FTD Group F1Q08 (Qtr End 9/30/07) Earnings Call Transcript

FTD Group, Inc. (FTD)

F1Q08 Earnings Call

November 9, 2007 11:00 am ET

Executives

Katie Pyra - Investor Relations

Michael J. Soenen - President, Chief Executive Officer, Director

Becky A. Sheehan - Chief Financial Officer

Analysts

Analyst for Anthony Noto - Goldman Sachs

Troy Mastin - William Blair & Company

Mark Mahaney - Citigroup

Justin Post - Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FTD Group Inc. fiscal 2008 first quarter conference call. (Operator Instructions) Your speakers for today are [Katie Pyra], Mike Soenen, and Becky Sheehan. I would now like to turn the conference over to Katie Pyra. Please go ahead, Madam.

Katie Pyra

Good morning. Thank you and welcome to FTD Group Inc.’s fiscal 2008 first 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 at 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 business.

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 first quarter 2008 press release. We expressly disclaim any obligation to update forward-looking statements.

I would now like to turn the call over to Mike Soenen, Chairman, CEO, and President of FTD.

Michael J. Soenen

Thanks, everybody. Hopefully you’ve had a chance to look at the release. I’ll set a quick agenda for the call today. I’ll cover off on our key results, Becky is going to take you through some of the details on the quarter, I’ll come back to talk to you about the outlook for the remainder of the year. Hopefully we’ll move through that fairly quickly and then we’ll open it up to the question-and-answer session.

From a very high level, you see revenue was up almost 14% in the first quarter. Becky will take you through the different components. We feel very good not just about the top line but as usual, our ability to generate strong EBITDA and earnings growth, EBITDA being up almost 7.4% and our EPS growth, which is up 56%, but you have to kind of back out $0.05 of that that we picked up on a tax rate change in the U.K., but even out of that EPS grew almost 25% in the quarter, which demonstrates our continued focus on generating profitable revenue growth and consistent and increasing earnings.

You’ll also see we announced my promotion of Chairman of the Board of Directors. I am very much looking forward to that expanded role over the next few months and I view this as a big opportunity for the company.

We are going to go ahead and look for, begin the search for a new CEO and President to handle the day-to-day operating responsibilities of FTD. I view this, like I said, as a big opportunity for the company, primarily because I’ll be able to run the company for really as long as it takes for us to find the right CEO or the right President to run the company going forward. A lot of companies don’t have this kind of timeframe to work with and my ongoing commitment to be with the company not just through this transition but as Chairman going forward hopefully will ensure a very, very smooth transition and maximum continuity in the company going forward. We’ll talk a little bit more about that going forward, but clearly a decision, a choice I’ve made on my own after 10 years of being with FTD, a change I’m looking forward to and one that will have a minimum impact on the company.

I’ll now turn the call over to Becky and let her take you through some of the details on the quarter.

Becky A. Sheehan

Thanks, Mike. We’re pleased that our operating performance continues to sustain our improved margins and produced solid bottom line results during the first quarter. Let me begin with the consolidated results.

Our first quarter revenue was $123.7 million, an increase of $14.9 million, or 13.8% over the prior year quarter. Our domestic segments contributed $88.5 million of revenue and Interflora contributed $35.2 million of revenue, an increase of 100% compared to the $17.6 million of revenue in the first quarter of last year.

Please keep in mind that Interflora was acquired at the end of July last year and therefore contributed only two months of revenue to last year’s first quarter. On a full quarter basis, Interflora grew 25% year over year.

Fiscal 2008 EBITDA, excluding other income net was $20.1 million, which represents growth of $1.4 million over the same period of the prior fiscal year. Net income for the quarter was $8.2 million, or $0.28 per diluted share versus $5.4 million, or $0.18 per diluted share last year.

In the current period, the U.K. enacted a law reducing the statutory tax rate from 30% to 28%. This change resulted in a benefit to diluted EPS of $0.05 recorded in the first quarter. Excluding the $0.05 of EPS benefit, diluted EPS still grew at 25% in the current year quarter compared to the prior year.

