UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
☒x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~2018



☐o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35901

FTD Companies, Inc.

(Exact name of registrant as specified in its charter)



Delaware	32-0255852
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3113 Woodcreek Drive, Downers Grove, Illinois (Address of principal executive offices)	60515 (Zip Code)

(630) 719-7800

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer	☐o	Accelerated filer	☒x
Non-accelerated filer	☐ ¨ (Do not check if a smaller reporting company)	Smaller reporting company	☐o
		Emerging growth company	☐o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x

There were ~~27,546,854~~27,938,332 shares of the Registrant’s common stock outstanding as of ~~November~~August 3, ~~2017.~~2018.

Table of Contents

FTD COMPANIES, INC.

INDEX TO FORM 10-Q



			Page
PART I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	4
		Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5
		Condensed Consolidated Statements of Comprehensive ~~Income~~Income/(Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	6
		Condensed Consolidated Statement of Stockholders’ Equity for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018	7
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	8
		Notes to Condensed Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2628
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4142
	Item 4.	Controls and Procedures	4142

PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	4243
	Item 1A.	Risk Factors	4243
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4345
	Item 6.	Exhibits	4346

SIGNATURES			4447

In this document, references to “FTD Companies,” “FTD,” the “Company,” “we,” “us,” and “our” refer to FTD Companies, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

Table of Contents

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains certain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements ~~about~~regarding the exploration of strategic alternatives; the strategic and financial evaluation of our business; our corporate restructuring and cost savings plan and other strategies; and future financial performance, including our 2018 financial outlook; our ability to continue as a going concern, repay or refinance indebtedness and invest in initiatives; expectations about future business plans, prospective performance and opportunities, including potential acquisitions; future financial performance; revenues; segment metrics; operating expenses; market trends, including those in the markets in which we compete; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; impairment charges; tax payments; foreign currency exchange rates; hedging arrangements; our ~~ability to repay indebtedness and invest in initiatives; our~~ products and services; pricing; marketing plans; competition; settlement of legal matters; and the impact of accounting changes and other pronouncements. Potential factors that could affect such forward-looking statements include, among others, uncertainties associated with being able to identify, evaluate or complete any strategic alternative or strategic transaction; the impact of the announcement of our review of strategic alternatives, as well as any strategic alternative or strategic transaction that may be pursued, on our business, including our financial and operating results and our employees, suppliers and customers; our ability to implement and realize anticipated benefits from our corporate restructuring and cost savings plan and other initiatives; our ability to repay, refinance or restructure our outstanding debt, and the other factors disclosed in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”), and in this Quarterly Report on Form 10-Q, as updated from time to time in our subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. Such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	27,845		$	81,002		$	20,436		$	29,496
Accounts receivable, net of allowances of $4,675 and $4,962 as of September 30, 2017 and December 31, 2016, respectively	24,528			26,659
Accounts receivable, net of allowances of $6,242 and $4,957 as of June 30, 2018 and December 31, 2017, respectively							21,319			26,028
Inventories	30,827			24,996			24,816			25,356
Prepaid expenses and other current assets	10,959			13,697			11,705			14,911
Total current assets	94,159			146,354			78,276			95,791
Property and equipment, net	42,582			57,559			44,779			33,880
Intangible assets, net	234,889			272,798			104,958			181,965
Goodwill	426,131			463,465			211,978			277,041
Other assets	21,387			22,138			10,311			21,648
Total assets	$	819,148		$	962,314		$	450,302		$	610,325
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,602		$	70,254		$	69,943		$	70,480
Accrued liabilities	45,309			68,274			61,430			77,058
Accrued compensation	12,988			19,165			9,203			14,261
Deferred revenue	5,776			4,911			6,377			5,280
Income taxes payable	726			2,005			3,846			872
Current portion of long-term debt	20,000			20,000			189,690			189,666
Total current liabilities	124,401			184,609			340,489			357,617
Long-term debt	232,326			256,306
Deferred tax liabilities, net	69,275			85,932			9,311			30,854
Other liabilities	6,527			7,740			7,538			7,330
Total liabilities	432,529			534,587			357,338			395,801
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, 5,000,000 shares, par value $0.0001, authorized; no shares issued and outstanding	—			—			—			—
Common stock, 60,000,000 shares, par value $0.0001, authorized; 29,977,751 and 29,731,189 shares issued as of September 30, 2017 and December 31, 2016, respectively	3			3
Treasury stock, 2,430,897 shares as of September 30, 2017 and December 31, 2016	(65,221		)	(65,221		)
Common stock, 60,000,000 shares, par value $0.0001, authorized; 30,364,811 and 30,073,087 shares issued as of June 30, 2018 and December 31, 2017, respectively							3			3
Treasury stock, 2,430,897 shares as of June 30, 2018 and December 31, 2017							(65,221		)	(65,221		)
Additional paid-in capital	702,053			694,773			710,750			705,388
Accumulated deficit	(207,771		)	(150,191		)	(508,913		)	(384,232		)
Accumulated other comprehensive loss	(42,445		)	(51,637		)	(43,655		)	(41,414		)
Total stockholders’ equity	386,619			427,727			92,964			214,524
Total liabilities and stockholders’ equity	$	819,148		$	962,314		$	450,302		$	610,325

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Products	$	131,361		$	142,451		$	705,553		$	737,991		$	268,006		$	293,228		$	551,009		$	574,192
Services	29,943			30,428			100,390			103,341			31,915			34,918			67,082			70,447
Total revenues	161,304			172,879			805,943			841,332			299,921			328,146			618,091			644,639
Operating expenses:
Cost of revenues—products	98,895			103,653			489,704			517,811			189,946			198,682			396,217			390,809
Cost of revenues—services	4,280			4,405			13,024			13,757			4,536			4,497			9,012			8,744
Sales and marketing	36,450			35,012			181,570			168,885			71,067			76,224			153,349			145,120
General and administrative	27,656			25,980			83,450			84,113			23,133			27,039			48,834			55,794
Amortization of intangible assets	3,820			15,240			11,459			45,873			1,495			3,819			2,997			7,639
Restructuring and other exit costs	1,113			612			2,057			2,230			—			136			—			944
Impairment of goodwill, intangible assets, and other long-lived assets	82,735			—			82,735			—			136,861			—			139,216			—
Total operating expenses	254,949			184,902			863,999			832,669			427,038			310,397			749,625			609,050
Operating income/(loss)	(93,645		)	(12,023		)	(58,056		)	8,663			(127,117		)	17,749			(131,534		)	35,589
Interest income	122			135			359			410			120			122			241			237
Interest expense	(2,721		)	(2,429		)	(7,671		)	(7,273		)	(4,509		)	(2,562		)	(7,116		)	(4,950		)
Other income/(expense), net	126			(9		)	324			1,804
Other income, net													160			223			136			198
Income/(loss) before income taxes	(96,118		)	(14,326		)	(65,044		)	3,604			(131,346		)	15,532			(138,273		)	31,074
Provision for/(benefit from) income taxes	(19,799		)	(4,057		)	(7,464		)	347			(13,261		)	5,816			(13,592		)	12,335
Net income/(loss)	$	(76,319	)	$	(10,269	)	$	(57,580	)	$	3,257		$	(118,085	)	$	9,716		$	(124,681	)	$	18,739
Earnings/(loss) per common share:
Basic earnings/(loss) per share	$	(2.77	)	$	(0.37	)	$	(2.10	)	$	0.12		$	(4.25	)	$	0.35		$	(4.49	)	$	0.67
Diluted earnings/(loss) per share	$	(2.77	)	$	(0.37	)	$	(2.10	)	$	0.12		$	(4.25	)	$	0.35		$	(4.49	)	$	0.67

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Unaudited, in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017		2018			2017
Net income/(loss)	$	(76,319	)	$	(10,269	)	$	(57,580	)	$	3,257		$	(118,085	)	$	9,716	$	(124,681	)	$	18,739
Other comprehensive income/(loss):
Foreign currency translation	3,089			(2,633		)	8,935			(13,151		)	(6,396		)	4,124		(2,461		)	5,846
Cash flow hedges:
Changes in net gains on derivatives, net of tax of $55 and $54 for the three months ended September 30, 2017 and 2016, respectively, and $162 and $147 for the nine months ended September 30, 2017 and 2016, respectively	85			86			257			236
Changes in net gains on derivatives, net of tax of $23 and $53 for the three months ended June 30, 2018 and 2017, respectively, and $59 and $107 for the six months ended June 30, 2018 and 2017, respectively.													116			87		220			172
Other comprehensive income/(loss)	3,174			(2,547		)	9,192			(12,915		)	(6,280		)	4,211		(2,241		)	6,018
Total comprehensive loss	$	(73,145	)	$	(12,816	)	$	(48,388	)	$	(9,658	)
Total comprehensive income/(loss)													$	(124,365	)	$	13,927	$	(126,922	)	$	24,757

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)


	Common Stock			Treasury Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Loss				Accumulated Deficit			Total Stockholders’ Equity				Common Stock					Treasury Stock					Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Shares		Amount							Accumulated Other Comprehensive Loss			Shares				Total Stockholders’ Equity			Amount			Shares		Amount						Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2016	29,731	$	3	(2,431	)	$	(65,221	)	Additional Paid-In Capital			$	694,773			$	Accumulated Deficit	(51,637	)	$	(150,191	)		$	427,727
Balance as of December 31, 2017																								30,073		$	3		(2,431	)	$	(65,221	)	$	705,388		$	(41,414	)	$	(384,232	)	$	214,524
Net loss	—	—		—		—			—				—				(57,580		)	(57,580		)		—		—			—		—			—			—			(124,681		)	(124,681		)
Other comprehensive income	—	—		—		—			—				9,192				—			9,192
Other comprehensive loss																								—		—			—		—			—			(2,241		)	—			(2,241		)
Stock-based compensation	—	—		—		—			8,221				—				—			8,221				—		—			—		—			5,410			—			—			5,410
Vesting of restricted stock units and related repurchases of common stock	186	—		—		—			(1,983		)		—				—			(1,983		)		187		—			—		—			(460		)	—			—			(460		)
Issuance of common stock through employee stock purchase plan	61	—		—		—			1,042				—				—			1,042				105		—			—		—			412			—			—			412
Balance as of September 30, 2017	29,978	$	3	(2,431	)	$	(65,221	)	$	702,053			$	(42,445	)		$	(207,771	)	$	386,619
Balance as of June 30, 2018																								30,365		$	3		(2,431	)	$	(65,221	)	$	710,750		$	(43,655	)	$	(508,913	)	$	92,964

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income/(loss)	$	(57,580	)	$	3,257		$	(124,681	)	$	18,739
Adjustments to reconcile net income/(loss) to net cash used for operating activities:
Adjustments to reconcile net income/(loss) to net cash provided by/(used for) operating activities:
Depreciation and amortization	27,778			63,502			8,220			18,583
Impairment of goodwill, intangible assets, and other long-lived assets	82,735			—			139,216			—
Stock-based compensation	8,221			10,803			5,410			5,870
Provision for doubtful accounts receivable	1,515			2,936			1,067			779
Amortization of debt issuance costs	1,020			1,020
Impairment of fixed assets	—			398
Amortization of deferred financing fees							1,058			680
Deferred taxes, net	(17,314		)	(14,519		)	(20,432		)	1,758
Gains on life insurance	—			(1,583		)
Other, net	(95		)	76			92			(69		)
Changes in operating assets and liabilities:
Accounts receivable, net	923			(1,791		)	3,585			3,887
Inventories	(5,770		)	(2,025		)	529			170
Prepaid expenses and other assets	4,139			5,623			3,492			5,049
Accounts payable and accrued liabilities	(62,235		)	(71,932		)	(23,087		)	(36,060		)
Deferred revenue	750			1,037			1,144			1,154
Income taxes receivable or payable	(1,033		)	1,882			2,514			66
Other liabilities	(1,198		)	(2,284		)	287			(997		)
Net cash used for operating activities	(18,144		)	(3,600		)
Net cash provided by/(used for) operating activities							(1,586		)	19,609
Cash flows from investing activities:
Purchases of property and equipment	(10,677		)	(12,018		)	(16,280		)	(6,370		)
Proceeds from life insurance	—			1,946			10,003			—
Net cash used for investing activities	(10,677		)	(10,072		)	(6,277		)	(6,370		)
Cash flows from financing activities:
Proceeds from long-term debt	90,000			—
Payments on long-term debt	(115,000		)	(15,000		)
Exercise of stock options and purchases from employee stock plans	1,042			1,304
Proceeds from revolving lines of credit							185,000			70,000
Payments on term debt and revolving lines of credit							(182,000		)	(85,000		)
Purchases from employee stock plan							412			1,042
Payments for debt financing fees							(4,034		)	—
Repurchases of common stock withheld for taxes	(1,983		)	(1,645		)	(460		)	(1,969		)
Repurchases of common stock	—			(12,035		)
Net cash used for financing activities	(25,941		)	(27,376		)	(1,082		)	(15,927		)
Effect of foreign currency exchange rate changes on cash and cash equivalents	1,605			(652		)	(115		)	1,042
Change in cash and cash equivalents	(53,157		)	(41,700		)	(9,060		)	(1,646		)
Cash and cash equivalents, beginning of period	81,002			57,892			29,496			81,002
Cash and cash equivalents, end of period	$	27,845		$	16,192		$	20,436		$	79,356

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

FTD Companies, Inc. (together with its subsidiaries, “FTD” or the “Company”), is a premier floral and gifting company with a vision to be the ~~leading~~world’s floral innovator and ~~most trusted floral~~leader, creating products, brands, and ~~gifting company in the world. Our mission is to inspire, support, and delight our~~technology-driven services its customers ~~when expressing life’s most important sentiments. We provide~~love. The Company provides floral, specialty foods, gift and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. ~~Our~~The business uses the highly recognized FTD^® and Interflora^® brands, both supported by the iconic Mercury Man^® logo. While ~~we operate~~the Company operates primarily in the United States (“U.S.”) and the United Kingdom (“U.K.”), ~~we have~~it has worldwide presence as ~~our~~its Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. ~~Our~~The Company’s diversified portfolio of brands also includes ProFlowers^®, ProPlants^®, Shari’s Berries^®, Personal Creations^®, RedEnvelope^®, Flying Flowers^®, Ink Cards^™, Postagram^™, Gifts.com^™,and ~~Gifts.com~~BloomThat^™. While floral arrangements and plants are ~~our~~its primary offerings, wethe Company also ~~market~~markets and ~~sell~~sells gift items, including gourmet-dipped berries and other ~~specialty foods,~~sweets, personalized gifts, ~~premium fresh fruit baskets,~~ gift baskets, wine and champagne, ~~jewelry,~~ and ~~spa products.~~jewelry.

The principal operating subsidiaries of FTD Companies, Inc. are Florists’ Transworld Delivery, Inc., FTD.COM Inc. (“FTD.com”), Interflora British Unit (“Interflora”), and Provide Commerce, Inc. (“Provide Commerce”~~), FTD.COM Inc. (“FTD.COM”), and Interflora British Unit (“Interflora”~~). The operations of the Company include those of its subsidiary, Interflora, Inc., of which one-third is owned by a third party. The Company’s corporate headquarters is located in Downers Grove, Illinois. The Company also maintains offices in San Diego and San Francisco, California; Woodridge, Illinois; Centerbrook, Connecticut; Sleaford, England; and Hyderabad, India; and distribution centers in various locations throughout the U.S.

Basis of Presentation

~~These condensed~~The Company’s consolidated financial statements ~~are unaudited and~~ have been prepared in accordance with accounting principles generally accepted in the ~~United States of America~~U.S. (“GAAP”), including those for interim financial information, and with the instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the “SEC”). ~~Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements.~~ All ~~significant~~ intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial position and operating results for the periods presented. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The condensed consolidated balance sheet information as of December 31, 2016 was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2016, but does not include all of the disclosures required by GAAP.

~~The condensed consolidated financial statements reflect the Company’s historical financial position, results of operations, and cash flows.~~ The preparation of ~~condensed consolidated~~ financial statements in accordance with GAAP requires management to make accounting policy elections, estimates and assumptions that affect a number of reported amounts and related disclosures in the ~~condensed~~ consolidated financial statements. Management bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates and assumptions. The most significant areas of the condensed consolidated financial statements that require management’s judgment include the Company’s revenue recognition, goodwill, indefinite-lived intangible assets and other long-lived assets, allowance for doubtful accounts, income taxes, and legal contingencies.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, ~~2016.~~2017.

Going Concern

The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.

On May 31, 2018, the Company entered into the Third Amendment to Credit Agreement (the Credit Agreement, dated September 19, 2014, as previously amended and as further amended by the Third Amendment, is referred to in this Form 10-Q as the “Amended Credit Agreement”) with its lenders, which includes an agreement by the lenders to waive existing defaults caused by (1) the inclusion of a going concern uncertainty explanatory paragraph in the audit opinion of the Company’s financial statements for the year ended December 31, 2017 and (2) the breach of the consolidated net leverage ratio covenant for the quarter ended March 31, 2018. The Amended Credit Agreement also restricts the Company’s combined usage of the revolving credit facility portion of the Amended Credit Agreement to (1) $150 million during the period from May 31, 2018 through and including September 30, 2018; (2) $175 million during the period from October 1, 2018 through and including

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018; and (3) $150 million during the period from January 1, 2019 through the September 19, 2019 maturity date, all subject to the Company’s obligation to make prepayments of the term loan portion of the Amended Credit Agreement with any net cash proceeds received from the sale of certain non-core or other assets. In addition, the consolidated net leverage ratio and fixed charge coverage ratio covenants were revised for each quarterly period through the September 19, 2019 maturity date as were the interest rates applicable to borrowings under the Amended Credit Agreement. See Note 6—“Financing Arrangements” for additional information regarding the Amended Credit Agreement.

The Company was in compliance with the revised covenants under the Amended Credit Agreement as of June 30, 2018. The ability to continue as a going concern, however, is dependent on the Company generating profitable operating results and continuing to be in compliance with the revised covenants under the Amended Credit Agreement or refinancing, repaying, or obtaining new financing prior to maturity of the Amended Credit Agreement in September 2019. In this regard, on July 19, 2018, the Company announced that its board of directors has initiated a review of strategic alternatives. The strategic alternatives expected to be considered include, but are not limited to, a sale or merger of the Company, the Company continuing to pursue value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of FTD’s businesses or assets. The Company also announced a corporate restructuring and cost savings plan, under which opportunities to optimize operations, drive efficiency, and reduce costs have been identified.

Notwithstanding these initiatives, based on the Company’s 2018 year-to-date results of operations and outlook for the remainder of the term of the Amended Credit Agreement, the Company currently anticipates that its Adjusted EBITDA (as defined in the Amended Credit Agreement) and other sources of earnings or adjustments used to calculate Consolidated Adjusted EBITDA under the Amended Credit Agreement may result in (1) the Company’s consolidated net leverage ratio, as defined in the Amended Credit Agreement, exceeding the maximum permitted consolidated net leverage ratio during the remainder of the term of the Amended Credit Agreement and (2) the Company’s fixed charge coverage ratio, as defined in the Amended Credit Agreement, falling below the minimum requirement during the remainder of the term of the Amended Credit Agreement. If the Company is unable to meet the revised covenants under the Amended Credit Agreement and the Company is unable to obtain waivers or amendments from its lenders, the lenders could exercise remedies under the Amended Credit Agreement and repayment of the debt owed under the Amended Credit Agreement could be accelerated. The Company does not expect that it could repay all of its outstanding indebtedness if the repayment of such indebtedness was accelerated. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

There can be no assurance that the strategic alternatives review noted above will result in any particular strategic alternative or strategic transaction or that the Company will be able to refinance its outstanding indebtedness or obtain alternative financing on acceptable terms, when required or if at all. If the Company is not successful in its initiatives, the Company may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition. The financial statements included in this Form 10-Q do not include any adjustments that might result from the outcome of these uncertainties.

Accounting Policies

~~Refer~~With the exception of the Company’s revenue recognition policy as noted below, refer to the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, ~~2016~~2017 for a discussion of the Company’s accounting policies, as updated below for recently adopted accounting standards.

