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FTD Group, Inc. (FTD-OLD)
F2Q07 Earnings Call
January 25, 2006 10:00 am ET
Executives
Jandy Tomy - Vice President of Investor Relations
Michael Soenen - President and CEO
Becky Sheehan - CFO
Analysts
[Jennifer Watson] - Goldman Sachs
Troy Mastin - William Blair & Company
Justin Post - Merrill Lynch
Paul Bieber - Piper Jaffray
Mark Mahaney - Citigroup
Mitchell Spiegel - Credit Suisse
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the FTD Group, Inc. second quarter fiscal 2007 earnings conference call. During the presentation all participants will be on a listen-only mode, after which we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Thursday, January the 25th.
Your speakers for today are Michael Soenen and Jandy Tomy. I would now like to turn the conference over to Ms. Jandy Tomy. Please go ahead, madam.
Jandy Tomy
Thank you, and welcome to FTD Group, Inc.'s fiscal 2007 second quarter conference call. A press release was sent out this morning highlighting the Company's results. A copy of that release is available at the Company's website, "www.ftd.com" under the Investor Relations section.
Before we begin, I want to reiterate that this conference call contains various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding FTD Group, Inc.'s outlook, anticipated revenue growth and profitability. Also included are statements regarding the anticipated benefits of investments in new products, programs and offerings and statements regarding opportunities and trends within both the domestic and international businesses, including opportunities to expand these businesses and capitalize on growth opportunities or increased penetration of service offerings. These forward-looking statements are based on FTD Group, Inc.'s current expectations, assumptions, estimates and projections about the Company and its industry. Actual results could differ from those anticipated by the forward-looking statements. Certain factors that could cause these results to differ are detailed in the second quarter 2007 press release in the Company's publicly filed reports with the Securities and Exchange Commission. We expressly disclaim any obligation to update forward-looking statements.
I would now like to turn the call over to Michael Soenen, President and CEO of FTD Group, Inc.
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Michael Soenen
Thanks, Jandy, and thanks everyone for attending. For those of you who have had a chance to get through the release, you'll see we had another great quarter here at FTD, significant improvement from where we were a year ago, and the kind of quarter that gives pretty good visibility in the back half of the year, you're going to see not only good current performance but we're actually upping our estimates for year, and I'll get into all of that as we go through the call.
I think before we start, I'd like to -- just had a quick agenda. I'm going to give just a brief kind of, you know, one minute or so overview on the second quarter, and then I'm going to turn the call over to Becky Sheehan, our CFO, who will kind of give an overview in a little more detail on what occurred. I'll come back and give surrounding some outlook around really just our increases in EBITDA and EPS for the year, and why I feel strongly on our improved estimates. And then we'll open it up for some Q&A.
Just my means of summary in the second quarter, you can read the release, but consolidated revenues were up 38.8%. It was very strong. And we saw it everywhere. We saw it, you know, both at domestic consumer business, our florist business and our international businesses. So across the board, revenue increases we thought were good. And we think those numbers could improve going forward.
Our EBITDA grew 27% from the prior year. In our EPS numbers, we did about $0.21. We did $0.19 in the prior year, but I think you need to back out the $0.02 associated with us having had Renaissance Greeting's in that prior year period, but we don't have anymore because we sold it. So if you look at it that way, which I think is the appropriate way, it's kind of roughly a 24% increase in EPS as well. So driving the topline, driving EBITDA, driving EPS growth, all those things are important to us, and we're very pleased with those results.
Certainly Valentine's Day and Mother's Day ahead of us, two biggest holidays of the year, and those have generally been our strongest holidays. If you look back at our historical performance, I think Christmas has been one that we've done good, but we've always struggled a bit, certainly Valentine's Day and Mother's Day tend to be more in our power alley and looking at the early kind of tea leaves pretty good about the way Valentine's Day look.
So with that, I'd like to turn it over to Becky, and let her take you through some of the detail in the quarter.
Becky Sheehan
Great. Thanks Mike. As Mike mentioned, we're very pleased with our second quarter performance.
