FTD Group Inc. (FTD)
Q3 2006 Earnings Conference Call
May 1st 2006, 10:00 AM EST.

Executives
Jandy Tomy - IR
Michael Soenen - Director, President and CEO
Carrie Wolfe - CFO

Analysts
Troy Mastin - William Blair & Co
Jennifer Connolly - Goldman Sachs
Bob Labick - CJS Securities
Mark Mahaney - Citigroup Investment Research
Aaron Kessler - Piper Jaffray
Justin Post - Merrill Lynch
Alexis Gold - UBS
Dennis Milton - Standard & Poor's

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FTD Group Inc. third quarter 2006 earnings conference call. (Operator Instructions) Your speakers for today are Michael Soenen, Jandy Tomy and Carrie Wolfe. I would now like to turn the conference over to Jandy Tomy. Please go ahead, ma'am.

Jandy Tomy

Thank you. Welcome to FTD Group Inc.'s third quarter fiscal 2006 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 anticipated benefits of investments in new products, programs, and offerings, and statements regarding opportunities and trends within both the consumer and florist business segments, including opportunities to expand these businesses and capitalize on growth opportunities for 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 third quarter fiscal 2006 press release. 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.

Michael Soenen

Thank you Jandy. Thanks everybody for signing in. Obviously we had another great quarter. I am looking forward to getting through some of the details here on the call today. I am going to quickly run us through the third quarter highlights. Carrie Wolfe is then going to come on and take you through some more details on the quarter. I'll come back to the call and give you a little bit of what I think is going on competitively and some of the business expectations I have over the remainder of the year, and then we will open it up for a question-and-answer session. Carrie and I will move through the standard stuff really quickly and hopefully we can have a good Q&A session.

Obviously if you read the release, we're very pleased. Not only are we running and executing our strategic plan the way we said, we are clearly driving growth, we're driving margins, and we're also driving profitability. We're obviously continuing to deliver not just the top line, but the bottom line and achieve our strategic objectives at the same time; something we are very excited about.

Valentine's Day was strong. You saw our release on the 14% growth. We have seen similar trends continue through the Easter holiday and it leads me to believe, or at least sets us up for a pretty strong fourth quarter going into our biggest holiday.

I think one of the frustrating things I had as I was looking through the numbers and trying to sort the release out is, there is just a lot of static in the numbers this quarter, so we are going to try to do our best to make it clear.

I wanted to show you the way I'm thinking of the business right now. If you get through the fact that there has been this Easter shift from one quarter to the other and the fact that we sold our Renaissance Greeting Cards business back in December, and you get all of that out of the numbers, I'm going to bed thinking our consumer business grew between 13% and 14% in the quarter. Our florist business grew about 3% to 4% in the quarter. In total, we have been in that 9% growth range, taking all the static and everything out of the numbers. That, to me, is a clean comp and that is the way I am looking at it.

Certainly on the EBITDA side, the EBITDA margin went from 15.1% to 15.2% so a slight increase there. That is something I think is very important; not only are we growing the business but we actually are making very good money while we do that. I think we are the only person in our vertical that is actually achieving both to any significant degree. So we feel very good about the top line, very good about what we were able to change for Valentine's Day and Easter, and feel very positive heading into Mother's Day. With that, I would like to turn it over to Carrie and let Carrie take you through some of the details.

Carrie Wolfe

Thanks, Mike. As Mike said, we are very pleased with our third quarter results. Our third quarter fiscal year 2006 revenues were $128.6 million, an increase of 3% over the prior year's quarter. Revenue growth was primarily driven by an increase in sales related to the Valentine's Day holiday for which the Company previously reported a 14% growth in order volume within its consumer business segment versus the prior year.

Partially offsetting this growth of the quarter was the shift of the Easter holiday to the fourth quarter of fiscal year 2006 from the third quarter of fiscal year 2005; as well as the decrease in the Florist Segment revenue associated with the sale of Renaissance Greeting Card business at the end of the second quarter of fiscal 2006. As we mentioned during the second quarter conference call, Renaissance was a low growth business that wasn't core to the Company's business objectives.

To help better understand our comps exclusive of these items, I want to take a moment to explain their contribution. In the third quarter of fiscal 2005, the Easter holiday represented approximately 5% or approximately $4 million of quarterly revenues for the consumer business. Renaissance had revenues of approximately $3 million within the Florist Segment.