~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Standards~~Revenue Recognition

~~In July 2015, the~~The Company adopted Financial Accounting Standards Board (“FASB”) ~~issued~~ Accounting Standards ~~Update~~Codification Topic 606 (“~~ASU”~~ASC 606”) ~~2015-11,~~, ~~Inventory—Simplifying~~Revenue from Contracts with Customers effective January 1, 2018, using the ~~Measurement~~modified retrospective method. This method requires that the cumulative effect of ~~Inventory (Topic 330), which changes~~ the ~~measurement principle for inventory from the lower of cost or market~~initial application is recognized as an adjustment to the lower of cost and net realizable value. This ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted the guidance in the first quarter of 2017 on a prospective basis, as required, with no impact on its consolidated financial statements.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718)~~. The amendments in this ASU simplify several aspects of the accounting for stock-based compensation, including the income tax consequences, the accounting for forfeitures, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted the guidance related to the income tax expense requirements in the first quarter of 2017 on a prospective basis. As a result, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete event resulting in recognition of incremental income tax expense of $0.1 million during the three months ended September 30, 2017 and $1.5 million during the nine months ended September 30, 2017. The Company adopted the provisions related to the classification on the statement of cash flows on a retrospective basis and prior periods have been adjusted to present the excess tax benefits/shortfalls as part of cash flows from operating activities. The result was a decrease in cash flows from operating activities and a corresponding increase in cash flows from financing activities of $0.1 million and $1.5 million, respectively, for the three and nine months ended September 30, 2017, and a decrease in cash flows from operating activities and a corresponding increase in cash flows from financing activities of $0.7 million and $0.4 million, respectively, for the three and nine months ended September 30, 2016. The Company elected not to change its policy on accounting for forfeitures and will continue to recognize expense based on an estimated forfeiture rate. In future periods, the adoption of this update could increase or reduce the Company’s reported income tax expense or benefit and cash flows from operating activities depending on the difference between the future priceopening balance of the Company’s ~~common stock~~retained earnings at ~~vesting or exercise as compared to~~January 1, 2018. However, the ~~grant price.~~

~~In January 2017,~~adoption did not have a material impact on the ~~FASB issued ASU 2017-04,~~ ~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. This standard was scheduled to be effective forCompany’s revenue recognition. As such, the Company ~~for the fiscal year~~did not record an adjustment to its beginning balance of retained earnings as of January 1, 2020 and for interim periods within that fiscal year. Early adoption is permitted for any goodwill impairment test performed on testing dates after January 1, 2017. As the amendments within this ASU are meant to reduce the complexity surrounding the evaluation of the Company’s goodwill for impairment, the Company elected to early adopt this ASU beginning January 1, 2017. The amendments in this ASU have been and will continue to be applied to the Company’s goodwill impairment tests performed on an interim or annual basis, including the interim test which was performed as a result of a decline in the Company’s market capitalization during the third quarter of 2017. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets.”2018.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recognizes revenue from short-term contracts for the sale of various products and services to its customers, which include consumers, floral network members, and wholesale customers. Sales to consumers are generated via the Company’s websites, mobile sites, or over the telephone with payment made either at the time the order is placed or upon shipment. Product revenues from these short-term contracts are single performance obligations and are considered complete upon delivery to the recipient. Amounts collected from customers upon placement of an order are recorded as deferred revenue and recognized upon delivery of the product. Products revenues, less discounts and refunds, and the related cost of revenues are recognized when control of the goods is transferred to the recipient, which is generally upon delivery. Product sales are not refundable other than as related to customer service issues. Shipping and service fees charged to customers are recognized at the time the related products revenues are recognized and are included in products revenues. Shipping and delivery costs are included in cost of revenues. Sales taxes are collected from customers and remitted to the appropriate taxing authorities and are not reflected in the Company’s condensed consolidated statements of operations as revenues.

The Company generally recognizes revenues for sales to consumers on a gross basis because the Company controls the goods before they are transferred to the recipient as the Company (i) bears primary responsibility for fulfilling the promise to the customer; (ii) bears inventory risk before and/or after the good or service is transferred to the customer; and (iii) has discretion in establishing the price for the sale of the good or service to the customer.

Services revenues related to orders sent through the floral network are variable based on either the number of orders or the value of orders and are recognized in the period in which the orders are delivered. Membership and other subscription-based fees are recognized monthly as earned, on a month-to-month basis. Each service offered by the Company is separate and distinct from other services and represents an individual performance obligation.

The Company also sells point-of-sale systems and related technology services to its floral network members and recognizes revenue in accordance with ASC 606. For hardware sales that include software, revenues are recognized when delivery, installation and customer acceptance have all occurred. The transaction price for point-of-sale systems is based on the equipment and the software modules ordered by the customer and include installation and training for the system. The sale of the system is considered a single performance obligation since the installation and training are a significant part of the sale in order for the floral network member to access the clearinghouse to send and receive floral orders. The Company recognizes revenues on hardware which is sold without software at the time of delivery.

Probability of collection for both products and services revenue is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If it is determined that collectability is not reasonably assured, revenues are not recognized until collectability becomes reasonably assured.

The Company incurs contract costs that are incremental costs incurred for obtaining a contract. These contract costs are short-term (less than a year) and are expensed as incurred based on the practical expedient provided in ASC 606. As such, the Company does not capitalize costs incurred for obtaining a contract.

Recent Accounting Pronouncements

Recently ~~Issued~~Adopted Accounting Standards

In March 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-05, Income Taxes (Topic 740)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which provides guidance from the SEC allowing for the recognition of provisional amounts in the financial statements for the year ended December 31, 2017 as a result of the U.S. Tax Cuts and Jobs Act (“TCJA”) that was signed into law in December 2017. The guidance allows for a measurement period of up to one year from the enactment date to finalize the accounting related to the TCJA. The Company has applied the guidance in this update in its financial statements for the six months ended June 30, 2018 and will finalize and record any adjustments related to the TCJA within the one year measurement period.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20, respectively (collectively, “Topic 606”). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ~~In addition, new and enhanced disclosures will be required.~~ The Company adopted the guidance under this topic ~~was deferred by ASU 2015-14 and is now effective for fiscal years and interim periods beginning on or after December 15, 2017, with early adoption permitted~~ as of the original effective date for periods beginning after December 15, 2016. The Company will adopt Topic 606 in the first quarter of 2018. The Company has reached conclusions on key accounting assessments related to the adoption of Topic 606. However, the Company is finalizing its assessment and expects theJanuary 1, 2018 with no material impact to ~~be immaterial to our~~its consolidated financial ~~statements on an ongoing basis.~~statements. See Accounting Policies—Revenue Recognition above. The ~~Company expects to adopt Topic~~disclosures required by ASC 606 ~~on a modified retrospective basis with the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings, if any adjustment is necessary.~~have been included in Note 2—Segment Information.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). The updated guidance enhances the reporting model for financial instruments, and includes amendments to address aspects of recognition, measurement, presentation and disclosure.The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2017. The amendments must be applied prospectively and, although early adoption is permitted for certain measurement enhancements within this amendment, early adoption is not permitted for other aspects updated in this amendment. The Company ~~does not anticipate that~~adopted the ~~adoption~~guidance under this topic as of ~~this update will have a material~~January 1, 2018 with no impact onto its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update was issued to address the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The Company adopted the guidance under this topic as of January 1, 2018 with no impact to its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This update was issued to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of terms or conditions of a share-based payment award. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards would require an entity to apply modification accounting under Topic 718. The Company adopted the guidance under this topic as of January 1, 2018 with no impact to its consolidated financial statements.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update requires the recognition of certain lease assets and lease liabilities on the balance sheet as well as the disclosure of key information about leasing arrangements. The amendments in this ASU require the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients which may be elected by the Company. The amendments in this ASU will be effective for the Company for fiscal years, and the interim periods within those years, beginning after December 15, 2018, ~~and~~with early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which guidance is effective, which is a modified-retrospective approach. The Company ~~does not anticipate that~~is currently assessing the impact of this update ~~will have a material impact~~ on its consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.~~ This update was issued to address the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Company does not anticipate that the adoption of this update will have a material impact on its consolidated financial statements.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In ~~May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.~~ This update was issued to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification of terms or conditions of a share-based payment award. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards would require an entity to apply modification accounting under Topic 718. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments will be applied prospectively. The Company does not anticipate that this update will have a material impact on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update seeks to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. For cash flow and net investment hedges as of the adoption date, this ASU requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The amendments in this ASU are effective for the Company’s fiscal year beginning after December 31, 2018, with early adoption permitted. The Company is currently assessing the ~~timing~~impact of this update on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. This update also requires certain disclosures about stranded tax effects. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update allows existing employee guidance to apply to non-employee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

2. SEGMENT INFORMATION

The Company reports its business in ~~four~~three reportable segments: ~~Provide Commerce,~~U.S. Consumer, Florist, and International. Prior to January 1, 2018, the Company reported its business in four reportable segments. As a result of a change in the information provided to and utilized by the Company’s then-current Chief Executive Officer (who was also the Company’s Chief Operating Decision Maker (“CODM”)) to assess the performance of the business, the Company combined the previous Provide Commerce and Consumer segments into one reportable segment. There have been no changes to the Company’s reporting units, which remain FTD.com (previously referred to as Consumer), Florist, International, ProFlowers/Gourmet Foods, and Personal Creations.

~~Below~~The Company follows the reporting requirements of ASC 280, Segment Reporting. Management measures and reviews the Company’s operating results by segment in accordance with the “management approach” defined in ASC 280. The reportable segments identified below were the segments of the Company for which separate financial information was available and for which segment results were regularly reviewed by the Company’s CODM to make decisions about the allocation of resources and to assess performance. The CODM uses segment operating income to evaluate the performance of the business segments and make decisions about allocating resources among segments. Segment operating income is ~~a reconciliation~~operating income excluding depreciation, amortization, litigation and dispute settlement charges or gains, transaction-related costs, restructuring and other exit costs, and impairment of ~~segment revenues~~goodwill, intangible assets and other long-lived assets. Stock-based and incentive compensation and general corporate expenses are not allocated to ~~consolidated revenues (in thousands):~~the segments. Segment operating income is prior to intersegment eliminations and excludes other expense, net.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Products revenues:
Provide Commerce $ 54,633
$ 57,112
$ 390,192
$ 390,751
Consumer 43,631
51,260
196,547
220,743
Florist 8,630
10,328
37,612
38,417
International 27,497
27,142
93,385
101,809
Segment products revenues 134,391
145,842
717,736
751,720
Services revenues:
Florist 26,035
26,277
87,649
88,538
International 3,980
4,222
13,031
15,037
Segment services revenues 30,015
30,499
100,680
103,575
Intersegment eliminations (3,102 ) (3,462 ) (12,473 ) (13,963 )
Consolidated revenues $ 161,304
$ 172,879
$ 805,943
$ 841,332

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Below is a reconciliation of segment revenues to consolidated revenues (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Products revenues:
U.S. Consumer	$	233,082		$	259,804		$	456,443		$	488,476
Florist	11,703			12,813			26,474			28,982
International	27,319			25,446			76,411			65,887
Segment products revenues	272,104			298,063			559,328			583,345
Services revenues:
Florist	28,213			31,277			57,658			61,614
International	3,795			3,755			9,618			9,051
Segment services revenues	32,008			35,032			67,276			70,665
Intersegment eliminations	(4,191		)	(4,949		)	(8,513		)	(9,371		)
Consolidated revenues	$	299,921		$	328,146		$	618,091		$	644,639

Intersegment revenues represent amounts charged from one segment to the other for services provided based on order volume at a set rate per order. Intersegment revenues by segment were as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Intersegment revenues:
Provide Commerce	$	(355	)	$	(440	)	$	(1,336	)	$	(1,707	)
Consumer	(2,675		)	(2,951		)	(10,847		)	(12,022		)
U.S. Consumer													$	(4,098	)	$	(4,835	)	$	(8,319	)	$	(9,153	)
Florist	(72		)	(71		)	(290		)	(234		)	(93		)	(114		)	(194		)	(218		)
Total intersegment revenues	$	(3,102	)	$	(3,462	)	$	(12,473	)	$	(13,963	)	$	(4,191	)	$	(4,949	)	$	(8,513	)	$	(9,371	)

The U.S. Consumer segment is comprised of the FTD.com, ProFlowers, Gourmet Foods, and Personal Creations business units. The revenues for the business units were as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
U.S. Consumer segment revenues:
FTD.com	$	65,881	$	80,113	$	137,599	$	152,917
ProFlowers	96,963		106,515		176,786		197,226
Gourmet Foods	45,536		49,205		96,617		101,198
Personal Creations	24,702		23,971		45,441		37,135
Total U.S. Consumer segment revenues	$	233,082	$	259,804	$	456,443	$	488,476

Geographic revenues from sales to external customers were as follows for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
U.S.	$	129,827	$	141,515	$	699,527	$	724,486	$	268,807	$	298,945	$	532,062	$	569,701
U.K.	31,477		31,364		106,416		116,846		31,114		29,201		86,029		74,938
Consolidated revenues	$	161,304	$	172,879	$	805,943	$	841,332	$	299,921	$	328,146	$	618,091	$	644,639

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Below is a reconciliation of segment operating ~~income~~income/(loss) to consolidated operating ~~income~~income/(loss) and ~~income~~income/(loss) before income taxes (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Segment operating income/(loss)^(a)
Provide Commerce	$	(6,304	)	$	(1,847	)	$	21,686		$	27,406
Consumer	3,225			5,019			15,460			22,326
U.S. Consumer													$	6,474		$	21,120		$	(1,761	)	$	40,227
Florist	9,552			11,362			35,757			36,722			10,849			12,248			23,115			26,202
International	3,384			3,845			11,982			15,225			2,710			3,066			9,765			8,598
Total segment operating income	9,857			18,379			84,885			101,679			20,033			36,434			31,119			75,027
Unallocated expenses^(b)	(11,573		)	(9,416		)	(32,428		)	(29,514		)	(6,171		)	(9,400		)	(15,217		)	(20,855		)
Impairment of goodwill, intangible assets, and other long-lived assets	(82,735		)	—			(82,735		)	—			(136,861		)	—			(139,216		)	—
Depreciation expense and amortization of intangible assets	(9,194		)	(20,986		)	(27,778		)	(63,502		)	(4,118		)	(9,285		)	(8,220		)	(18,583		)
Operating income/(loss)	(93,645		)	(12,023		)	(58,056		)	8,663			(127,117		)	17,749			(131,534		)	35,589
Interest expense, net	(2,599		)	(2,294		)	(7,312		)	(6,863		)	(4,389		)	(2,440		)	(6,875		)	(4,713		)
Other income/(expense), net	126			(9		)	324			1,804
Other income, net													160			223			136			198
Income/(loss) before income taxes	$	(96,118	)	$	(14,326	)	$	(65,044	)	$	3,604		$	(131,346	)	$	15,532		$	(138,273	)	$	31,074

(a)

Segment operating income/(loss) is operating income/(loss) excluding depreciation, amortization, ~~litigation and dispute settlement charges and gains, transaction and integration costs, restructuring and other exit costs, and~~ impairment of goodwill, intangible assets, and other long-lived ~~assets.~~assets, litigation and dispute settlement charges and gains, transaction-related costs, and restructuring and other exit costs. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net.


(b)	Unallocated expenses include various corporate costs, such as executive management, corporate finance, and legal costs. In addition, unallocated expenses include stock-based and incentive compensation, restructuring and other exit costs, ~~transaction and integration~~transaction-related costs, and litigation and dispute settlement charges and gains.

~~Table of Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

3. FINANCING RECEIVABLES

The Company has financing receivables related to equipment sales to its floral network members. The current and noncurrent portions of financing receivables are included in accounts receivable and other assets, respectively, in the condensed consolidated balance sheets. The Company assesses financing receivables individually for balances due from current floral network members and collectively for balances due from terminated floral network members.

~~Credit~~The credit quality ~~of financing receivables was as follows (in thousands):~~

September 30, 2017 December 31, 2016
Current $ 10,784
$ 11,490
Past due 869
865
Total $ 11,653
$ 12,355

~~The~~and the aging of financing receivables was as follows (in thousands):


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Current	$	10,784	$	11,490	$	9,589	$	10,571
Past due:
1 - 150 days past due	182		120		229		167
151 - 364 days past due	181		129		168		213
365 - 730 days past due	187		230		234		184
731 or more days past due	319		386		380		357
Total	$	11,653	$	12,355	$	10,600	$	11,492

Financing receivables on nonaccrual status ~~as of September 30, 2017 and December 31, 2016,~~ totaled ~~$0.9~~$1.1 million and $1.0 million at June 30, 2018 and December 31, 2017, respectively.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The allowance for credit losses and the recorded investment in financing receivables were as follows (in thousands):


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Allowance for credit losses:
Balance as of January 1	$	846		$	706		$	912		$	846
Provision	280			131			178			184
Write-offs charged against allowance	(276		)	(66		)	(102		)	(249		)
Balance as of September 30	$	850		$	771
Balance at June 30							$	988		$	781
Ending balance collectively evaluated for impairment	$	806		$	767		$	944		$	745
Ending balance individually evaluated for impairment	$	44		$	4		$	44		$	36
Recorded investments in financing receivables:
Balance collectively evaluated for impairment	$	943		$	861		$	1,093		$	856
Balance individually evaluated for impairment	$	10,710		$	11,571		$	9,507		$	11,044

Individually evaluated impaired loans, including the recorded investment in such loans, the unpaid principal balance, and the allowance related to such loans, each totaled less than $0.1 million as of both ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The average recorded investment in such loans was less than $0.1 million for both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. Interest income recognized on impaired loans was less than $0.1 million for both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017.

~~Table of Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

4. TRANSACTIONS WITH RELATED PARTIES

Transactions with ~~Liberty~~Qurate

As of ~~September~~June 30, ~~2017,~~2018, Qurate Retail, Inc. (“Qurate”), formerly Liberty Interactive Corporation, ~~(“Liberty”)~~ owned ~~37.0%~~36.5% of the issued and outstanding shares of FTD common stock. An Investor Rights Agreement governs certain rights of and restrictions on ~~Liberty~~Qurate in connection with the shares of FTD common stock that ~~Liberty~~Qurate owns.

On April 4, 2017, Liberty and General Communication, Inc. (“GCI”) announced Liberty’s entry into an agreement to acquire GCI, combine GCI with Liberty’s Liberty Ventures tracking stock group and effect a split-off (the “Split-Off”) of Liberty’s interest in the combined company (“GCI Liberty”). In connection with these proposed transactions, Liberty currently intends to transfer its entire equity interest in the Company, and all of its rights, benefits and obligations under the Investor Rights Agreement, to GCI.

On August 28, 2017, Liberty, the Company, GCI, Liberty Interactive LLC and Ventures Holdco, LLC, entered into an assignment and assumption agreement pursuant to which, subject to the completion of the Split-Off and certain other conditions, Liberty will assign, and GCI Liberty will assume, Liberty’s rights, benefits and obligations under the Investor Rights Agreement. Following the consummation of such transactions, GCI Liberty will be entitled to all of Liberty’s rights, benefits and obligations under the Investor Rights Agreement.

The I.S. Group Limited

Interflora holds an equity investment of 20.4% in The I.S. Group Limited (“I.S. Group”). The investment was ~~$1.5~~$1.7 million ~~and $1.4 million, respectively,~~ as of ~~September~~both June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, and is included in other assets in the condensed consolidated balance sheets. I.S. Group supplies floral-related products to Interflora’s floral network members in both the U.K. and the Republic of Ireland as well as to other customers. Interflora derives revenues from I.S. Group from (i) the sale of products (sourced from third-party suppliers) to I.S. Group for which revenue is recognized on a gross basis, (ii) commissions on products sold by I.S. Group (sourced from third-party suppliers) to floral network members, and (iii) commissions for acting as a collection agent on behalf of I.S. Group. Revenues related to products sold to and commissions earned from I.S. Group were ~~$0.5~~$0.4 million ~~and $0.5 million~~ for each of the three months ended ~~September~~June 30, 2018 and 2017, and ~~2016, respectively, and $1.6~~$1.3 million and ~~$1.8~~$1.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. In addition, Interflora purchases products from I.S. Group for sale to consumers. The cost of revenues related to products purchased from I.S. Group was $0.1 million for each of the three months ended June 30, 2018 and 2017, and $0.2 million and $0.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016, respectively, and $0.2 million and $0.4 million for the nine months ended September 30,~~ 2017, ~~and 2016,~~ respectively. Amounts due from I.S. Group were $0.2 million and $0.3 million ~~as of September~~at June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, and amounts payable to the I.S. Group were $0.8 million and ~~$1.2~~$1.0 million ~~as of September~~at June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS

The Company tests goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year at the reporting unit level and on an interim basis if events or substantive changes in circumstances indicate that the carrying amount of a reporting unit or an indefinite-lived asset may exceed its fair value (i.e. that a triggering event has occurred). Additionally, the Company evaluates finite-lived intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset groupings may not be recoverable.

~~Due~~During the quarter ended June 30, 2018, due to ~~a sustained decline~~continued declines in financial results and reductions in the ~~Company’s market capitalization during~~projected results for the ~~three months ended September 30, 2017,~~remainder of 2018, the Company determined that a triggering event had occurred that required an interim impairment assessment for all of its reporting units other than the International reporting unit, as that reporting unit’s year-to-date and projected results were relatively in line with expectations. The intangible assets and other long-lived ~~assets.~~assets associated with the reporting units assessed were also reviewed for impairment. Impairment charges are included in operating expenses in the condensed consolidated statement of operations under the caption impairment of goodwill, intangible assets, and other long-lived assets.

~~Table of Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Goodwill~~

The Company performed a quantitative interim test. In calculating the fair value of the reporting units, the Company used a combination of the ~~market~~income approach and the ~~income~~market approach valuation methodologies. ~~The~~For all reporting units other than the ProFlowers/Gourmet Foods reporting unit, the income approach was used primarily, as management believes that a discounted cash flow approach is the most reliable indicator of the fair values of the businesses. Under the market approach, the guideline company method was used, which focuses on comparing the Company’s risk profile and growth prospects to select reasonably similar companies based on business description, revenue size, markets served, and profitability.