Let me begin with the consolidated results. Our second quarter revenue was $151.5 million, an increase of $42.3 million or 38.8% over the prior year's quarter. Our international segment contributed $37.5 million of revenue to our consolidated revenue, and the remainder of our revenue growth was organic, largely driven by an increase in order volumes in our domestic consumer business.
Let me also remind you that $1.8 million of revenue in the second quarter of last year came from the Renaissance Greeting Card business, which we divested in December of last year, and when excluded, enhances our revenue growth.
Net income for the quarter was $6.1 million or $0.21 per diluted share versus $5.9 million or $0.19 per diluted share last year. As Mike said, the prior year included income in the second quarter of approximately $0.5 million after-tax or $0.02 per diluted share related to the operations and the sale of Renaissance.
Second quarter EBITDA, excluding other expense of $0.2 million, which is primarily related to net foreign currency losses recognized during the second quarter, was $20.9 million, up 26.9% from the second quarter a year ago when EBITDA was $16.5 million excluding $0.9 million related to Renaissance.
Included in our results this quarter is $0.9 million related to stock based compensation expense and expense associated with the deferred compensation plan we have in place for certain members of Interflora's management team.
Our consolidated operating margins decreased to 11.2% from 13.5% last year. Again, excluding Renaissance, last year's operating margin was 12.9%. The decline is primarily a result of the addition of the international segment, which currently is a lower margin business and continued investment funding in our domestic consumer segment. Our consolidated margins benefited from increased margins in our florists segment.
Now moving onto our segments. Our domestic consumer segment reported year-over-year second quarter revenue growth of 9.8%. This was primarily driven by an increase in order volume. Domestic consumer orders during the quarter totaled $1.136 million, up 7.2% from the prior-year second quarter.
Internet orders decreased slightly to 88.5% from 89.3% due to strong growth in phone order volume. Average order value also increased slightly to $60.01 in the current quarter from $59.33 in the prior-year quarter.
Domestic consumer operating margin was 5.4% of revenue with operating income of $3.8 million compared to operating margins of 6.2% of revenue or $3.9 million in the second quarter of the prior fiscal year. This decline is primarily attributable to continued investment funding in technology.
Now moving onto our domestic florists segment. This segment reported revenues of $44.6 million in the second quarter of fiscal 2007 compared to $45.9 million in the prior-year quarter. But again, 2006 results included $1.8 million of revenue from the Renaissance Greeting Card business, which we no longer own.
Excluding this revenue from 2006, to provide a more comparable measure, revenue was up 1%, primarily driven by sales related to our online services as well as strong system sales.
Operating margins in this business also remained strong. The expansion in operating margins is primarily attributable to the increasing growth margins associated with the increased system sales and the penetration of our online services. Operating margins for this quarter were 32.3% compared to 30.8% in the same period of last year.
International segment revenues were $37.5 million in the second quarter, and operating income was $2.7 million or 7.2% of revenues. Consumer order volume in this segment totaled 473,000, up 15.6% over the same period of the prior fiscal year. Average order value was $64.64 for the period, and Internet orders comprised 69.3% of their order volume.
Now, turning to the balance sheet. At December 31st, 2006 the Company's debt balance was $344.2 million, including notes payable related to the Interflora acquisition totaling $24.5 million. Further reducing our quarter end debt balance, we voluntarily repaid $7 million on our term loan on January 11th, 2007. Total debt is down from $349.5 million as of the end of September.
At December 31st, 2006, the Company had $49 million available under its revolving credit facility. Cash totaled $31.8 million at the end of this quarter, and capital expenditures were $2.9 million in the quarter, primarily, related to continued technology improvements. We remain committed to using our strong cash flow in ways that yield value to our shareholders.
I'll now, turn the call back over to Mike, for him to comment on our outlook.
Michael Soenen
Thank you, Becky. We're clearly pleased with the way we've been able to execute the business plan. As I stated earlier, we feel really good not just about how the quarter turned out, but we feel particularly good looking forward, Valentine's Day and Mother's Day being kind of our strongest holidays, both on an absolute basis and usually relative to our competitors set.