As Mike mentioned, excluding the revenue in the prior year related to these items, revenue growth for the third quarter of fiscal year 2006 would have been approximately 9% on a consolidated basis. Net income for the third quarter of fiscal year 2006 was $7.4 million or $0.26 per diluted share compared to net loss for the third quarter of fiscal 2005 of $25.6 million.

We believe it's helpful to present the Company's net loss and net loss per share on a pro forma basis based on the new capital structure following the completion of the Company's IPO, and the elimination of certain expenses connected with the IPO which aren't reflective of our ongoing operations, which are outlined in the press release distributed this morning.

As such, pro forma net income for the third quarter of fiscal year 2005 was $6.8 million or $0.22 per diluted share. EBITDA for the third quarter of fiscal 2006 was $19.6 million compared to adjusted EBITDA of $18.9 million for the same period of the prior fiscal year, representing a 3.5% increase.

Now I'd like to provide some more details on the performance of our two businesses for the third quarter. In our consumer business segment, which markets flowers and specialty gifts primarily through the Internet and telephone, we reported year-over-year third quarter revenue growth of 7.2% with $75.7 million in the third quarter of fiscal 2006 compared to $70.6 million in the third quarter of fiscal 2005. As I mentioned earlier, growth was primarily driven by the previously reported 14% increase in Valentine's Day order volume, partially offset by the Easter shift, which represented approximately 5% of the quarterly revenues for the consumer business in the prior fiscal year.

Excluding the revenue in the prior year related to the Easter holidays, the revenue growth in the third quarter of fiscal 2006 over the same quarter of the prior fiscal year would have been approximately 13% to 14%. While the three major holidays -- being Christmas, Valentine's Day, and Mother's Day -- do drive our business, we're seeing definitely traction in our marketing efforts and the overall strength of our brand outside of peak times.

Operating income for the consumer segment during the quarter decreased to $2.9 million compared to $3.9 million for the same quarter of the prior year. This decrease can be attributed to an additional investment in marketing, which we believe is essential to our long-term growth. We did not see the irrational behavior in keywords that we did in the online search arena in the third quarter that we experienced during the Christmas holidays, and we did make the decision to spend more on marketing per order within a range we find acceptable, which allows us to continue to deliver our bottom line targets.

We continue to believe we have the lowest marketing costs per order in the floral order gather industry. Consumer orders during the quarter totaled approximately 1.2 million, compared to 1.1 million in the same quarter fiscal of 2005. As we mentioned previously, we do anticipate cost per order to vary from quarter to quarter depending on our customer dynamics. We consider the cost per order in the third quarter to be within an acceptable range.

Average order volume decreased slightly to $62.18 in the current quarter from $62.84 in the prior year's quarter. This slight decrease was in line with our expectations, especially since gifts and lower priced product offerings represent an increasing share of our product mix, but offer higher margin percentages.

During the quarter, specialty gift orders comprised 36.1% of total orders compared to 27.6% of total orders for the third quarter fiscal of 2005. The percentage of Internet orders increased to 91.3% from 88.2% in the third quarter of fiscal 2005.

In the florist business segment, which primarily markets flower products and services to FTD members and other floral-related locations, third quarter fiscal year 2006 revenue declined 2.5% to $52.9 million from $54.3 million in the prior year quarter. The decline in the florist segment revenues was primarily due to the December 2005 sale of Renaissance. In the third quarter of fiscal 2005, revenues related to the Renaissance business were approximately $3 million. On a comparable basis, excluding the revenue from Renaissance in the prior year, the revenue in the florist business would have increased approximately 3% to 4%, in line with management expectations.

Operating income for the florist business segment was $17.3 million compared to $15.3 million in the same quarter of last year, reflecting margins of 32.7% versus year ago margins of 28.1%. Margins expanded largely as a result of an increase in sales of the Company's higher margin product line as a percent of total revenues, further strengthened by the recent sale of Renaissance, a lower margin business.

Additionally, our FTD membership base remains strong with approximately 19,300 members. The Company's debt balance was $228 million as of March 31st, 2006, down from $233.1 million as of December 31st, 2005.