For the ProFlowers/Gourmet Foods reporting unit, the cost approach was used.

The interim test resulted in the Company’s determination that the fair ~~values~~value of the Florist ~~International, and Personal Creations~~ reporting ~~units~~unit exceeded ~~their~~its carrying ~~values~~value and, therefore, ~~their~~its goodwill was not impaired. The reporting unit’s fair value exceeded its carrying value by approximately 6%. The fair values of the ~~Consumer and~~FTD.com, ProFlowers/Gourmet Foods, and Personal Creations reporting units were less than their carrying values and, as such, ~~their~~ goodwill ~~was deemed to be impaired. Impairment~~impairment charges of ~~$16.8~~$35.2 million, $14.8 million, and ~~$26.8~~$12.5 million, respectively, were recorded during the three months ended ~~September~~June 30, ~~2017~~2018 related to ~~the goodwill of the Consumer and ProFlowers/Gourmet Foods~~these reporting units. ~~These~~Such goodwill impairment charges are not deductible for tax purposes. The remaining goodwill balances for the U.S Consumer, Florist, and International ~~reporting units~~segments are ~~included~~as noted in the table below. The ~~remaining goodwill balance for the~~ ProFlowers/Gourmet Foods reporting ~~unit is $94.4 million~~unit’s goodwill was fully impaired as of ~~September~~June 30, ~~2017.~~2018. Within the U.S. Consumer segment, the remaining goodwill balances for the FTD.com and Personal Creations reporting units were $29.3 million and $13.8 million, respectively, as of June 30, 2018.

Goodwill

The changes in the net carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were as follows (in thousands):


	Provide Commerce			Consumer			Florist		International		Total			U.S. Consumer			Florist		International			Total
Goodwill as of December 31, 2016	$	147,501		$	133,226		$	109,651	$	73,087	$	463,465
Goodwill as of December 31, 2017														$	106,356		$	90,651	$	80,034		$	277,041
Purchase accounting adjustment - Bloom That acquisition														(792		)	—		—			(792		)
Foreign currency translation	—			—			—		6,266		6,266			—			—		(1,812		)	(1,812		)
Impairment of Goodwill	(26,800		)	(16,800		)	—		—		(43,600		)	(62,459		)	—		—			(62,459		)
Goodwill as of September 30, 2017	$	120,701		$	116,426		$	109,651	$	79,353	$	426,131
Goodwill as of June 30, 2018														$	43,105		$	90,651	$	78,222		$	211,978

In 2016, 2015, and 2008, the Company recorded impairment charges of $84.0 million, $85.0 million, and $116.3 million, respectively. The table above reflects the Company’s December 31, 2016 goodwill balances net of the previously recorded impairment charges. The total accumulated goodwill impairment was $328.9 million as of September 30, 2017.

~~Intangible Assets~~

In conjunction with the interim goodwill impairment test, the Company also reviewed its intangible assets for potential impairment. The interim impairment test for the indefinite-lived intangibles was performed by calculating the fair values of the assets using a discounted cash flow approach and comparing the fair value to their respective carrying amounts. This test resulted in the determination that the fair value of the indefinite-lived intangible asset related to the International segment trademark and trade name exceeded its carrying amount of $37.4 million by 7.8% and, therefore, was not impaired. The Consumer and Florist segments share a trademark and trade name and, therefore, share the related indefinite-lived asset. The fair value of this indefinite-lived intangible asset was less than its carrying value and, accordingly, a pre-tax impairment charge of $13.1 million was recorded in the three months ended September 30, 2017. The asset has a total remaining value of $100.0 million as of September 30, 2017. An impairment evaluation of the finite-lived intangible assets was also performed which indicated that the carrying amount of the complete technology intangible asset related to the acquisition of Provide Commerce was not recoverable when compared to the expected undiscounted future cash flows. As such, a pre-tax impairment charge of $16.3 million was recorded during the three months ended September 30, 2017 related to the Provide Commerce segment, leaving no remaining balance related to the complete technology intangible asset.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2017, 2016, 2015, and 2008, the Company recorded goodwill impairment charges of $196.7 million, $84.0 million, $85.0 million, and $116.3 million, respectively. The table above reflects the Company’s June 30, 2018 goodwill balances, net of the previously recorded impairment charges. The total accumulated goodwill impairment was $544.5 million as of June 30, 2018.

Intangible Assets

Intangible assets are primarily related to the acquisition of the Company by United Online, Inc. in August 2008 and the acquisition of Provide Commerce in December 2014, and consist of the following (in thousands):


	September 30, 2017							December 31, 2016							June 30, 2018							December 31, 2017
	Gross Value (a)		Accumulated Amortization			Net		Gross Value		Accumulated Amortization			Net		Gross Value (a)		Accumulated Amortization			Net		Gross Value (a)		Accumulated Amortization			Net
Complete technology	$	60,596	$	(60,596	)	$	—	$	76,486	$	(54,705	)	$	21,781	$	60,584	$	(60,584	)	$	—	$	61,274	$	(60,653	)	$	621
Customer contracts and relationships	193,519		(193,519		)	—		192,183		(192,183		)	—		193,298		(193,298		)	—		193,775		(193,667		)	108
Trademarks and trade names:
Finite-lived	120,356		(22,864		)	97,492		120,290		(16,817		)	103,473		41,466		(27,772		)	13,694		93,593		(24,875		)	68,718
Indefinite-lived (b)	137,397		—			137,397		147,544		—			147,544		91,264		—			91,264		112,518		—			112,518
Total	$	511,868	$	(276,979	)	$	234,889	$	536,503	$	(263,705	)	$	272,798	$	386,612	$	(281,654	)	$	104,958	$	461,160	$	(279,195	)	$	181,965


(a)	Gross value ~~as of September 30, 2017 includes~~has been reduced by the impairments recorded ~~during the three months ended September 30, 2017 of $16.3 million related to complete technology and $13.1 million related to indefinite-lived trademarks and trade names.~~as follows (in thousands):



	Three Months Ended June 30, 2018		Year Ended December 31, 2017
Complete technology	$	561	$	16,335
Customer contracts and relationships	90		—
Trademarks and trade names:
Finite-lived	52,108		27,000
Indefinite-lived ^(b)	20,400		38,300


(b)	As indefinite-lived assets are not amortized, the indefinite-lived trademarks and trade names have no associated amortization expense or accumulated amortization.

As of ~~September~~June 30, ~~2017,~~2018, estimated future intangible assets amortization expense for each of the next five years and thereafter was as follows (in thousands):

For the Year Ended Future Amortization Expense
2017 (remainder of the year) $ 2,005
2018 8,020
2019 8,020
2020 8,012
2021 8,008
Thereafter 63,427
Total $ 97,492

~~Other Long-Lived Assets~~

Also in conjunction with the interim goodwill impairment test, the Company performed an impairment evaluation of its other long-lived assets by comparing the expected undiscounted future cash flows to the carrying amounts of the assets. The result of this evaluation was that the carrying amounts of some property and equipment associated with the Provide Commerce segment were not recoverable. Based on the Company’s assessment of the fair value of this asset group using a discounted cash flow analysis, the Company determined that the carrying value of this asset group exceeded the fair value and, as a result, a $9.7 million pre-tax impairment charge was recorded during the three months ended September 30, 2017.



For the Year Ended	Future Amortization Expense
2018 (remainder of the year)	$	628
2019	1,256
2020	1,248
2021	1,244
2022	1,188
Thereafter	8,130
Total	$	13,694

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Long-Lived Assets

Property and equipment consisted of the following (in thousands):


	September 30, 2017 (a)			December 31, 2016			June 30, 2018			December 31, 2017
Land and improvements	$	1,581		$	1,565		$	1,578		$	1,583
Buildings and improvements	16,319			16,080			17,265			16,375
Leasehold improvements	13,453			16,290			10,976			10,883
Equipment	16,493			14,771			13,590			13,122
Computer equipment	25,868			26,633			25,736			25,208
Computer software	62,721			61,332			72,589			58,991
Furniture and fixtures	3,861			3,310			3,269			3,215
	140,296			139,981
Property and equipment, gross ^(a)							145,003			129,377
Accumulated depreciation	(97,714		)	(82,422		)	(100,224		)	(95,497		)
Total	$	42,582		$	57,559
Property and equipment, net							$	44,779		$	33,880


(a)	~~The impairment~~Impairment charges of ~~$9.7~~$3.6 million recorded during the ~~three~~six months ended ~~September~~June 30, 2018 and $22.0 million recorded during the year ended December 31, 2017 are reflected as reductions in the gross balances as of ~~September~~June 30, ~~2017.~~2018.

During the year ended December 31, 2017, the other long-lived assets related to the ProFlowers/Gourmet Foods reporting unit were fully impaired as the projected undiscounted cash flows of that reporting unit were less than the carrying amount of such assets. Additional impairment charges of $1.2 million and $3.6 million were recorded during the three and six months ended June 30, 2018, respectively, related to capital additions for that reporting unit as the undiscounted cash flows continue to be less than the carrying amount of the assets of that asset group.

Depreciation expense, including the amortization of leasehold improvements, was ~~$5.4~~$2.6 million and ~~$5.7~~$5.5 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$16.3~~$5.2 million and ~~$17.6~~$10.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

6. FINANCING ARRANGEMENTS

Credit Agreement

On September 19, 2014, ~~FTD Companies, Inc.~~the Company entered into a credit agreement (the “Credit Agreement”) with Interflora, certain wholly owned domestic subsidiaries of FTD Companies, Inc. party thereto as guarantors, the financial institutions party thereto from time to time, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of America, N.A., as administrative agent for the lenders. The Credit Agreement provided for a term loan in an aggregate principal amount of $200 million, the proceeds of which were used to repay a portion of outstanding revolving loans, and also provided for a $350 million revolving credit facility. On December 31, 2014, the Company borrowed $120 million under the revolving credit facility to fund the cash portion of the acquisition purchase price of Provide Commerce.

The obligations under the Credit Agreement are guaranteed by certain of FTD Companies, Inc.’s wholly owned domestic subsidiaries (together with FTD Companies, Inc., the “U.S. Loan Parties”). In addition, the obligations under the Credit Agreement are secured by a lien on substantially all of the assets of the U.S. Loan Parties, including a pledge of all of the outstanding capital stock of certain direct subsidiaries of the U.S. Loan Parties (except with respect to foreign subsidiaries and certain domestic subsidiaries whose assets consist primarily of foreign subsidiary equity interests, in which case such pledge is limited to 66% of the outstanding capital stock).

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.61%, respectively. The effective interest rates include the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees. The commitment fee rate as of September 30, 2017 was 0.25%. The Credit Agreement contains customary representations and warranties, events of default, affirmative covenants and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, asset sales, and the Company’s ability to incur additional debt and additional liens.

On May 31, 2018, the Company entered into the Amended Credit Agreement with its lenders, which includes an agreement by the lenders to waive existing defaults caused by (1) the inclusion of a going concern uncertainty explanatory paragraph in the audit opinion of the Company’s financial statements for the year ended December 31, 2017 and (2) the breach of the consolidated net leverage ratio covenant for the quarter ended March 31, 2018. The Amended Credit Agreement also restricts the Company’s combined usage of the revolving credit facility portion of the Amended Credit Agreement to (1) $150 million during the period from May 31, 2018 through and including September 30, 2018; (2) $175 million during the period from October 1, 2018 through and including December 31, 2018; and (3) $150 million during the period from January 1, 2019 through the September 19, 2019 maturity date, all subject to the Company’s obligation to make prepayments of the term loan portion of the Amended Credit Agreement with any net cash proceeds received from the sale of certain non-core or other assets. In addition, the consolidated net leverage ratio and fixed charge coverage ratio covenants were revised for each quarterly period through the September 19, 2019 maturity date, as were the interest rates, as noted below. The Company is also required to pay a quarterly fee of 0.125% times the actual daily amount of the revolver commitments and outstanding loans beginning October 1, 2018 through December 31, 2018, which fee increases to 0.25% beginning January 1, 2019 through the maturity date. The Company paid an amendment fee of 0.625% times the revolver commitments and outstanding term loan ($1.9 million) in addition to a $0.5 million work fee related to the structuring and arranging of the amendment.

The Company was in compliance with the revised covenants under the Amended Credit Agreement as of June 30, 2018. The ability to continue as a going concern is dependent on the Company generating profitable operating results and continuing to be in compliance with its revised covenants under the Amended Credit Agreement or refinancing, repaying, or obtaining new financing prior to maturity of the Amended Credit Agreement in September 2019, as discussed in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements.”

The interest rates applicable to borrowings under the Amended Credit Agreement are based on either LIBOR plus a margin ranging from 2.50% per annum to 7.50% per annum, or a base rate plus a margin ranging from 1.50% per annum to 6.50% per annum, calculated according to the Company’s net leverage ratio. In addition, under the Amended Credit Agreement, the Company pays a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility and a letters of credit fee ranging between 2.50% per annum to 7.50% per annum.

The stated interest rates (based on LIBOR) as of June 30, 2018 under the term loan and the revolving credit facility were 7.83% and 7.74%, respectively. The effective interest rates as of June 30, 2018 under the term loan and the revolving credit facility portions of the Amended Credit Agreement were 10.46% and 10.97%, respectively. The effective interest rates include the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees. The commitment fee rate as of June 30, 2018 was 0.50%.

As of June 30, 2018, the remaining borrowing capacity under the Amended Credit Agreement, which was reduced by $1.8 million in outstanding letters of credit, was $83.2 million.

The changes in the Company’s debt balances for the six months ended June 30, 2018 were as follows (in thousands):



	December 31, 2017			Draw Down of Debt		Repayments of Debt			June 30, 2018
Credit Agreement:
Revolving Credit Facility	$	52,000		$	185,000	$	(172,000	)	$	65,000
Term Loan	140,000			—		(10,000		)	130,000
Total Principal Outstanding	192,000			$	185,000	$	(182,000	)	195,000
Deferred Financing Fees	(2,334		)						(5,310		)
Total Debt, Net of Deferred Financing Fees	$	189,666							$	189,690

The term loan is subject to amortization payments of ~~$5.0~~$5 million per quarter and customary mandatory prepayments under certain conditions. ~~The outstanding balance~~

Table of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019. As of September 30, 2017, the future minimum principal payments through the maturity date of the Credit Agreement were as follows (in thousands):Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Year Ended Future Minimum Principal Payments
2017 (remainder of the year) $ 5,000
2018 20,000
2019 230,000
Total $ 255,000

At September 30, 2017, the remaining borrowing capacity under the Credit Agreement, which was reduced by $2.0 million in outstanding letters of credit, was $238.0 million, subject to certain limitations under covenants contained in the Credit Agreement. After giving effect to the net leverage ratio contained in the Credit Agreement, approximately $74 million was available for additional borrowing as of September 30, 2017 based on 3.25 times the total of Adjusted EBITDA (as defined in the Credit Agreement) for the last twelve months.

~~The changes in the Company’s debt balances for the nine months ended September 30, 2017 were as follows (in thousands):~~

December 31, 2016 Draw Down of Debt Repayments of Debt September 30, 2017
Credit Agreement:

Revolving Credit Facility $ 120,000
$ 90,000
$ (100,000 ) $ 110,000
Term Loan 160,000
—
(15,000 ) 145,000
Total Principal Outstanding 280,000
$ 90,000
$ (115,000 ) 255,000
Debt Issuance Costs (3,694 )
(2,674 )
Total Debt, Net of Debt Issuance Costs $ 276,306

$ 252,326

7. DERIVATIVE INSTRUMENTS

In March 2012, the Company purchased, for $1.9 million, forward starting interest rate cap instruments based on 3-month LIBOR, effective January 2015 through June 2018. The forward starting interest rate cap instruments ~~have~~had aggregated notional values totaling $130 million. The interest rate cap instruments ~~are~~were designated as cash flow hedges against expected future cash flows attributable to future 3-month LIBOR interest payments on a portion of the outstanding borrowings under the Credit Agreement. The gains or losses on the instruments ~~are~~were reported in other comprehensive income/(loss) to the extent that they ~~are~~were effective and ~~are~~were reclassified into earnings when the cash flows attributable to 3-month LIBOR interest payments ~~are~~were recognized in earnings.

~~Table of Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The estimated fair values and notional values of outstanding derivative instruments as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows (in thousands):


		Estimated Fair Value of Derivative Instruments				Notional Value of Derivative Instruments					Estimated Fair Value of Derivative Instruments				Notional Value of Derivative Instruments
	Balance Sheet Location	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		Balance Sheet Location	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Derivative Assets:
Interest rate caps	Other assets	$	—	$	1	$	130,000	$	130,000	Other assets	$	—	$	—	$	—	$	130,000

The Company recognized the following losses from derivatives, before tax, in other comprehensive income/(loss) (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017			2016			2018		2017		2018		2017
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate caps	$	—	$	—	$	(1	)	$	(34	)	$	—	$	—	$	—	$	(1	)

~~The~~As of June 30, 2018, the interest rate caps had matured. As of December 31, 2017, the effective portion, before tax effect, of the Company’s interest rate caps designated as cash flow hedging instruments was $0.4 million and $0.8 million as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, the remaining effective portion of $0.4 million was expected to be reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated statements of operations within the next twelve months.$0.3 million. During ~~each of~~ the three months ended ~~September~~June 30, 2018 and 2017, respectively, $0.1 million and ~~2016, $0.1~~$0.2 million was reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated statements of operations. During ~~both~~each of the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016, $0.4~~$0.3 million was reclassified from accumulated other comprehensive income/(loss) to interest expense in the condensed consolidated ~~statements~~statement of operations.

8. FAIR VALUE MEASUREMENTS

The following table presents estimated fair values of financial assets and liabilities and derivative instruments that were required to be measured at fair value on a recurring basis (in thousands):


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Total		Level 1		Level 2		Total		Level 1		Level 2		Total		Level 1		Level 2		Total		Level 1		Level 2
Assets:
Cash equivalents	$	5,394	$	5,394	$	—	$	13,197	$	13,197	$	—	$	3,584	$	3,584	$	—	$	2,705	$	2,705	$	—
Derivative assets	—		—		—		1		—		1
Total	$	5,394	$	5,394	$	—	$	13,198	$	13,197	$	1	$	3,584	$	3,584	$	—	$	2,705	$	2,705	$	—
Liabilities:
Non-qualified deferred compensation plan	$	1,352	$	—	$	1,352	$	2,371	$	—	$	2,371	$	927	$	—	$	927	$	1,228	$	—	$	1,228
Total	$	1,352	$	—	$	1,352	$	2,371	$	—	$	2,371	$	927	$	—	$	927	$	1,228	$	—	$	1,228

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Provide Commerce, Inc. has an executive deferred compensation plan for key management level employees under which such employees could elect to defer receipt of current compensation. This plan is intended to be an unfunded, non-qualified deferred compensation plan that complies with the provisions of section 409A of the Internal Revenue Code. At the time of the acquisition of Provide Commerce, contributions to the plan were suspended except those relating to any compensation earned but not yet paid as of the same date. The plan assets ~~which~~ consist primarily of life insurance contracts recorded at their cash surrender ~~value, were $11.7~~value. During the three months ended June 30, 2018, the Company cancelled certain of the life insurance contracts and received proceeds totaling $10.0 million ~~and $11.6 million as of September~~from the cash surrender value. At June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the life insurance policies had cash surrender values of $1.7 million and $11.7 million, respectively, and are included in other assets in the accompanying condensed consolidated balance sheets.

~~Table~~As a result of ~~Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~During~~triggering events within the ~~three months ended September 30, 2017, in conjunction with an interim impairment test of its reporting units,~~periods, the Company ~~also~~ performed impairment tests of its intangible and other long-lived ~~assets.~~assets during the three months ended June 30, 2018 and the year ended December 31, 2017. Based on these tests, the Company determined that the carrying value of certain intangible assets and ~~fixed~~other long-lived assets exceeded their fair values as determined using the income ~~approach. Determining~~approach as of June 30, 2018 and December 31, 2017. As such, non-cash, pre-tax impairment charges of $76.7 million (excluding goodwill impairment charges of $62.5 million) were recorded during the six months ended June 30, 2018 and $103.6 million (excluding goodwill impairment charges of $196.7 million) were recorded during the year ended December 31, 2017. The determination of fair value is ~~judgmental~~subjective in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs, including projected cash flows over the estimated projection period and the discount rate. The resulting $39.1 million non-cash, pre-tax impairment charges (excluding goodwill impairment charges of $43.6 million) were recorded related to certain intangible assets and fixed assets of the Provide Commerce and Consumer segments. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets” for additional information.