And assuming the initial, just the order volumes we're seeing so far, we feel good about just the way things are showing themselves up. So nothing for certain yet, but certainly we're off to a good start.
I think as I go forward, I'll kind of break it down into three businesses. I look at our domestic consumer business, and we're really going to focus on continuing to expand our products set. What we did with Todd Oldham seems to have been a big success. It continues to be in the top of our product line sellers.
Our new launch with Vera Wang, for those you haven't seen it, will be the premium, dozen rose offering at the holiday in the entire industry. We believe it's going to a very hot product for us. We're very excited about that relationship.
Our marketing team is doing an outstanding job, our tech team and our customer service areas, both keeping CPOs down, on the marketing side. We've made some extra tech investments in the consumer business this quarter.
It won't be going on forever the rate we've been going, but they certainly helped, especially when you look at the surge in kind our online sales or excuse me, in our call centers, where we've been able to keep our product guarantee cost in line or down significantly.
And we've been able to really improve the conversion rate of our call centers that have really helped generate more orders outs of the call volumes we're getting. So I really just feel good about the way that machine is working.
If we look at the domestic florist business, it's really continuing to develop a lot of the new products. What we’ve done with our flower exchange. What we’re doing in our online stuff, both with our local search products and our other online services, we’re continuing to see significant penetration. We’re seeing great penetration with our technology sales and we feel really good about the way that business is setting itself up for the back half of the year.
Our mass market initiative, clearly, is making big headway. We’ve recently hired a very senior executive from Albertsons to join our grocery team. They are really doing a very nice job of locking down the key accounts in this industry and really setting up what I believe will be a big, big business for us long-term. And it’s one I think is off to a very nice start.
Finally, as I look at our international business, I continue to be very please with what’s going on in the UK. Our team there is doing a fantastic job of both taking advantage of the low CPOs in that market, of continuing to make the investments. I think we’ve told investors, expect kind of an 18-month investment cycle out there to get the technology base and the marketing base to where they wanted it to be.
I am very pleased with the progress of those investments. I’d say they’re exactly where I had hoped they would be at this point. And, obviously, their ability to contribute to our financials in an accretive fashion is exactly what we had hoped for.
So when we layer it altogether, both the domestic business, the florist business, what’ going on in that in the international business. I feel quite positive about the company kind of today and what we’re going to look like over the back half for the year.
As I look forward then, I kind of had to make some decisions as to what we want to do with the earnings and the EBITDA and the revenue guidance for the year. For now, I'm going to leave, the revenue guidance inline. I think will give an update, you know, obviously at the end of the third quarter for what we think.
Valentine's Day and Mother's Day are just so big. I just as soon kind of keep that where it is for now. In terms of the EBITDA and EPS, you know, I think it’s appropriate to raise them. So we are going to put revenue at 630 million. We’re going to put net income at 28.2, which translates into 96 cents in the diluted EPS basis. And we’re going to have EBITDA at 89 million.
Just to remind our net income, EPS, EBITDA targets, they include approximately 3 million of expense related to the stock compensation and the deferred compensation with Interflora. Additionally, our EBITDA target excludes other income and expense, which is really our FX gains and losses.
Now for the first six months of the year it was about 1.3 million. A lot of that had to do with the fact that we had hedged the purchase price and picked up a gain on that. Investors should not expect that kind of volatility going forward, and we forecast that number to be neutral. But it doesn’t move by very large quantities going forward, it’s very small amounts. The net income and EPS targets are presented on a GAAP basis, obviously.
So with that, I thought we maybe we’d turn it back over to you guys, and see if anyone has any questions for Becky or I.
Question-and-Answer Session
Operator
[Operator Instructions].
Our first question comes from the line of Anthony Noto with Goldman Sachs. Please proceed with your question.
Jennifer Watson - Goldman Sachs
This is actually [Jennifer Watson] in for Anthony. My question revolves around how your marketing plans have changed given the rollout of Yahoo's new monetization, immediately ahead of the Valentine’s Day period? If you could just talk to what your plans are for marketing and how that has affected them?
