United Online Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: United Online, (UNTD)

United Online (NASDAQ:UNTD)

Q1 2013 Earnings Call

April 30, 2013 5:00 pm ET


David Bigelow

Mark R. Goldston - Chairman, Chief Executive Officer, President and Member of Secondary Compensation Committee

Neil P. Edwards - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer


George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Michael Crawford - B. Riley Caris, Research Division


Good day, and welcome to the United Online Q1 2013 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. David Bigelow, Vice President of Investor Relations. Please go ahead, sir.

David Bigelow

Thank you. Hello, and welcome to United Online's conference call to discuss our financial results for the first quarter ended March 31, 2013. With me today is Mark Goldston, our Chairman, President and Chief Executive Officer; and Neil Edwards, our Executive Vice President and Chief Financial Officer.

Before I get started, I'd like to mention we've created a PowerPoint presentation that summarizes our first quarter 2013 financial results and operating metrics. I would encourage you to download a copy of this presentation by going to our website, www.unitedonline.com, and clicking on Investor Relations at the top and going into the Earnings Release section.

On today's call, in today's press release and in the accompanying slides that are available within the Investor Relations section of our website, which can be found at www.unitedonline.com, we will refer to certain financial measures that are not determined in accordance with accounting principles generally accepted in the U.S., or GAAP and should be considered in addition to, and not as a substitute for or superior to, the financial measures determined in accordance with GAAP. Definitions of these non-GAAP financial measures are provided in today's press release and the accompanying slides on our website, along with certain reconciliations to their most comparable GAAP financial measures.

In addition, the company applies Safe Harbor provisions as outlined in today's press release to any forward-looking statements that may be made on this call. Statements regarding our current expectations or estimates about the proposed spin off of the FTD segment, changes to our senior management, our future operations, financial performance, net interest expense, amortization, share numbers, capital expenditures, taxes, operating metrics, new or planned business initiatives, products, services, features, applications and functionality and strategies, among others, are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from those described or implied in the forward-looking statements.

More information about potential risks that could affect the company's business and its financial results is included in today's press release under the caption Cautionary Information Regarding Forward-Looking Statements and in United Online's most recent filings with the Securities and Exchange Commission, including the company's annual reports on Form 10-K and quarterly reports on Form 10-Q.

Guidance, projections and other nonhistorical information provided in the press release and in today's call are based on information available to management at this time. Management expects that internal projections and expectations may change over time. However, the company does not intend to revise or update this information except as required by law and may not provide this type of information in the future.

And with that, we're going to start out with a few comments from Mark and Neil, and then we're going to open it up for questions.

So now I'll give the floor over to our Chairman, President and Chief Executive Officer, Mark Goldston.

Mark R. Goldston

Thank you, Dave. Welcome to United Online's earnings call for the first quarter ended March 31, 2013. I'm going to provide an overview of our results for the first quarter and an update on our progress towards our planned spinoff of FTD. Then Neil Edwards, our CFO, will conclude our prepared remarks with a look at the numbers for the quarter and our guidance going forward.

Let me give an update on the spinoff. We are continuing to move forward with our planned tax-free spinoff of FTD, and this is going to include the domestic and international operations of our FTD segment as an independent publicly traded company. Today, we filed an initial registration statement on Form 10 with the SEC for FTD Companies, Inc., a significant step, obviously, in this process. We still plan to complete the spinoff by the end of the third quarter of 2013. However, the spinoff remains subject to a number of conditions, including final approval of the transaction specifics by our Board of Directors.

