FTD Group Inc. (FTD)
Q2 2006 Earnings Conference Call
January 25th 2006, 10:00 AM.
Executives:
Michael Soenen, President and CEO
Jandy Tomy, Vice President, Investor Relations
Carrie Wolfe, Chief Financial Officer & Principal Accounting Officer
Analysts:
Anthony Noto, Goldman Sachs
Justin Post, Merrill Lynch
Robert Labick, CJS Securities
Mark Mahaney, CitiGroup Investment Research
Meggan Freidman, William Blair & Co
Aaron Kessler, Piper Jaffray
Patrick Sauer, Priority Capital
Andrew Barrack, Post Advisory Group
David Goldberger, Fortress
Presentations:
Operator
Ladies and Gentleman thank you for standing by, welcome to the FTD Group Inc. Second Quarter 2006 Earnings Conference Call. Today the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. Operator instruction As the reminder this conference is being recorded Wednesday, January 25th. I would now like to turn the conference over to Ms. Tomy.
Jandy Tomy, Vice President, Investor Relations
Thank you and welcome to FTD Group Inc. Second Quarter Fiscal 2006 Conference Call. Our press release was announced this morning highlighting the Company’s result. A copy of that release is available at the Company’s website www.ftd.com under the Investor Relations section. Before we begin I would like 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. outlook, anticipated revenue growth and profitability. Also included are our statements regarding the anticipated benefits of investments in new products, programs and offering and statements regarding opportunities and trends within both the consumer and florist business segments including opportunities to fan these and capitalize on growth opportunities for increase penetration and service offering.
These forward-looking statements are based on FTD Group Inc’s current expectations and assumptions, estimates and productions about the company and it’s 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 fiscal 2006 press release. We expressly disclaim any obligations to update forward-looking statement. I would now like to turn the call over to Michael Soenen, President and CEO of FTD.
Michael J Soenen, President and CEO
Thanks Jandy and thanks everyone for attending. Just by means of setting an agenda for the call, I am going to give a quick overview of the quarter. Carrie Wolfe is then going to take you through the second quarter results, I’ll comeback and just going to update and give you a little more detail on some of those results and contacts and talk little bit about the outlook for the remainder of the year and then we'll open it for question and answer session.
Just by means of brief overview, this quarter proved to be exciting and challenging quarter all at the same time. In our Consumer business we made great progress with our customer service, functions and our technology initiatives both in terms of new call centers and launching a new internal order processing systems.
On the marketing side, though we found ourselves hampered by what ended up being a very competitive online search environment. I am going to talk little bit more about that going forward but as we saw that environment get very competitive as we previously announced we made a decision not to pursue what we believe to be were unprofitable orders which impacted our projected growth, our approach for the quarter.
We’ll talk more about why I think it is the right course of actions in the back half of the call but I really think that we made some good choices there, want to talk about I think the impacts going forward.
As for the Florist business we got some new highlights our technology system sales continue to increase, we’ve made some big investments there and really trying to see those investments payoff, our grocery initiatives continue to show progress both in terms of our customer accounts and our order volumes from those customers accounts and I am very pleased with that initiatives and in our FTD Floral Exchange, which is a kind of our online auction house for florists, we are seeing very nice revenue ramp there as well, so some of these key growth initiatives, we really trying to see some tractions, overall we are also seeing some pressure both in our specialty wholesaling business where we continue to reduce our unprofitable SKUs and some of our other utility business, our Directory Services business for example, where we are seeing some pressure in terms of the units on behalf of the florists.
I am going to explain our opportunities, and what we expect to do with the company and what we think we are going to do get these some of these challenges going forward, to get to the back. Couple of other things I wanted to note that if it were interesting and helpful for us. For a first the fact that we sold the Renaissance Greeting Cards positions, this was a greeting card company that the company had owned for a number of years, it was not core to what we were doing and we basically entered into vender relationship with the new owners to keep providing the products to our florists. You will see that we no longer have that asset.
Additionally despite the fact that we saw those competitive online environment the company has very strong cash flows and very low CapEx to run its business model and as a result we were able to do this two things, one under the share repurchase program that we had announced we bought back nearly 1.4 million shares through January 20 which is total of about 13.7 million, on top of that we paid down about 5.9 million of our term loan this quarter, so I think that the performance has given several lights. I am going to talk more about what we are looking to do to help make it even better in the back half of the call. So with that I will turn it over to you Carrie.