Michael Soenen
Well, it really hasn’t. And we’ve been working very closely with Yahoo, and we’re well aware as to what they’re doing. And we understand what the changes are. Our marketing teams has been all over it. We actually see that as a potential opportunity for us.
And we’re going to see how that plays itself out going forward. Clearly, I would prefer no changes prior to Valentine’s Day. And I’m very confident that we’re well aware as to what the changes will be, and I’m hopeful they may even benefit us a bit.
Jennifer Watson - Goldman Sachs
Okay. And just one follow-up, with respect EBITDA margins. Is there anything this year that would cause the seasonality of EBITDA to be any different, with international has the strongest quarter, I believe, in the upcoming March timeframe because of UK, Mother’s Day?
Would that help your EBITDA margins be a little stronger there and then weaker in Q4? Or how do you think about it throughout the rest of the year?
Becky Sheehan
You know, I think you’re right Jennifer, in terms of third quarter is the strongest for international, because they have both Valentine’s Day and Mother’s Day. So we certainly would expect strong performance from that segment of our business during that quarter.
Other than that, there really is no other fundamental change and what we’ve seen in our domestic segment in terms of how we would expect the businesses to perform.
Jennifer Watson - Goldman Sachs
Okay. Thank you.
Operator
Our next question comes from Troy Mastin with William Blair & Company. Please proceed with your questions.
Troy Mastin - William Blair & Company
Thanks. Good morning.
Michael Soenen
Hey, Troy. How are you?
Troy Mastin - William Blair & Company
Pretty good. First question, international, a couple of them here. You, I don’t think, have done much yet to try to sort of boost the performance there via the marketing initiatives that you have here in the US. Just want to confirm that you haven’t done much to really affect change their outside of just locking down some of the technology and putting in some best practices before you execute some of your initiatives to boost revenue and profits over there?
And, also, on the international side, can you give us some perspective on how the average order value has been there? Historically, you gave it to us for this quarter, I wonder if you could give us a perspective on last year? And then, also, any insight on how the florist versus the consumer side is doing there? I guess we saw consumer growth numbers, but anything on the florist you can give us?
Michael Soenen
I'll have Becky get to the metrics. I think on the marketing side they're doing a very nice job on their own. And you're correct, I mean they're still building up an infrastructure. We've done very little in terms of trying to leverage the partnerships between us and them to date.
I think that's going to provide some real up side in the future, and may even have some up side yet this year, but it's nothing we've put in the forecast that we've given you guys. I think as for some of the metrics, Becky, if you just want to answer some of those?
Becky Sheehan
Yes, I think from an AOV perspective what we see there is, quite frankly, it's very similar to what we see here, in that it's been very stable. So it has probably changed slightly to the positive this year compared to last year, but those AOV amounts tend to be very stable.
And then you had another part to your question, as well. Could you just remind me what that is?
Troy Mastin - William Blair & Company
Yes. The performance of the florist side of Interflora?
Michael Soenen
We don't break-out the relative performance, and I would say it's exactly as we had hoped it would be and the trend lines aren't any different than we kind of shared with people initially. It's just kind of doing as we expected.
Troy Mastin - William Blair & Company
Okay. Great. And then on the internet -- sorry, the supermarket side, I think you made some pretty favorable comments in your prepared remarks, Mike. Can you let us know when you think this might start to be a meaningful contributor to your results?
Michael Soenen
Yes, I mean today, you know, it's smaller, obviously, but having locked up kind of I think the two biggest restaurants in the industry here, I would certainly hope coming out of Mother's Day and going into next year we'd have a lot of clarity for you in terms of the size, kind of number of accounts, and amount of purchasing, and frequency of purchasing.
As I said before, we kind of had a large test going this Christmas. That test has done well enough that we're going to be continuing it, and given the opportunity to continue it through Valentine's Day and Mother's Day, in some cases. We already have those commitments.
So I think when I see all of that and I have all of that data in front of me, kind of three holidays, at retail and a fairly large number of locations, I would guide investors to expect going into next year us to give you a lot more clarity as to what that size maybe, if it's going to be a little bit big or a lot big.