As many of you may have noticed today in the earnings release and the proxy statement filed by United Online, I've announced that I will be leaving the company at the completion of the FTD spinoff, which is anticipated to occur on or before September 30, 2013. Over 14-plus years ago, I became the first Chairman and CEO of a raw startup called NetZero, which had about 25 employees located in a single 2,500 square-foot room in Westlake Village, California. And we were the pioneer of a new segment called free internet access. After building our team and creating defenders of the free world marketing strategy, inventing the ZeroPort toolbar and taking the company public in September of 1999, we went on an incredible journey of building a phenomenal consumer Internet conglomerate. We acquired Juno in 2001 and changed the name of our company to United Online. We acquired Classmates in 2004, MyPoints in 2006 and FTD in 2008. And today, we have some of the best-known brands in the Internet world.

After recording an adjusted OIBDA loss of more than $200 million in our first 3 years, that was 1999 through 2001, we then proceeded to generate in excess of $1.6 billion in adjusted OIBDA from 2002 to the first quarter of 2013. We amassed in excess of 100 million members across our businesses, and we've returned $359 million of cash dividends back to our shareholders. United Online has become a world-class company in terms of its brand portfolio, operating expertise, deep management team, outstanding employees and a great Board of Directors.

As we move forward towards the spinoff of the FTD Companies, our shareholders will be fortunate to then have 2 publicly traded companies, FTD Companies and United Online, with United Online consisting of the Communications and Content & Media segments. In this construct, to support the tax-free nature of the spinoff, I would've been required to choose between the Chairman and CEO of just one of those companies, a lesser position, versus holding that position over the entire enterprise as I do today. Given the outstanding managerial talent we have at United Online and FTD Companies and my extreme confidence in the Presidents of the various business units, I feel that when the spinoff is completed, it would be the ideal time for me to move on.

I look forward to pursuing opportunities outside of United Online. Rob Apatoff, the current President of FTD, will become the President and CEO of FTD Companies post-spinoff. And the United Online Board of Directors will be conducting a search for a new CEO for United Online post-spinoff.

After nearly 15 years of building this enterprise from its inception, I've got a deep affection for the people and the businesses themselves, and I want to leave this company and its businesses in the best possible state at the time of my departure. Accordingly, I'm committed to working tirelessly between now and the spinoff date as the Chairman, President and CEO of this company to make sure that United Online and FTD Companies are in the best position possible to achieve maximum value for our shareholders when they go forward as independent, publicly traded companies. I'll be doing the second quarter earnings call as well in late July 2013, as the spinoff is not anticipated to occur before the end of the third quarter of 2013. We'll have ample time to communicate between now and then. And my hope is that our investors appreciate the value-creation mission we're on as a company and continue to support these outstanding organizations.

Now let's get to the core of the call and talk about the highlights of the first quarter of 2013. Number one, consolidated revenues increased 2% from the year-ago quarter to $247.4 million, near the high end of our guidance range, while consolidated adjusted OIBDA was $33.1 million, which exceeded our guidance range.

Number two, FTD produced its highest quarterly segment revenues and segment-adjusted OIBDA since we acquired the company back in August of 2008. The segment achieved its ninth consecutive quarter of year-over-year revenue growth, and segment-adjusted OIBDA increased year-over-year for the seventh time in the last 9 quarters, when prior periods are adjusted for the timing of the 2011 U.K. Mother's Day.

Number three, Content & Media segment pay accounts declined by 78,000 during the quarter. That is the smallest net decrease since the second quarter of 2010. The quarterly net decrease in segment pay accounts has now improved in 5 consecutive quarters from a high of minus 296,000 in the fourth quarter of 2011 up to 78,000 decline in the first quarter of 2013.

Number four, in our Communications segment, we reduced our revenue decline to just 8% year-over-year compared to 9% last quarter and compared to 23% in the first quarter a year ago in 2012, a major step in the right direction. As of March 31, 2013, our NetZero 4G mobile broadband business had approximately 41,000 accounts.

Now I'd like to take a look at the individual operating segments. And I'm going to start with FTD. First, let's look at the finances. Our FTD segment includes both the domestic results of FTD in the U.S. and Canada and the results of our Interflora business in the U.K. and the Republic of Ireland. In the first quarter, FTD segment revenues increased 8% compared to the year-ago period, and segment-adjusted OIBDA increased 9%, both reaching their highest quarterly levels since United Online acquired FTD in August of 2008.

