22 April 2014

Summary company financials ($m)

Year end December FY2011 FY2012 FY2013* FY2014E
Price $31.97 Revenue 587.2 613.5 627.3 655.0
Market cap ($m) 597.8 5.9% 4.5% 2.3% 4.4%
Enterprise value ($m) 714.0 EBITDA 76.1 80.1 79.0 86.0
13.0% 13.1% 12.6% 13.1%
Free float 100% Net income excl g/w 40.9 46.7 50.5 52.2
Daily val traded ($m) 4.84 Net debt (cash) 214.1 176.7 171.8 166.7
Shares outstanding 18.6 18.6 18.7 17.1
* financials FY2013 exclude $13.4m separation costs and $1.6m litigation expense
EV/Sales 1.14 1.09
EV/EBITDA 9.0 8.3
PE excluding goodwill amortisation 11.8 10.5
FTD Companies, Inc.
Revenue growth
EBITDA margin
FTD Companies Inc is the world's largest floral network service provider, with a $597m market capitalisation and $172m of YE2013 net debt. FTD
has market leadership positions in the US, Canada, and in the UK through its Interflora network. FTD was spun off from United Online in
November 2013. FTD trades on 10.5x PE (ex amortisation, including announced buybacks) for FY2014, and its business model has historically
allowed successful operation with higher levels of financial leverage than current.

Floral network service providers, such as FTD, operate a marketing- and brand-driven business model to generate floral orders from consumers
via the internet and mobile apps. FTD then uses a third party fulfillment model including independent florists and third-party distributors who
ship directly to the customer either by same day and next day delivery selections.

Traditional retail US florist numbers are in decline by about 3% per annum and the remaining businesses are increasingly dependent on floral
network services to provide incoming order volume to offset business lost to the internet and supermarket channels. The result is something of a
winner-take-all dynamic, where the online flower marketplace is dominated by the activities of four corporations: FTD, Teleflora, 1-800-
Flowers, and Proflowers. According to our analysis, FTD maintains a leading position (US revenue $485m) against other US floral network
providers such as Teleflora (US revenue $420m) and the 1-800-Flowers division BloomNet (US revenue $82m). However, direct flowers supplier
ProFlowers.com (US revenue estimate $428m) has grown in excess of the rates achieved by the floral network services, and may present the
greatest threat to their volume of orders. Nevertheless, FTD currently continues to grow orders and revenues, and achieves more than double
ProFlowers' operating margin per customer according to our analysis, suggesting the growth of ProFlowers has come from other market
segments primarily.

FTD's business has delivered steady performance over the last decade, with average organic revenue growth of 5.2% and EBITDA margins
ranging between 10.5% and 14.6%. FTD's total US flower orders were 4.5m in FY2013, relative to a figure of 3.2m orders in FY2003, an annual
growth rate of 3.5%. Order growth for the last two years has averaged 2.1%. FTD throughputs its increasing orders through the decreasing
number of traditional retail florists in the US, an outcome which has tended to enhance the efficiency of FTD's model as well as increasing the
importance of FTD's order stream as a percentage of the traditional florists' overall revenues. The average FTD member florist processed $35.2k
of orders from FTD for FY2013, compared to a FY2003 equivalent of $18.4k. FTD's average revenue per florist is also higher than its competitor
set, with Teleflora revenue per florist at $26.3k and BloomNet at $27.3k. FTD's florist network, perhaps thanks to their above average revenues,
appear to have reasonable financial health, as measured by FTD's own write offs, which currently stand at 0.4% of revenue, relative to a historic
range of 0.2-1.8% of revenue.

In addition to the generation of floral orders, FTD provides its florist network with a broad range of subscription-based retail service products
designed to promote their business efficiency. These products generate c. 25% of FTD's revenue and include services in EPOS, e-commerce,
credit card processing, branding, online marketing, order transmission, and system support services.

FTD utilises a capital-light business model in that it does not own inventory, nor operate retail, warehouse or distribution operations. Despite
this, FTD does receive up front payment from consumers before FTD then pays their floral network members within 4-5 weeks. This allows FTD
to maintain a negative net working capital position which was -6.2% of revenue for FY2013.

FTD currently trades at 10.5x PE (earnings excluding goodwill amortisation, including announced FY2014 share buybacks) for FY2014E. Assuming
continued low single digit revenue growth, with EBITDA margins gradually expanding to 14% (versus consensus 13.1% margin FY2014) on
account of the business' natural operating leverage and pricing power within its network of florists, the shares trade on a prospective FY2016
multiple of 9.2x PE with debt paid down to $40m (0.4x EBITDA).

However, given the subscription element to FTD's business model, low capex requirement, and negative working capital allowing cashflows to
exceed earnings, FTD may attract the sort of investor who will look for the company to take on leverage, as it has in its private equity past with
Leonard Green & Partners in 2003.

At last quarter's end, FTD authorized a $50m share repurchase (included in our estimates). However, FY2014 debt levels at 1.9x EBITDA still
remain low relative to the 5.8x senior debt to EBITDA placed on the company for the 2003 Leondard Green & Partners buyout. If FTD today took
debt to 5.8x EBITDA then the share repurchase could be increased from a $50m buyback to a $380m tender offer representing more than half
the company's outstanding stock. Such an offer, assuming successfully carried out at a 20% premium to today's equity price, would leave the
remaining equity trading on 6.7x PE.

As ancilliary points we'd note that the Leonard Green & Partners buyout additionally secured junior debt on the company, at 8.5x EBITDA, a
higher rating that FTD's current EV/EBITDA of 8.3x. FTD's CEO Robert Apatoff also possesses a history with private equity firm Patriarch Partners,
as well as being a FTD board member during the Leonard Green & Partners buyout.