Now, moving to our segments, our consumer segment reported year-over-year first quarter revenue decline of 3.5%. This was primarily driven by an 8.4% decrease in order volumes, which totaled 703,000 during the first quarter. However, our order volume decline was mitigated by a 4.7% increase in average order value, which rose to $63.36 in the current quarter from $60.52 in the prior year quarter.

Operating income was $3.6 million, or 8% of revenue, which compared to $3.8 million in the first quarter of the prior year, or 7.9% of revenue.

Operating margins during the period strengthened as the result of increases in gross margin, as well as effective management of our marketing, technology, and overall administrative costs.

Moving on to the florist segment, which reported revenue of $42.8 million in the first quarter of fiscal 2008 compared to $43.8 million in the prior year quarter. This 2.3% decline in florist segment revenues was related to reduced clearing house orders, principally attributable to the elimination of a large customer that we discussed in the fourth quarter of last year, reduced container sales, both of which were offset by increases in fresh flower sales through our flower exchange.

Operating margins in this business remains strong. Operating income for the florist segment was $13.8 million, or 32.3% of revenue compared to $14.2 million, or 32.5% of revenue in the same period of last year.

Finally, in our international segment, revenue was $35.2 million in the first quarter compared to $17.6 million in the first quarter of last year. As a reminder, Interflora U.K. was acquired on July 31, 2006 and contributed two months in the first quarter of last year. On a full quarter basis, as mentioned, revenue increased 25% this year compared to last.

Operating income was $3 million, or 8.5% of revenue compared to $1.2 million, or 6.8% of revenue in the prior year first quarter. Consumer order volume in the international segment totaled 407,000 in the first quarter of fiscal 2008, which represents an increase of 9.1% compared to a similar three-month period last year.

Average order value in the international segment was $70.12 for the quarter, compared to $62.84 for the two-month period in the prior fiscal year. Internet orders comprised 71.7% of the order volume during the first quarter of fiscal 2008 compared to 69.7% for last year.

And now turning to the balance sheet; cash totaled $13.7 million at September 30, 2007. Total debt was $313.4 million, which includes $1.8 million in notes payable related to the Interflora acquisition, which are due in the first half of fiscal 2009.

As of September 30, 2007, the company had approximately $72 million available under its revolving credit facility. Additionally, FTD paid a quarterly dividend on October 4, 2007, to shareholders of record on September 20, 2007, in an amount totaling $4.8 million, or $0.1625 per share.

Our business model continues to generate strong cash flow and we remain committed to returning cash to our shareholders while actively investing in the business.

I’ll now turn the call back over to Mike for comments on our outlook.

Michael J. Soenen

Thanks, Becky. On our domestic consumer business, obviously our challenge and opportunity there is on the revenue side and I’d like to talk to you about some of the initiatives we’re doing in that regard.

Certainly we continue to expand our product set. What we did with Vera Wang, that collection has gone over very well, that designer collection. We are continuing to expand it. In fact, we have a new holiday collection, a Vera Wang product that we’ve launched, including new wreaths and other seasonal items that I have a feeling will be very strong and that line will continue to grow.

Todd Oldham, our product line there continues to be very well-received. We launched six new items for the holiday season and between the Vera Wang and the Todd Oldham collections, we expect both of those lines to continue to grow.

Even further, we’ve entered into a relationship with [Harrington David], as you know, to let them to direct ship their product on an every-day basis. We also have a test program with them for the holiday season where a limited number of our florists will be able to deliver [Harrington David] product on a same-day basis, which we think will be a very enlightening task for us to learn how much demand is there very, very close to the holiday, when shipping rates are very high.

So we are very excited about our relationship with [Harrington David] and we are very excited about what we are seeing with Todd Oldham and Vera Wang. We think the fresh new product and the new capability with gift baskets should give us a lot of insight into not just current performance but what we could maybe longer term with distributing other products through our florist channel.