Carrie Wolfe Chief Financial Officer and Principal Accounting Officer
Thanks Mike. As Mike said our second quarter results were challenging due to the increased number in search process in our consumer business. Resulting in our second quarter fiscal year 2006 revenues being 109.2 million an increase of 0.9 over the prior year’s quarter. Net income for the second quarter of fiscal 2006 was 5.9 million or $0.19 per diluted share, compared to a net loss for the second quarter of fiscal 2005 of 0.8 million. We believe it’s helpful to present the company’s net income and earnings per share on a pro forma basis based on the new capital structure foreign exclusion of the company’s IPO in February of 2005 and the elimination of certain expenses connected with the IPO which are conflictive of our ongoing operation. These are outlined in the press release distributed this morning and as such pro forma net income for the second quarter of fiscal 2005 was 6.2 million or $0.21 per diluted share. Adjusted EBITDA for the second quarter of fiscal 2006 was 17.4 million compared to 17.8 million in the same period of fiscal 2005.
Tables reconciling net income to proforma net income adjusted EBITDA along with the explanations and definitions are included in the consolidated financial statements that were distributed this morning. Specifically for the quarter in that, our consumer business segment in which we market flowers and specialty gifts primarily through the internet and telephone, we reported year-over-year second quarter revenue growth of 1.8% with 63.3.million of revenues in the second quarter of fiscal 2006 converted 62.1 million in the second quarter of fiscal 2005.
Operating income for the consumer segment increased to 3.9 million for the quarter compared to 3.8 million from the same period of the prior year. Operating margins increased to 6.2 % in the current year from 6.0% in the prior quarter, net of current company elimination. On a gross basis, which is really better indicator of the results for the standalone basis, the operating margins for the consumer business were approximately 10.9 % for the quarter.
Consumer orders during quarter totalled 160,000 million orders compared to 135,000 million orders in the same quarter of the prior fiscal year. While October, November order volume was within management expectations, Christmas order volume was affected by the decision that we discussed to forgo, high cost order volume that would have resulted from significant increases in search - online search engine cost. As such Christmas volume came in 4% below the prior year Christmas season volumes. However we were able to maintain our operating margins for the quarter.
In the second quarter marketing cost within the consumer business grew to $ 9.7 per order versus $9.12 in the second quarter of fiscal 2005. Including the marketing cost that are presented in the cost of goods sold line in accordance of EICF 019. Average order volumes declined to $59.33 in the current quarter from $60.31 in the prior year’s quarter. This decrease in average order value was inline with our expectations as low priced floral offerings represent an increasing share of our product mix. But also higher margin percentages.
During this quarter specialty gift orders which include all orders delivered via common carrier including Drop Ship floral comprised 37% of total orders compared to 30.4%of total orders for the second quarter of fiscal 2005. The percentage of internet orders also increased to 89.3% from 85% in the second quarter of fiscal 2005.
Within the florist business segment which primarily market floral products and services to FTD members and other floral retail locations, we reported revenue decline of 0.4% to 45.9 million in the second quarter of fiscal 2006 and 46.1 million in the prior year quarter. The decline in the florist segment revenues was due to a decrease in directory services revenues as well as lower sales resulting from the plant reduction of unprofitable specialty wholesaling product line as discussed in the first quarter press release. This decrease is partially offset by an increase in technologies system sales and fresh flower sales to florist.
Operating income for the florist business segment was 13.1 million compared to 13.5 million in the same quarter of the last year, reflecting margins of 28.6% versus year ago margins of 29.4%. These margins comprised largely as a result of an increase in sales of the companies lower margin product line as a percent of total revenues. Additionally our FTD membership base remains consistent with 19,500 members this December 31st 2005 compared to 19,700 members at September 30th 2005. The company’s debt balance was $233.1 million at December 31st 2005 down from $243.9 million as of September 30th 2005. Capital expenditures were $5.4 million primarily related to a new Call Centers that was opened in October of 2005 as well as continued technology improvement.