Capital expenditures for the fiscal year to date were $7.4 million, primarily related to the new call center that was opened in October 2005 and continued technology improvements. Our business model continues to require low capital requirements, allowing us to prioritize other uses for cash to increase shareholder value.

While debt pay down continues to be a priority, we have also continued purchasing shares under the repurchase program initiated during the second quarter. During the third quarter of the current fiscal year, the Company repurchased 1.2 million shares at an average price of $9.43 per share. For the program to date through March 31st, 2006, the Company has repurchased 1.5 million shares at an average price of $9.71 per share for a total of $15 million. This program is in effect through September 30, 2005. Throughout this time we will continue to make smart decisions to drive maximum shareholder value, balancing the share repurchase program, debt pay down initiatives, while factoring in our other growth opportunities. I will now turn the call back over to Mike for him to update you on our outlook.

Michael Soenen

Thank you, Carrie. Certainly pretty much good news all the way around. It's got everyone feeling pretty good about the business. The consumer business, we continue to diversify out of our marketing programs. We have seen the success into Valentine's Day and through Easter. We are optimistic that that means positive things for Mother's Day.

We continue to expand our product lines. You'll see launched a new relationship with Todd Oldham. We are very excited about that; it is a very unique product line and we think that could drive some significant sales going forward, these types of relationships. As we look at our gift business now which is 36% of sales, we think we have an opportunity to continue to grow that which, as you know, is margin accretive.

The florist business, we just continue to make good traction there. We continue to penetrate with our existing product set. We keep developing new products, and we have begun our push into other verticals, specifically our grocery initiative, which for competitive reasons I will not give a lot of color on, but we continue to be very pleased with our progress there and the success we're having in the marketplace and the products we're bringing into those channels.

Competitively, the landscape hasn't changed a whole lot. Certainly it's ProFlowers, Teleflora, and 800. I think 800 is probably making the most amount of noise right now. We respect all of our competitors. I think when we sit back and look at the fact that we're generating significant amounts of EBITDA off of our revenue base and our ability to grow the business within our verticals, we truly believe we have the right long-term strategy and the right business plan to move against.

As I look at the guidance, pretty much just leaving it where is for the year. Mother's Day, this whole week that's coming up here, this Mother's week holiday is going to really determine where the year comes out, so there's not a lot of value in changing the guidance around. It's kind of written down there, but when we get through the holiday, we'll put out an update as usual and then we'll give you guys guidance for the coming year based on what we see in the trends in the business coming out of the holiday into the summer months. So with that, I'd like to turn it over to you guys to open it up for some Q & A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Troy Mastin, William Blair & Co.

Troy Mastin, William Blair & Co.

Good morning. Thanks and nice quarter. I wanted to first ask about the guidance you've given for the fourth quarter. Looking at where you were last year and assuming that you've got an offset between Easter and the Renaissance sale: the guidance would imply 3% to 11% revenue growth, but it certainly sounds like you're tracking towards the higher end of that range, at least what you have seen so far this year.

I'm guessing the answer is that you want to wait to see how Mother's Day plays out before you would say anything more bullish about the business, but could you give perspective on that 3% to 11% revenue range if that indeed is correct?

Carrie Wolfe

Yes, your calculation is correct. I think certainly we feel very good about Valentine's Day and are seeing the trends continuing into Easter. Mother's Day is a significant holiday. I think we are remaining, to your point, a little bullish, and once we get past Mother's Day, we will be putting out a release with updated guidance based on our Mother's Day results.

Troy Mastin, William Blair & Co.

Okay great. Thanks. Mike had mentioned that he was positive about what had changed for Valentine's Day and Easter. Could you talk about what, specifically, you've done in the first few months of this year with regards to marketing? If anything has drastically changed versus where you were at the end of December when you had seen irrational behavior in the search engine marketplace, at least. And if things changed there above and beyond simply the pricing strategies of some of your peers?

Michael Soenen

I'm not going to get too into it obviously for competitive reasons, especially two weeks before my number one holiday. A large chunk of it was the fact that I swapped out some people on the team, which I thought made for a better mindset.

I think we've been more aggressive in the non-pure search world in some of those verticals and we have been generating some really great yields there. I think we've found better ways to hedge our exposure to the volatility in the online market space in terms of search.