In terms of our marketing side, the challenge always remains with the online marketing where you continue to see a very aggressive market with paid search between us and Pro Flowers and 800. You also seem to see a fairly aggressive spending with respect to the network purchases.

Strategically, we know that we need to minimize our dependence on those channels for us to continue to drive the revenue growth and earnings growth that we want. In doing so, you’re going to see us continue to expand our radio test. We have been doing some tests in several markets. Historically, we are expanding that program now as we are beginning to get more and more insight as to ways to more profitably advertise in that media to generate revenue and earnings growth.

Our affinity and our partner programs continue to expand. You’ll see that we’ve launched a new partnership with Sky Mall. We’ve expanded our relationship with United Airlines and there are several other partners that we’ve added in the quarter that will contribute to continuing to move the revenue side of this business.

Our direct marketing spend is also expanding this year. You’ll see us increasing our catalogs and postcards, and finally our Yellow Pages program, a program that frankly we haven’t participated in in a number of years, is being relaunched. Investors of the company will know that roughly a year ago, we ended the relationship with a fairly large customer who primarily advertised in the Yellow Pages and strategically, out of respect for that relationship, we made the decision not to compete in this channel. Obviously with that customer having moved away from FTD, we feel this opens up an entire channel for us to go after aggressively with our own business, and in doing so we have launched a program that will cover nearly 65% of all the markets. We’ll be in roughly 2,200 books in total, so a very aggressive program there and I think when we look at what we’re doing in Yellow Pages, how we’re expanding our catalog and direct marketing, expanding the radio spend and the partner programs, and funding that through a reduction in what we’re spending in the online, you’ll see a much more diversified mix from FTD going forward and while we’ll probably have some learning along the way, I think it will be a much better mix for us and a much healthier mix when we think of growing the company over the next three to five years.

For those of you who visit our site frequently, you’ll see that we have a new version of the website out there. We’ve done a significant amount of work both redesigning the look and feel of the site, the friendliness and really just trying to improve the overall customer experience.

We started testing the new site in October. We feel very confident that this will be an improvement for us. It obviously doesn’t impact traffic but hopefully it will give us some life on conversion rate and as we all know, even with the same traffic or flat traffic, which is not what we’re expecting but if that occurs, an increase in conversion rate is meaningful to us in terms of our ability to grow the business. So we’re hopeful and optimistic that these changes to the actual website itself will also help in our top line growth.

As I shift and I start to think through the florist business, we felt really good about the quarter and by that I mean internally, we knew the numbers were going to look a little odd because we lost one of those top customers who we decided not to have this ongoing relationship with. And as a result, the revenue and EBITDA really came in line right on plan with our internal forecast. I think this is a business that is always going to have some businesses that are growing and some legacy businesses that are shrinking, but I want to take you through some of the stuff that we have that’s growing and give you a feel for why we are so optimistic about where this business is headed.

The POS system, the point-of-sale system on the technology front is really a key, strategic initiative for us because once we are able to get the point-of-sale systems into the hands of customers, it really allows us to have that customer for a very long period of time.

So as we look at our technology sales and our POS growth for the prior year, we have increased our point-of-sale footprint almost 18% versus the prior year. A lot of that has been within the very, very top customers within the floral network. We also take a look at another metric which says how many of our competitors’ customers, specifically Teleflora’s customers, are we converting to our systems versus how many are we losing to their system. We think that’s a very telling sign over where market share is headed in the business.

And in this case, for just the systems we’ve been able to track, we know that we have been selling roughly 2.6 systems, meaning converting 2.6 of their customers, to FTD for every one that we are losing to them. That is very meaningful and very impactful.

It doesn’t show up in the current performance in the sense that the systems get sold and they don’t necessarily have huge profit margins associated with them, but controlling the point of sale and being able to steal share from our competitors is significant and meaningful to us over the long term and our ability to sell in other products and services.