Consumer orders in the quarter increased 10% year-over-year, driven in part by the acquisition in 2012 of the Flying Flowers and Flowers Direct businesses in the U.K., and in part by Easter falling in Q1 2013. Excluding consumer orders from the Flying Flowers and Flowers Direct businesses, FTD consumer orders still increased 5% from the year-ago period.

Average order value or, AOV as we call it, decreased 3% compared to the year-ago period. The decrease was attributable to the acquisition of Flying Flowers and Flowers Direct, because as you know, both of those are value-priced brands, and they've got lower AOVs than the core Interflora business in the U.K. as well as an unfavorable impact from foreign currency exchange rates. If you exclude these factors, average order value increased slightly by 0.4% from the year-ago period.

FTD's exclusive partnerships with premier companies like Vera Wang and our leading sympathy providers are continuing positive trends from last year. We continue to grow our FTD branded Everyday business. Now these innovative, exclusive branded programs feature our unique product designs in vases including FTD's luxury collection, the College Rose Collection, and our new Color Your Day bouquet collection, which features colored paint cans that serve as vases for these really innovative products.

The new FTD birthday assortments, which we relaunched in the summer of 2012, continues to perform very well. This is the -- this is really important to us because birthdays are our largest occasion of the year. They're even larger than Valentine's Day and Mother's Day. If you look at the 2013 Valentine's Day and U.K. Mother's Day's results, you can see that FTD delivered excellent results in the holiday selling periods during the quarter. In fact, for the 14-day period leading up to and including Valentine's Day, consumer orders increased 11% compared to last year. Orders also increased 9% for the 14-day period leading up to and including U.K. Mother's Day, driven by the addition of the Flying Flowers and Flowers Direct businesses. In the face of intense pricing and promotional activity from our major competitors and getting outspent dramatically in media, FTD managed to perform extremely well during the Valentine's Day holiday period as it has over the past several years.

In addition, consistent with our stated strategy since buying FTD in August of 2008, where we have said that we are committed to growing the all-important florist member network and growing florist-fulfilled orders that support our thousands of FTD floral network members, we once again saw a year-over-year increase in the number of orders delivered by our florist network. In fact, during the first quarter of 2013, florist-fulfilled orders increased by 9% in the U.S. versus the prior year. We're committed to bolstering our florist businesses, and this is proof that FTD is delivering on that commitment.

Now let's look at our Content & Media segment. And we'll look at financial results first. This segment includes the Classmates business, of which schoolFeed is now a part, as well as StayFriends and MyPoints. Segment revenues were $32.8 million, down 17% compared to the year-ago quarter, and segment-adjusted OIBDA was $3.7 million, down 53% compared to the year-ago quarter.

Let me give you an update on Classmates. In the first quarter of 2013, Classmates achieved a continued sequential improvement in the net decline of pay accounts. The net decline of only 78,000 pay accounts was the lowest level of decline since the second quarter of 2010 and a substantial improvement compared to 123,000 decline last quarter, 191,000 decline in the year-ago quarter and a high of 296,000 decline in the Q4 of 2011. So major progress being made at Classmates.

Classmates has now improved its net decline in pay accounts in each of the last 5 quarters and 6 of the last 7 quarters. This trend began in 2011 and has improved further with our renewed focus on increasing member engagement and expanding user-generated content dramatically. In 2013, we have continued to experience the benefits of this strategy. In Q1 2013, we nearly tripled the number of new registered members on a global basis. The Classmates domestic business saw new registered members more than quadruple from the year-ago quarter. The addition of members stimulates new activity on our site, as we add them to our high school class directories.

Now consistent with our long-stated strategy to build the biggest archive of High School Yearbooks online, we've added a steady stream of new digitized high school yearbooks. And we now have approximately 200,000 digitized yearbooks on the site. Each of these yearbooks has hundreds of unique and personalized images that trigger a strong nostalgic response from our users.