Our business model has low capital requirement allowing us to prioritize other usage for cash to increase shareholder value. Was that pay down continues to be priority as demonstrated by our balancing sheet decreasing for several consecutive quarters in relation to our debt balance? We also have continued to share our purchase program initiated on October 25th 2005.
As Mike mentioned, we've repurchased 1.4 million shares for a total of $13.7 million through January 20th 2006. This program will be effected through September 30th 2007 and we are trying to continue to make purchases pursuant to the 10b5-1 plan we have in place. We believe such programs complement our debt pay down strategy and that will drive additional shareholders value. I will now turn the call over to Michael for him to update on our outlook.
Michael Soenen, Chief Executive Officer, President
Thank you Carrie. I remain optimistic about our ability to continue to achieve our long term objectives. The consumer business with what happened in Online Search this holiday was certainly a bit of a surprise as we saw market pricing expand quickly. We believe our decisions to not chase the unprofitable revenues is consistent with the long term operating objectives and the management velocity, we had drive the company. I would say that, though we anticipate competitiveness in the Online Search environment to continue and we are making changes here inside the company that help address that, one we are increasing our sales staff to be more aggressive with respect to both our Natural Search, a kind of secondary online, affinity in our Corporate Sales efforts, I think these are areas that we can continue to expand on this, there is clearly growth in there and I think we are getting more aggressive about going after it.
Certainly we are going to continue diversify our exposure to Online Search in the more traditional forms of media and for competitive reasons, I don’t want to talk about what will be doing but certainly looking at things other than just Online Search and reducing that exposure over time is something that we think is, it’s going to be an opportunity.
Finally I have made the management changes to the business, I changed out the Head of the Marketing in that area as I didn’t feel we were being aggressive enough and the head of the entire group actually. So, we have turned through some of the management down there and put a new VPN Marketing in place will be very pleased with our progress. And look forward to us a kind of putting a little bit more agile, and more aggressiveness into this marketing organization.
And I think take a bit of time to help to move from some of the dependents we had in our Online Search, some of the more traditionally marketing strategies. But as a whole, I still believe the fundamental strategy is on course and I am very optimistic about our ability to execute it. The things due to florist business, I am kind of looking at some of the key growth initiatives both what we’ve done in terms of Technology and Technology Sales, System Sales to the florist and I am very pleased with the growth that we are seeing there, certainly a grocery initiative, we continually had very good results this Christmas in that channel. And we are continuing to add both our Customers and the Volume we are doing to those customers there, I am not going to say a lot about that for competitive reasons.
And finally our FTD Floral Exchange, which is kind our online auction house for floral has shown very nice growth as well, we are very comfortable with the growth initiatives, but as we were reducing SKUs in the Whole Selling business and we are seeing some pressure in our Directory Services business, they haven’t quite offset each other, yet I believe over time they will. It’s just going to be a matter of letting this growth initiatives kind of get further along, which I think will more than offset certainly the SKU reductions will slow down here, a kind of in the next three months or so. And then we will be looking at more kind of a normal and some of pressure, some of the more historic businesses.
Our ability, obviously to continue to develop new products and go after these new channels it is really going to be the key to helping drive our growth in the near term and longer term, and as I said, I feel very good about our progress of our growth initiatives there. Competitively I would say we are seeing an increased competition both from Flowers and other players in the space, certainly their entry into the market place cannot be ignored, I have seen a lot of competitions so far being somewhat on price and although we've seen no major loses to them to-date we are very much aware of their presence. We expect them to be very ambitious competitor. Provide Commerce with Liberty Media in that transaction, I have no reason to assume they won’t continue to be very aggressive either. So, those are the probably the two big names that we are keeping very close eye onto Teleflora and HallMark and others are not to be ignored. But this is certainly becoming a bit more competitive than we have seen historically. And in light of all that and keeping track of a kind of, what I think, is going to happen in Online for the remainder of the year and what we are going to need to help the risk play out of that, taking into account our growth initiatives that we are seeing both in the florist business and keeping enlighten some of the competitiveness, we are going to see revenues, I think, somewhere between $450 and $460 million, with a major question marks being where’s Online Search going to go? more than anything. We have seen, depending on days and different strategies, we have been deploying as of lately, we can certainly drive a significant amount of growth quickly, just depending on where we want to drive our Online Search cost. So, we know that, one level, we can utilize and we can utilize it effectively. We did think of long term, it’s going to be smart to keep diversifying and spreading up that risk.