The third part of getting the technology in place is obviously the order volume that comes with it and as we look at the systems where we have had -- we have them convert to us and we look at all the orders that we’ve gotten as a result of conversions to FTD, and we back to the orders we’ve lost from conversions away from FTD, we are actually seeing a 56% increase in the total order volume from people who are switching to a new POS system.

So we are getting the systems in, we are stealing share in that regard, in a material regard, and we are getting increased order volume from those customers. I am hopeful that we’ll be able to continue at the pace that we are going. I would expect this to get much more competitive. At the same foot though, we have what I believe is by far the best product out there and I am very excited about our progress in this regard.

The floral exchange, which as you guys will recall is another big initiative for us. We have over 1,100 buyers who are buying from our FTD flower exchange. This is the Internet site where you can go to and we actually connect growers directly with the retailers and we are able to skip a lot of the steps in the distribution system.

Now, the 1,100 buyers that we had in this quarter compares favorably to the 200 or so buyers we had in the same quarter a year ago, so we’ve seen a significant increase in the number of people using the system.

Beyond that, if you just look at the revenue growth in and of itself, we see that growth was up almost 100% for the prior year in the segment and in doing so, we continue to believe and we’ll continue to invest in this area and are hopeful that as more and more customers migrate to the Internet and more and more of the florists recognize the need to source product more efficiently, that the FTD flower exchange, especially with the credit we are able to extend on the exchange, will be a very good vehicle going forward with which to go after the wholesale market.

We also are going to have businesses that are in decline and will probably decline or stay flat. Our container sales, which I’ve said on numerous occasions, it’s not strategically a business that I think FTD is terribly focused on. We will continue to do our best in that business but wholesaling of containers is not really a long-term strategic business. We are seeing revenue declines there. It’s not a profitable business for us in any meaningful sense and I’m comfortable with those declines.

And certainly the clearing house order volume, we see a decline there but the majority of that decline is the fact that our very large center of orders, this yellow pages customer who we had before, when that business shifted to a competitor, we knew that we were going to be losing a significant amount of volume and that’s what you see in the numbers in the revenue decline there.

So as I think it through and I look at what’s going on within the florist business, we are absolutely knocking the cover off the ball in the technology side. I’m very encouraged with our progress in the flower exchange, and the places where we are taking the losses are strategically not as important and, from a margin standpoint, not that impactful. And I feel very good that as we are transitioning away from the legacy businesses and into more growth businesses within our vertical, this business is absolutely on the right track.

The international front has been a complete home run and my hat’s off to everybody within FTD who has been able to help with that initiative. As you guys know, we bought that business roughly a year ago for probably 10 times EBITDA. At the time, there were some people questioning the logic of paying that much for the business, but within the first year the operating income has increased roughly 50% from where we acquired it, and the management team over there has just done an absolutely first rate job and we are extremely pleased with that progress.

You’ll also see in the numbers not just impressive revenue growth but the marketing costs per order there are roughly half of what they are here and the really favorable market over there in terms of being able to market and acquire customers, to be able to generate the same type of economics on a per-order basis we are able to here is very attractive for us from an investment standpoint.

So we are going to continue to spend and expand marketing there. We expect to continue to see the growth and we are very pleased that we have been able to be disciplined with expenses and actually increase margins at the same time.

I still firmly believe this is an excellent platform for growth. As you guys know, there are a significant number of other associations over there, many of them not for profits today, many of which have the opportunity hopefully to be converted to for profit, and that still remains a long-term strategic pillar of growth for us and one that we’ll continue to be focused on.

In terms of our targets for the year, we are obviously very optimistic about our business and our focus is going to continue to be on cash flow and profitability. That’s the kind of company we are and we are going to continue to do that.

We are reaffirming our revenue and EBITDA targets for the year -- revenue at 645, EBITDA will be $98 million, which includes $4 million of expense and stock and deferred comp. We’ll hit EBITDA margins of roughly 15%. That should translate into about $1.23 a share, which reflects the $0.05 on the U.K. tax rate change.