Beginning last year, people in these yearbooks have been tagged, which leads to communication out of the community and across multiple marketing channels, now including Facebook.

With the success of the yearbook strategy, we've also sought to amplify other types of user-generated content -- that is critical for Classmates. In fact, for the second consecutive quarter, we've been able to add millions of new profile photos of our members as they look today. In Q1 2013, we significantly increased the amount of profile photos added in Q4 2012, and when you pair with the photos from our member's high school yearbooks, our members can now see sort of the then and now and how their old friends have changed over the years.

As we look ahead, the Classmates strategy continues to be to deliver our compelling and complete high school experience to users wherever they are. We intend to continue to expand our distribution and key features, both free and paid, onto the Facebook platform and across all mobile devices and obviously within our core website. We believe the massive quantity of new content and the influx of new members will revitalize the growth of Classmates, a critical objective for our company.

Internationally, our social networking business under the StayFriends and Trombi brand names continues to face competitive challenges from free social networking, which also contributes to the decline of the subscriber base. As I discussed in previous quarters, we've rolled out new initiatives designed to enhance our potential to attract new subscribers, better retain existing pay accounts, including the expansion of the German school information page, the addition of social games and the StayFriends app on Facebook in Germany that's intended to drive member growth through Facebook.

MyPoints. At MyPoints, we faced a challenging operating environment over the last several quarters. We're taking significant steps to attempt to address these challenges, but at this point, we can't be certain that those efforts will prove successful, so stay tuned on that.

I'm going to wrap up with a review of our Communications segment, consisting principally of our NetZero and Juno brands. I'll also give you an update on the NetZero 4G mobile broadband service. In our Communications segment, quarterly revenues decreased 8% compared to the first quarter of 2012. That's the second consecutive quarter of just single-digit decreases.

As you may recall, in the first quarter of 2012 last year, segment revenues declined 23% to the first quarter of 2011. So achieving an 8% year-over-year revenue decline, the one that we just posted in Q1 2013, is a major step in the right direction. This improvement is driven in part by revenues generated by our NetZero 4G mobile broadband business, which has now reached approximately 41,000 accounts as of March 31, 2013.

In the first quarter of 2013, the Communications segment-adjusted OIBDA margin was 28.8%. Keep in mind that the 4G mobile broadband service had a negative impact on segment-adjusted OIBDA of approximately $2.7 million in the first quarter of 2013 due to our investment in the growth of that business, so obviously that affected the OIBDA margin.

We've now passed the one-year anniversary of the launch of NetZero 4G mobile broadband, and we're continuing to make progress. We believe the NetZero mobile broadband business will be a viable source of incremental subscribers and revenue for the foreseeable future. We further believe the continued operation of the dial-up business, combined with the exciting new growth potential of our NetZero 4G mobile broadband business, presents an opportunity for the Communications segment to pursue a revenue growth strategy for the first time in many years.

With that, I'm going to turn it over to Neil Edwards, our EVP and CFO, who'll take you through a review of the financial results. Neil?

Neil P. Edwards

Thanks, Mark. Let me begin with highlights of the first quarter, and then I'll provide guidance going forward. All comparisons represent year-over-year quarterly comparisons unless I clarify otherwise. And I'll start with the consolidated financial highlights.

Consolidated revenues were $247.4 million, a 2% decrease -- sorry, 2% increase, near the high end of our guidance. Consolidated adjusted OIBDA of $33.1 million was above the high end of our guidance range and down 15%. Diluted net income per common share was $0.09, a decline of 25%. Adjusted diluted net income per common share was $0.16, a decline of 24%. Cash flows from operating activities and pre-cash flow for the quarter were $15.1 million and $12.8 million respectively, representing decreases of 10% and 17%, respectively. The declines were primarily driven by lower adjusted OIBDA, partially offset by favorable changes in working capital.