Troy Mastin - William Blair & Company
Okay. Good. And then, finally, on the consumer side a couple of quick questions. Can you just give us some insight on the competitiveness of the category? I'm guessing it was not as bad as it was last year, obviously, given your results, but just some other clarity there?
And then your investment in the technology in this segment, is this just the website and call center, or is there some additional investment? And how should we think about margins in this segment as a result of your technology investments? Will they begin to improve in a quarter or a couple of quarters?
Michael Soenen
Yes. I think two things here. I think, one, the holiday was, obviously, competitive but much less so compared to the prior year. And because of the personnel changes we made we were much more efficient, so you had kind of a double lift for us. And that's why I think you see such a turnaround to the holiday a year ago.
And I recognize, you know, we made those improvements, and I think they're continuing. We have Valentine's Day and Mother's Day ahead of us. I would expect us to be able to carry that through. And I would hope that the environment continues to remain as rational as it has been, because that would certainly be good for us.
Our estimates we've given you guys kind of assume a very, you know, a somewhat aggressive environment. And if we end up with a more rational environment, that will obviously be upside to us for the year.
In terms of margins going forward, yes, I mean these aren't long-term issues. If it's not one quarter it'll certainly be two. And that's probably what's in my head. I've just got some extra spending that I'm doing on some projects that I think have -- warrant the margin decrease today for setting us up for kind of the next two or three years.
We're seeing huge returns from the money that we've spent on the call center. We just have a real rock star group over there right now. And I'm very pleased with what's going on there. And the tech stuff, in terms of giving us some more marketing capability, some more capability on the website, and some more capability in the call centers.
These guys have really done a nice job of scoping out some really short return projects that'll be returning in very short time periods, 12 months, 24 months. And I think it'll take the back half of the year to spend that money. And we should expect margins to be right back in line.
Troy Mastin - William Blair & Company
The margins in line by the--?
Michael Soenen
By historical standards.
Troy Mastin - William Blair & Company
By the second half of the calendar year for '07 or are you talking--?
Michael Soenen
No. By the end of this fiscal year, I would expect this to be in line, so no more than two quarters.
Troy Mastin - William Blair & Company
Great. Okay. Thanks a lot. Good quarter.
Michael Soenen
Thanks.
Operator
Our next question comes from the line of Justin Post with Merrill Lynch.
Michael Soenen
Hi, Justin.
Justin Post - Merrill Lynch
Hi. Good morning. Could you talk a little bit about the EBITDA? It looks like, you know, you're definitely increasing your guidance. What's really driving the improvement in outlook now versus a quarter ago?
Michael Soenen
Well, I mean I think versus a quarter ago, you know, it was really unclear where CPOs were going to go. We kind of had some visibility on revenue, but Christmas was really a big hedge for me. I didn't know what that was going to look like. I think we're through that gate now.
I've always had much more certainty around Val and Mother's Day. I mean we've never had a tough time there. It's always a big holiday. We have to focus and execute it well. But we haven't had a big holiday there. So I think I was very reserved going into Christmas, knowing what happened a year ago.
I think I'm much more bullish seeing what happened this holiday, and my two strongest ones. I'm just feeling better overall about our opportunities on the revenue side and our ability to get revenue at good or attractive, I should say, CPOs and being able to convert that to earnings.
Justin Post - Merrill Lynch
Okay. And do you have anything new in store for Valentine's Day on a product basis? I think you mentioned something earlier in the call, but some -- a couple of things that you think are really going to move the needle for you this year?
Michael Soenen
Well, I think our Todd Oldham and our Vera Wang stuff are going to be two of the hottest sellers in the space this holiday. And I would encourage anybody to go to the site now and take a look through the Vera Wang collection. It's really spectacular.
I think what we've been doing with Todd, Todd has been in our top 10 best sellers for the last five months, month after month. And so, that product line is taking off quite nicely. The Vera Wang stuff is going to be our very high end, very premium product this holiday, and I think those will be very special items for our very special customers.
Justin Post - Merrill Lynch
Okay. And then did you mention how much FX helped you on the revenue line versus your expectations as we entered the year for the international business?