If I take a step back and I just look at where we are and where the stock is on our trading multiples, clearly I’m not thrilled with the trendline that the stock has taken but when I look at it on the raw numbers, this company should grow roughly 5% this year. We should have EPS growth in the 14% to 15% range, and we are a company that’s trading at roughly 11 to 12 times trailing earnings. So from a valuation standpoint, we feel that we are very inexpensive in that regard.

We also look at it on an EBITDA basis and when I see ourselves trading in kind of the mid sixes to high six in terms of multiple of EBITDA, we also look at that and feel that that’s a fairly inexpensive stock, especially considering we have roughly a 4% dividend yield on the company.

So we’ll continue to look at how we use cash. We obviously pay the dividend. I guess all I was really thinking through is that while we don’t have the stock buy-back program out there today, if our stock were to continue to be at current or below current levels, that is certainly something that we are going to take a very hard look at reenacting, because of the kind of growth and revenue and earnings we are putting up, for the stability of the company, for the dividend, I think that’s something that the company is going to start taking a very hard look at in the next quarter.

With that, those are the majority of my fixed comments today. I thought maybe we’d turn it over back to the operator and open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Anthony Noto with Goldman Sachs.

Analyst for Anthony Noto - Goldman Sachs

-- in for Anthony. A question on the international growth; if you could break down the components of that a little bit more clearly for us, specifically on a currency neutral basis, what would the year-over-year growth have been on a total revenue basis and in average order value?

Becky A. Sheehan

Currency was about a 7% fluctuation this year compared to last, so the 25% would have otherwise been 18% without currency. The AOV would have increased about five points.

Analyst for Anthony Noto - Goldman Sachs

Okay, that’s very helpful. And then also, could you comment a little bit on what you are seeing with regard to consumer spending? Obviously there are increased concerns about the economy. Is this is any way contributing to your maintaining the top line guidance, despite the upside this quarter?

Michael J. Soenen

I’m sorry, the second half of the question again, maintaining guidance?

Analyst for Anthony Noto - Goldman Sachs

Basically you guys are maintaining your revenue guidance despite some top line upside this quarter. Does that have anything to do with concerns about consumer spending or anything you are seeing along those lines?

Michael J. Soenen

Well, we don’t have any specific concerns. Clearly we keep an eye on it but the reality is the first quarter for us is completely meaningless in terms of the size of the revenue, and so our view on Christmas hasn’t changed but as you know very well, we’re just not going to know until we are there and we haven’t identified any specific risk in consumer spending as a reason for not updating our numbers. We just rarely do it at the end of the first quarter because it’s just to small relative to Christmas. We really try not to take a point of view unless there’s something material and meaningful that’s occurred until we come out of the holiday.

Analyst for Anthony Noto - Goldman Sachs

And is it fair to assume that you guys wouldn’t have necessarily seen any change in behavior yet because purchases are probably closer to the holidays for you?

Michael J. Soenen

Yeah, we just wouldn’t know yet if there was a problem.

Analyst for Anthony Noto - Goldman Sachs

Okay, great. Thank you.

Operator

Our next question comes from Troy Mastin with William Blair & Company.

Troy Mastin - William Blair & Company

Good morning. A question non the tax change in the U.K.; what kind of an impact, if any, would this have on your longer term tax rate? And was there any sort of a true-up here for the full calendar year, so it was abnormally high in terms of the effect this quarter?

Becky A. Sheehan

The change is really because we had to true-up our deferred taxes under FAS-109, so that’s the majority of the change. The change to the full year rate is probably less than a half a point.

Troy Mastin - William Blair & Company

For the whole company?

Becky A. Sheehan

Correct.

Troy Mastin - William Blair & Company

Okay. And that would be favorable, I would assume?

Becky A. Sheehan

Yeah, that’s correct.