Cash and cash equivalents at March 31, 2013, were $132.3 million compared to $136.4 million at December 31, 2012. Net debt at March 31, 2013, was $111.8 million compared to $107.6 million at December 31, 2012. The company defines net debt as total debt net of discounts, less cash and cash equivalents.

During the quarter, the company recorded a $5.5 million reduction in the estimated fair value of acquisition-related contingent consideration related to the acquisition of schoolFeed in the second quarter of 2012. Daily registration metrics used to determine the contingent consideration liability were below our previous estimates and our valuation was adjusted accordingly. schoolFeed daily registrations have been adversely impacted by changes in the Facebook platform.

During the quarter, the company recorded $2.3 million of restructuring and other exit costs in the Content & Media segment related to employee severance and contract termination costs. The restructuring will result in annual cost savings of approximately $6 million going forward.

Now on to the FTD segment. Segment revenues were $190.3 million, an increase of 8%. The increase in revenues was driven by consumer order growth, including orders from Flying Flowers and Flowers Direct businesses in the U.K., which were acquired in April 2012. In addition, although not a major floral holiday, Easter fell in the first quarter of 2013, whereas it fell in the second quarter of 2012, which shifted approximately $3 million of revenues into the first quarter of 2013. Excluding the unfavorable impact of foreign currency exchange rates, revenues from Flying Flowers and Flowers Direct and revenues from the Easter holiday, segment revenues increased 5%.

Segment-adjusted OIBDA was $27.8 million, an increase of 9%. The timing of Easter increased adjusted OIBDA by approximately $400,000 in the first quarter of 2013. Excluding the unfavorable impact of foreign currency exchange rates and the timing of Easter, segment-adjusted OIBDA increased by 8.4%. segment-adjusted OIBDA margin was 14.6% compared to 14.4% in the year-ago quarter. And as Mark said, segment revenues in the segment-adjusted OIBDA reached their highest level since the acquisition of FTD by United Online back in August 2008.

In terms of key metrics, consumer orders were $2.2 million, up 10%, excluding consumer orders from the Flying Flowers and Flowers Direct businesses, consumer orders increased 5%. Average order value or AOV was $61.01, a decrease of 3% compared to the year-ago quarter. Excluding the impact of foreign currency exchange rates and consumer orders from the Flying Flowers and Flowers Direct businesses, which have lower AOVs, AOV increased slightly.

Now on to the Content & Media segment. Segment revenues were $32.8 million, a decrease of 17%. segment-adjusted OIBDA was $3.7 million, a decrease of 53%. In terms of key metrics, pay accounts decreased by a net 78,000 in the first quarter compared to a net decrease of 123,000 in the fourth quarter of 2012, and a net decrease of 191,000 in the year-ago quarter. 78,000 was the smallest decrease in pay accounts since the second quarter of 2010. Active accounts were 11.4 million, a decrease of 1% sequentially and an increase of 1% year-over-year. Churn was 3.3%, a decrease of 20 basis points sequentially and a decrease of 60 basis points year-over-year. Average revenue per user or ARPU was $2.48, down 2% both sequentially and year-over-year.

And on to the Communications segment. Segment revenues were $24.6 million, a decrease of 8%. segment-adjusted OIBDA was $7.1 million, a decrease of 35% year-over-year. The investment in our NetZero 4G mobile broadband business, which was launched on March 19, 2012, resulted in a negative adjusted OIBDA impact of approximately $2.7 million and $2.2 million for the first quarter of 2013 and 2012, respectively. Segment-adjusted OIBDA margin was 28.8% compared to 41.1% in the year-ago quarter. Excluding the impact of the NetZero 4G mobile broadband business, adjusted OIBDA margins would've been 45.9% and 50% in Q1 2013 and Q1 2012, respectively.

