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Edited Transcript of FTD earnings conference call or presentation 8-Aug-18 9:00pm GMT

Q2 2018 FTD Companies Inc Earnings Call

DOWNERS GROVE Aug 22, 2018 (Thomson StreetEvents) -- Edited Transcript of FTD Companies Inc earnings conference call or presentation Wednesday, August 8, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Katie M. Turner

ICR, LLC - MD

* Scott D. Levin

FTD Companies, Inc. - Interim President & CEO

* Steven D. Barnhart

FTD Companies, Inc. - Executive VP & CFO

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Conference Call Participants

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* Alex Joseph Fuhrman

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the FTD Companies' Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Katie Turner. Thank you. You may begin.

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Katie M. Turner, ICR, LLC - MD [2]

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Thank you. Good afternoon, and welcome to the FTD Companies' Second Quarter Fiscal Year 2018 Earnings Conference Call and Webcast. With me today on the call are Scott Levin, Interim President and Chief Executive Officer; and Steve Barnhart, Executive Vice President and Chief Financial Officer.

Before I 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 the definitions and calculations of these non-GAAP performance measures as well as reconciliation of the non-GAAP performance measures to the company's GAAP financial results.

Now I'd like to turn the call over to Scott Levin.

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

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Thanks, Katie. Good afternoon, everyone, and thank you for joining us on today's call. I am pleased to be speaking with you on my first FTD earnings call. I will start with a brief business overview, then Steve will discuss our second quarter financial results, full year 2018 outlook and provide an update on our financing initiatives. Finally, Steve and I will be available to take your questions.

As we announced on July 19, the Board of Directors has initiated a review of strategic alternatives focused on maximizing stockholder value. With the help of Moelis & Company, our financial adviser, the board will evaluate potential outcomes from the review, including, but not limited to, a sale or merger of the company, continuing to pursue value-enhancing initiatives as a stand-alone company, capital structure optimization that may involve potential financings or the sale or other disposition of certain businesses or assets. Our Board of Directors has not set a definitive timetable for completing the review of strategic alternatives. During the review process, we will be focused on stabilizing our financial performance and executing on our strategic objectives, as we strive to provide best-in-class customer service to visitors to our floral and gifting websites and member florists. Because of all the hard work of our employees, FTD remains a leader in the floral and gifting industry, with widely recognized consumer brands and a global fulfillment network.

We also recently announced that John Walden has stepped down from his executive positions and responsibilities on the Board of Directors. With the full support of the board, I have succeeded him as Interim President and CEO. In my 5 years with FTD, it has been a pleasure working with everyone here, and I'm very proud of our team.

For those of you who have followed FTD for some time may recall that I served in the office of the CEO at the end of 2016 and into 2017 during our previous executive transition.

My first experience working for FTD started in 1996 as the company's first General Counsel. I've been through a lot of change, growth and development at FTD. This evolution can be challenging at times, but also very rewarding. I am excited to lead our company forward with the help of our seasoned executive leadership team, including Steve Barnhart, Jay Topper, Tom Moeller, Rhys Hughes, Dale Perrott and Elizabeth Cimaroli. I am working closely with these executives to ensure continuity of our business operations and strategy.

In conjunction with the strategic review process, we also announced a corporate restructuring and cost-savings plan designed to capitalize on opportunities to optimize our operations, drive efficiency and reduce costs.

We believe these recent changes could generate approximately $18 million to $23 million in annualized run rate cost savings in 2019, with approximately $4 million to $5 million in savings expected in the second half of 2018.

We expect to incur approximately $24 million to $30 million in pretax restructuring and corporate reorganization cost in the second half of 2018 in connection with the implementation of this plan, of which approximately $5 million to $7 million would be noncash. Although it is always difficult to have change that affects any of our team members, this was an important and prudent action to align our organization with our go-forward business plans in light of the recent declines in our financial performance.

As part of these corporate restructuring efforts, the positions of Chief Operating Officer and Chief Marketing Officer were impacted, with Jay Topper taking on additional operating and marketing responsibility in his newly expanded role of Executive Vice President and Chief Digital Officer. Jay will build on his digital technology and IT strengths to help our marketing and merchandising efforts in both floral and gifting, given the importance digital commerce plays in these areas of our business. Jay has been leading the digital transformation at FTD since he joined us in October of 2016. He has significant previous experience in transformational leadership, including technology, merchandising, marketing and customer experience. And we believe he will help us move forward, particularly in the areas of web-based information management and marketing in his new Chief Digital Officer role. Jay will work closely with Steve Barnhart to ensure our collective work contributes to continuing to improve the customer experience and our financial performance.

Now to focus on our second quarter results briefly before letting Steve discuss them in more detail. Our reported financials for the quarter were in line with the preliminary information we provided to you on July 19.

Continued headwinds from lower-than-expected traffic and conversion in our U.S. Consumer segment impacted our results. And the resulting lower order volume also affected the Florist segment. For Mother's Day, we used refreshed marketing and promotional tactics. This produced results consistent with those we experienced for the quarter in total. We also released new mobile-friendly shopping experiences for FTD and ProFlowers, which we believe help to improve the overall consumer experience for visitors to our sites.

For the initial, a small percentage of customer traffic from this mobile-first technology, we had solid conversion benefits. And we expect to continue to expand the amount of traffic using the mobile platform throughout the remainder of 2018. We believe these enhancements have the potential to meaningfully increase traffic and provide additional conversion benefits in the future. Our team is intently focused on stabilizing and working to improve our financial performance as we move forward. We believe our corporate restructuring and cost-savings plan will help propel our organization forward. We will seek to realize opportunities to optimize our operations, drive efficiency and reduce costs as we work to create value for stockholders.