Troy Mastin - William Blair & Company

Okay, and on the florist business, your gross margins were down about 250 basis points, but operating margin only down about 20. My guess is this is due to this change in the one order gather that was used in the Yellow Pages. Correct me if I’m wrong on that, that the costs that you’ve reinvested in this business are just showing up maybe in the gross margin line rather than in the sales and marketing line?

Becky A. Sheehan

That’s right. I mean, it’s just how it shows up in the income statement, that’s correct.

Troy Mastin - William Blair & Company

Okay, and then when you look at the investments that you are making in the florist business in particular, how long does it take for these to pay off? Because I think last quarter you said in letting this customer walk away from you, or this florist partner, that you are reinvesting in the business in other areas. You talked about the POS system. Is this the kind of thing that is going to take some time to show up in the florist business? And once we lap the loss of this business, and if you strip out some of the unusual items like the containers, what kind of growth rate do you think we are seeing today on a normalized basis [in the] florist segment?

Michael J. Soenen

Right, so yes, it is. For example, when I lose a customer who’s sending order volume through the Yellow Pages today, that’s obviously an immediate revenue hit. Investing in the Yellow Pages, getting the books printed, the distribution, that takes roughly a year, sometimes longer, to get fully out there so there is a tail or a drag on when we are going to see it.

What do I really think the business is doing? I think I am easily in this 1% to 3% range, which is kind of what we’ve targeted long-term for the growth. It’s just a matter of balancing the businesses that are declining, like containers, like the loss of a key customer, and the addition of the higher growth ones.

When I see technology being up 18%, when I see my fresh flower sales -- granted they’re small at this point -- up almost 100%, I just have dramatic growth in the stuff that we’ve invested in and I’m just having kind of the similar declines in businesses that I think our legacy businesses that are fading.

Troy Mastin - William Blair & Company

And on the POS system, can you give us some idea where your market share stands today, so we can get an idea of how much further you can maybe take the success that you’ve seen lately in getting that order volume growth out of the new customers for the POS system?

Michael J. Soenen

I don’t want to give those numbers out, just competitively, for where we stand. But let’s just say it’s very early in that game and I’d say that for years, FTD was really at the bottom half of understanding the importance of technology. Three years ago, we really started to make these investments and I think today we have by far the best product here, and we are just starting to see -- it’s very early in the game and we are just starting to see the value that investment will have for us going forward.

Troy Mastin - William Blair & Company

Okay, great. And then on the international segment, it sounds like your average order value was up about 5%. You had nice growth in the -- that’s a currency neutral basis -- nice growth in the demand as well, the number of orders.

Is there anything you can point to that’s really driving this? Is it your marketing, your merchandising? Is it order handling fee? I’m trying to understand the levers that you’ve pulled so far here and how many more levers you still have to pull to drive both volume and price internationally.

Michael J. Soenen

I think the management team there has done a great job. They inherited a business that for 50-plus years had been managed as a not-for-profit. I think when we bought it, we said we were going to be investing in it for 18 months at least to start to see what we are talking about in terms of revenue growth and margin growth.

Specifically, is there upside left in [AOVs] or is there upside left in margin? Sure. What levers are we pulling? They keep making new, better, more innovative products and as they bring the new products to market, the merchandising group has done a great job and the products are being very well-received.

We are seeing them continue to be very efficient in marketing. They are very heavy in the direct marketing over there and the catalog business. They also control the brand terms on the Internet much better than we are able to here and they’ve been able to get more without having to spend a lot more to do it, and whether that’s in the online space or whether that’s becoming better direct marketers, I believe there continues to be slack in the rope, if you will, and some opportunity to continue to be incrementally more efficient there.

Troy Mastin - William Blair & Company

Okay, great. And then, on the consumer segment, you had your I think your highest growth rate in your average order value in a long time at 4.7%. Curious if there’s anything specific that drove that.

Michael J. Soenen

The question again, Troy? I didn’t understand it.