Michael Soenen
Now that's still really small. We're still building that business out. I think where it's going to help us is -- you know, as we're building it out, I mean -- I think this will be or could be $100 million or $200 million business some day. That's what I expect it to be.
Today, you know, I just got back. We were down in Bogotá, and the team was down in [Kyoto], we were traveling the farms, working with the growers. And having the very, very best growers marketing the product on a branded basis on that exchange, our retailers, being the florists, the grocers, and even our end consumers through ftd.com having access to that product and us really playing the credit facility in the middle, is something that I think from our consumers, from our florists, and from the growers, everybody sees how that makes a tremendous amount of sense, and there's a lot of momentum behind the movement.
So if I were to steer it out, it's a little bit like with dot com. It kind of was a small business. It was a $10 million, $20 million, $30 million business, and then one year it popped to $100 million business. And I think this will be the same type of business. We're going to see a slope where it gets to $5 million, $10 million, $15 million, $20 million in very short order. And then it will be the question is how do we push it to $100 million or $200 million business? And it's unclear to me if that's a three-year or a five-year timeframe. But we'll get our heads around it and keep giving you guys updates as we get through it.
Justin Post - Merrill Lynch
Okay, yeah. That's great. I was just asking about the foreign exchange benefit you got for your international business?
Michael Soenen
Well, that was from prior quarters, right, when we hedged the purchase price.
Justin Post - Merrill Lynch
Okay. I was just wondering in the quarter how much revenue benefit you got from exchange rates?
Becky Sheehan
We gave our international --
Justin Post - Merrill Lynch
Yeah.
Becky Sheehan
You know, when we gave our target for the year we had international, obviously, built into our consolidated target. And I think, as Mike said a little bit ago, they are performing exactly as we thought.
Justin Post - Merrill Lynch
Okay.
Becky Sheehan
So at this point the FX is not something significant that's driving the topline results.
Justin Post - Merrill Lynch
Okay, great. Thanks a lot.
Operator
Our next question comes from the line of Aaron Kessler with Piper Jaffray.
Paul Bieber - Piper Jaffray
Good morning. This is Paul Bieber for Aaron. I was wondering if you could just give some color on the ASP increase in the international segment sequentially. And, also, where do you see longer term the Internet orders going to Internet segment in terms of as a percentage?
Michael Soenen
You mean in the consumer business or in the international business?
Paul Bieber - Piper Jaffray
In the international business?
Michael Soenen
I mean I think the ASP increase – go ahead, Becky.
Becky Sheehan
Yes. So the average order value increase was about 2% year-over-year. It's, you know, like I said earlier, it's in line with what we see here. So it's a very stable number, I'll call it. The internet order activity today as, you know and as we've talked about is much lower in the UK right now, than it is here in the US. We expect that to grow over time.
Michael Soenen
69%.
Becky Sheehan
Of there in the quarter.
Michael Soenen
In the quarter is internet. So it’s 69% internet today. We're about 90, 88 or so.
Becky Sheehan
Right.
Michael Soenen
And so let's just say over some reasonable timeframe two years we would expect that look very similar to ours, maybe less.
Paul Bieber - Piper Jaffray
Okay. Thank you.
Operator
Our next question comes from the line of Mark Mahaney with Citigroup.
Mark Mahaney - Citigroup
Great. Thank you. Two questions. First how long does it take Interflora to reach a kind of margin levels that you see in the US market? And what would be two or three other things that would get those margins to those levels?
And secondly marketing costs per order in the December quarter seem relatively high. Was there anything unusual about that? Is that the base from which the trend going forward? Any thoughts on how we should think about marketing costs per order going forward? Thank you very much.
Michael Soenen
So on the Interflora thing, you know, I think I just said before, we've got about 18 months of investing to do. I'd say we're probably six months into that now, and then I would start to expect that business to look similar to our business.
I think there's a couple of differences, one they’ve much larger consumer business to florist business on a relative basis, and since the florist business has high margins that will somewhat, you know potentially leave there target margin in the future somewhat below ours.