I'm not saying that risks don't exist there. I'm not saying the things can't get pricey there. We'll have to keep a close eye on it, but clearly, the newer mindset and some of our new approaches have really demonstrated a pretty strong turnaround from December, both in terms of top line while maintaining a lot of our profitability.

Troy Mastin, William Blair & Co.

How sensitive do you feel that your consumer volumes might be to pricing in search today? So if there was a sudden change in your competitors' bidding strategies, how much variability might you see in volume? If you can give some estimate. I'm not quite sure what kind of number I'm looking for, just something qualitative. But I would love some insight.

Michael Soenen

Yes. That's a given number, and I'm not being cagey about it. It's just tough to get a feel. It depends on where they might go, down or up, and how we would react to it relative to decisions on our bottom line. We tend to be very earnings focused. If we wanted to chase a number we could, but we tend not to do that. We tend to take what we can get profitably. In the current marketplace, with the current performance we have, which actually has some fairly expensive search in the mix at a fairly decent mix of the total, clearly we have been able to manage it well. I would be hopeful we could do that going forward.

Troy Mastin, William Blair & Co.

One of your competitors recently bought a retail candy chain. I'm curious if this gives you any different perspective on your strategy in terms of the need to diversify your business outside of the strategy you have had so far of partnering for some third party products? Also any insight on that particular competitor, how their florist business is impacting yours, if at all.

Michael Soenen

Yes, I think it's difficult because we're always looking to expand. We want to do it well. We want to make sure that we're returning money to shareholders when we do it. So I think our competitor hasn't been as bottom line focused as we have. They tend to have bought a lot of revenues along way to keep the top line moving, but they really have demonstrated nothing on the bottom line.

In our case, I think we will be more aggressive and more ambitious outside of our vertical. I think investors should expect that. It doesn't mean that we're going to go out and just do deals to do deals. I think we're very smart. We manage our cash flow very well. I think where things are opportunistic, investors should expect us to move and move aggressively. If things are trading at high multiples or questionable growth rates, we're probably going to stay away from it and stay close to where we are.

As for the florist business, it's difficult to tell. Certainly on the 800-Flowers call, they were very bullish on their progress there in terms of revenue and profitability. Clearly, our business has been growing and is profitable, so I'm wondering to some degree whether the whole market is just growing and we're all benefiting or if, perhaps somewhere along the line, some of my competitors are doing as well. It's really difficult for me to tell.

Troy Mastin, William Blair & Co.

Thanks a lot.

Operator

Our next question comes from Anthony Noto, Goldman Sachs.

Jennifer Connolly - Goldman Sachs

This is Jennifer Connolly in for Anthony. Question just on the sales and marketing per order versus sales and marketing per florist. It seemed like there was a big shift this quarter just when you look at the year-over-year changes in the sales and marketing per order and then the sales and marketing per florist. Can you talk a little bit to that? Did you guys decrease the sales and marketing that you needed per florist?

Carrie Wolfe

There is a decline and a lot of it was just better, efficient spending. There wasn't a specific thing that we pulled out of versus last year, of any material amount. On the consumer segment -- because we do run those as two separate businesses, separate business decisions as far as advertising is concerned. On the consumer segment as we commented, we did spend more and made an investment over Valentine's Day in some of the marketing online. We did feel that we were still within an acceptable range of profitability per order, so we did decide to make that investment and that is what you see on the consumer segment side.

Jennifer Connolly - Goldman Sachs

Do you think you'll see those same trends going into the June quarter timeframe?

Carrie Wolfe

Again, I would anticipate it to some degree. I think that's within management expectations. A lot of it just depends on what we see in the online space.

Jennifer Connolly

Thank you.

Operator

Our next question comes from Bob Labick, CJS Securities.

Bob Labick - CJS Securities

Good morning. I wanted to follow-up on the florist segment, some very positive news in terms of sales per member florist; but the total number of florists was down a little bit from what we were expecting. Could you just comment on each of those things? I will follow up on that.

Michael Soenen

Yes, just with respect to the number of florists, we actually probably monitor that number a lot less than the investment community does. That number can move around by 2,000 florists kind of either way and it doesn't really bother us. There is a fair amount of churn on the tail, and as long as our members who are in the top half where we are generating a lot of our income are healthy, that's of a bigger focus to us.