EBITDA is going to remain about $67.5 million, which is including the $600,000 of non-cash documented comp expense. EBITDA margins are going to stay around 15%, which is up from 14% last year. I think, net income will remain unchanged about $23 million or $0.76 a share. And I think, the rest of the upside and the downside of the forecast is simply, where does Online Search go, how well there are growth initiatives in the florist business take hold and how quickly. And based on that, I think, those are the kind of two dated of flowers I see remaining. And certainly competitive actions or something we will have to keep track of it as well. But I think those of the things that you kind a move these numbers to the better, we get more things to go out of our way.
Well, obviously a better visibility once you get through Valentines day and as usual, gives everybody an update of our results. With that, that just our high level of our call today and we thank for your support and interest and I like to open the call for any questions you may have.
Question-and-Answer Session
Operator
Operator Instructions Your first question comes from Anthony Noto with Goldman Sachs.
Q – Anthony Noto
Thank you very much. Mike, how much – with reference to your comment about sort of the upside downside sensitivity points in the business, you had mentioned Search as one of those factors. I was wondering if you can comment that related to if Search continues to be a cost prohibitive market vehicle for you and you can’t find an alternative way to drive demand on the consumer business. Could that have a correspondingly negative impact on your Floral Network, in that keep owning the network because they want to receive orders, your inability, increases many orders as you would have otherwise could cause some dissatisfaction as that cause you maybe subsidize them to rebate or lose them, other factors that relates to the Floral Network from your revenue, may be not coming in where you want to. Thanks.
A - Michael J. Soenen
Yeah. Anthony I think we have a great question, those rinkages exist and I think you need to have a pretty large variances in that to make a big difference to a florist, if you take the average order volume and you divide it by 20,000 florists and you divide it over 12 months of the year, it has to be a pretty material mix, certainly much more than we’ve seen to have an impact in the near term. I think overtime that’s certainly that is something we need to make ourselves aware of, and I think a lot of that just reflected in our margin certainly a 15% margins comp very favorable to our competitor at 800-Flowers, a kind of 5% EBITDA margins. And if I had to, I would certainly take a look at alleviating, what I was going on a CPO-basis to continue to grow that order volume relative to continuing to expand margins.
Q - Anthony Noto
Great thank you.
Operator
Justin Post of Merrill Lynch, your line is open.
Q - Justin Post
Thank you. Can you talk a little about your capital allocation thinking, it looks like you are using a lot of your cash to pay down, your shares been also pay down for debt. What do you really doing to invest to grow, I know your CapEx isn’t that high, you’ve mentioned that in the call. Really, what is your thought as you weigh your invested opportunities relative to your debt and stock buybacks?
A - Michael J. Soenen
Well I think for us, it’s a matter of, look to be investment certainly in the dotcom side, we've rebuilt the call center systems, we rebuilt all the internal processing systems and we feel very good about, where we sit there from a system standpoint. And on the florist side of the business, it’s truly not a CapEx intensive business. And as you know material CapEx means and that side of the house, to me any incremental spending on investments really going to come through the marketing side. And its going to be question of how much growth do you want the driver versus how much earnings. And I think what’s particularly interesting is just the, in general, I think, you pretend to be rewarding revenue growth more so than margins and I think, we get very little credit for or 15% margins today relative to people who are growing quicker with smaller margins. And so one of the decisions that we are going to continue to make going forward is, where along that scale should we be in terms of being able to kind of aggressively pay down debt and rebuy shares versus continue to drive significantly greater online growth, significantly greater consumer segment growth which we certainly prove into ourselves we can do is just a matter of, in the near term what we like those margins to be and I am not going to, I have don’t have any tremendous point of view on it, yet., I am trying to see where this online Search market goes, is it going to rationalize a bit as it did ’01 when online marketing cost kind of soared for a year and then came back. Or is it going to kind to continue to run a little bit and should we grab some of those revenues and start growing the business to the consumer side kind of a 15% or 20% clip but maybe at a little bit lower margin. So we are kind of offsetting those two right now, that’s really I think the capital positions we are trying to make, Justin.