In terms of key metrics, segment pay accounts decreased by a net 24,000 in the first quarter versus a net decrease of 25,000 in the fourth quarter of 2012 and a net decrease of 47,000 in the year-ago quarter. ARPU was $9.21, up 2% both sequentially and year-over-year. Churn was 3%, up 10 basis points from the fourth quarter of 2012 and down 40 basis point from the year-ago quarter.

Unallocated corporate expenses. For the quarter ended March 31, 2013, the impact of unallocated corporate expenses on consolidated adjusted OIBDA was $5.6 million, up 6% from the year-ago quarter.

Now on to business outlook and our guidance. When considering our guidance for the second quarter of 2013, bear in mind the shift of approximately $3 million in revenues and $400,000 in adjusted OIBDA from the second quarter of 2013 into the first quarter as a result of the timing of the Easter holiday. Consolidated revenues are estimated in the range of $222 million to $230 million. Consolidated adjusted OIBDA is estimated in the range of $27.5 million to $32.5 million. Net interest expense is estimated at $3.1 million. Weighted average diluted common shares are estimated to be $92.6 million on a GAAP basis and $92.8 million on an adjusted basis.

We estimate that our annual effective income tax rate for 2013 will decline to approximately 36% on a GAAP basis due to a reduction in the U.K. corporate tax rate, which is expected to occur in the third quarter. We expect some variation in our effective income tax rate from quarter-to-quarter due to discrete items and other factors. For the full year 2013, capital expenditures are estimated to range from $21 million to $25 million.

And that concludes my prepared remarks, so back to you, Mark.

Mark R. Goldston

Thank you, Neil. Operator, we'll now open the floor up to questions. If you'd like to explain to people how to get into the queue, we'll be happy to answer the questions.

Question-and-Answer Session


[Operator Instructions] We'll take our first question from George Sutton with Craig-Hallum.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

So as I look through the NetZero business, you mentioned, I think, if I heard you correctly, 41,000 customers. Can you just give us a sense of how that compares to what you -- where you'd like to be at this point?

Mark R. Goldston

Well, I think, obviously, we always want to have more customers. That's stating the obvious. But we've gotten some really nice traction on this product. We've been promoting for the past few months on some test plans, where we've been trying to see if we can migrate people up to higher priced plans. So if you recall, even though we don't break it out specifically, George, we had a huge number of, from a mix standpoint -- of free members when we launched. And then we started to see some traction on the $9.95 and then Rusty and his team started running promotions, offering a discount on the device if you bought the $9.95 plan, and we ended up getting a huge percentage of people going for pay versus free. And then they tried, most recently, a plan that says we'll give you a discount on the device if you go for the $19.95 plan, just to see what would happen, and they saw, again, a great take rate. So they're still playing with what the optimal mix is, but we have been very pleased with the mix of paid subscribers to free. In fact, we've got more paid subscribers as a percentage of total than we thought we would have when we originally put the plan together. And we feel strongly about this business. These guys are looking at some really unique opportunities in terms of trying to expand coverage, et cetera, that they've been working on for a while. And I would say that over the next 12 to 24 months, that's going to be the stimulus to getting them a real chance at achieving long-term revenue growth in the Communications segment. And there is no way that 14, 15 months ago we could have ever hypothesized any scenario under which there could have been long-term revenue growth in Communications. But we feel pretty strongly now that because of the stabilization that we're experiencing within dial up and the 4G traction and some of the ideas that they've got planned down the pike, that that's something that actually can happen, which would be really terrific for the company.

Neil P. Edwards

Just to add one thing to what Mark said, George. So in the early days, as Mark said, the mix was skewed a lot more towards free than pay. But today, with the discount on the pay product, it's heavily skewed towards the pay. What we will likely see over the next 6 months is a slightly higher level of churn related to those free accounts that come up to their one-year anniversary.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Okay, that make sense.