So we had no reaction, frankly, to the number, although we do acknowledge the fact that some of these retailers at the tail and are definitely struggling financially. To some degree that's an opportunity for us to help them, and sometimes if they're unable to achieve profitability they churn out. Certainly not a number that struck us awkward in any way.

Bob Labick - CJS Securities

Great. Last quarter you had noted some softness related to the directory sales and I think that coincided with the rollout of 1-800-Flowers directory sales. It seems obviously there was a pickup in your floral sales, so could you comment on what's changed there and the competitive dynamics on a per product basis?

Michael Soenen

Yes, I mean we're not going to get too into the products. I hear that connection, so from a timing standpoint I would actually say operationally we don't see the same thing. Part of the logic is those directories are directories where florists place ads for other florists to send them orders, in effect. As the order volume continues to shift closer to the Internet and they tend to come in more centrally from us, to some degree, some of the florists haven't needed to put the money into those ads. In fact, we have been proactively helping them move some of that funding out of those products into online products, online search, other local marketing things because we think it's a better thing for them, for their business.

So it's to some degree a strategy that we have to help our florists reallocate their marketing dollars out of the Yellow Pages book to advertise to each other and more to shift it to the consumer. Once again, I think that's one of those things that is moving around. Our ability to of generate new products and sell deeper into the network is why we're growing the business. and I don't look at any specific trend like what we're seeing in the publications business -- which I think would continue as we're proactively actually pushing it -- to be a negative thing for us so much as it is just adjusting to what the customers in the marketplace need.

Bob Labick - CJS Securities

Thank you very much.

Operator

Our next question comes from Mark Mahaney, Citigroup Investment Research.

Mark Mahaney - Citigroup

Great, thanks. Two questions. First, on the G&A line, did G&A come in roughly as you had expected? It seemed like it ramped up a little bit over the last couple of quarters. Were there any one-time items in there?

Carrie Wolfe

G&A is coming in where we anticipated. Versus prior year, you're going to have additional costs related to us going public.

Mark Mahaney - Citigroup

Let me get back on the marketing cost per order. Any more detail you can provide on the ramp that you saw this quarter? I guess it came in at about $8.71. Was that all keyword buys that caused that? I know you said you didn't see the same sort of irrational pricing. It sounds like maybe you did more volume buys of keywords or paid search advertising this quarter. Was that the largest factor behind that 16% year-over-year growth or was there also in the quarter more display advertising or portal spend?

Michael Soenen

Well there's a lot of interesting stuff going on in that space, and it's just so hypercompetitive right now. I really would rather just defer from answering that question. We've obviously been able to figure some things out from where we were in December and I just don't really want to show that hand.

Mark Mahaney - Citigroup

Thank you very much.

Operator

Our next question comes from Aaron Kessler, Piper Jaffray.

Aaron Kessler - Piper Jaffray

Thanks. The COGS line came in a little below our estimates. Are you doing anything on your costs or to squeeze out some additional efficiencies? Or is it just really a mix shift going more online? Can you give us an update on the legal cases with Interflora as well as provide comments? Thanks.

Carrie Wolfe

Good morning, Aaron. On the COGS line, we saw a number of things. One, we obviously are shifting more towards the Internet which will reduce our call center costs within the cost of goods line within the consumer segment. We did see our product mix shift continue to the specialty gift within the consumer segment, which also had slightly accretive margins. Within the florist business segment, we're overall just on the bottom line, even when you get to the operating income, we're selling higher margin mix of our products.

Michael Soenen

As for the lawsuit, we're not really commenting on it. What's public is public there, but everybody's pretty well dug in and it's going to be something that's going to continue for a while here until the courts help us sort out. We spent money on it yet this year to some degree. I would argue our earnings are a bit understated. I'm not going to get into the actual numbers, but those are things that at some point will not be recurring, but are certainly showing up in this year's earnings and EBITDA numbers.

Aaron Kessler - Piper Jaffray

Great. And if possible, can you give us an update on some of your long-term targets, maybe revenue and EBITDA growth?

Carrie Wolfe

Yes, I think we will do that as we put out the year-end release in August.