Troy Mastin - William Blair & Company

Your average order value in the consumer business domestically was up -- I think it was 4.7%. You’ve kind of been flat for the last couple of years, so this kind of stuck out. I’m curious if there is anything specific here that’s happened.

Michael J. Soenen

Part of it is we are making a bit of a shift towards more of the florist fulfilled product. The direct ship product is very popular from a price standpoint but we’ve also been trying to merchandise a little bit better and market a little bit better the new florist fulfilled products we’ve created. They are being very well-received and I think inside of a world where previously you would have seen declines in products that are fulfilled by florists offset by increases in direct ship product. We are seeing that to be more of a stable state now, where the percentage of florist fulfilled and the percentage of direct ship are starting to remain stable.

And since the AOVs in the florist fulfilled are somewhat higher, you are seeing that drive the overall AOV up.

Troy Mastin - William Blair & Company

Okay, good. And then one final question; with the new marketing investments you are making, the partnerships you mentioned, the new website, can you see a light at the end of the tunnel here in terms of your growth rate in the consumer business? If you hold maybe the competitive environment for online marketing constant, do you think you can return to a nice -- maybe not a nice growth rate but a growth rate again in this business in the next couple of quarters, or --

Michael J. Soenen

Well, sure. I mean, I want to -- let me be clear though as to what I think we have happening here. I think you have a couple of things. One, the decline in our consumer business really began last February, which I think if you’ll recall was we had a major snowstorm in the Northeast. I think as an industry, we delivered very poorly for customers as a result of that, and that’s when it really began. So we’re going to begin to lap those lower numbers in February, so I’m going to start with that.

I think the other risk is obviously we are starting a very different merchandising mix, so we are going to have to learn so I have to leave a little bit of room in our numbers, which we’ve left to say well, maybe some things don’t go as we perfectly planned. I think that’s kind of the second point to keep in mind -- we are going to A, lap lower numbers; B, we are trying new stuff, so we are going to have to learn a little bit.

But assuming we get over the var and the lower numbers and we are somewhat effective at delivering these new marketing programs, I would expect us to continue to -- to get back to better revenue growth in the business.

I also want to highlight, and this is just a difference in the way our business gets run versus our competitors. I always have a difficulty answering this revenue growth question.

In the quarter, we did very well in terms of EBITDA in terms of what we’ve returned to investors, and yet you turn around and look at our competitor and I think that they’ve had roughly 4% -- excuse me, a $4 million decline in EBITDA, where I think we’ve had roughly a $20 million number.

So when you see this $25 million spread, if we had decided to invest any meaningful amount of the earnings in our quarter into marketing, I am fully confident we would be generating higher revenue growth today and still have better margins.

Now, that is a conscious decision that we make, so while I’m not always thrilled to have a slight decline in the business, I don’t want us to lose sight of the $25 million of EBITDA that we were able to contributed vis-à-vis our competitor without a material difference in the revenue growth of our business or theirs.

Troy Mastin - William Blair & Company

Okay. Thank you.

Operator

(Operator Instructions) Our next question comes from Mark Mahaney with Citigroup.

Mark Mahaney - Citigroup

Thank you. Just one question, please, just on the consumer orders; Mike, I know you’ve cut back on -- we know you’re cutting back on marketing, you’re trying to be more thoughtful about marketing spend. What should that consumer orders number look like? When does that stabilize and what’s a realistic run-rate that you think is reasonable for the company going forward? Thank you very much.

Michael J. Soenen

Meaning a kind of a normal state for the business? I think it’s just simply a question of what margin do we want to go with that. My goal is really to have 5% long-term growth for the consumer business with the margins that we are currently delivering. But there is clearly a point along an indifference curve there where 10% growth I could easily have with lower margins, or I could actually have higher margins than I have today and have less growth.

My target is to get to 5% growth and maintain the margins we have.

Mark Mahaney - Citigroup

Thank you.