At FTD, we remain energized by the changes recently announced and are highly focused of execution. We have strong brands and incredible network of member florists and talented employees, all of which provide a solid foundation for our business as we move forward with the strategic alternative review and focus on our initiatives.

I would now like to turn the call over to our CFO, Steve Barnhart, who will discuss the second quarter financials and our outlook for full year 2018 in more detail.

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

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Thanks, Scott. Good afternoon, everyone. For the second quarter of 2018, consolidated net revenues were $299.9 million, a decrease of 8.6% compared to $328.1 million for the second quarter last year. Foreign currency exchange rates had a $1.8 million favorable impact on consolidated net revenues during the second quarter of 2018.

Net loss was $118.1 million compared to net income of $9.7 million for the second quarter of 2017. Included in the net loss is a pretax noncash impairment charge of $136.9 million related to goodwill, intangible assets and other long-lived assets.

Adjusted EBITDA was $17 million or 5.7% of consolidated revenues for the second quarter of 2018 compared to $31.2 million or 9.5% of consolidated revenues for the second quarter of 2017.

In our U.S. Consumer segment, revenues were $233.1 million, a 10.3% decrease compared to the same period last year. The decline was primarily due to a 9.5% decrease in consumer orders and a 1% decrease in average order value. Revenues decreased 17.8% for ftd.com, 9% for ProFlowers and 7.5% for Gourmet Foods in the second quarter of 2018 compared to the prior year quarter. These declines were partially offset by a 3% increase in Personal Creations revenues compared to the prior year quarter. As a reminder, these results also reflect a shift in timing of the Easter holiday to Q1 this year from Q2 last year.

U.S. Consumer segment operating income was $6.5 million for the second quarter of 2018 compared to operating income of $21.1 million for the prior year quarter.

The Florist segment generated revenues for the second quarter of 2018 of $39.9 million, down 9.5% compared to the prior year quarter, primarily due to lower order related and online services revenues. Products revenues were also lower due primarily related to a planned reduction in container offerings and related pricing and a decline in technology system sales.

Florist segment operating income was $10.8 million compared to $12.2 million in Q2 last year. Segment operating margin decreased to 27.2% for the second quarter of 2018 compared to 27.8% in the same period last year.

International segment revenues for the second quarter of 2018 increased to $31.1 million, up 6.6%. On a constant currency basis, revenues were relatively stable with the second quarter of 2017.

International segment operating income was $2.7 million, a $0.5 million decrease compared to the second quarter of 2017 on a constant currency basis. Operating margin was 8.7% in the current quarter compared to 10.5% in the period prior year.

Now focusing on our balance sheet and cash flows. Net cash used for operating activities for the 6 months ended June 30, 2018, was $1.6 million. Cash and cash equivalents were $20.4 million at June 30, 2018 compared to $29.5 million as of December 31, 2017. Our free cash flow for the period ended June 30, 2018, was negative $17.5 million compared to $18.6 million generated in the 6 months ended June 30, 2017.

At June 30, 2018, the aggregate principal amount of the company's indebtedness outstanding under its credit agreement was $195 million before reduction for deferred financing fees compared to $192 million at December 31, 2017. Such indebtedness includes $130 million outstanding under a term loan and $65 million outstanding under revolving loan.

As previously announced, the strategic alternatives review will include consideration of potential financing options, and we intend to work proactively with our lenders to address issues under our credit agreement, including any necessary amendments to covenants that may be required. We will provide additional information on these financing initiatives as appropriate.

In terms of our outlook for 2018, we are reiterating our guidance previously provided on July 19, which incorporates our year-to-date results as well as our expectations for the rest of the year, both of which reflects lower-than-expected traffic and conversion. Our outlook also includes the anticipated savings -- anticipated from the previously announced corporate restructuring and cost-savings plan.

For 2018, we continue to expect consolidated revenues of $1.03 billion to $1.04 billion, adjusted EBITDA of $37 million to $41 million and capital expenditures of $35 million to $40 million.

That concludes our prepared remarks. Scott and I are now available for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from the line of Alex Fuhrman with Craig-Hallum Capital Group.

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Alex Joseph Fuhrman, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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A couple of things from me. One, I am curious, as you look at the revenue guidance for the year, certainly seems to contemplate a much better year-over-year growth rate or smaller rate of decline in the back half of the year. I'm curious, if you can give us a sense of where that's coming from given the pace of business that you're seeing? And then secondly, just speaking about the recently announced cost-savings plan, how much of that do you think is ultimately going to be marketing spending there that you're going to able to pull back on?

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

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Alex, thanks for your question. This is Scott Levin. As part of our corporate restructuring and cost-savings plan, the first part of that plan was really related to the restructuring of our organization, which impacted mostly people. On the cost savings side, we're just starting to sort of dig into that. So I don't think we yet have identified sort of the buckets or the amounts that we'll benefit from on the cost savings side, but it's something we're working on actively now. As far as the revenue guidance, I'll let Steve handle that issue.

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

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Yes. The -- we clearly anticipate in the back half, sort of, executing against marketing, more similar to what we did in Q2 than in Q1. So we're taking out some of the downside that you see in Q1, as you're looking on the year-to-date numbers. In addition, as we roll out the new sites to higher percentage of the traffic, we're anticipating that, that is going to give us benefits in terms of conversion that will help us on the revenue side through the back part of the year.

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Operator [5]

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It appears we have no additional questions at this time. So I would like to pass the floor back over to Mr. Levin for any additional concluding comments.

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Scott D. Levin, FTD Companies, Inc. - Interim President & CEO [6]

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Okay. Thank you for your question, Alex. We appreciate everyone's interest in FTD. And we look forward to speaking with you again in November, when we report our third quarter results.

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Operator [7]

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Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.