Mark R. Goldston

So we're happy with it.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Relative to -- I noticed the Memory Lane name is not being used prominently, the -- but I am curious what happens with the content as -- you had access to quite a bit of content. What happens with that? Is that now fully integrated into the Memory Lane model?

Mark R. Goldston

Yes. I mean, basically, what we determined is that some of the content that we had, which wasn't getting traction, we won't continue with going forward. The big thing that we've got, we wrote off, I think, like $700,000 or something related to the content. The big thing we got out of it is these 200,000 yearbooks and what goes along with that. I mean, the one thing we learned out of the whole Memory Lane concept was -- is that people wanted to revisit their past more than the past, and that their past is their schools and their yearbooks. And now that we've got this massive increase, and I mean massive increase, in user-generated content that's now being sort of enmeshed with the yearbook content, we've got a real sort of then-and-now story that we can tell on the site that we just couldn't do before. So that most of the Memory Lane content, the stuff that we originally thought people would pay for, George, we and everybody else in the Internet found out, they're not going to pay for that. So a lot of that was part of the write-off of what we did, but we can do is show that the user-generated content we're getting and the Yearbook stuff is absolutely central to the current Classmates strategy.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Got you. Lastly, for me, can you just give us an update on the patent opportunity that you're pursuing [ph]?

Mark R. Goldston

Yes, we are continuing to work with Evercore at looking at ways to monetize the portfolio. We, as you know, George, we've got one of the broadest patent portfolios. I mean, it's -- we've got probably 5, 6 different categories versus most companies where their portfolios are kind of narrow. And so we're now looking at whether it makes sense to sell the patents in components, meaning individually or in clusters, or whether it makes sense to do something with one of the NPEs, sort of the non-prac entities, where they can go out actually and monetize them with us. And so we're in the process of evaluating that with Evercore. And I hope in the next, probably 30 to 60 days, we'll determine which is the best path to take -- if it makes sense. At the end of day, it's got to make sense to us, because our patent portfolio is not only a valuable asset, we think, from a monetary standpoint, it is also valuable to the company.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Hypothetically, if you made a decision to move in one direction but didn't have a transaction, would that be something you would update us on?

Mark R. Goldston

Explain that to me, George?

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

So if you had decided, for example, we will sell this in components, and that decision was made, but a transaction wasn't completed yet, would that be something you would update us on? I mean...

Mark R. Goldston

I think it's fair to say, George, that by the next earnings call, hopefully, we will have this issue resolved. And therefore, we can just tell you what we're doing with the portfolio. That's my goal. Okay?


[Operator Instructions] And we will now go to Mike Crawford with B. Riley & Co.

Michael Crawford - B. Riley Caris, Research Division

The Form 10 finally filed today is a good thing. Does that in any way limit your ability to get this thing approved in time to have a spin as soon as possible after August 27? Or do you think it might extend out the whole kind of extra month that you seem to be giving yourself some leeway to do in the commentary today?

Mark R. Goldston

Mike, it's just to give ourselves just, say, by the end of third quarter, because that's sort of the stake we put in the ground. At this point, we see no reason that, that isn't going to happen by the end of the third quarter. We're very confident in it. So, obviously, we've got to wait for the 5-year trading date. And we think it kind of makes sense to have it logically coincide with the end of the quarter as well.

Michael Crawford - B. Riley Caris, Research Division

Okay. Regarding the FTD business, if backing out your product revenues, you can get imputed wire revenue, and it looks like it was up 10% year-over-year to around $56 million versus 1-800-Flowers, which reported earlier today and their BloomNet revenue was down 5% year-over-year to like $22 million, $23 million. Has there been some competitive change there? Or do you think that's just some white noise, and I might be reading too much into it?

Neil P. Edwards

I think what Flowers said on that call was that their revenues were down. And I think they said their margins were -- their revenues were down, but they'd sold some products for -- the products, non-floral product sales were down.