The Company estimated the fair value of its ~~long-term~~outstanding debt using a discounted cash flow approach that incorporates a market interest yield curve with adjustments for duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimated credit spread. As of ~~September~~June 30, 2018, the Company estimated its credit spread as 6.9% and 8.6% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 9.2% and 11.0%, respectively. As of December 31, 2017, the Company estimated its credit spread as 1.0% and 1.6% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 2.5% and 3.1%, respectively. As of December 31, 2016, the Company estimated its credit spread as 1.4% and 2.0% for the term loan and revolving credit facility, respectively, resulting in yield-to-maturity estimates for the term loan and revolving credit facility of 2.8%2.9% and 3.4%, respectively. The table below summarizes the carrying amounts and estimated fair values for ~~long-term~~the Company’s debt (in thousands):

September 30, 2017 December 31, 2016
Level 2 Level 2
Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
Long-term debt outstanding, including current portion $ 255,000
$ 255,000
$ 280,000
$ 280,000



	June 30, 2018				December 31, 2017
			Level 2				Level 2
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt outstanding	$	195,000	$	195,000	$	192,000	$	192,000

Fair value approximates the carrying amount of financing receivables because such receivables are discounted at a rate comparable to market. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts because of their short-term nature.

9. STOCKHOLDERS’ EQUITY

Common Stock Repurchases

~~On March 8, 2016,~~Upon the ~~Company’s board~~exercise of ~~directors authorized a common~~ stock repurchase program (the “2016 Repurchase Program”) that allows FTD Companies, Inc. to repurchase up to $60 million of its common stock from time to time over a two-year period in both open market and privately negotiated transactions. The Company did not repurchase any shares under this program duringoptions or the ~~nine months ended September 30, 2017. As of September 30, 2017, $44.8 million was available under this program for future purchases.~~

~~Upon~~ vesting of restricted stock units (“RSUs”) or ~~exercise of stock options,~~other equity compensation awards, the Company does not collect withholding taxes in cash from employees. Instead, the Company automatically withholds, from the ~~RSUs~~awards that vest or stock options that are exercised, the portion of those shares with a fair market value equal to the amount of the minimum statutory withholding taxes due. The withheld shares are accounted for as repurchases of common stock but are not counted against the limits under ~~the 2016 Repurchase Program.~~a repurchase program. The Company then pays the minimum statutory withholding taxes in cash. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, 0.3 million RSUs vested for which 0.1 million shares were withheld to cover the minimum statutory withholding taxes of ~~$2.0~~$0.5 million.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. INCENTIVE COMPENSATION PLANS

In June ~~2017,~~2018, stockholders approved the amendment to the FTD Companies, Inc. Third Amended and Restated 2013 Incentive Compensation Plan (as so amended, ~~and restated,~~ the “Amended Plan”), which ~~amended and restated in its entirety the FTD Companies, Inc. Amended and Restated 2013 Incentive Compensation Plan, as previously amended June 9, 2015. The Amended Plan~~ provides for the granting of awards to employees and non-employee directors, including stock options, stock appreciation rights, ~~RSUs,~~restricted stock units (“RSUs”), and other stock based awards. As of ~~September~~June 30, ~~2017,~~2018, the Company had ~~3.2~~5.0 million shares available for issuance under the Amended ~~Plan, which includes additional shares approved by shareholders in June 2017.~~Plan.

During the ~~first quarter of 2017,~~six months ended June 30, 2018, the Company granted RSUs, performance stock units (“PSUs”), and stock options to certain employees totaling ~~0.4~~0.9 million ~~shares.~~shares, 1.3 million shares, and 0.8 million shares, respectively. The RSUs and stock options granted will generally vest in four equal annual installments. The per share weighted average ~~fair market value of the underlying stock on the grant date was $23.12 per share.~~

During the second quarter of 2017, the Company granted RSUs to certain non-employee directors totaling 0.1 million shares. The RSUs granted will vest in one annual installment. The fair market value of the underlying stock on the grant date was $17.70 per share.

During the third quarter of 2017, the Company granted RSUs and stock options to certain management employees totaling 0.1 million shares and 0.4 million, respectively. The RSUs and stock options granted will vest in four annual installments. The fair market value of the underlying stock on the grant date of the RSUs and PSUs was ~~$13.83 per share.~~$6.39 and $6.64, respectively. The options were granted with ana weighted average exercise price of ~~$13.85.~~$6.64 per share. The following weighted average assumptions were used to estimate the fair value of the stock options at the grant date:



Risk-free interest rate	~~1.7~~	%2.5%
Expected term (in years)	~~4.75~~	6.21
Dividend yield	~~0.0~~	%0.0%
Expected volatility	~~34.0~~	%37.7%

Vesting of the PSUs is based on the achievement of certain performance criteria, as specified in the plan, at the end of a three-year performance period ending on December 31, 2020. The actual number of shares that will ultimately vest is dependent upon the level of achievement of the performance conditions. If the minimum targets are not achieved, none of the shares will vest and any compensation expense previously recognized will be reversed. The Company recognizes stock-based compensation expense related to performance awards based upon the Company’s estimate of the likelihood of achievement of the performance targets at each reporting date. As of June 30, 2018, the Company does not expect the PSUs to vest. As such, no expense was recorded during the six months ended June 30, 2018 related to these awards.

In addition to the equity awards noted above, eligible employees of the Company are able to participate in the FTD Companies, Inc. 2015 Employee Stock Purchase Plan (“ESPP Plan”) through which employees may purchase shares of FTD common stock at a purchase price equal to 85% of the lower of (i) the closing market price per share of FTD common stock on the first day of the offering period or (ii) the closing market price per share of FTD common stock on the purchase date. Each offering period has a six-month duration and purchase interval. The purchase dates are January 1 and July 1. As of ~~September~~June 30, ~~2017,~~2018, the Company had ~~0.4~~0.2 million shares available for grant under the ESPP Plan.

The stock-based compensation expense incurred for all equity plans in the three months ended ~~September~~June 30, 2018 and 2017 and ~~2016 and~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 have been included in the condensed consolidated statements of operations as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Cost of revenues	$	62	$	45	$	196	$	111	$	48	$	63	$	105	$	134
Sales and marketing	848		870		3,178		3,251		933		1,615		1,865		2,330
General and administrative	1,441		2,408		4,847		7,441		1,623		1,851		3,440		3,406
Total stock-based compensation expense	$	2,351	$	3,323	$	8,221	$	10,803	$	2,604	$	3,529	$	5,410	$	5,870

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. INCOME TAXES

During the three months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded a tax benefit of ~~$19.8~~$13.3 million on a pre-tax loss of ~~$96.1~~$131.3 million, compared to a tax ~~benefit~~provision of ~~$4.1~~$5.8 million on a pre-tax ~~loss~~income of ~~$14.3~~$15.5 million for the three months ended ~~September~~June 30, ~~2016. The~~2017. During the three months ended June 30, 2018, management determined that the future reversals of existing taxable temporary differences and available tax strategies would not generate sufficient future taxable income to be able to realize its state net operating loss carryforward tax assets prior to their expiration and, therefore, a valuation allowance of $1.6 million was recorded. In addition, the goodwill impairment charges recorded during the three months ended ~~September~~June 30, ~~2017~~2018 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax loss expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company recorded a tax benefit of ~~$7.5~~$13.6 million on a pre-tax loss of ~~$65.0~~$138.3 million, compared to a tax provision of ~~$0.3~~$12.3 million on pre-tax income of ~~$3.6~~$31.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The placement of a valuation allowance on the state net operating loss carryforwards and shortfalls related to vesting of equity awards increased tax expense by $1.6 million and $2.6 million, respectively, for the six months ended June 30, 2018. For the six months ended June 30, 2017, shortfalls related to vesting of equity awards were $1.4 million. In addition, the goodwill impairment charges recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax income expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates. In addition, tax deficiencies related to vesting of equity awards increased tax expense by $1.5 million. As noted in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements,” the Company adopted ASU 2016-09 on January 1, 2017. As such, tax deficiencies or excess tax benefits are recorded in the provision for income taxes for the nine months ended September 30, 2017 rather than in additional paid-in capital as was previously required.

12. EARNINGS/(LOSS) PER SHARE

Certain of the Company’s RSUs and PSUs are considered participating securities because they contain a non-forfeitable right to dividends irrespective of whether dividends are actually declared or paid or whether the awards ultimately vest. Accordingly, the Company computes earnings/(loss) per share pursuant to the two-class method in accordance with ASC 260, Earnings Per Share.

The following table sets forth the computation of basic and diluted earnings/(loss) per common share (in thousands, except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Numerator:
Net income/(loss)	$	(76,319	)	$	(10,269	)	$	(57,580	)	$	3,257		$	(118,085	)	$	9,716		$	(124,681	)	$	18,739
Income allocated to participating securities	—			—			—			(66		)	—			(228		)	—			(434		)
Net income/(loss) attributable to common stockholders	$	(76,319	)	$	(10,269	)	$	(57,580	)	$	3,191		$	(118,085	)	$	9,488		$	(124,681	)	$	18,305
Denominator:
Basic average common shares outstanding	27,546			27,386			27,459			27,560			27,785			27,452			27,749			27,415
Add: Dilutive effect of securities	—			—			—			52			—			—			—			34
Diluted average common shares outstanding	27,546			27,386			27,459			27,612			27,785			27,452			27,749			27,449
Basic earnings/(loss) per common share	$	(2.77	)	$	(0.37	)	$	(2.10	)	$	0.12		$	(4.25	)	$	0.35		$	(4.49	)	$	0.67
Diluted earnings/(loss) per common share	$	(2.77	)	$	(0.37	)	$	(2.10	)	$	0.12		$	(4.25	)	$	0.35		$	(4.49	)	$	0.67

The diluted earnings/(loss) per common share computations exclude stock options and RSUs which are antidilutive. Weighted-average antidilutive shares for the three months ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ were ~~4.2~~4.5 million and ~~2.1~~4.1 million, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, were ~~3.7~~3.9 million and ~~2.3~~3.5 million, respectively.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. RESTRUCTURING AND OTHER EXIT COSTS

Restructuring and other exit costs were as follows (in thousands):


	Employee Termination Costs			Facility Closure Costs			Total			Employee Termination Costs			Facility Closure Costs			Total
Accrued as of December 31, 2016	$	8,566		$	1,378		$	9,944
Accrued as of December 31, 2017										$	184		$	193		$	377
Charges	1,688			369			2,057			—			—			—
Cash paid	(6,043		)	(1,096		)	(7,139		)	(172		)	(168		)	(340		)
Other – non-cash	(3,374		)	(12		)	(3,386		)	(12		)	—			(12		)
Accrued as of September 30, 2017	$	837		$	639		$	1,476
Accrued as of June 30, 2018										$	—		$	25		$	25

14. CONTINGENCIES—LEGAL MATTERS

Commencing on August 19, 2009, the first of a series of putative consumer class action lawsuits was brought against Provide Commerce, Inc. and co-defendant Regent Group, Inc. d/b/a Encore Marketing International (“EMI”). These cases were ultimately consolidated during the next three years into Case No. 09 CV 2094 in the United States District Court for the Southern District of California under the title In re EasySaver Rewards Litigation. Plaintiffs’ claims arise from their online enrollment in subscription based membership programs known as EasySaver Rewards, RedEnvelope Rewards, and Preferred Buyers Pass (collectively, the “Membership Programs”). Plaintiffs claim that after they ordered items from certain of Provide Commerce’s websites, they were presented with an offer to enroll in one of the Membership Programs, each of which is offered and administered by EMI. Plaintiffs purport to represent a nationwide class of consumers allegedly damaged by Provide Commerce’s purported unauthorized or otherwise allegedly improper transferring of billing information to EMI, who then posted allegedly unauthorized charges to their credit or debit card accounts for membership fees for the Membership Programs. In the operative fourth amended complaint, plaintiffs asserted ten claims against Provide Commerce and EMI: (1) breach of contract (against Provide Commerce only); (2) breach of contract (against EMI only); (3) breach of implied covenant of good faith and fair dealing; (4) fraud; (5) violations of the California Consumers Legal Remedies Act; (6) unjust enrichment; (7) violation of the Electronic Funds Transfer Act (against EMI only); (8) invasion of privacy; (9) negligence; and (10) violations of the Unfair Competition Law. Plaintiffs seek damages, attorneys’ fees, and costs. After motion practice regarding the claims asserted and numerous settlement conferences and mediations in an effort to informally resolve the matter, the parties reached an agreement on the high level terms of a settlement on April 9, 2012, conditioned on the parties negotiating and executing a complete written agreement. In the weeks following April 9, 2012, the parties negotiated a formal written settlement agreement (the “Settlement”), which the court preliminarily approved on June 13, 2012. After notice to the purported class and briefing by the parties, the court conducted a final approval hearing (also known as a fairness hearing) on January 28, 2013, but did not rule. On February 4, 2013, the court entered its final order approving the Settlement, granting plaintiffs’ motion for attorneys’ fees, costs, and incentive awards, and overruling objections filed by a single objector. The court entered judgment on the Settlement on February 21, 2013. The objector filed a notice of appeal with the Ninth Circuit Court of Appeals on March 4, 2013. After the completion of briefing, the Ninth Circuit set oral argument for February 2, 2015. ~~However,~~But on January 29, 2015, the Ninth Circuit entered an order deferring argument and resolution of the appeal pending the Ninth Circuit’s decision in a matter captioned Frank v. Netflix, No. 12 15705+. On March 19, 2015, the Ninth Circuit entered an order vacating the judgment in this matter and remanding it to the district court for further proceedings consistent with its opinion in Frank v. Netflix issued on February 27, 2015. The district court ordered supplemental briefing on the issue of final Settlement approval on May 21, 2015. After briefing, the district court conducted a hearing on July 27, 2016 and took the matter under submission. On August 9, 2016, the district court entered an order reapproving the Settlement without any changes, and accordingly entered judgment and dismissed the case with prejudice. On September 6, 2016, the objector filed a notice of appeal. On November 22, 2016, plaintiffs filed a motion for summary affirmance of the district court’s judgment, to which the objector responded and filed a

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

cross-motion for sanctions. Plaintiffs’ motion for summary affirmance temporarily stayed briefing on the appeal. On March 2, 2017, the Ninth Circuit denied plaintiffs’ motion for summary affirmance and objector’s cross-motion for sanctions, and reset the briefing schedule. The ~~objector~~Objector filed his opening brief on May 1, 2017. Thirteen state Attorneys General filed an amicus brief in support of the ~~objector~~Objector on May 8, 2017. The parties filed their answering briefs on June 30, 2017. Various legal aid organizations filed an amicus brief in support of no party regarding cy pres relief also on June 30, 2017. The ~~objector’s~~Objector’s optional reply brief was filed on August 14, 2017. The ~~date for~~Ninth Circuit heard oral ~~argument~~arguments on ~~the appeal~~May 17, 2018, but has not yet ~~been set.~~

~~Table of Contents~~

~~FTD COMPANIES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~The Company and certain of~~made its current and former officers and directors were named as defendants in a lawsuit in the United States District Court for the Northern District of Illinois, asserting violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder. Plaintiff’s complaint in ~~Winograd v. FTD Companies, Inc. et al.~~, filed on March 20, 2017, Case No. 1:17-cv-02135, alleged that the Company made false and misleading statements regarding the assessment of cross-border indirect taxes, internal controls over financial reporting, and the acquisition of Provide Commerce from Liberty Interactive Corporation that were revealed as such to the market on March 14, 2017. Plaintiff purported to bring the lawsuit as a class action representing all those who purchased or otherwise acquired Company securities between March 13, 2015 and March 14, 2017. On May 26, 2017, Inter-Local Pension Fund GCC/IBT was appointed Lead Plaintiff. On July 25, 2017, the Lead Plaintiff voluntarily dismissed the lawsuit, with prejudice, pursuant to Federal Rule of Civil Procedure 41.

The Company was a nominal defendant in consolidated shareholder derivative suits against its directors and former CEO and CFO in the United States District Court for the Northern District of Illinois, asserting claims for breaches of fiduciary duties, unjust enrichment, and corporate waste. In ~~Atallah v. Apatoff et al.~~, Case No. 1:17-cv-02773, filed on April 12, 2017, the plaintiff alleged that the individual defendants caused the Company to issue false and misleading statements regarding the assessment of cross-border indirect taxes, internal controls over financial reporting, and the acquisition of Provide Commerce from Liberty Interactive Corporation that were revealed as such to the market on March 14, 2017. In ~~Palkon v. Berglass et al.~~, Case No. 1:17-cv-03233, filed on April 28, 2017, the plaintiff additionally alleged that the individual defendants violated Section 14(a) of the Exchange Act, breached their fiduciary duties to the Company, wasted corporate assets, and were unjustly enriched when certain of the defendants negligently issued or caused to be issued false and misleading statements to shareholders in the November 3, 2014 special proxy regarding the acquisition of Provide Commerce from Liberty Interactive Corporation. On June 15, 2017, ~~Atallah~~ ~~and~~ ~~Palkon~~ were consolidated for all purposes, and plaintiffs were ordered to file a consolidated amended complaint by July 31, 2017. On July 31, 2017, plaintiffs voluntarily dismissed the lawsuit, without prejudice, pursuant to Federal Rule of Civil Procedure 41.ruling.

There are no assurances that other legal actions or governmental investigations will not be instituted in connection with the Company’s current or former business practices. The Company cannot predict the outcome of governmental investigations or other legal actions or their potential implications for its business.

The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the assessment of the probability of loss or the amount of liability and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. As of ~~both September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had reserves totaling ~~$3.0~~$2.8 million and $2.5 million for estimated losses related to certain legal matters. With respect to other legal matters, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.

15. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow disclosures (in thousands):


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
Cash paid for interest	$	6,261	$	5,764	$	5,733	$	4,074
Cash paid for income taxes, net	11,132		12,688		3,781		10,517

At June 30, 2018, non-cash investing items included $6.3 million of purchases of property and equipment that were included in accounts payable and other liabilities in the Company’s consolidated balance sheet. These purchases will be reflected in investing activities in the consolidated statement of cash flows in the periods in which they are paid.

16. SUBSEQUENT EVENTS

On July 18, 2018, the Company announced that its board of directors initiated a review of strategic alternatives focused on maximizing stockholder value, including but not limited to, a sale or merger of the Company, the Company pursuing value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of the Company’s businesses or assets.

In addition, the Company’s board of directors appointed Scott D. Levin, the Company’s then-current Executive Vice President, General Counsel and Secretary, as interim President and Chief Executive Officer. Mr. Levin succeeds John C. Walden, who has stepped down from these positions and from FTD’s board of directors.

Table of Contents

FTD COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under the terms of Mr. Walden’s employment agreement, he is entitled to the severance and other benefits described in such agreement, including cash severance payments, as well as accelerated vesting of a portion of his outstanding nonvested restricted stock units and unvested stock options, subject in each case to his compliance with certain covenants in his employment agreement. In addition, in the event of a change in control involving the Company during 2018, Mr. Walden will be entitled to receive a pro-rated target bonus calculated under the terms of his employment agreement. The foregoing description of Mr. Walden’s employment agreement is qualified in its entirety by reference to (1) the Employment Agreement between FTD Companies, Inc. and John C. Walden (the “Walden Employment Agreement”), filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and (2) the First Amendment to the Walden Employment Agreement, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

The Company also announced a corporate restructuring and cost savings plan, under which it has identified opportunities to optimize its operations, drive efficiency, and reduce costs. In conjunction with the corporate restructuring and cost savings plan, the Company expects to incur pre-tax restructuring and corporate reorganization costs ranging between approximately $23.5 million and approximately $29.5 million. The restructuring costs will include cash severance payments ranging from approximately $12.0 million to approximately $15.0 million and non-cash stock-based compensation related to the acceleration of certain equity awards ranging from approximately $5.5 million to approximately $6.5 million. Other costs associated with the corporate reorganization and cost savings plan, such as costs to retain key employees, are expected to range from approximately $6.0 million to approximately $8.0 million.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

FTD Companies, Inc. (which together with its subsidiaries may be referred to herein as the “Company,” “FTD,” “we,” “us,” or “our”) is a premier floral and gifting company with a vision to be the ~~leading~~world’s floral innovator and ~~most trusted floral~~leader, creating products, brands, and ~~gifting company in the world. Our mission is to inspire, support, and delight~~technology-driven services our customers ~~when expressing life’s most important sentiments.~~love. We provide floral, specialty foods, gift, and related products and services to consumers, retail florists, and other retail locations and companies in need of floral and gifting solutions. Our business uses the highly recognized FTD^® and Interflora^® brands, both supported by the iconic Mercury Man^® logo. While we operate primarily in the United States (“U.S.”) and the United Kingdom (“U.K.”), we have worldwide presence as our Mercury Man logo is displayed in approximately 35,000 floral shops in over 125 countries. Our diversified portfolio of brands also includes ProFlowers^®, ProPlants^®, Shari’s Berries^®, Personal Creations^®, RedEnvelope^®, Flying Flowers^®, Ink Cards™, Postagram™, Gifts.com™, and ~~Gifts.com™~~BloomThat™. While floral arrangements and plants are our primary offerings, we also market and sell gift items, including gourmet-dipped berries and other ~~specialty foods,~~sweets, personalized gifts, gift baskets, wine and champagne, ~~jewelry,~~ and ~~spa products.~~jewelry.

Reportable Segments

We report our business operations in ~~four~~three reportable segments: ~~Provide Commerce,~~U.S. Consumer, Florist, and International. Prior to January 1, 2018, we reported our business in four reportable segments. As a result of a change in the information provided to and utilized by the Company’s then-current Chief Executive Officer (who was also the Company’s Chief Operating Decision Maker) to assess the performance of the business, the Company combined the previous Provide Commerce and Consumer segments into one reportable segment.