Operator

Our next question comes from Justin Post with Merrill Lynch.

Justin Post - Merrill Lynch

Thank you. Mike, could you talk about the synergies between the domestic consumer business and the domestic florist business? It seemed like that was a competitive advantage for your florist segment and you got away from that over the last year. Are you reviving that and do you think that could have an impact on your florist business, which drives a significant majority of your profitability?

Michael J. Soenen

I actually think it’s there. We haven’t been commenting on it. I don’t want people to think we’ve gone away from it in any way. It’s there every day. It’s one of the reasons why our POS sales are up 18%, is our ability to leverage the order volume from our consumer segment as a reason to buy our technology versus our competitors’ technology, for example.

So when I start showing that we are selling 2.6, or we are getting 2.6 customers for every one that we are losing from our competitor on the technology front, our ability to deliver order volume is clearly important in the decision-making of those florists. It’s important in who they are starting to buy their fresh flowers from and it will be important really to all of our growth initiatives.

What you are seeing though is -- I don’t view the container business, for example, selling glass and baskets as strategically that important and I’m really not leveraging order volume as a reason for you to buy your glass containers from me versus somebody else. So it’s there, it’s very important, it will continue to be important going forward.

Now that we’ve actually somewhat stabilized the trend between direct shipping and florist fulfilled, we’ll actually have a more consistent volume of florist fulfilled orders [with which to] give the florists. That should continue to increase our leverage and is really I think the primary driver for why fresh and technology and other of our key growth products are growing.

Justin Post - Merrill Lynch

Have orders that you’ve given to the florists -- I mean, it looks like your total orders are down and the mix had gone against them, so for the last 12 months, orders are down that you’ve put through the domestic florist business?

Michael J. Soenen

Yeah, I’d say they’ve probably been sliding the wrong way by some 10% to 15% in any quarter, offset by the growth in direct ship. And with our ability to have kind of remerchandise and repurpose a lot of our florist fulfilled product, that trend has stopped and we are starting to see a very consistent mix now, which I believe is another reason why I am optimistic about the future of that business.

Justin Post - Merrill Lynch

Okay, great, and then lastly, on the search environment so far this quarter, what are you seeing for FTD and are there any synergies, lower cost per acquisition? Are they about the same or are they a little bit higher for you as you think about this quarter so far?

Michael J. Soenen

Well, they aren’t getting any less expensive, let’s say that. The major volume is going to be closer to the holiday, so I don’t know. My expectation is -- and when I say I don’t know, I don’t know how my competitors are going to behave around the holiday. I’m expecting them to be very ambitious and aggressive, especially if it is a fairly weak retail environment.

And that’s one of the reasons for us kind of hedging out of that channel a bit and diversifying a bit more broadly.

Justin Post - Merrill Lynch

Okay, and I don’t know if you can answer this for competitive reasons, but do you have a rough estimate of how much of your volume comes through the search channel?

Michael J. Soenen

Yeah, I’m not giving it out competitively, but I do know -- I just don’t -- I don’t want to tip my hat to my competitors anymore than I have to.

Justin Post - Merrill Lynch

All right. Thank you.

Operator

(Operator Instructions) Mr. Soenen, there are no further questions at this time. I would now like to turn the call back over to you. Please continue with your presentation or closing remarks.

Michael J. Soenen

I just want to thank everybody. We had a very good quarter. It’s a very small quarter. It’s by far the smallest of what we are going to do this year. I feel very good about where we are. I feel great about our earnings growth. I feel good about our opportunities on the international front and I look forward to keeping you guys updated as we go through the year, so thanks for your time and I’ll talk to you all soon.

Katie Pyra

And that was FTD Group Inc.’s fiscal 2008 first quarter conference call. If you did not have the opportunity to listen to the entire call, a replay will be available through November 23, 2007, by calling 800-633-8284 for North American callers, or 402-977-9140 for international callers. Please mention conference ID 21354386. 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 line.

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