But then offsetting that they have much lower CPOs, I think CPOs over there run around $6 or $7, where for us they tend to run close to $12. And so when you kind of look at that spread, that gives them the opportunity to do better than us, assuming that market stays more rational.
So I'm kind of putting my stake in the ground and saying not this June 30 but the next June 30, so say 18 months from now, I would expect that business to have very similar margins to us. So I think that's kind of where we're going to go.
On the CPO side, I guess I've felt really good about CPOs in the quarter. You know, when you say they were relatively high, I guess your thought is that, what? They were -- I think they were, what -- what were they in the quarter -- 12 and change, right, 12?
Becky Sheehan
Yes, 12.7%. I'm not sure if you're looking at consumer segment, just what we've spent year-over-year, or as a percentage of revenue?
Mark Mahaney - Citigroup
Consumer spending on an absolute level per order?
Becky Sheehan
Yes.
Michael Soenen
Right. So I mean I think it was up a bit. I mean it wasn’t quiet up 10%, but it’s down significantly from the growth rate that had been occurring. So I think that’s there. I think it’s also to understand that Christmas is probably the most competitive holiday we have, because you know, we’re competing with gift basket guys, the meat and cheese guys, you know the chocolate guys. We have all these people we need to compete with.
I think at Valentine's Day, it’s a much narrower competitive set, and at Mother Day's same thing. I mean some of those holidays we don't have to advertise, at all, and we can almost garner in a large chunk of volume. So I think you know it would be wrong to pin this marker and say its how we go forward. I think if you look at the growth in CPO this year to last year for the holiday, look at it for Valentine's Day and Mother's Day. We think it would be slightly lower growth for those to two holidays compared to this year, for the Christmas Holiday.
Mark Mahaney - Citigroup
Thank you very much.
Operator
Our next question comes from Mitchell Spiegel from Credit Suisse.
Mitchell Spiegel - Credit Suisse
What is your current restricted payments capacity under your senior sub indenture?
Becky Sheehan
It is -- there is obviously, a fairly specific formula to calculate, but it is approximately $20 million.
Mitchell Spiegel - Credit Suisse
It that through the December quarter?
Becky Sheehan
Yes.
Mitchell Spiegel - Credit Suisse
Okay. Thank you.
Operator
[Operator Instructions].
Our next question comes from the line of Justin Post with Merrill Lynch.
Justin Post - Merrill Lynch
Thanks for taking the follow up. Mike, I wonder if you can comment a little bit more about the Yahoo changeover. Do you think you might be able to spend more money with them, a little bit more effectively? And could that help your results in the quarter?
Michael Soenen
It could, you know, we don't know. Anything that’s new occurs bothers me. You know Goggle changed their algorithmic kind of going into last December, a year ago, not this December, a year ago, and that didn't work out so hot. I think in Yahoo side, we’ve had a tremendous amount of visibility in what they’re doing. It’s going to look a lot more like Yahoo, and should be more efficient for us.
So we're viewing it as when people make searches, looking for flowers, we should be both there because we're able to bid to be there and, b, we're most relevant. And the combination of the two should be better for us than competing against people who are maybe not as relevant or willing to pay top dollar. So we have forecasted improvements, and we are optimistic that we will actually see either improved conversion or improved relevancy, or whatever it might take for us to get to more efficiency there. And if we are more efficient we'll spend more money.
Justin Post - Merrill Lynch
Great. Thank you.
Operator
Mr. Soenen, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.
Michael Soenen
Well, so I thank everybody for your support. Obviously, we're having a hell of a year. Business is doing well. I always like reporting good numbers and up in guidance, and look forward to getting back to you guys after Valentine's Day and, hopefully, being able to give you more of the same. So, with that, I'll turn it back over to the team here.
Jandy Tomy
That was FTD Group, Inc.'s fiscal 2007 second quarter conference call. If you did not have the opportunity to listen to the entire call, a replay will be available thorough February 8th, 2007 by calling 1-800-633-8284 for North American callers or 402-977-9140 for international callers. Please mention conference ID 21324091. Thank you.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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