Through our ~~Provide Commerce~~U.S. Consumer segment, we are a leading direct marketer of floral and gift products for consumers, including food gifts, personalized gifts, and other gifting products, primarily in the U.S. Our ~~Provide Commerce~~U.S. Consumer segment operates primarily through our www.ftd.com, www.proflowers.com, www.berries.com, www.personalcreations.com, www.proplants.com,www.gifts.com, and ~~www.gifts.com~~www.bloomthat.com websites, associated mobile sites and applications, and the 1-800-SEND-FTD and various other telephone numbers. ~~Through our Consumer segment, we are a leading direct marketer of floral and gift products for consumers, primarily in the U.S. Our Consumer segment operates primarily through the~~ ~~www.ftd.com~~ ~~website, associated mobile sites, and the 1-800-SEND-FTD telephone number.~~ Through our Florist segment, we are a leading provider of products and services to our floral network members, including services that enable our floral network members to send, receive, and deliver floral orders. Floral network members include traditional retail florists, as well as other non-florist retail locations, primarily in the U.S. Our Florist segment also provides products and services to other companies in need of floral and gifting solutions. Our International segment consists of Interflora, which operates primarily in the U.K. Interflora is a ~~premier~~leading direct marketer of floral and gift products, and operates primarily through the www.interflora.co.uk,www.flyingflowers.co.uk, and ~~www.flyingflowers.co.uk~~www.interflora.ie websites, associated mobile sites and applications, and various telephone numbers. Interflora also provides products and services to floral network members and to other companies in need of floral and gifting solutions.

Subsequent Events

On July 18, 2018, we announced that our board of directors initiated a review of strategic alternatives focused on maximizing stockholder value, including but not limited to, a sale or merger of the Company, the Company pursuing value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of our businesses or assets.

In addition, our board of directors appointed Scott D. Levin, our then-current Executive Vice President, General Counsel and Secretary, as interim President and Chief Executive Officer. Mr. Levin succeeds John C. Walden, who has stepped down from these positions and from FTD’s board of directors.

Table of Contents

KEY BUSINESS METRICS

We review a number of key business metrics to help us monitor our performance and trends affecting our segments, and to develop forecasts and budgets. These key metrics include the following:

Segment operating income. Our ~~chief operating decision maker~~Chief Operating Decision Maker uses segment operating income to evaluate the performance of our business segments and to make decisions about allocating resources among segments. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges and gains, transaction and integration costs, restructuring and other exit costs, and impairment of goodwill, intangible assets, and ~~intangible~~other long-lived assets. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net. See Note 2—“Segment Information” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment operating income to consolidated operating income and consolidated income before income taxes.

Consumer orders. We monitor the number of consumer orders for floral, gift, and related products during a given period. Consumer orders are individual units delivered during the period that were originated through our consumer websites, associated mobile sites and applications, and various telephone numbers. The number of consumer orders is not adjusted for non-delivered orders that are refunded on or after the scheduled delivery date. Orders originating with a florist or other retail location for delivery to consumers are not included as part of this number.

Average order value. We monitor the average value for consumer orders delivered in a given period, which we refer to as the average order value. Average order value represents the average amount received for consumer orders delivered during a period. The average order value of consumer orders within our ~~Provide Commerce,~~U.S. Consumer and International segments is tracked in their local currency, which is the U.S. Dollar (“USD”) for ~~both~~ the ~~Provide Commerce and~~U.S. Consumer ~~segments~~segment and the British Pound (“GBP”) for the International segment. The local currency amounts received for the International segment are then translated into USD at the average currency exchange rate for the period. Average order value includes merchandise revenues and shipping or service fees paid by the consumer, less discounts and refunds (net of refund-related fees charged to floral network members).

Average revenues per member. We monitor average revenues per member for our floral network members in the Florist segment. Average revenues per member represents the average revenues earned from a member of our floral network during a period. Revenues include services revenues and products revenues, but exclude revenues from sales to non-members. Floral network members include our retail florists and other non-florist retail locations who offer floral and gifting solutions. Average revenues per member is calculated by dividing Florist segment revenues for the period, excluding sales to non-members, by the average number of floral network members for the period.

Table of Contents

The table below sets forth, for the periods presented, our consolidated revenues, segment revenues, segment operating income, consumer orders, average order values, average revenues per member, and average currency exchange rates.


	Three Months Ended September 30,						Change					Nine Months Ended September 30,				Change					Three Months Ended June 30,					Change					Six Months Ended June 30,					Change
	2017			2016			$			%		2017		2016		$			%		2018		2017			$			%		2018			2017		$			%
	(in thousands, except for percentages, average order values, average revenues per member, and average currency exchange rates)																				(in thousands, except for percentages, average order values, average revenues per member, and average currency exchange rates)
Consolidated:
Consolidated revenues	$	161,304		$	172,879		$	(11,575	)	(7	)%	$	805,943	$	841,332	$	(35,389	)	(4	)%	$	299,921	$	328,146		$	(28,225	)	(9	)%	$	618,091		$	644,639	$	(26,548	)	(4	)%

Provide Commerce:
U.S. Consumer:
Segment revenues^(a)	$	54,633		$	57,112		$	(2,479	)	(4	)%	$	390,192	$	390,751	$	(559	)	—	%	$	233,082	$	259,804		$	(26,722	)	(10	)%	$	456,443		$	488,476	$	(32,033	)	(7	)%
Segment operating income/(loss)	$	(6,304	)	$	(1,847	)	$	(4,457	)	241	%	$	21,686	$	27,406	$	(5,720	)	(21	)%	$	6,474	$	21,120		$	(14,646	)	(69	)%	$	(1,761	)	$	40,227	$	(41,988	)	(104	)%
Consumer orders	1,081			1,115			(34		)	(3	)%	7,549		7,780		(231		)	(3	)%
Average order value	$	49.30		$	49.78		$	(0.48	)	(1	)%	$	50.98	$	49.48	$	1.50		3	%

Consumer:
Segment revenues^(a)	$	43,631		$	51,260		$	(7,629	)	(15	)%	$	196,547	$	220,743	$	(24,196	)	(11	)%
Segment operating income	$	3,225		$	5,019		$	(1,794	)	(36	)%	$	15,460	$	22,326	$	(6,866	)	(31	)%
Consumer orders	555			645			(90		)	(14	)%	2,588		2,890		(302		)	(10	)%	4,214		4,654			(440		)	(9	)%	8,092			8,501		(409		)	(5	)%
Average order value	$	73.51		$	74.52		$	(1.01	)	(1	)%	$	71.51	$	71.99	$	(0.48	)	(1	)%	$	53.83	$	54.39		$	(0.56	)	(1	)%	$	54.93		$	55.97	$	(1.04	)	(2	)%

Florist:
Segment revenues^(a)	$	34,665		$	36,605		$	(1,940	)	(5	)%	$	125,261	$	126,955	$	(1,694	)	(1	)%	$	39,916	$	44,090		$	(4,174	)	(9	)%	$	84,132		$	90,596	$	(6,464	)	(7	)%
Segment operating income	$	9,552		$	11,362		$	(1,810	)	(16	)%	$	35,757	$	36,722	$	(965	)	(3	)%	$	10,849	$	12,248		$	(1,399	)	(11	)%	$	23,115		$	26,202	$	(3,087	)	(12	)%
Average revenues per member	$	3,263		$	3,233		$	30		1	%	$	11,397	$	10,874	$	523		5	%	$	3,873	$	3,981		$	(108	)	(3	)%	$	8,055		$	8,122	$	(67	)	(1	)%

International:
In USD:
Segment revenues	$	31,477		$	31,364		$	113		—	%	$	106,416	$	116,846	$	(10,430	)	(9	)%	$	31,114	$	29,201		$	1,913		7	%	$	86,029		$	74,938	$	11,091		15	%
Segment operating income	$	3,384		$	3,845		$	(461	)	(12	)%	$	11,982	$	15,225	$	(3,243	)	(21	)%	$	2,710	$	3,066		$	(356	)	(12	)%	$	9,765		$	8,598	$	1,167		14	%
Consumer orders	559			560			(1		)	—	%	1,933		1,979		(46		)	(2	)%	550		532			18			3	%	1,477			1,374		103			7	%
Average order value	$	46.86		$	45.90		$	0.96		2	%	$	45.48	$	48.47	$	(2.99	)	(6	)%	$	45.89	$	45.57	��	$	0.32		1	%	$	47.45		$	44.91	$	2.54		6	%
In GBP:
Segment revenues	£	24,017		£	23,853		£	164		1	%	£	83,696	£	83,469	£	227		—	%	£	22,880	£	22,798		£	82		—	%	£	62,264		£	59,679	£	2,585		4	%
Average order value	£	35.78		£	34.95		£	0.83		2	%	£	35.78	£	34.68	£	1.10		3	%	£	33.77	£	35.61		£	(1.84	)	(5	)%	£	34.36		£	35.79	£	(1.43	)	(4	)%
Average currency exchange rate: GBP to USD	1.31			1.31								1.27		1.40							1.36		1.28								1.38			1.26


(a)	Segment revenues are prior to intersegment eliminations. See Note 2—“Segment Information” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a reconciliation of segment revenues to consolidated revenues.

Table of Contents

CONSOLIDATED OPERATING RESULTS

The following table sets forth selected historical consolidated financial data. The information contained in the table below should be read in conjunction with “Liquidity and Capital Resources,” included in this Item 2, and the Condensed Consolidated Financial Statements and accompanying notes thereto included in Part I, Item 1 of this Form 10-Q.


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%		2018			2017			$			%
	(in thousands, except percentages)																						(in thousands, except percentages)
Revenues	$	161,304		$	172,879		$	(11,575	)	(7	)%	$	805,943		$	841,332		$	(35,389	)	(4	)%	$	299,921		$	328,146		$	(28,225	)	(9	)%	$	618,091		$	644,639		$	(26,548	)	(4	)%
Operating expenses:
Cost of revenues	103,175			108,058			(4,883		)	(5	)%	502,728			531,568			(28,840		)	(5	)%	194,482			203,179			(8,697		)	(4	)%	405,229			399,553			5,676			1	%
Sales and marketing	36,450			35,012			1,438			4	%	181,570			168,885			12,685			8	%	71,067			76,224			(5,157		)	(7	)%	153,349			145,120			8,229			6	%
General and administrative	27,656			25,980			1,676			6	%	83,450			84,113			(663		)	(1	)%	23,133			27,039			(3,906		)	(14	)%	48,834			55,794			(6,960		)	(12	)%
Amortization of intangible assets	3,820			15,240			(11,420		)	(75	)%	11,459			45,873			(34,414		)	(75	)%	1,495			3,819			(2,324		)	(61	)%	2,997			7,639			(4,642		)	(61	)%
Restructuring and other exit costs	1,113			612			501			82	%	2,057			2,230			(173		)	(8	)%	—			136			(136		)	(100	)%	—			944			(944		)	(100	)%
Impairment of goodwill, intangible assets, and other long-lived assets	82,735			—			82,735			NM		82,735			—			82,735			NM		136,861			—			136,861			NM		139,216			—			139,216			NM
Total operating expenses	254,949			184,902			70,047			38	%	863,999			832,669			31,330			4	%	427,038			310,397			116,641			38	%	749,625			609,050			140,575			23	%
Operating income/(loss)	(93,645		)	(12,023		)	(81,622		)	NM		(58,056		)	8,663			(66,719		)	NM		(127,117		)	17,749			(144,866		)	NM		(131,534		)	35,589			(167,123		)	NM
Interest expense, net	(2,599		)	(2,294		)	(305		)	(13	)%	(7,312		)	(6,863		)	(449		)	(7	)%	(4,389		)	(2,440		)	(1,949		)	80	%	(6,875		)	(4,713		)	(2,162		)	46	%
Other income/(expense), net	126			(9		)	135			NM		324			1,804			(1,480		)	(82	)%
Other income, net																							160			223			(63		)	(28	)%	136			198			(62		)	(31	)%
Income/(loss) before income taxes	(96,118		)	(14,326		)	(81,792		)	NM		(65,044		)	3,604			(68,648		)	NM		(131,346		)	15,532			(146,878		)	NM		(138,273		)	31,074			(169,347		)	NM
Provision for/(benefit from) income taxes	(19,799		)	(4,057		)	(15,742		)	NM		(7,464		)	347			(7,811		)	NM		(13,261		)	5,816			(19,077		)	NM		(13,592		)	12,335			(25,927		)	NM
Net income/(loss)	$	(76,319	)	$	(10,269	)	$	(66,050	)	NM		$	(57,580	)	$	3,257		$	(60,837	)	NM		$	(118,085	)	$	9,716		$	(127,801	)	NM		$	(124,681	)	$	18,739		$	(143,420	)	NM

NM = not meaningful

Consolidated Revenues

Consolidated revenues decreased ~~$11.6~~$28.2 million, or 7%9%, for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016~~2017, primarily due to a ~~$7.6~~$26.7 million decrease in revenues from our U.S. Consumer ~~segment, a $2.5 million decrease in revenues from our Provide Commerce~~ segment and a ~~$1.9~~$4.2 million decrease in revenues from our Florist segment. In constant currency, International segment revenues were flat for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017. Foreign currency exchange rates ~~did not have~~had a ~~significant~~$1.8 million favorable impact on our consolidated revenues during the three months ended ~~September~~June 30, ~~2017~~2018 as the average exchange rate was ~~relatively unchanged~~higher when compared to the three months ended ~~September~~June 30, ~~2016.~~2017.

Consolidated revenues decreased ~~$35.4~~$26.5 million, or 4%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, 2016. Foreign currency exchange rates unfavorably impacted revenues by $10.7 million during the nine months ended September 30, 2017. Excluding the impact of foreign currency exchange rates, revenues declined $24.7 million, or 3%,2017, primarily due to a ~~$24.2~~$32.0 million decrease in revenues from our U.S. Consumer segment and a $6.5 million decrease in revenues from our Florist segment, which were partially offset by an $11.1 million increase ($3.2 million in constant currency) in revenues from our International segment. Foreign currency exchange rates had a $7.9 million favorable impact on our consolidated revenues during the six months ended June 30, 2018 as the average exchange rate was higher when compared to the six months ended June 30, 2017.

Consolidated Cost of Revenues

Consolidated cost of revenues decreased ~~$4.9~~$8.7 million, or 4%, for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The decrease was primarily due to a ~~$4.7~~$9.9 million decrease in costs associated with our U.S. Consumer segment, ~~driven~~which was partially offset by a $1.8 million increase ($0.5 million in constant currency) in our International segment. Foreign currency exchange rates had a $1.3 million unfavorable impact on our consolidated cost of revenues during the three months ended June 30, 2018. Gross margin was 35% for the three months ended June 30, 2018, as compared to 38% for the three months ended June 30, 2017.

Table of Contents

Consolidated cost of revenues increased $5.7 million, or 1%, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The increase was primarily due to a $9.0 million increase ($3.4 million in constant currency) in our International segment, which was partially offset by ~~the reduction in revenues and~~ a ~~$0.7~~$2.3 million decrease in costs associated with our Florist segment partially offset by a $0.8 million increase in costs associated with our Provide Commerce segment. Gross margin was 36% for the three months ended September 30, 2017, as compared to 37% for the three months ended September 30, 2016.

~~Table of Contents~~

Consolidated cost of revenues decreased $28.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily due to a $15.9 million decrease in costs associated with ourU.S. Consumer segment due to a decline in order volume, a $6.7 million decrease ($0.6 million increase in constant currency) in costs associated with our International segment, and a $5.1 million decrease in costs associated with our Provide Commerce segment. Foreign currency exchange rates had a ~~$7.3~~$5.6 million ~~favorable~~unfavorable impact on our consolidated cost of revenues ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Gross margin was 34% for the six months ended June 30, 2018, as compared to 38% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 as compared to 37% for the nine months ended September 30, 2016.~~2017.

Consolidated Sales and Marketing

Consolidated sales and marketing expenses ~~increased $1.4~~decreased $5.2 million, or 7%, during the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016. The increase~~2017 due to decreases of $3.2 million and $2.2 million in costs associated with our Florist and U.S. Consumer segments, respectively. Consolidated sales and marketing expenses, as a percentage of consolidated revenues, was ~~primarily~~24% for the three months ended June 30, 2018 compared to 23% for the three months ended June 30, 2017.

Consolidated sales and marketing expenses increased $8.2 million, or 6%, during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 due to a ~~$2.6~~$10.8 million increase in costs associated with our ~~Provide Commerce~~U.S. Consumer segment, which was partially offset by a ~~$1.3~~$3.9 million decrease in ~~costs associated with our Consumer segment and a $0.2 million decrease in costs associated with~~ our Florist segment. Consolidated sales and marketing expenses, as a percentage of consolidated revenues, was 25% for the six months ended June 30, 2018 compared to 23% for the ~~three~~six months ended ~~September~~June 30, ~~2017 compared to 20% for the three months ended September 30, 2016.~~

Consolidated sales and marketing expenses increased $12.7 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase was primarily due to a $13.6 million increase in costs associated with our Provide Commerce segment, partially offset by a $1.3 million decrease in costs associated with our Consumer segment, a $0.7 million decrease ($0.6 million increase in constant currency) in costs associated with our International segment, and a $0.6 million decrease in costs associated with our Florist segment. Foreign currency exchange rates had a $1.3 million favorable impact on sales and marketing expenses for the nine months ended September 30, 2017. ~~Consolidated sales and marketing expenses, as a percentage of consolidated revenues, was 23% for the nine months ended September 30, 2017 compared to 20% for the nine months ended September 30, 2016.~~

Consolidated General and Administrative

Consolidated general and administrative expenses ~~increased $1.7~~decreased $3.9 million, or 14%, for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The ~~increase~~decrease was primarily due to ~~$3.5~~a $2.4 million decrease in depreciation expense and a $1.8 million decrease in costs related to corporate strategic planning. These decreases were partially offset by a $0.4 million increase in bad debt expense.

Consolidated general and administrative expenses decreased $7.0 million, or 12%, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The decrease was primarily due to decreases of $4.9 million in depreciation expense, $1.9 million in personnel-related costs, $1.8 million in costs related to corporate strategic planning, and ~~a $0.6 million increase in bad debt expense. These increases were partially offset by decreases of $1.0~~$0.9 million in transaction and integration ~~costs, $0.9 million in technology costs, and $0.5 million in legal expenses.~~

Consolidated general and administrative expenses decreased $0.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily due to decreases of $1.9 million in technology costs, $1.4 million in bad debt expense, $1.2 million in transaction and integration costs, $1.1 million in legal expense, and $0.9 million in personnel-related costs. These decreases were partially offset by ~~$5.3~~increases of $1.9 million in ~~costs related to corporate strategic planning. Foreign currency exchange rates had a $0.8~~legal and professional fees expense and $0.3 million ~~favorable impact on general and administrative expenses for the nine months ended September 30, 2017.~~in bad debt expense.

Amortization of Intangible Assets

Amortization expense related to intangible assets decreased ~~$11.4~~$2.3 million and ~~$34.4~~$4.6 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as certain intangible assets ~~related to~~were impaired during the ~~Provide Commerce acquisition were fully amortized as of~~year ended December 31, ~~2016.~~2017.

Restructuring and Other Exit Costs

The Company did not incur any restructuring and other exit costs during the three and six months ended June 30, 2018. During the three and six months ended ~~September~~June 30, 2017, ~~and 2016, we incurred~~ restructuring and other exit costs of ~~$1.1~~$0.1 million and ~~$0.6~~$0.9 million, ~~respectively. During the nine months ended September 30, 2017 and 2016, we incurred restructuring and other exit costs of $2.1 million and $2.2 million, respectively.~~respectively, were incurred. Such restructuring costs were primarily related to employee termination ~~costs~~ and facility closure costs.

~~Table of Contents~~

Impairment of Goodwill, Intangible Assets, and Other Long-Lived Assets

~~Due to a sustained decline in our market capitalization during~~During the three and six months ended ~~September~~June 30, ~~2017, management performed an interim impairment assessment for all of our reporting units, intangible assets, and other long-lived assets and~~2018, the Company recorded pre-tax impairment charges of ~~$82.7 million.~~$136.9 million and $139.2 million, respectively. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q, for a further description of these charges.

~~Other Income/(Expense), net~~

Table of Contents

Other income/(expense), net for the three months ended September 30, 2017 increased $0.1 million from the three months ended September 30, 2016. Other income/(expense), net for the nine months ended September 30, 2017 decreased $1.5 million from the nine months ended September 30, 2016 due primarily to gains on corporate-owned life insurance policies realized during the 2016 period.