Aaron Kessler - Piper Jaffray

Okay great. Thank you. Good quarter.

Operator

Our next question comes from Justin Post, Merrill Lynch.

Justin Post - Merrill Lynch

A couple of things. First, you give nice detail on the consumer orders, and if you back out the gift section, you can see that the floral orders were actually down a little bit year-over-year. Can you talk about why you think that is and do you think the growth can start picking up there?

Carrie Wolfe

Yes, I think the thing to note is our specialty gift items include everything that's delivered via FedEx. So that does include all of our floral drop ship and plant drop ship. So from an offering perspective, we had some shifts and we did see that amount that were floral and plant items that were shipping via FedEx pick up during this last quarter.

Justin Post - Merrill Lynch

Okay. Mike, we know the synergies from your consumer business help your floral business. Do you think you're feeling any pressure because the number of floral orders has declined a little bit on a year-over-year basis? Do you think that's a concern?

Michael Soenen

It's something that incrementally, that number doesn't mean a big deal, but as a long-term trend over bigger periods of time, it does. So I would say in the near-term no, it's not noticeable. I think should that number shift by 50% over a two or three year period, then I would say that would be outside my range of expectations by a lot, and something that I would want to really be thinking through in terms of generating profits and revenues from the florists.

But incrementally and on the trend lines that we're on, considering the florist base is roughly the same, considering the order volume is roughly the same, and the fact that we have been able to generate new products and new revenues and additional penetration, I feel really good kind of about the mix right now.

Justin Post - Merrill Lynch

Okay. And then when we think about growing the florist business over time or the specialty gift business over time, have you announced any products over the last six months? I know you don't want to preannounce new products, but have you announced anything over the last six months that have really been driving growth recently that we should know about?

Michael Soenen

Yes, so when we go and we think through and we take them by piece; on the consumer side, if you get to the site today you'll see that we launched in time for Mother's Day our new Todd Oldham collection. It's our first go-around with a designer collection. It's a much younger, driven towards our younger, more contemporary customers. We've had a couple of days of sales there, but things have been really spectacular and we're pretty excited going forward.

I'll continue to look to innovate, whether it's new products or different designer collections or different lines, different ways to tap into different segments of customers.

I think on the florist side, it's once again keeping up with certain products are getting outdated and certain products are very hot and new. So the areas where we can help florists with direct marketing, with local search capabilities, with ways to access customers in their markets more effectively than they have are perhaps new and more analogous to the kind of products we are going to see longer-term, where there are some legacy products that are out there that as the mix of orders in a floral shop changes, they're less relevant to them.

So that's a challenge that we have every day. How well we answer that question depends on how well we drive growth, and I think as we look at our numbers today, I would say we're doing a really good job of that.

Justin Post - Merrill Lynch

Great. Nice job turning the consumer growth around.

Operator

(Operator Instructions). Our next question comes from Alexis Gold, UBS.

Alexis Gold - UBS

I think you gave us the stock purchases through March 31st. Was there any stock repurchase subsequent to the quarter?

Carrie Wolfe

We actually only disclose through the quarter.

Alexis Gold - UBS

Okay. In terms of acquisitions and opportunities, you indicated that you would be rational and you kind of dread the term 'high multiples' that you might steer away from. What are your investment parameters just in terms of multiples that you're comfortable with? What is that threshold? Is it 8X or 9X EBITDA?

Michael Soenen

Yes, I don't have a threshold in that sense because it's relative to growth, relative to the value I can bring to the business. We just look at it and I look at my base case execution here where our EBITDA has increased like 52 to mid 60s. We're beating that now, especially if you look at what we're spending on the lawsuit and being public and such. So we look at the rate we're growing and we look at the rate that we're delivering and we ask ourselves, if we were to trade at a market multiple, even if we split kind of our comp universe between where we are and where our comps are, that's a very attractive return for shareholders.

So I want to keep my eye on the base case and I want to make sure we're making strategic moves, but I don't want to go ahead and do anything that's kind of a 'bet the ranch' thing that would be outside or would potentially disrupt the core opportunity here.

Alexis Gold - UBS

Lastly, with respect to gas prices, I know you talked a little bit about your costs today. I am just trying to get a sense for whether or not rising gas prices are a concern as you look at the FedEx business and your delivery costs. How easy is it to pass those through?

