth quarter holiday period.

As many of you know, in the fourth quarter, there is more emphasis on our gifting business as it grows relative to our floral business due to higher consumer gifting in November and December. Results for our Personal Creations business were very strong for the first 3 quarters of 2018, but fell short of our expectations in the fourth quarter, largely as a result of marketing cost pressures and higher freight costs.

Our underperformance for the quarter also was due to top line softness in our Gourmet Foods and Interflora businesses.

Our Board of Directors and management team continue to work with Moelis & Company on our previously announced strategic alternatives review process, which includes evaluating alternatives for the company as a whole, including, but not limited to, a sale or merger of the company, a sale of certain assets or potential financings or other capital raising transactions.

With the support of our lenders, we are pleased to have recently entered into an additional amendment to our credit agreement that is designed to provide more alignment between the requirements under the credit agreement and our current business plans. As part of the amended credit agreement terms, the company is required to achieve certain milestones relating to the strategic alternatives review process by June 1, 2019.

We will continue to work proactively with our lenders in light of the September 2019 maturity of the credit agreement. We believe the amendments to our credit agreement provide us with the flexibility to operate under our current business plan as we focus on the Mother's Day holiday period while also enabling us to continue to work to complete our strategic alternatives review process.

In our earnings press release today, we provided an update on our 2019 full year outlook. The current outlook reflects lower-than-expected revenues for the Valentine's Day holiday, primarily from ProFlowers and Gourmet Foods, largely due to media investments that did not generate the expected level of traffic as well as competitive and weather-related headwinds.

The outlook also reflects reductions in capital spending and expenses, including lower incentive compensation expense. Despite the shortfall for the Valentine's Day holiday period, we expect to improve adjusted EBITDA year-over-year for the first quarter of 2019. This includes freight and personnel cost savings from our previously announced corporate restructuring and cost savings plan.

In addition, we believe we have made key improvements in multiple areas as we work to optimize our operations and incorporate learnings into our plans for the Mother's Day holiday period. A few highlights are new marketing initiatives that generated improved marketing efficiency for our FTD.com, ProFlowers and Gourmet Foods businesses. Gourmet Foods achieved its highest revenue day ever, fueled by strong consumer demand for our products.

Customer experience initiatives that resulted in our strongest ever holiday NPS for FTD and Interflora florist-filled product. We continue to roll out our new e-commerce platform, seeing consistently positive results across both floral brands and FTD.com had its highest average order value month in the company's history as consumers placed value in florist-filled, hand-delivered bouquets.

At FTD, we remain highly focused on improving our financial performance and completing our strategic alternatives review process. While we know there is much work to be done, we are focused on a successful Mother's Day holiday period and executing our other 2019 initiatives. We continue to believe FTD has strong brands and an incredible network of member florists and talented employees who are committed to turning around our business.

I would now like to turn the call over to Steve Barnhart, who will discuss the fourth quarter financials and our outlook for full year 2019 in more detail.

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Steven D. Barnhart, FTD Companies, Inc. - Executive VP & CFO [4]

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Thanks, Scott. Good morning, everyone. For the fourth quarter of 2018, consolidated net revenues were $247.5 million, a decrease of 11% compared to $278.1 million for the fourth quarter last year. Foreign currency exchange rates had a $1.3 million unfavorable impact on consolidated net revenues during the fourth quarter of 2018.

Net loss was $68.8 million compared to a net loss of $153.5 million for the fourth quarter of 2017. Net loss includes pretax noncash impairment charges related to goodwill, intangible assets and other long-lived assets of $67.1 million and $194.6 million for the fourth quarters of 2018 and 2017, respectively. Adjusted EBITDA was $12.6 million, or 5.1% of consolidated net revenues, for the fourth quarter of 2018 compared to adjusted EBITDA of $15.6 million, or 5.6% of consolidated revenues, for the fourth quarter of 2017.

In our U.S. Consumer segment, revenues were $180.3 million, a 10.9% decrease compared to the same period last year. The decline was primarily due to a 6% decrease in consumer orders and a 4.5% decrease in average order value. Revenues decreased 18.6% for Gourmet Foods, 17.4% for ProFlowers, 13.6% for FTD.com and 0.3% for Personal Creations in the fourth quarter of 2018 compared to the prior year quarter. The U.S. Consumer segment operating income was $5.4 million for the fourth quarter of 2018 compared to $9.3 million for the prior year quarter.

The Florist segment generated revenues for the fourth quarter of 2018 of $35 million, down 13.5% compared to the prior year quarter, primarily due to lower services revenue from a reduction in clearinghouse order volume. Products revenues were also lower primarily related to a planned reduction in container offerings and related pricing. Florist operating income was $10.7 million for the fourth quarter of 2017 and for the fourth quarter of 2018. Segment operating margin increased to 30.6% for the fourth quarter of 2018 compared to 26.5% in the same period last year.

International segment revenues for the fourth quarter of 2018 decreased $3.4 million or 8.5%. On a constant currency basis, revenues decreased 5.2% compared to the fourth quarter of 2017.

International segment operating income was $1.3 million, a $3.5 million decrease compared to the fourth quarter of 2017 on a constant currency basis. Operating margin was 3.5% in the current quarter compared to 12.1% in the prior year quarter. Our team remains focused on our corporate restructuring and cost savings plan. We continue to expect our savings to be generated primarily from evaluating, consolidating and renegotiating supplier and vendor contracts along with headcount management.

For 2019, we now expect to achieve savings of $25 million to $28 million compared to our prior estimate of $32 million to $37 million. Our lower 2019 savings assumptions reflect several things, including: one, lower volume assumptions for 2019. While we're achieving the expected freight savings on a rate basis, with lower shipping volume, the total dollar savings will be lower; two, timing, some of the savings that were initially expected in 2019 will be realized later; and three, certain savings are being realized as lower capital spending rather than as lower expense.

We expect pretax restructuring and corporate reorganization costs associated with our savings plan of $28 million to $32 million, of which $25 million were incurred in 2018. Approximately $5.5 million of these costs were noncash.

Now focusing on our balance sheet and cash flows. Net cash used for operating activities for the year ended December 31, 2018, was $11.2 million. Cash and cash equivalents were $16.2 million at December 31, 2018, compared to $29.5 million at December 31, 2017.

Our free cash flow for the year ended December 31, 2018, was negative $36 million compared to free cash flow of $48.8 million for the prior year period.

At December 31, 2018, the aggregate principal amount of the company's indebtedness outstanding under its credit agreement was $217.7 million, before a reduction for deferred financing fees, compared to $192 million at December 31, 2017. The credit agreement debt includes $118.7 million outstanding under a term loan and $99 million outstanding under revolving loans.

As Scott mentioned, we are updating our guidance previously provided on November 7, to incorporate our 2019 year-to-date results as well as our expectations for the rest of the year.

For 2019, we currently expect consolidated revenues of $960 million to $1 billion compared to prior expectations of $1.03 billion to $1.06 billion; adjusted EBITDA of approximately $41 million to $49 million compared to prior expectations of $58 million to $68 million; and capital expenditures of $22 million to $28 million compared to prior expectations of $35 million to $40 million. I would now like to turn the call back to Scott for closing remarks.

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Scott D. Levin, FTD Companies, Inc. - President, CEO & Director [5]

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Thanks, Steve. In closing, our Board of Directors and management team remain committed to our ongoing review of strategic alternatives as we seek to maximize stockholder value. At the same time, we remain focused on the upcoming Mother's Day holiday period and on improving performance across our businesses. That concludes our prepared remarks. We appreciate your interest in FTD.

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Operator [6]

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Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and interest in FTD.