Provision ~~for/(Benefit from)~~for Income Taxes

During the three months ended ~~September~~June 30, ~~2017, we~~2018, the Company recorded a tax benefit of ~~$19.8~~$13.3 million on a pre-tax loss of ~~$96.1~~$131.3 million, compared to a tax ~~benefit~~provision of ~~$4.1~~$5.8 million on a pre-tax ~~loss~~income of ~~$14.3~~$15.5 million for the three months ended ~~September~~June 30, ~~2016. The~~2017. During the three months ended June 30, 2018, management determined that the future reversals of existing taxable temporary differences and available tax strategies would not generate sufficient future taxable income to be able to realize its state net operating loss carryforward tax assets prior to their expiration and, therefore, a valuation allowance of $1.6 million was recorded. In addition, the goodwill impairment charges recorded during the three months ended ~~September~~June 30, ~~2017~~2018 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax loss expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, we~~2018, the Company recorded a tax benefit of ~~$7.5~~$13.6 million on a pre-tax loss of ~~$65.0~~$138.3 million, compared to a tax provision of ~~$0.3~~$12.3 million on pre-tax income of ~~$3.6~~$31.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The placement of a valuation allowance on the state net operating loss carryforwards and shortfalls related to vesting of equity awards increased tax expense by $1.6 million and $2.6 million, respectively, for the six months ended June 30, 2018. For the six months ended June 30, 2017, shortfalls related to vesting of equity awards were $1.4 million. In addition, the goodwill impairment charges recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not tax deductible and, therefore, there was no tax benefit recorded on such charges. Excluding the impact of the non-deductible goodwill impairment, the increase in the tax rate was due to a higher portion of pre-tax income expected to be earned in higher tax rate jurisdictions, a reduction in foreign tax benefits, and an increase in certain state tax rates. In addition, tax deficiencies related to vesting of equity awards increased tax expense by $1.5 million. As noted in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements,” the Company adopted ASU 2016-09 on January 1, 2017. As such, tax deficiencies or excess tax benefits are recorded in the provision for income taxes for the nine months ended September 30, 2017 rather than in additional paid-in capital as was previously required.

BUSINESS SEGMENT OPERATING RESULTS

The Company reports its business in ~~four~~three reportable segments: ~~Provide Commerce,~~U.S. Consumer, Florist, and International. Segment operating income is operating income excluding depreciation, amortization, litigation and dispute settlement charges and gains, transaction and integration costs, restructuring and other exit costs, and impairment of goodwill, intangible assets, and ~~intangible~~other long-lived assets. In addition, stock-based and incentive compensation and general corporate expenses are not allocated to the segments. Segment operating income is prior to intersegment eliminations and excludes other income/(expense), net.

~~Table of Contents~~

~~PROVIDE COMMERCE~~U.S. CONSUMER SEGMENT


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%		2018			2017			$			%
	(in thousands, except percentages and average order values)																						(in thousands, except percentages and average order values)
Segment revenues	$	54,633		$	57,112		$	(2,479	)	(4	)%	$	390,192		$	390,751		$	(559	)	—	%	$	233,082		$	259,804		$	(26,722	)	(10	)%	$	456,443		$	488,476		$	(32,033	)	(7	)%
Segment operating income/(loss)	$	(6,304	)	$	(1,847	)	$	(4,457	)	241	%	$	21,686		$	27,406		$	(5,720	)	(21	)%	$	6,474		$	21,120		$	(14,646	)	(69	)%	$	(1,761	)	$	40,227		$	(41,988	)	(104	)%
Key metrics and other financial data:
Consumer orders	1,081			1,115			(34		)	(3	)%	7,549			7,780			(231		)	(3	)%	4,214			4,654			(440		)	(9	)%	8,092			8,501			(409		)	(5	)%
Average order value	$	49.30		$	49.78		$	(0.48	)	(1	)%	$	50.98		$	49.48		$	1.50		3	%	$	53.83		$	54.39		$	(0.56	)	(1	)%	$	54.93		$	55.97		$	(1.04	)	(2	)%
Segment operating margin	(12		)%	(3		)%						6		%	7		%						3		%	8		%						—		%	8		%

~~Provide Commerce~~U.S. Consumer Segment Revenues

~~Provide Commerce~~U.S. Consumer segment revenues decreased ~~$2.5~~$26.7 million, or 4%10%, for the three months ended ~~September~~June 30, ~~2017,~~2018 compared to the three months ended ~~September~~June 30, 2016, as a result of a 3% decrease in consumer order volume and a 1% decrease in average order value. The decrease in average order value was due to a shift in product mix and was partially offset by lower discounts on products. Revenues for the Personal Creations and Gourmet Foods businesses increased 7% and 2%, respectively, while revenues for the ProFlowers business declined 11% for the three months ended September 30, 2017, ~~as compared to the three months ended September 30, 2016.~~

Provide Commerce segment revenues were flat for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. Average order value increased by 3% due to favorable product mix and lower discounting on products. This increase was offset by a decline in consumer order volume of 3%. Revenues for the Gourmet Foods business increased 8% and revenues for the Personal Creations business increased slightly, while revenues for the ProFlowers business declined 4% for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016.

~~Provide Commerce Segment Operating Income~~

Provide Commerce segment operating loss increased $4.5 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The gross margin for the Provide Commerce segment decreased to 30% for the three months ended September 30, 2017 as compared to 34% for the three months ended September 30, 2016 primarily due to increased shipping and other costs. Sales and marketing expenses increased $2.6 million primarily due to additional marketing spend to drive increased customer acquisition and retention. General and administrative expenses decreased $1.4 million primarily due to lower personnel-related costs, facilities costs, and legal expenses.

Provide Commerce segment operating income decreased $5.7 million, or 21%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The gross margin for the Provide Commerce segment increased to 37% for the nine months ended September 30, 2017 as compared to 36% for the nine months ended September 30, 2016 primarily due to shifts to lower cost products and improved peak demand inventory management, which were partially offset by increased shipping, seasonal employee, and distribution center costs. Sales and marketing expenses increased $13.6 million primarily due to additional marketing spend to drive increased customer acquisition and retention. General and administrative expenses also decreased by $3.3 million primarily due to lower personnel-related costs, facilities costs, and legal expenses. Provide Commerce segment operating margin was 6% for the nine months ended September 30, 2017 compared to 7% for the nine months ended September 30, 2016.

~~Table of Contents~~

~~CONSUMER SEGMENT~~

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2017 2016 $ % 2017 2016 $ %

(in thousands, except percentages and
average order values)
Segment revenues $ 43,631
$ 51,260
$ (7,629 ) (15 )% $ 196,547
$ 220,743
$ (24,196 ) (11 )%
Segment operating income $ 3,225
$ 5,019
$ (1,794 ) (36 )% $ 15,460
$ 22,326
$ (6,866 ) (31 )%
Key metrics and other
financial data:

Consumer orders 555
645
(90 ) (14 )% 2,588
2,890
(302 ) (10 )%
Average order value $ 73.51
$ 74.52
$ (1.01 ) (1 )% $ 71.51
$ 71.99
$ (0.48 ) (1 )%
Segment operating margin 7 % 10 %

8 % 10 %

~~Consumer Segment Revenues~~

~~Consumer segment revenues decreased $7.6 million, or 15%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016,~~ driven by a ~~14%~~9% decrease in order volume combined with a 1% decrease in average order value. The decrease in order volume was largely related to declines in orders from partner programs as well as traffic from other marketing channels. The decrease in average order value was primarily due to an unfavorable product mix, including an increase in orders through our Gold Program, which is a consumer membership program that offers reduced service and ~~shipping fees.~~

Consumer segment revenues decreased $24.2 million, or 11%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, driven by a 10% decrease in order volume combined with a 1% decrease in average order value. The decrease in order volume was primarily due to ~~a decrease in partner programs, including sympathy, group buying,~~lower traffic and ~~airlines.~~conversion on our websites. The Easter holiday shift to the first quarter of 2018 also contributed to the lower order volume during the second quarter of 2018. The decrease in average order value was ~~also~~primarily due to increased promotional offers and a shift in the product mix to lower priced products. Revenues decreased 18%, 9%, and 7% for the FTD.com, ProFlowers, and Gourmet Foods businesses, respectively, for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. Partially offsetting these decreases, was a 3% increase in revenues for the Personal Creations reporting unit for the three months ended June 30, 2018 compared to the 2017 period.

Table of Contents

U.S. Consumer segment revenues decreased $32.0 million, or 7%, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, driven by a 5% decrease in ~~partner program orders~~order volume and a 2% decrease in average order value. The decrease in order volume was primarily due to lower traffic and conversion on our websites. The decrease in average order value was primarily due to increased ~~Gold Program orders, resulting~~promotional offers and a shift in the product mix to lower priced products. Revenues decreased 10%, 10%, and 5% for the ProFlowers, FTD.com, and Gourmet Foods businesses, respectively, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Partially offsetting these decreases was a ~~less favorable product mix.~~22% increase in revenues for the Personal Creations reporting unit for the six months ended June 30, 2018 compared to the 2017 period.

U.S. Consumer Segment Operating ~~Income~~Income/(Loss)

U.S. Consumer segment operating income decreased ~~$1.8~~$14.6 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The gross margin for the U.S. Consumer segment decreased ~~to 31% for the three months ended September 30, 2017 as compared~~ to 32% for the three months ended ~~September~~June 30, ~~2016~~2018, as compared to 36% for the three months ended June 30, 2017, primarily due to ~~a less favorable~~the reduced pricing noted above, higher product ~~mix.~~costs, and higher average shipping costs. Sales and marketing expenses decreased ~~$1.3~~$2.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016~~2017, primarily due to ~~reduced variable~~a decrease in media-based marketing spend ~~related to lower order volume.~~partially offset by increases in paid social media, professional fees, and personnel-related costs during the quarter. U.S. Consumer segment operating margin was 7%3% for the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~10%~~8% for the three months ended ~~September~~June 30, ~~2016.~~2017.

For the six months ended June 30, 2018, the U.S. Consumer segment reported an operating loss of $1.8 million compared to operating income ~~decreased $6.9~~of $40.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to the nine months ended September 30, 2016.~~2017. The gross margin for the U.S. Consumer segment ~~was relatively unchanged at 31%~~decreased to 32% for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, 2018, as compared to 36% for the six months ended June 30, 2017, primarily due to the reduced pricing and ~~2016.~~increased shipping costs noted above and increased inventory write-offs from lower than anticipated Valentine’s Day orders during the first quarter of 2018. Sales and marketing expenses ~~decreased $1.3~~increased $10.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily due to ~~reduced~~media-based marketing and increased variable marketing spend ~~related to lower order volume partially offset by increased spend for higher cost marketing channels~~during the first quarter of 2018 and ~~higher~~increases in professional fees and personnel-related costs. U.S. Consumer segment operating margin was approximately break even for the six months ended June 30, 2018 compared to 8% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to 10% for the nine months ended September 30, 2016.~~2017.

~~Table of Contents~~

FLORIST SEGMENT


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%		2018			2017			$			%
	(in thousands, except percentages and average revenues per member)																						(in thousands, except percentages and average revenues per member)
Segment revenues	$	34,665		$	36,605		$	(1,940	)	(5	)%	$	125,261		$	126,955		$	(1,694	)	(1	)%	$	39,916		$	44,090		$	(4,174	)	(9	)%	$	84,132		$	90,596		$	(6,464	)	(7	)%
Segment operating income	$	9,552		$	11,362		$	(1,810	)	(16	)%	$	35,757		$	36,722		$	(965	)	(3	)%	$	10,849		$	12,248		$	(1,399	)	(11	)%	$	23,115		$	26,202		$	(3,087	)	(12	)%
Key metrics and other financial data:
Average revenues per member	$	3,263		$	3,233		$	30		1	%	$	11,397		$	10,874		$	523		5	%	$	3,873		$	3,981		$	(108	)	(3	)%	$	8,055		$	8,122		$	(67	)	(1	)%
Segment operating margin	28		%	31		%						29		%	29		%						27		%	28		%						27		%	29		%

Florist Segment Revenues

Florist segment revenues for the three months ended ~~September~~June 30, ~~2017~~2018 decreased ~~$1.9~~$4.2 million, or 5%9%, compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The decline iswas primarily due to a ~~change~~$3.1 million decrease in ~~the timing of holiday~~services revenues due to lower clearinghouse order volume and a decline in online services revenues. Products revenues decreased $1.1 million, primarily related to a planned reduction in container ~~shipments to the fourth quarter of 2017 from the third quarter of 2016 combined with~~offerings and related pricing and a ~~decrease~~decline in technology system sales. Average revenues per member ~~increased 1%~~decreased 3% for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016,~~2017, primarily due to athe decline in ~~floral network membership during the three months ended September 30, 2017.~~clearinghouse order volume.

Florist segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 decreased ~~$1.7~~$6.5 million, or 1%7%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The decline was primarily due to a $4.0 million decrease in services revenue due to lower clearinghouse order volume and declines in online services and support fees. Products revenues decreased ~~$0.8~~$2.5 million, ~~or 2%, for the nine months ended September 30, 2017 compared~~primarily related to ~~the nine months ended September 30, 2016 primarily due to the change~~a planned reduction in ~~timing of holiday~~ container ~~shipments as described above~~offerings and related pricing and a ~~decrease~~decline in technology system ~~sales. These decreases~~sales, which were partially offset by an increase in fresh flower sales. ~~Services revenues decreased $0.9 million, or 1%, primarily due to lower order-related revenues.~~ Average revenues per member ~~increased 5%~~decreased 1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, primarily due to athe decline in ~~floral network membership during the nine months ended September 30, 2017.~~clearinghouse order volume and products revenues.

Table of Contents

Florist Segment Operating Income

Florist segment operating income decreased ~~$1.8~~$1.4 million, or ~~16%~~11%, for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017. The gross margin for the Florist segment ~~increased~~decreased to ~~69%~~66% for the three months ended ~~September~~June 30, ~~2017~~2018, as compared to 68% for the three months ended ~~September~~June 30, ~~2016~~2017, primarily due to ~~favorable product~~declines in high-margin clearinghouse order-related revenues. Sales and ~~services mix.~~marketing expenses decreased $3.2 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017, primarily due to fewer incentives paid to member florists. General and administrative expenses increased $0.7 million ~~primarily due to an increase in bad debt expense~~ for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017, primarily due to bad debt expense. The Florist segment operating margin was 27% for the three months ended June 30, 2018 compared to 28% for the three months ended ~~September~~June 30, ~~2017 compared to 31% for the three months ended September 30, 2016.~~2017.

Florist segment operating income decreased ~~$1.0~~$3.1 million, or 3%12%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The gross margin for the Florist segment decreased to 65% for the six months ended June 30, 2018, as compared to 67% for the ~~nine~~six months ended ~~September~~June 30, 2017, ~~as compared to 68% for the nine months ended September 30, 2016~~ primarily due to ~~an increase~~declines in high-margin clearinghouse order-related revenues and product ~~costs.~~related revenues. Sales and marketing expenses decreased $3.9 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to fewer incentives paid to member florists. General and administrative ~~expensed decreased $0.5~~expenses increased $0.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to ~~a $1.5 million decrease in~~ bad debt ~~expense, partially offset by a increase in personnel and technology costs.~~expense. The Florist segment operating margin was 27% for the six months ended June 30, 2018 compared to 29% for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017 and the nine months ended September 30, 2016.~~2017.

~~Table of Contents~~

INTERNATIONAL SEGMENT


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%		2018			2017			$			%
	(in thousands, except percentages, average order values, and average currency exchange rates)																						(in thousands, except percentages, average order values, and average currency exchange rates)
In USD:
Segment revenues	$	31,477		$	31,364		$	113		—	%	$	106,416		$	116,846		$	(10,430	)	(9	)%	$	31,114		$	29,201		$	1,913		7	%	$	86,029		$	74,938		$	11,091		15	%
Impact of foreign currency	87			—			87					10,661			—			10,661					(1,807		)	—			(1,807		)			(7,877		)	—			(7,877		)
Segment revenues (in constant currency)^(a)	$	31,564		$	31,364		$	200		1	%	$	117,077		$	116,846		$	231		—	%	$	29,307		$	29,201		$	106		—	%	$	78,152		$	74,938		$	3,214		4	%

Segment operating income	$	3,384		$	3,845		$	(461	)	(12	)%	$	11,982		$	15,225		$	(3,243	)	(21	)%	$	2,710		$	3,066		$	(356	)	(12	)%	$	9,765		$	8,598		$	1,167		14	%
Impact of foreign currency	6			—			6					1,220			—			1,220					(157		)	—			(157		)			(943		)	—			(943		)
Segment operating income (in constant currency)^(a)	$	3,390		$	3,845		$	(455	)	(12	)%	$	13,202		$	15,225		$	(2,023	)	(13	)%	$	2,553		$	3,066		$	(513	)	(17	)%	$	8,822		$	8,598		$	224		3	%

Key metrics and other financial data:
Consumer orders	559			560			(1		)	—	%	1,933			1,979			(46		)	(2	)%	550			532			18			3	%	1,477			1,374			103			7	%
Average order value	$	46.86		$	45.90		$	0.96		2	%	$	45.48		$	48.47		$	(2.99	)	(6	)%	$	45.89		$	45.57		$	0.32		1	%	$	47.45		$	44.91		$	2.54		6	%
Segment operating margin	11		%	12		%						11		%	13		%						9		%	10		%						11		%	11		%
In GBP:
Segment revenues	£	24,017		£	23,853		£	164		1	%	£	83,696		£	83,469		£	227		—	%	£	22,880		£	22,798		£	82		—	%	£	62,264		£	59,679		£	2,585		4	%
Average order value	£	35.78		£	34.95		£	0.83		2	%	£	35.78		£	34.68		£	1.10		3	%	£	33.77		£	35.61		£	(1.84	)	(5	)%	£	34.36		£	35.79		£	(1.43	)	(4	)%
Average currency exchange rate: GBP to USD	1.31			1.31								1.27			1.40								1.36			1.28								1.38			1.26


(a)	USD at prior year foreign currency exchange rate.

We present certain results from our International segment on a constant currency basis. Constant currency information permits comparison of results between periods as if foreign currency exchange rates had remained constant period-over-period. Our International segment operates principally in the U.K. We calculate constant currency by applying the foreign currency exchange rate for the prior period to the local currency results for the current period.

Table of Contents

International Segment Revenues

International segment revenues increased ~~$0.1 million ($0.2~~$1.9 million, or 1%7%, (flat in constant currency) for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017 as a 3% increase in consumer orders was offset by a 5% decrease in average order value. The decrease in average order value was driven by an unfavorable product mix and reduced pricing, the loss of credit card fee income due to statutory regulations, and increased discounts. Foreign currency exchange rates had a $1.8 million favorable impact on our International segment revenues during the three months ended June 30, 2018 as the average exchange rate was higher when compared to the three months ended June 30, 2017.

International segment revenues increased $11.1 million, or 15%, ($3.2 million, or 4%, in constant currency) for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The increase in revenues in constant currency was due to an increase in ~~average order value~~consumer orders of ~~2% due to favorable product mix with order volume remaining stable.~~

~~International segment revenues decreased $10.4 million, or 9%~~7%, ~~(increased $0.2 million, or 0.2%, in constant currency) for~~primarily from increased holiday orders during the ~~nine months ended September 30, 2017 compared to~~first quarter of 2018 and lower pricing on non-peak orders. Partially offsetting the ~~nine months ended September 30, 2016. The~~ increase in ~~revenues in constant currency~~orders was ~~primarily due to an increase~~a decrease in average order value of 3%4% due to ~~favorable~~an unfavorable product mix ~~partially offset by a decrease in order volume~~and reduced pricing, the loss of ~~2%.~~credit card fee income due to statutory regulations, and increased discounts and refunds.

International Segment Operating Income

International segment operating income decreased ~~$0.5~~$0.4 million, or 12%, ($0.5 million, or ~~12%~~17%, in constant currency) for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, 2016. The gross margin for the International segment was relatively stable at 32% for both the three months ended September 30, 2017 and 2016. Sales and marketing expenses increased $0.1 million ($0.1 million in constant currency). General and administrative expenses increased $0.3 million ($0.2 million in constant currency). International segment operating margin was 11% for the three months ended September 30, 2017 compared to 12% for the three months ended September 30, 2016.

~~Table of Contents~~

International segment operating income decreased $3.2 million, or 21%, ($2.0 million, or 13%, in constant currency) for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.2017. The gross margin for the International segment decreased to 31% for the ~~nine~~three months ended ~~September~~June 30, ~~2017 as~~2018 compared to 32% for the ~~nine~~three months ended ~~September~~June 30, ~~2016 primarily due to a less favorable product mix.~~2017. Sales and marketing expenses ~~decreased $0.7~~increased $0.2 million ~~(increased $0.6 million~~(stable in constant currency) ~~primarily~~ due to ~~increased consumer marketing spend.~~the impact of foreign exchange rates. General and administrative expenses increased ~~$0.2~~$0.3 million ($~~1.1~~0.1 million in constant currency), primarily due to personnel-related costs partially offset by a decrease in professional fees. International segment operating margin decreased to 9% for the three months ended June 30, 2018 compared to 10% for the three months ended June 30, 2017.

International segment operating income increased $1.2 million, or 14%, ($0.2 million, or 3%, in constant currency) for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The gross margin for the International segment decreased to 29% for the six months ended June 30, 2018 compared to 31% for the six months ended June 30, 2017. Sales and marketing expenses increased $0.9 million (stable in constant currency) due to the impact of foreign exchange rates. General and administrative expenses were stable (decreased $0.5 million, or 8%, in constant currency). The decreases in constant currency were primarily due to decreases in personnel-related costs and professional fees partially offset by an increase in technology costs. International segment operating margin was stable at 11% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to 13% for the nine months ended September 30, 2016.~~2018 and 2017.