Mark R. Goldston

Yes, but he's talking about BloomNet. They said that their BloomNet was down. You're right. I mean, I guess, the quick answer is our florist group is doing really well. I don't know what 800 is doing. I don't know what BloomNet's doing. We don't really spend a bunch of time worrying about it. Our folks at FTD in that florist division headed by Tom Moeller are doing a great job, and we're really happy with their performance. And it appears as though they're doing great from a competitive standpoint as well, just listening to the other company's call today, but we don't really focus on that as much as how are we doing in the absolute. And in the absolute, they're doing really well.

Michael Crawford - B. Riley Caris, Research Division

Okay. And then, just getting back to the NetZero 4G subscribers. So it looks like you're starting to show some steady growth there in additional subscribers, but at the same point -- at the same time you're still not all the way fine tuned on what this model might look like in terms of customer -- subscriber acquisition cost. I mean, it sounds like discounting the hardware has been -- is successful. Do you have a better sense you can share with us on kind of the economics of this business?

Mark R. Goldston

Well, look, the economics of the business, obviously, no business is going to be like dial up. The economics of this business are such that the way in which we promote today and the price point that we are guiding our users to is profitable. It's a model for a profitable business. There's a critical mass threshold that we will reach, which is not in the super distant future, but will make this thing a profitable business. And Rusty and his team have a plan that they've shown us over the next 24 months, which we're confident enough in that that's why we made this statement that we think that, that 4G business is going to be the impetus for us being able to ultimately say our Communications business has a chance to return to revenue growth. And so it will be profitable, but it will not be profitable like dial up, but nothing is. But it can be a really good business for us. And customer acquisition costs -- which as you know were horrible when we first launched, and we expected them to be, and we weren't disappointed -- in the last couple of months have been very attractive. And some promotions worked better than others. But in the absolute, the level of customer acquisition cost that they have today is at a level that will allow them as they grow the business to be profitable. And that's a big thing for us.

Michael Crawford - B. Riley Caris, Research Division

All right. And then lastly, so schoolFeed, we did see this big drop in traffic when Facebook changed their platform early in March. And it seemed to take a few weeks before registration -- or user traffic started to tick up again. It's rebounded pretty nicely, but still, I'd say only to half, maybe, the level of where it had been prior to all this. So what actually happened there? And what are the expectations going forward?

Mark R. Goldston

We don't give out specific data on schoolFeed, but you're very astute in terms of when you recognize when there's been a, "issue" with Facebook. Facebook constantly seems to be changing the methodology that they use, and so people who are app partners are trying to keep abreast of the internal changes that get made there. And sometimes it can be quite a challenge. And you see this in other companies, I'm sure, that you follow and cover, whether they be games companies, social, et cetera. And so it can wreak havoc with an app company when the mother load, in this case, Facebook, changes its formula, for lack of a better term. So our group at schoolFeed, these folks are fantastic. They have a long history of creating successful Facebook applications. So they're very good at reading the architecture and trying to navigate their way through it. Having said that, they're by no means insulated from it, which means when the major change happens, they're going to get affected just like everybody else does, and they've been very resourceful at being able to figure their way through it. And so we keep our eye on that, but it just looks like something that we and everyone else in the app world on Facebook is going to be dealing with now every couple of months through the next, God knows how much time. It just seems to be prevalent amongst all the app providers that they all have to deal with this. We're thankful that we've got such a talented team up there who knows how to navigate their way through it. That's what I'm saying on that.


That concludes today's question-and-answer session. Mr. Goldston, I will now turn the call back over to you for any additional or closing remarks.

Mark R. Goldston

Thank you very much. Well, I want to thank everybody for taking the time today, and as we always say, we would love to hear from you. So any questions or comments you might have, please direct them in through David Bigelow, our VP of Investor Relations, or, of course, you're always free to call either myself or Neil Edwards directly. So thanks again, everybody, and have a great afternoon and evening.


Ladies and gentlemen, this concludes today's conference. We thank you for your participation.

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