Michael Soenen

Yes, there's two things. It's a concern for me as it relates to my florists. I think it impacts their profitability locally and we continue to try to find ways to help them offset that by higher AOVs where possible or more volume or whatever we can do to help them amortize that cost.

As it relates to FedEx, I think the entire market is subject that. The good thing with our vertical is that to a certain degree, those can be passed on, especially at our peak times -- so at a Mother's Day, at a Valentine's Day, at a Christmas where we're doing the most amount of volume, that's actually when our customers are the most inelastic. So we do have the ability at our peak periods to probably push more of that along than we do at non-peak.

Operator

Our next question comes from Dennis Milton, Standard and Poor's.

Dennis Milton - Standard & Poor's

Good morning and great quarter. Just one comment, going back to the gas prices, how sensitive do you see your average ticket to gas prices? Has it impacted it over the last couple months? Do you expect it to impact? And how is it going to affect the types of products you're marketing, et cetera?

Michael Soenen

Well it hasn't impacted us yet, or at least we have seen no direct correlation. There's no connection that we've picked up on in our business. And it really doesn't impact necessarily our product mix or how do we do it. We try to be smart and efficient about how our packaging works. We try to make sure that we're not doing things to drive costs on that side. The carriers are often working very proactively with us to help us come up with the most efficient packaging and shipping routes and so on and so forth, so I think that has, to us so far, been a non-event as it relates to how we've seen our business impacted in an actual sense and in terms of what we anticipate it to do going forward.

Dennis Milton - Standard & Poor's

So you don't expect it to affect the types of products that you're going to highlight?

Michael Soenen

No, not at all. Whatever I can sell to customers that they want is where we start with, and if it costs me a little bit more to ship it for whatever reason, then the onus is on me to figure out how to do it more efficiently.

Dennis Milton - Standard & Poor's

But with respect to just consumer habits in general and the impact on discretionary spending, you just have not noticed it?

Michael Soenen

If you look at this business over longer cycles, 20 years if you will, we tend to not be impacted in bad times as much. We have a little bit of obligatory -- you're not going to go to Mom for Mother's Day and say, you know what fuel prices are high, so I ordered you something… You're not going to go on Valentine's Day and say well, it was a tough economic year this year, I can't do that. We just don't see that.

Now, alternatively, in really, really strong bull markets, people don't necessarily buy twice either. So it's actually over very, very long cycles been very resistant to downside pressure. It doesn't necessarily participate as well in upside markets.

Dennis Milton - Standard & Poor's

One other point was in your release, you give statistics on the consumer side of average check $62.18 and 1,194,000 orders. Normally that number ties off with the revenue number. It doesn't quite do that this year. Is there maybe an error there or is there a rounding error I'm making?

Carrie Wolfe

No, there is no error. We do have some small advertising revenue coming in on the consumer side. That is the differential.

Dennis Milton - Standard & Poor's

Advertising revenue?

Carrie Wolfe

Yes.

Dennis Milton - Standard & Poor's

Okay. And just one last question going to the balance sheet real quick, going into the quarter, obviously with Easter are coming up, it's a small item given the amount of inventory you normally keep. But that seems like a very low number on inventory going into Easter. Can you just maybe explain the fundamentals of the business with respect that?

Carrie Wolfe

On our consumer side we don't carry inventory. It's an entire drop ship model or the florist is carrying the inventory. So that inventory is on our specialty wholesaling side. We have purposely, over the last year and a half, worked to try to minimize that. So we would have shipped out most of our Easter, obviously, and most of the Mother's Day products to the florist as of the end of the quarter. So we generally don't carry a lot of inventory.

Dennis Milton - Standard & Poor's

So you have a higher receivable and a lower inventory?

Carrie Wolfe

Yes.

Dennis Milton - Standard & Poor's

Thank you.

Operator

Ms. Jandy Tomy, there are no further questions at this time. I will now turn the call back over to you. Please continue with your presentation.

Jandy Tomy

Thank you. That was FTD Group Inc.'s fiscal 2006 third quarter conference call. If you did not have the opportunity to listen to the entire call, a replay will be available through May 15, 2006 by calling 1-800-633-8284 and mentioning conference ID 21290378. 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.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.