UNALLOCATED EXPENSES

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2017 2016 $ % 2017 2016 $ %
(in thousands, except percentages)
Unallocated expenses $ 11,573
$ 9,416
$ 2,157
23 % $ 32,428
$ 29,514
$ 2,914
10 %



	Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
	2018		2017		$			%		2018		2017		$			%
	(in thousands, except percentages)
Unallocated expenses	$	6,171	$	9,400	$	(3,229	)	(34	)%	$	15,217	$	20,855	$	(5,638	)	(27	)%

Unallocated expenses include various corporate costs, such as executive management, corporate finance, and legal costs. In addition, unallocated expenses include stock-based and incentive compensation, restructuring and other exit costs, transaction and integration costs, and litigation and dispute settlement charges and gains.

Unallocated expenses ~~increased $2.2~~decreased $3.2 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared to the three months ended ~~September~~June 30, ~~2016.~~2017. This ~~increase~~decrease was primarily due to ~~$3.5~~reduced spending of $1.8 million inrelated to costs ~~related to~~associated with corporate strategic planning ~~which was~~and $1.3 million in personnel-related expenses. These decreases were partially offset by ~~decreases of $1.1~~a $1.0 million increase in legal, audit, and consulting fees for the three months ended June 30, 2018 compared to the three months ended June 30, 2017.

Unallocated expenses decreased $5.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This decrease was primarily due to $3.9 million in personnel-related expenses, $1.8 million related to costs associated with corporate strategic planning, and ~~$1.0~~$0.9 million in transaction and integration costs. In addition, we did not incur restructuring costs ~~of $1.1~~during the six months ended June 30, 2018 compared to $0.9 million ~~were~~ incurred during the ~~three~~six months ended ~~September~~June 30, ~~2017 and $0.6 million were incurred during the three months ended September 30, 2016.~~

Unallocated expenses increased $2.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. This increase was primarily due to $5.3 million in costs related to corporate strategic planning, $1.1 million in professional fees, and $0.6 million in other tax-related charges.2017. These ~~increases~~decreases were partially offset by ~~decreases of $2.5~~a $3.0 million ~~in personnel-related expenses, $1.2 million in transaction and integration costs, and $0.7 million~~increase in legal, ~~settlements.~~audit, and consulting fees for the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Credit Agreement

On September 19, 2014, FTD Companies, Inc. entered into a credit agreement (the “Credit Agreement”) with Interflora British Unit, certain wholly owned domestic subsidiaries of FTD Companies, Inc. party thereto as guarantors, the financial institutions party thereto from time to time, Bank of America Merrill Lynch and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of America, N.A., as the administrative agent for the lenders, which provided for a term loan in an aggregate principal amount of $200 million, the proceeds of which were used to repay a portion of outstanding revolving loans and also provided for a $350 million revolving credit facility. On December 31, 2014, we borrowed $120 million under the revolving credit facility to fund the cash portion of the Provide Commerce purchase price.

The obligations under the Credit Agreement are guaranteed by ~~certain of FTD Companies, Inc.’s wholly owned domestic subsidiaries (together with FTD Companies, Inc.,~~ the ~~“U.S.~~U.S. Loan ~~Parties”).~~Parties. In addition, the obligations under the Credit Agreement are secured by a lien on substantially all of the assets of the U.S. Loan Parties, including a pledge of all of the outstanding capital stock of certain direct subsidiaries of the U.S. Loan Parties (except with respect to foreign subsidiaries and certain domestic subsidiaries whose assets consist primarily of foreign subsidiary equity interests, in which case such pledge is limited to 66% of the outstanding capital stock).

~~Table of Contents~~

The interest rates applicable to borrowings under the Credit Agreement are based on either LIBOR plus a margin ranging from 1.50% per annum to 2.50% per annum, or a base rate plus a margin ranging from 0.50% per annum to 1.50% per annum, calculated according to the Company’s net leverage ratio. As of September 30, 2017, the base rate margin was 0.75% per annum and the LIBOR margin was 1.75% per annum. In addition, the Company pays a commitment fee ranging from 0.20% per annum to 0.40% per annum on the unused portion of the revolving credit facility. The stated interest rates (based on LIBOR) as of September 30, 2017 under the term loan and the revolving credit facility were 3.08% and 2.99%, respectively. The effective interest rates as of September 30, 2017 under the term loan and the revolving credit facility were 4.08% and 3.61%, respectively. The effective interest rates include the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees. The commitment fee rate as of September 30, 2017 was 0.25%. The Credit Agreement contains customary representations and warranties, events of default, affirmative covenants, and negative covenants, that, among other things, require the Company to maintain compliance with a maximum net leverage ratio and a minimum consolidated fixed charge coverage ratio, and impose restrictions and limitations on, among other things, investments, dividends, share repurchases, asset sales, and the Company’s ability to incur additional debt and additional liens.

On May 31, 2018, we entered into the Third Amendment to Credit Agreement (the Credit Agreement, as previously amended and as further amended by the Third Amendment, is referred to in this Form 10-Q as the “Amended Credit Agreement”) with our lenders, which includes an agreement by the lenders to waive certain existing defaults, as described in Note 6—“Financing Arrangements” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. The ~~Company was~~Amended Credit Agreement also restricts our combined usage of the revolving credit facility portion of the Amended Credit Agreement to (1) $150 million during the period from May 31, 2018 through and including September 30, 2018; (2) $175 million during the period from October 1, 2018 through and including December 31, 2018; and (3) $150 million during the period from January 1, 2019 through the September 19, 2019 maturity date, all subject to our obligation to make prepayments of the term loan portion of the Amended Credit Agreement with any net cash proceeds received from the sale of certain non-core assets. In addition, the consolidated net leverage ratio and fixed charge coverage ratio covenants were revised for each quarterly period through the September 19, 2019 maturity date, as were the interest rates, as noted below. We are also required to pay a quarterly fee of 0.125% times the actual daily amount of the revolver commitments and outstanding loans beginning October 1, 2018 through December 31, 2018, which increases to 0.25% beginning January 1, 2019 through the maturity date. We paid an amendment fee of 0.625% times the revolver commitments and outstanding term loan ($1.9 million) in addition to a $0.5 million work fee related to the structuring and arranging of the amendment.

We were in compliance with ~~all~~the revised covenants under the Amended Credit Agreement as of June 30, 2018. Our ability to continue as a going concern, however, is dependent on our generating profitable operating results and continued compliance with our revised covenants under the Amended Credit Agreement or refinancing, repaying, or obtaining new financing prior to maturity of the Amended Credit Agreement in September 2019, as discussed below under “—Going Concern.”

The interest rates applicable to borrowings under the Amended Credit Agreement are based on either LIBOR plus a margin ranging from 2.50% per annum to 7.50% per annum, or a base rate plus a margin ranging from 1.50% per annum to 6.50% per annum, calculated according to our net leverage ratio. In addition, under the Amended Credit Agreement, we pay a commitment fee of 0.50% on the unused portion of the revolving credit facility and a letters of credit fee ranging between 2.50% per annum to 7.50% per annum.

The stated interest rates (based on LIBOR) as of June 30, ~~2017.~~2018 under the term loan and the revolving credit facility portions of the Amended Credit Agreement were 7.83% and 7.74%, respectively. The effective interest rates as of June 30, 2018 under the term loan and the revolving credit facility were 10.46% and 10.97%, respectively. The effective interest rates include the amortization of both the debt issuance costs and the effective portion of the interest rate swap and commitment fees. The commitment fee rate as of June 30, 2018 was 0.50%.

Table of Contents

The term loan is subject to amortization payments of $5 million per quarter and customary mandatory prepayments under certain conditions. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company made scheduled payments of ~~$15~~$10 million under the term loan. The Company had net ~~repayments~~borrowings of ~~$10~~$13 million on the revolving credit facility during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The outstanding balance of the term loan and all amounts outstanding under the revolving credit facility are due upon maturity in September 2019.

As of ~~September~~June 30, ~~2017,~~2018, the remaining borrowing capacity under the Amended Credit Agreement, which was reduced by ~~$2.0~~$1.8 million in outstanding letters of credit, was $238.0 million, subject to certain limitations under covenants contained in the Credit Agreement. After giving effect to the net leverage ratio contained in the Credit Agreement, approximately $74 million was available for additional borrowing as of September 30, 2017 based on 3.25 times the total of Adjusted EBITDA (as defined in the Credit Agreement) for the last twelve months.$83.2 million.

The degree to which our assets are leveraged and the terms of our debt could materially and adversely affect our ability to obtain additional capital, as well as the terms at which such capital might be offered to us. We currently expect to have sufficient liquidity to meet our obligations for at least the next twelve months, including interest payment obligations, quarterly amortization payments, and mandatory prepayments, if any, under the Credit Agreement.

~~Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016~~

Our total cash and cash equivalents balance decreased by $53.2 million to $27.8 million as of September 30, 2017, compared to $81.0 million as of December 31, 2016, which included the use of available cash for a voluntary reduction of debt during 2017. Our summary cash flows for the periods presented were as follows (in thousands):

Nine Months Ended September 30,
2017 2016
Net cash used for operating activities $ (18,144 ) $ (3,600 )
Net cash used for investing activities $ (10,677 ) $ (10,072 )
Net cash used for financing activities $ (25,941 ) $ (27,376 )

Net cash used for operating activities increased $14.5 million to $18.1 million for the nine months ended September 30, 2017 compared to $3.6 million for the nine months ended September 30, 2016. Net cash used for operating activities is driven by our net income/(loss) adjusted for non-cash items including, but not limited to, depreciation and amortization, impairment of assets, deferred taxes, stock-based compensation, gains on life insurance, and changes in operating assets and liabilities. The increase in the net cash used for operating activities was primarily due to a $41.2 million increase in non-cash items partially offset by a net loss of $57.6 million for the nine months ended September 30, 2017 compared to net income of $3.3 million for the comparable 2016 period. In addition, net operating assets and liabilities increased $5.1 million. Non-cash items increased primarily due to the impairment of goodwill, intangible assets, and other long-lived assets, which was partially offset by lower depreciation and amortization and deferred taxes. Changes in working capital can cause variations in our cash flows used for operating activities due to seasonality, timing, and other factors.

~~Table of Contents~~

Net cash used for investing activities increased $0.6 million primarily due to fewer purchases of property and equipment, partially offset by prior year proceeds received from corporate-owned life insurance policies. Purchases of property and equipment totaled $10.7 million during the nine months ended September 30, 2017 compared to $12.0 million during the nine months ended September 30, 2016. We currently anticipate total capital expenditures for 2017 of up to $22 million. The actual amount of future capital expenditures may fluctuate due to a number of factors, including, without limitation, capital expenditures related to potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, we may choose to invest in technological advances in support of our business initiatives or make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net cash used for financing activities decreased $1.4 million primarily due to common stock shares repurchased totaling $12.0 million during the nine months ended September 30, 2016 under our 2016 Repurchase Program. We did not repurchase any shares under this program during the nine months ended September 30, 2017. Partially offsetting this decrease was the net repayment of amounts outstanding under the Credit Agreement totaling $25.0 million during the nine months ended September 30, 2017 compared to the repayment of $15.0 million during the nine months ended September 30, 2016.

We expect that positive cash flows from operations and availability under our Credit Agreement, if needed, will provide enough liquidity to enable us to meet our cash requirements over the next twelve months. We may use our existing cash balances and future cash generated from operations as well as available liquidity under our Credit Agreement to fund, among other things, working capital; stock repurchases; interest payment obligations; quarterly debt amortization payments and mandatory prepayments, if any, under the Credit Agreement; capital expenditures; and acquisitions.

If we ~~need~~seek to raise additional capital through public or private debt or equity financings, strategic relationships, or other arrangements as part of the strategic alternatives review discussed elsewhere in this Form 10-Q, this capital might not be available to us in a timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing existing services or products ~~acquiring other services, businesses, or technologies,~~ or funding ~~significant~~necessary capital expenditures and may have a material adverse effect on our business, financial position, results of operations, and cash flows, as well as impair our ability to service our debt obligations. If additional funds were raised through the issuance of equity or convertible debt securities, the percentage of stock owned by the then-current stockholders could be reduced. Furthermore, such equity or any debt securities that we issue might have rights, preferences, or privileges senior to holders of our common stock. In addition, trends in the securities and credit markets may restrict our ability to raise any such additional funds, at least in the near term.

Going Concern

As described above, the financial statements included in this Form 10-Q have been prepared assuming the Company will continue as a going concern.

On ~~March 8, 2016,~~May 31, 2018, we entered into the Amended Credit Agreement with our lenders, which includes an agreement by the lenders to waive certain existing defaults and other amendments described above under “—Credit Agreement.” Our ability to continue as a going concern is dependent on our generating profitable operating results and continued compliance with the revised covenants under the Amended Credit Agreement or refinancing, repaying, or obtaining new financing prior to maturity of the Amended Credit Agreement in September 2019. In this regard, on July 19, 2018, we announced that our board of directors ~~authorized~~has initiated a review of strategic alternatives. The strategic alternatives expected to be considered include, but are not limited to, a sale or merger of the ~~2016 Repurchase Program,~~Company, the Company continuing to pursue value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of our businesses or assets. We also announced a corporate restructuring and cost savings plan, under which ~~allows us~~opportunities to ~~repurchase up~~optimize operations, drive efficiency, and reduce costs have been identified.

Notwithstanding these initiatives, based on our 2018 year-to-date results of operations and outlook for the remainder of the term of the Amended Credit Agreement, we currently anticipate that we may be unable to ~~$60~~meet certain of the revised covenants during the remainder of the term of the Amended Credit Agreement, as discussed elsewhere in this Form 10-Q. If we are unable to meet the revised covenants under the Amended Credit Agreement and we are unable to obtain waivers or amendments from our lenders, the lenders could exercise remedies under the Amended Credit Agreement and repayment of the debt owed under the Amended Credit Agreement could be accelerated. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated. These conditions raise substantial doubt about our ability to continue as a going concern.

There can be no assurance that the strategic alternatives review will result in any particular strategic alternative or strategic transaction or that we will be able to refinance our outstanding indebtedness or obtain alternative financing on acceptable terms, when required or if at all. If such plans are not realized, we may be forced to limit our business activities or be unable to continue as a going concern, which would have a material adverse effect on our results of operations and financial condition. The financial statements included in this Form 10-Q do not include any adjustments that might result from the outcome of these uncertainties.

Table of Contents

Six Months Ended June 30, 2018 compared to Six Months Ended June 30, 2017

Our total cash and cash equivalents balance decreased by $9.1 million to $20.4 million as of June 30, 2018, compared to $29.5 million as of December 31, 2017. Our summary cash flows for the periods presented were as follows (in thousands):



	Six Months Ended June 30,
	2018			2017
Net cash provided by/(used for) operating activities	$	(1,586	)	$	19,609
Net cash used for investing activities	$	(6,277	)	$	(6,370	)
Net cash used for financing activities	$	(1,082	)	$	(15,927	)

Net cash used for operating activities was $1.6 million for the six months ended June 30, 2018 compared to net cash provided by operating activities of $19.6 million for the six months ended June 30, 2017. The decrease in cash from operating activities was primarily driven by our net loss of $124.7 million for the six months ended June 30, 2018 compared to net income of $18.7 million for the comparable 2017 period and was partially offset by an increase in net operating assets and liabilities of $15.2 million. Changes in working capital can cause variations in our cash flows used for operating activities due to seasonality, timing, and other factors. In addition, non-cash items, which include but are not limited to depreciation and amortization, impairment of assets, stock-based compensation, deferred taxes, and provision for doubtful accounts receivable, increased $107.0 million.

Net cash used for investing activities for the six months ended June 30, 2018 included purchases of property and equipment totaling $16.3 million, which were partially offset by $10.0 million of ~~FTD~~proceeds from the surrender of corporate-owned life insurance policies. Net cash used for investing activities for the six months ended June 30, 2017 included purchases of property and equipment totaling $6.4 million. We currently anticipate total capital expenditures for 2018 between $35 and $40 million. The actual amount of future capital expenditures may fluctuate due to a number of factors, including, without limitation, capital expenditures related to potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, we may choose to invest in technological advances in support of our business initiatives or make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net cash used for financing activities decreased $14.8 million, primarily due to net proceeds from borrowings under the Credit Agreement totaling $3.0 million during the six months ended June 30, 2018 compared to net repayments of $15.0 million during the six months ended June 30, 2017. Partially offsetting the net proceeds from borrowings was the payment of deferred financing costs totaling $4.0 million during the 2018 period. In addition, repurchases of common stock ~~from time~~related to ~~time over a two-year period in both open market and privately negotiated transactions. The objective of the 2016 Repurchase Program is to offset the dilutive effect~~tax withholdings on ~~earnings per share from stock-based compensation and allow for opportunistic~~vested stock ~~purchases to return capital to shareholders. The Company did not repurchase any shares of its common stock~~awards decreased by $1.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017. As of September~~2018 compared to the six months ended June 30, ~~2017, $44.8 million was available under this program for future purchases.~~2017.

Contractual Obligations and Other Commitments

During the first quarter of 2018, the Company entered into a lease for office space in Chicago, Illinois for our new corporate headquarters. The lease expires in 2030 with future contractual obligations totaling $17.0 million over the term of the agreement. There have been no other material changes, outside the ordinary course of business, related to the Company’s contractual obligations or other commitments as disclosed in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Off-Balance Sheet Arrangements

At ~~September~~June 30, ~~2017,~~2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Table of Contents

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

~~There have been no changes to the Company’s Critical Accounting Policies, Estimates, and Assumptions as disclosed in Item 7 of the Company’s~~Our Annual Report on Form 10-K for the year ended December 31, ~~2016 except~~2017,describes the critical accounting policies for which management uses significant judgments and estimates in the preparation of our consolidated financial statements. Except for the accounting policy for revenue recognition that was updated as a result of adopting ASC Topic 606 on January 1, 2018, as discussed in Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, and as noted ~~below.~~below, there have been no significant changes to our critical accounting policies since December 31, 2017.

Goodwill, Intangible Assets, and Other Long-Lived Assets

Goodwill is tested for impairment at the reporting unit level. A reporting unit is a business or a group of businesses for which discrete financial information is available and is regularly reviewed by management. An operating segment is made up of one or more reporting units. ~~The Company reports its~~We report our business operations in ~~four~~three operating and reportable segments: U.S. Consumer, ~~Provide Commerce,~~ Florist, and International. Each of the ~~Consumer,~~ Florist and International segments is a reporting unit. The ~~Provide Commerce~~U.S. Consumer segment is comprised of ~~two~~three reporting ~~units,~~units: FTD.com, ProFlowers/Gourmet Foods, and Personal Creations. The ProFlowers and Gourmet Foods businesses have similar margins and share operations and business team structure, among other similarities. Therefore, these businesses meet the aggregation criteria, and as such, we have aggregated these two businesses into one reporting unit.

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired and liabilities assumed. Indefinite-lived intangible assets acquired in a business combination are initially recorded at management’s estimate of their fair value. We account for goodwill and indefinite-lived intangible assets in accordance with ASC 350, Intangibles, Goodwill and ~~Other~~.Other.

Goodwill and indefinite-lived intangible assets are not subject to amortization but are reviewed for impairment in the fourth quarter of each year, or more frequently if events or substantive changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value (i.e. that a triggering event has occurred). Testing goodwill, intangible assets, and other long-lived assets for impairment involves comparing the fair value of the reporting unit or intangible asset to its carrying value. If the carrying amount of a reporting unit, intangible asset, or other long-lived asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess, up to the amount of goodwill in the case of a reporting unit.

In calculating the fair value of all of the reporting units except the ProFlowers/Gourmet Foods reporting unit, we used a combination of the ~~market~~income approach and the ~~income~~market approach valuation methodologies. For the ProFlowers/Gourmet Foods reporting unit, the cost approach was used as the net asset value method provided the highest indication of value for that reporting unit. The income approach was used primarily, as we believe that a discounted cash flow approach is the most reliable indicator of the fair values of the businesses. Under the market approach, we used the guideline company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar companies based on business description, revenue size, markets served, and profitability. The key assumptions used in the income approach discounted cash flow valuation model included discount rates, growth rates, cash flow projections, and terminal growth rates. The discount ~~rate~~rates utilized isare indicative of the return an investor would expect to receive for investing in a similar business. Considering industry and company specific historical data and internal forecasts and projections, management developed growth rates and cash flow projections for each reporting unit. In determining the terminal growth rates, we considered GDP growth, consumer price inflation, and the long term growth prospects of each reporting unit. The discount rate, growth rates, royalty rates, cash flow projections, and terminal growth rates are also significant estimates used in the determination of the fair value of the indefinite-lived intangible assets. Under the cost approach, we used the net asset value method, which is based on the premise that a prudent investor would pay no more for an asset than its replacement or reproduction cost.