Q - Justin Post
Okay thanks. And thinking about your Brand Value, that looks kind of one of your key competitive advantages. Just really how you can you leverage that, it sure seems like short term gain you talk about that. What to extent without sharing too much on the competitive front, can you really leverage FTD’s brand?
A - Michael J. Soenen
Well, certainly what we seen in the Grocery channel for example, I think we have a very dominant position in the way that channel has expanded, simply because of the value that they put on the brand relative to our competitors. I think, it’s also going to be very powerful as we continue, should this deal take place and the more traditional media, I think having the strong brand will help us there. We’ve got some other ideas to that, for competitive reason, I don’t want to launch out in because it's showing to two that a kind of in the near and present that you can see that we would expect over time would help us having an advantage of vis-a-vis your competitors.
Q - Justin Post
And on the florist industry, can you tell your views on just how the florist industry is doing, are there fewer florist this year versus last year at this time. And your membership break down, what percent is for us versus grocery, how is that changed overtime?
A - Michael J. Soenen
I’m not going to give the breakout we having, and I just want to for competitive reasons but I will see, I think, there are probably somewhat less florists this year, I think, the smaller florists are having a difficult time of it and they are probably struggling. And I think what we are seeing in the Grocery Channel is some of that offsetting some of the smaller florist that are struggling. Today I did say, of the 20,000 we have, I say the ones that are in the bottom quarter of the bottom fit probably are having a tougher go at that than they did 3 or 4 years ago. So I think, that’s something we are clearly watching, clearly keeping an eye on. What we are seeing though is that in any markets, the stronger florist in the bunch are taking share away from the smaller ones in the bunch, so as long as we have good relations with the larger customer in those markets and in most cases we believe we do, we are able to offset much of that risk.
Q - Justin Post
Thank you.
Operator
Your next question comes from Robert Labick with CJS.
Q - Robert Labick
Good morning.
A - Michael J. Soenen
Good morning Mike.
Q - Robert Labick
Could you just walkthrough the process for online search for Valentines Day, and what are you seeing against to this point because what’s the season typically for Valentines Day for first full two weeks of February. And when do you buy and what are you seeing here is this much pricing rationality as well as there was at Christmas or how does it look so far?
A - Michael Soenen
I think, you are breaking couple of things certainly Valentine’s Day, I think, the big push will the start, obviously in the first of the month and kind of run right up until the day with the biggest days really being 2 and 3 days before. I would say that the online pricing certainly in search continues to be very competitive, we are seeing that on a daily basis. The interesting thing that we have found is, we have been testing different things to the extent we up and match competition we are able to generate 15% plus growth on the consumer business. So we clearly know that, it’s fair, we clearly know that we can compete, it’s just a matter of to what degree we want to offset that against margins in near long term decisions. I would tell you though that the cause for Search we track hourly, as this space moves very quickly and I will also tell you that at current levels, it's below where it was, or where we would have expected to be at the height of the Christmas season so as we get close to Valentine’s Day will those prices surge to big levels due to the competition or will they kind of stay where they are today, is something that I don’t know and depending on how far they surge or don’t surge and how much we decide to play, with somewhat impact to our revenues are for the holidays. Once you get a kind of into the final 24 hours, of course, there is really not a lot of need to do a lot of marketing, you need to kind of step away in the lay hours because of our brand strength we do generate a ton of volume on our own and how that game plays itself out it would be very closely monitored and we are going to keep very close eye on it as it gets to the holiday.
Q - Robert Labick
Okay, that’s helpful, thanks. And then one last question in terms of, you mentioned there some pressure on the Directory Services. Could you just talk about that in little more detail, what’s causing that and just to remind us if you have broken this out, essentially, roughly a dollar side there on the margin?
A - Carrie Wolfe
We have not broken that out historically, but we have broken out, and it's in our investor presentation on the website is, our revenue from the flower business that over recurring nature versus non-recurring. Directory is considered a recurring nature, Service subscription based and it’s really a monthly fee each quarter that is based on the florist participation within our directory.
Q - Robert Labick
And what is causing the pressure versus a year ago?
A - Michael Soenen
Actually there are two things, there’s the one obviously as dotcoms consolidates more and more order volume, we will become a larger and larger share with the florist received, and so there is some degree, a bit of decrease need to continue advertise the other florists. I would also say that much like an Yellow Page book which is what this directory effectively is, is that we are seeing some decreased usage with kind of it’s bottom ordered bottom fifth, that we are talking about, that I think, are struggling, I think, we are struggling financially are reducing the size of the ad’s in the directory.
Q - Robert Labick
Okay, thanks very much.
Operator
Your next question comes from Mark Mahaney with CitiGroup Investment Research.
Q – Mark Mahaney
Just another follow up on the Search pricing, is there any more commentary that you can provide, was the increase that you have seen very broad across all florist terms, yours sense that people across the spectrum had started to bidding up prices or to what extent was it largely driven by just one new aggressive entrant into this space bidding on prices, thank you.
A - Michael Soenen
Well, the keywords are fairly well concentrated on a category, I don’t want to get two into it, but if you can imagine between 5 to 10 keywords that drive a large chunk of search. And we saw increase from competition really across the board and I think, it's going to be interesting to see how the others did relative to the revenue growth, relative to earnings in the sense that, was everybody driving it up and chasing revenue at all costs. And or was it something more, is it going to one or two I’m actually driving we couldn’t necessarily tell in total but certainly we saw HallMark spend a tremendous amount of money on the Holiday, we saw Teleflora be a player and then we have a kind of two usual customers both in Provide and in 800. And so, I think, it was a kind of the same three plus two new ones to some degree we are more aggressive than we’ve seen and I also think because the keywords are fairly concentrated that has the impact of kind of elevating CPOs fairly quickly.
Q – Mark Mahaney
Thank you.
Operator
Your next question comes from Meggan Friedman with William Blair & Co.
Q – Meggan Friedman
Hi. Guys. Two questions, first of all, what was the flower sales growth have been year-over-year excluding the Renaissance Greeting Card business. And second what should we assume the operating margin would have been on an incremental foregone volume for consumer?
A - Carrie Wolfe
Meggan, on flower sales reasonable run towards the middle of December, so there was not a significant effect on Q2 revenues due to that sale. It will be effected going forward throughout calendar ’06 as we last said.
Q – Meggan Friedman
Okay.
A - Carrie Wolfe
The one thing that did factor into the reduction in the florist segment an addition to the director publication towards SKU foundation we did, with specialty wholesaling and we discussed that in Q1 and said that would continue into Q2 and we would start laughing at it in Q3.
Q – Meggan Freidman
Okay and now on the consumer side?
A - Carrie Wolfe
Can you repeat your questions if just to – we can actually orient it.
Q – Meggan Freidman
Yeah what was the operating margin that has been on the foregone volumes. Would it have been inline with Flowers operating margin.
A - Carrie Wolfe
No the operating margin on the order that we chose not to participate in were negative, or would have been negative. For the cost of those orders was greater than the operating margin excluding marketing cost.
Q – Meggan Freidman
And thank you.
Operator
Our next question comes from Aaron Kessler with Piper Jaffray.
Q - Aaron Kessler
I had a couple of questions. First in the consumer segment, if you were in the need of higher gross margins of a company like Provider Flowers, are you at any competitive disadvantage in the market I mean, you may not to have spent as much per order on marketing a couple of follow-up question.
A - Michael Soenen
The gross margins I think percentage seen as in Flowers actually isn’t that dis-similar, I think there some accounting with the way certain things are accounted from a more of a geographic standpoint between above line and below line. Because most orders atleast most of those orders are used keep it 20% and the economics of the same store industry, I don’t believe sure P&L is going to be mashed in terms the way things are accounted for, that the gross margin will be that different from Flowers?
Q - Aaron Kessler
And the margin are similar to Provide Commerce as well?
A - Michael Soenen
Yeah, I think provided it has higher margins because of that drop shift business has a higher margin business and so they are in that so we are going to break into a two pieces. If you look at 800 I think one of the differences is just our 15% operating margin versus their 5% you know our EBITDA margin kind of only give us 13% area versus their kind of 4-5% so I think there is a little bit of some degree we are just giving more back to shareholders who are putting more back into their earnings, de-leveraging etc. Just conscious decision to make with how we run the company. I think with Provide they do know a bit better gross margins because of the Box programs and I think to some degree that does give them a bit of advantage from a marketing standpoint.
Q - Aaron Kessler
Okay then a couple of follow up questions. On the florist segment can you break out what the pro forma growth would have been on the stripped out or either sold off or discontinued in terms of their SKUs.
A - Carrie Wolfe
We have not broken out the SKU reduction amount. Neither in first quarter or second quarter.
Q - Aaron Kessler
On the share counts should we assume the decline in shares again in Q3 you had given a plan to buyback shares, 10b5-1 plan and following can you repeat once again price in Q2 in the consumer segment?
A - Carrie Wolfe
The average order value for the consumer segment was $59.33 exactly and yes we are continuing our 10b5-1 plan we should, we anticipate continuing to repurchase obviously the repurchase levels are based on market trading and etc in accordance with 10b5-1 and 10b18 plans.
Q - Aaron Kessler
Great. In terms of the marketing efforts anything you can do on the website and for the conversion rate given the highest search prices I’m sure you are looking at that but any comments there?
A - Michael Soenen
Yeah I mean we constantly looking at it we are continuing to evaluate it test different things certainly anything you can do to improve conversion rate does a lot in terms of your ability do more on a CPO basis, so we are very focused on that. Don’t want to get to into it, but we clearly do everything we can do to make the experience as easy as we can and make sure we’re doing our best job on our retention basis. So I think that’s going to be continue to be a focus for us.
Q - Aaron Kessler
Great thank you.
Operator
Our next question comes from Patrick Sauer with Priority Capital.
Q - Patrick Sauer
Good morning, couple of things have occurred you talk a good bit about competition on the consumer side, I wondered if you could touch on it briefly on the florist side of business, is there any change in competition there for network members and if could comment on pricing trends in that business?
A - Michael Soenen
Yeah I mean the new entrant here is 800-Flowers I think has been Flower up probably I haven’t seen materially different between the competitive landscape with them. We have always been very aggressive competitors and expect to be Teleflora our 800 kind new entrant here and I think to some degree I have no doubt they are signing up the number of numbers I have no doubt that they probably putting a fair number of Bloomlink end points out there the question will be where does the usage go and what are the cost and to get that usage we haven’t seen any material change in our pricing as a result of their entry haven’t seen a material change in really our membership as the result of their entry. But that doesn’t mean that we’re not you laser focused on it and that were not working very aggressively to make sure that we you know don’t fall asleep at the wheel on that one.
Q - Patrick Sauer
Right. And just to clarify you guys you had 19,500 members at the end of the quarter verses 19,700 in September is that right.
A - Carrie Wolfe
Yes
Q - Patrick Sauer
And although a small decline I mean would you attribute that just to attrition in the industry or maybe this you know competitive entrant of Bloomnet?
A - Carrie Wolfe
Our membership base generally floats to somewhere between 18 and 20 thousand so there isn’t a particular important thing that I can tribute that decline here.
Q - Patrick Sauer
And I know you don’t want to talk a lot about the grocery members and channel for competitive reasons, but can you just speak generally as to how those members are active in the florist system I mean would they pay for directory ads and services than went through a florist or would there be a big difference there.
A - Michael Soenen
It depends on the nature of relationship take you know I have one customer I won’t use their name who has everything from full service location, of centralized distribution in the bigger stores to just doing sending in some their meeting store, to just doing marketing and referring to a website in their smallest stores. So it really runs the gamut both in terms of the size of the chain and their commitment to the category, I’ve got some chains that are just focused on us driving web volume, I’ve got some chains all the way up to paying full fees, full services, full everything. So I think obviously a mixed question there but not all full service, I don’t think we are not all going to contribute as much as the full service but they also drive a tremendous amount of volume.
Q - Patrick Sauer
Sure, and then just lastly you mentioned a couple of times that you still believe that if you are willing to spend at a competitive level in online search that you’d still driving 15% growth in consumers orders, I guess I can take that to name it that sector a whole and online consumer orders are still growing in about that level is that fair.
A - Michael Soenen
Yeah. I mean as we were working throughout the holiday, we certainly were playing around with different CPOs in different days and trying to figure out where those sensitive where, I have positively affirmed to myself that by being competitive we could drive 15% topline growth by just changing the one lover, and so I have no doubt that situation the question is, how much growth do I want to drive relative to offsetting margin in what seem to be a very aggressive market for a period of time. You know as we kind of released we didn’t really see this competition until December, and so it was really a surprise to us cause we had seen it previous to that.
Q - Patrick Sauer
Yes sure I just wanted to see if you have any commentary or maybe the growth in online orders as a whole flowing but it sound like this of continuing to grow in a kind of mid teens type.
A - Michael Soenen
Yeah. I couldn’t speak to the category but I have no reason to believe that the demand wasn’t there.
Q - Patrick Sauer
Ok thanks for your time.
Operator
Your next question comes from Andrew Barrack with Post Advisory Group.
Q - Andrew Barrack
Just one clarification on number you said your averaged order costs in the consumer business was 9.12 last year, what was it this year?
A - Carrie Wolfe
$9.07.
Q - Andrew Barrack
$9.07. okay
A - Carrie Wolfe
That is the marketing cost which is comprised of both the marketing line and the financial statements for the consumer segments in addition there is a small marketing piece that for accounting reasons, we have recorded in cost per sale. So.
Q - Andrew Barrack
Okay and with respect to capital expenditure for the year, I think it should be 5 - 4 year to date, what do you expect for your number to be?
A - Carrie Wolfe
Somewhere probably around 7-9 million.
Q - Andrew Barrack
Okay. And then lastly as you guys generate cash and have the ability to buyback stock which you mentioned and I know you paid down some debt, are there any limitations under your bank loan as to how much stock you can continue to purchase going forward and or can you just talk a little bit more about your feelings in terms of balancing stock buy backs for some debt reduction?
A - Carrie Wolfe
It is certainly fastest as there aren’t is most covenant and is it in credit agreements that we have restricted files, we believe that you know based on the trends that we have and the 30 million that was approved by the board that we should be able to continue our 10b5-1 plan, given our current debt limitation. And then go forward as far as cash use perspective we generate about 30 million of free cash flow annually and we would anticipate using some of that for debt pay down and some of that for cash reserve purchases over the next year and a half coming up.
Q - Andrew Barrack
Is your preference to continue to buyback stock more versus the reduction debt though?
A - Carrie Wolfe
It is certainly is a I don’t think it is preference but its is a decision that we look at based on current stock prices and current labor rates.
Q - Andrew Barrack
Okay, thank you.
Operator
As a reminder if you would like to ask a question please press "*" then the number "1" on the telephone keypad. Our next question comes from David Goldberger with Fortress.
Q – David Goldberger
Hey guys. In today’s release you are guiding 15% EBITDA margins which is higher than the 14% margin you guys got as to in the first quarter release, where are these margin gains can be recorded is it in SG&A or in gross profit and also what’s behind this improvement in margin typically in light of the higher cost versus your experiencing a customer positioning hours.
A - Carrie Wolfe
You know the margins are it’s a responsive of work. We believe that our EBITDA guidance will hold while we reduce to the revenue guidance from the beginning of the year. I would anticipate potentially some better than anticipated gross margin and G&A. And know obviously with the trends in online marketing I wouldn’t assume that we are going to see better percentage of marketing as the percentage of revenue, trends going forward.
Q – David Goldberger
Okay great thanks.
Operator
At this time there are no further questions I would like to turn the call back over to presenters for any closing remark.
Michael J Soenen, President and CEO
Thanks everybody for their continued interest, like I said we are I think the punch line is that we certainly know where we are we know what our options are in terms of revenue growth versus earnings we are going to continue to focus on were are not in difference curve we want to be for now, we will keep you updated as we roll through that as you know over the long term we still remain optimistic about where we headed and I really I like the current key direction we are on and we may have little bit of pricing pressure here and along the way but in the long term I think we still got same game plan we going to keep going forward, so appreciate that what your doing appreciate your support and look forward updating you guys after Valentines Day holiday.
Jandy Tomy, Vice President, Investor Relations
That was FTD Group Inc, Fiscal 2006 Second Quarter Conference Call, if you do not have the opportunity to listen to the entire call a replay will available through February 8th 2006 by calling 1800-633-8284 and mentioning conference id 21281531, thank you.
Operator
This concludes today’s conference call, you may now disconnect.
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