The assessment of whether or not goodwill and/or indefinite-lived intangible assets are impaired involves a significant level of judgment and estimates in selecting the assumptions used to determine the fair values of our reporting units and indefinite-lived intangible assets. We believe our analysis included sufficient tolerance for sensitivity in key assumptions. We believe the assumptions and rates used in our impairment assessments are reasonable, but they are judgmental, and variations in any assumptions could result in materially different calculations of fair value. Factors that have the potential to create variances in the estimated fair value of the reporting units include, but are not limited to, fluctuations in (1) forecasted order volumes and average order values, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics, and changes in consumer preferences; (2) marketing costs to generate orders; (3) product and fulfillment costs; (4) operational efficiency; and (5) equity valuations of peer companies.

Table of Contents

~~Due~~During the quarter ended June 30, 2018, due to ~~a sustained decline~~continued declines in ~~our market capitalization during~~financial results and reductions in the ~~three months ended September 30, 2017,~~projected results for the remainder of 2018, we determined that a triggering event had occurred that required an interim impairment assessment for all of our reporting units other than the International reporting unit, as that reporting unit’s results were relatively in line with expectations. The intangible assets and other long-lived ~~assets.~~assets associated with the reporting units assessed were also reviewed for impairment. We performed a quantitative interim test which resulted in our determination that the fair ~~values~~value of our Florist, International, and Personal Creations reporting units exceeded their carrying values and, therefore, their goodwill was not impaired. The International and Personal Creations reporting unit fair values reasonably exceed their carrying values, while the fair value of the Florist reporting unit exceeded its carrying value and, therefore, its goodwill was not impaired. The Florist reporting unit fair value exceeded its carrying value by ~~7.5%~~6%. The fair values of the ~~Consumer and~~FTD.com, ProFlowers/Gourmet Foods, and Personal Creations reporting units were less than their carrying values and, as such, ~~the~~ goodwill ~~of these reporting units was deemed to be impaired. Impairment~~impairment charges of ~~$16.8~~$35.2 million, $14.8 million, and ~~$26.8~~$12.5 million, respectively, were recorded during the three months ended ~~September~~June 30, ~~2017~~2018 related to ~~the goodwill of the Consumer and ProFlowers/Gourmet Foods~~these reporting units.

Certain key assumptions used in determining the fair value for ~~the Company’s~~our reporting units were as follows:


	Discount Rates		Terminal Growth Rates		Discount Rates		Terminal Growth Rates
Consumer	16.5	%	2.0	%
FTD.com					26.5	%	2.0	%
Florist	13.5	%	0.5	%	20.0	%	0.5	%
International	12.5	%	2.0	%	13.5	%	2.0	%
ProFlowers/Gourmet Foods	14.0	%	2.0	%	26.5	%	2.0	%
Personal Creations	14.0	%	2.5	%	26.5	%	2.5	%

In conjunction with the interim goodwill impairment test, we also reviewed the fair values of our indefinite-lived intangible assets for impairment. The ~~interim impairment test for~~FTD.com reporting unit and the indefinite-lived intangible assets was performed by comparing the fair values of such assets to their respective carrying values and resulted in the determination that the fair value of the indefinite-lived intangible asset related to the InternationalFlorist segment ~~trademark and trade name exceeded its carrying amount and, therefore, was not impaired. The Consumer and Florist segments~~ share a trademark and trade name and, therefore, share the related indefinite-lived asset. The interim impairment test for that indefinite-lived intangible asset was performed by comparing the fair value of ~~this indefinite-lived intangible~~the asset to its carrying value and resulted in the determination that the fair value was less than its carrying value, and, accordingly, a pre-tax impairment charge of ~~$13.1~~$20.4 million was recorded induring the three months ended ~~September~~June 30, ~~2017.~~2018. Certain key assumptions used in determining the fair value of the indefinite-lived intangible assets were discount rates of ~~12.5%~~20.0% to ~~16.5%~~26.5% and average royalty rates of 2.5% to ~~6.0%~~5.0%.

We account for finite-lived intangible assets and other long-lived assets in accordance with ASC 360, Property, Plant and ~~Equipment.~~Equipment. Intangible assets acquired in a business combination are initially recorded at management’s estimate of their fair values. We evaluate the recoverability of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, for impairment when events occur or circumstances change that would indicate that the carrying amount of an asset may not be recoverable. Events or circumstances that may indicate that an asset is impaired include, but are not limited to, significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future operating results, a change in the extent or manner in which an asset is used, shifts in technology, significant negative industry or economic trends, changes in our operating model or strategy, and competitive forces. In determining if an impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If an impairment is indicated, based on a comparison of the ~~assets’~~asset’s carrying ~~amounts~~amount and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying ~~amounts~~amount of the ~~assets exceed~~asset exceeds the ~~respective~~ fair ~~values~~value of the ~~assets.~~asset. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from five to fifteen years. Our identifiable intangible assets were acquired primarily in connection with business combinations.

The process of evaluating the potential impairment of long-lived intangible assets is subjective and requires significant judgment on matters such as, but not limited to, the asset group to be tested for recoverability. We are also required to make estimates that may significantly impact the outcome of the analyses. Such estimates include, but are not limited to, future operating performance and cash flows, cost of capital, terminal values, and remaining economic lives of assets.

In conjunction with the interim goodwill impairment test, ~~the Company~~we also reviewed ~~its~~our finite-lived intangible assets for potential impairment. AnThe impairment evaluation of the finite-lived intangible assets ~~was also performed which~~ indicated that the carrying amount of the ~~complete technology intangible related to the acquisition of Provide Commerce~~ProFlowers trade name was not recoverable when compared to the expected undiscounted future cash flows. As such, a pre-tax impairment charge of ~~$16.3~~$51.9 million was recorded related to the ProFlowers trade name during the three months ended June 30, 2018. In addition, due to a management decision to cease operations of BloomThat, a business acquired in 2017 that was included in the ProFlowers/Gourmet Foods reporting unit, a pre-tax impairment charge of $0.9 million was recorded related to the remaining carrying value of the finite-lived intangible assets ~~of the Provide Commerce segment during the quarter ended September 30, 2017.~~associated with that business.

Table of Contents

Also in conjunction with the interim goodwill impairment test, ~~the Company~~we performed an impairment evaluation of ~~its~~our other long-lived assets by comparing the expected undiscounted future cash flows to the carrying amounts of the assets. ~~The result~~During the year ended December 31, 2017, the other long-lived assets related to the ProFlowers/Gourmet Foods reporting unit were fully impaired as the projected undiscounted cash flows of ~~this evaluation was~~ that reporting unit were less than the carrying ~~amounts~~amount of ~~the property~~such assets. Additional impairment charges of $1.2 million and ~~equipment associated with the Provide Commerce segment~~$3.6 million were not recoverable when compared to the expected undiscounted cash flows. Based on management’s assessment of the fair value of this asset group, based on a discounted cash flow analysis, the Company determined that the carrying value of that asset group exceeded the fair value and, as a result, a $9.7 million pre-tax impairment charge was recorded during the three and six months ended ~~September~~June 30, ~~2017.~~2018, respectively, related to capital additions for that reporting unit as its undiscounted cash flows continue to be less than the carrying amount of the assets of that asset group.

~~The Company is~~We are currently completing a ~~significant strategic~~ review of ~~all its~~strategic alternatives for our businesses. Given the uncertainties regarding the related impact on financial performance, there can be no assurance that the estimates and assumptions made for purposes of the interim impairment testing will prove to be accurate predictions of the future. If ~~the~~ our projections of future cash flows and financial performance are not achieved, or if our market capitalization declines further, we may be required to record impairment charges on our goodwill, intangible assets, or other long-lived assets in future periods, whether in connection with our next annual impairment testing in the fourth quarter of ~~2017,~~2018, or on an interim basis, if any such change constitutes a triggering event outside of the quarter when we regularly performs our annual impairment tests. It is not possible at this time to determine if any such additional future impairment charge would result or, if it does, whether such charge would be material. See Note 5—“Goodwill, Intangible Assets, and Other Long-Lived Assets” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for the remaining balances of goodwill by reporting unit and intangible assets.

RECENT ACCOUNTING PRONOUNCEMENTS

For information about recently adopted and recently issued accounting pronouncements refer to Note 1—“Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes related to the Company’s market risk as disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and ~~Interim~~ Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and ~~Interim~~ Chief Financial Officer have concluded that, as of the end of such period, ~~due to the material weakness in our internal control over financial reporting as described below,~~ the Company’s disclosure controls and procedures are ~~not~~ effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are ~~not~~ effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Previously Identified Material Weakness~~

In connection with the preparation of our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on March 16, 2017, we concluded that there was a material weakness in our internal control over financial reporting. The material weakness related to our control over the assessment of cross-border indirect taxes that allowed immaterial errors to occur that were not detected in a timely manner. Management reviewed the control related to the completeness and precision of its assessment as well as the periodic monitoring of cross-border indirect taxes and concluded that there was a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis.

~~Table of Contents~~

~~Remediation Plan~~

We are committed to remediating the material weakness by implementing improvements to our internal control over financial reporting. With the oversight of senior management and the audit committee, we have implemented new internal controls to remediate the underlying cause of the material weakness as follows:

~~Enhance control procedures to ensure completeness of analyses supporting significant tax positions taken by the Company related to cross-border indirect taxes.~~

Enhance monitoring activities over highly technical tax-related aspects of cross-border transactions, including implementation of formal periodic meetings attended by the Interim Chief Financial Officer, corporate and divisional controllers, and members of the Company’s legal and tax departments, along with the engagement of external legal and tax experts as appropriate, to ensure that significant tax positions related to cross-border indirect taxes are fully reviewed and continuously monitored for appropriate accounting and disclosure.

Management is committed to a strong internal control environment and believes that, when fully tested in the fourth quarter, the measures described above will remediate the material weakness in our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

~~Other than the improvements noted above, there~~There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended ~~September~~June 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please refer to Note 14—“Contingencies—Legal Matters” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

ITEM 1A. RISK FACTORS

Our business and common stock are subject to a number of risks and uncertainties. The information presented below updates, and should be read in conjunction with, the risks summarized under the caption “Risk Factors” in Part I, Item 1A of our most recent Form 10-K. ~~Except~~There is no material change in the information reported under “Part I - Item 1A - Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 with the exception of the following:

The risk factor “Our management has concluded, and our independent registered public accounting firm has emphasized in their report on our financial statements as of and for the fiscal year ended December 31, 2017, that, due to our anticipated failure to satisfy financial covenant requirements and uncertainties surrounding our ability to amend or refinance our current credit facility, substantial doubt exists as to our ability to continue as a going concern” is deleted and replaced as follows:

Our plans to alleviate the substantial doubt about our ability to continue as ~~presented below, there~~a going concern may not be successful. If we are not successful in these plans, we may be forced to limit our business activities or be unable to continue as a going concern, which would have a material adverse effect on our results of operations and financial condition.

The condensed consolidated financial statements included in this Form 10-Q have been prepared on a going concern basis. Our ability to continue as a going concern is dependent on our generating profitable operating results and continued compliance with the revised covenants under the Amended Credit Agreement or refinancing, repaying, or obtaining new financing prior to maturity of the Amended Credit Agreement in September 2019. In this regard, our board of directors has initiated a review of strategic alternatives. The strategic alternatives expected to be considered include, but are not limited to, a sale or merger of the Company, the Company continuing to pursue value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the sale or other disposition of certain of our businesses or assets. We also announced a corporate restructuring and cost savings plan, under which we have identified opportunities to optimize our operations, drive efficiency, and reduce costs.

Notwithstanding these initiatives, based on our 2018 year-to-date results of operations and outlook for the remainder of the term of the Amended Credit Agreement, we currently anticipate that we my be unable to meet certain of the revised covenants during the remainder of the term of the Amended Credit Agreement. For additional information regarding the Amended Credit Agreement see Note 6—“Financing Arrangements” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Part I, Item 2 of this Form 10-Q. If we are unable to meet these revised covenants and we are unable to obtain waivers or amendments from our lenders, the lenders could exercise remedies under the Amended Credit Agreement and the debt owed under the Amended Credit Agreement could be accelerated. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated.

As a result, while we continue to evaluate our plans to alleviate the substantial doubt about our ability to continue as a going concern, we cannot assert that it is probable that our plans will mitigate the conditions identified. In this regard, our remediation plans depend on conditions and matters that may be outside of our control. In particular, there can be no assurance that the strategic alternatives review will result in any particular strategic alternative or strategic transaction or that we will be successful in our corporate restructuring and cost savings plan, or our plans to refinance our debt or to obtain alternative financing on acceptable terms, when required or if at all. If such initiatives are not successful, or if negotiations with our lenders are not successful, we may be forced to limit our business activities or be unable to continue as a going concern, which would have a material ~~changes~~adverse effect on our results of operations and financial condition. Our condensed consolidated financial statements do not include any adjustments that might result from the ~~risk factors~~outcome of these uncertainties.

Table of Contents


2.	The risk factor “We have a substantial amount of indebtedness. This level of indebtedness could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our business, and our ability to react to changes in the economy or our industry, including implementation of our strategic plan” is restated in its entirety as follows:

We have a substantial amount of indebtedness. This level of indebtedness could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our business, and our ability to react to changes in the economy or our industry, including implementation of our strategic plan.

At June 30, 2018, we had $195.0 million of principal indebtedness outstanding, all of which is considered current due to the uncertainties described above. Such indebtedness includes $130.0 million outstanding under a term loan and $65.0 million outstanding under revolving loans. Our substantial indebtedness could have significant consequences for our business and financial condition. For example:

If we fail to meet payment obligations or otherwise default under our debt or the Amended Credit Agreement, the lenders will have the right to accelerate the indebtedness and exercise other rights and remedies against us.

We may be required to dedicate a greater percentage of our cash flows to payments on our debt, thereby reducing the availability of cash flows to fund our strategic initiatives, capital expenditures, pursue acquisitions or investments in new technologies, and fund other general corporate requirements.

Our ability to obtain additional financing to fund future working capital needs, strategic initiatives, capital expenditures, acquisitions, and other general corporate requirements could be limited. If we are unable to raise additional capital when required, it could affect our liquidity, business, financial condition, results of operations, and cash flows. In addition, our ability to borrow additional amounts under our revolving credit facility, which is a significant source of liquidity, is subject to restrictions on our usage of the revolving credit facility and an obligation to make regularly scheduled payments, and in some circumstances prepayments, of the term loan portion of the Amended Credit Agreement. Failure to meet our borrowing conditions under our revolving credit facility could materially and adversely impact our liquidity.

Our debt imposes operating and financial covenants and restrictions on us, including limitations on our ability to use cash flows for the benefit of our subsidiaries. Compliance with such covenants and restrictions may adversely affect our ability to adequately finance our operations or capital needs, pursue attractive business opportunities that may arise, sell assets, and make capital expenditures.

Our failure to comply with the terms of the Amended Credit Agreement, including failure as a result of events beyond our control, could result in an event of default on our debt. Upon an event of default, our lenders could elect to cause all amounts outstanding with respect to that debt to become immediately due and payable, and we would be unable to access our revolving credit facility. An event of default could materially and adversely affect our operating results, financial condition, and liquidity.

We may continue to experience increased vulnerability to and limited flexibility in planning for or reacting to changes in or challenges relating to our business and industry, thus creating competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.

We may continue to experience increased vulnerability to general adverse economic conditions, including the increases in interest rates under the Amended Credit Agreement, and if our borrowings bear interest at variable rates or if such indebtedness is refinanced at a time when interest rates are higher.

We cannot assure you that our cash flows, combined with additional borrowings under the current and any future credit agreements, will be available in an amount sufficient to enable us to repay our indebtedness or to fund other liquidity needs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. For additional information regarding our credit agreement see Note 6—“Financing Arrangements” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and Note 6—“Financing Arrangements” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K.

Table of Contents

Depending on the results of our recently announced strategic alternatives review process, we may need to refinance all or a portion of our indebtedness on or before the September 2019 maturity date of the Amended Credit Agreement. We cannot assure you that we will be able to refinance any of our indebtedness or obtain alternative financing on commercially reasonable terms or at all. The ~~United Kingdom vote~~terms of any alternative debt may give the holders rights, preferences, and privileges senior to ~~leave~~those of holders of our common stock, particularly in the ~~European Union~~event of liquidation. The terms of any new debt may also impose additional and more stringent restrictions on our operations than are currently in place. If we are unable to refinance our debt, we may default under the terms of our indebtedness, which could ~~adversely impact~~lead to an acceleration of the debt. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated.


3.	The risk factor “If we are unable to successfully implement our strategic initiatives, our business, financial condition, results of operations, and cash flows could be materially and adversely affected” is restated in its entirety as follows:

If we are unable to successfully implement our strategic alternatives review or our corporate restructuring and cost savings plan, our business, financial condition, results of operations, and cash ~~flows.~~flows could be materially and adversely affected.

~~On June 23, 2016, the U.K. held~~We recently announced that our board of directors has initiated a ~~referendum in which~~review of strategic alternatives focused on maximizing stockholder value. The strategic alternatives expected to be considered include, but are not limited to, a ~~majority of voters voted to leave the European Union (“E.U.”), commonly referred to as “Brexit.” On March 29, 2017, the Prime Minister~~sale or merger of the ~~U.K. submitted formal notice~~Company, the Company continuing to pursue value-enhancing initiatives as a standalone company, a capital structure optimization that may involve potential financings, or the E.U. in order to trigger Article 50 of the Treaty on European Union. This is the formal mechanism which begins the two-year process of negotiating the U.K.’s exit from the E.U. and the future terms of the U.K.’s relationship with the E.U., including the terms of trade between the U.K. and the E.U., and potentially other countries. A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key geographic areas, disrupt the markets we serve, and significantly disrupt trade between the U.K. and the E.U.sale or other ~~nations~~disposition of certain of our businesses or assets. We also recently announced a corporate restructuring and cost savings plan, under which we have identified opportunities to optimize our operations, drive efficiency, and reduce costs.

The results of our efforts will not be known until sometime in the future. Successful execution of any particular strategic alternative or strategic transaction or our corporate restructuring and cost savings plan requires sustained management focus, organization, and coordination over time, as ~~the U.K. pursues independent trade relations. In addition, Brexit could lead~~well as success in building relationships with third parties. If we are unable to ~~legal uncertainty~~execute our strategy or our corporate restructuring and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. The effects of Brexit will depend on any agreements the U.K. makes to retain access to the E.U. or other markets either during a transitional period or more permanently. Compliance with new laws or regulations regarding trade, delivery and other cross-border activities between the U.K. and the E.U. could be costly, negatively impactingcost savings plan successfully, our business, financial ~~condition, operating~~position, results of operations, and cash ~~flows.~~ flows could be adversely affected.


4.	The risk factor “Our operations could be adversely affected if we fail to integrate and retain our executive leadership team” is restated in its entirety as follows:

Our ~~International segment operates principally~~operations could be adversely affected if we fail to integrate and retain our executive leadership team or face difficulties attracting and retaining qualified personnel.

Since early 2016, we have undergone significant transitions in our chief executive officer, chief financial officer, and other key executive positions. Our success depends, in part, upon the ~~U.K. For the nine months ended September 30, 2017, our International segment contributed approximately 13.2%~~performance of our ~~consolidated revenues.~~

~~Table of Contents~~

~~In addition, the announcement of the referendum results was followed by significant volatility in global stock markets~~executive leadership team. If we are unable to integrate new senior executives, if they fail to perform effectively, if we are unable to retain them, or if we are unable to attract additional qualified senior executives as needed, our strategic and ~~currency exchange rates, including in particular a decline in the value of the GBP in comparison to both the USD~~other initiatives could be adversely impacted and EUR. Uncertainty before, during and after the period of negotiation could have a negative economic impact and result in further market and exchange rate volatility for several years. Any of these effects, and others that the Company cannot anticipate, could adversely impact the Company’sour business, financial condition, results of operations and cash ~~flows.~~flows could be materially and adversely affected. Further, if we are unable to recruit, retain, and motivate key personnel to maintain the current business of the Company and support our strategic and other initiatives, our business, financial conditions, results of operations and cash flows similarly could be materially and adversely affected.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 8, 2016, the Company’s board of directors authorized a common stock repurchase program that allows the Company to repurchase up to $60 million of its common stock from time to time over a two year period in both open market and privately negotiated transactions. The Company did not repurchase any shares of common stock during the nine months ended September 30, 2017. As of September 30, 2017, $44.8 million was available under this program for future purchases.

~~ITEM 6. EXHIBITS~~

~~Incorporated by~~

~~Reference to~~

~~No.~~

~~Exhibit Description~~

~~Filed with this~~

~~Form 10-Q~~

~~Form~~

~~File No.~~

~~Date~~

~~Filed~~

~~Exhibit~~

~~Number~~

~~(if different)~~

~~10.1~~

~~Employment Agreement by and between FTD Companies, Inc. and Jeffery Severts~~

~~10.2~~

~~Employment Agreement by and between FTD Companies, Inc. and Simha Kumar~~

~~10.3~~

~~Separation of Employment Agreement by and between FTD.Com, Inc. and Helen Quinn~~

~~10.4~~

~~Form of Option Agreement for Officers with Employment Agreements~~

~~10.5~~

~~Form of Restricted Stock Unit Issuance Agreement for Officers with Employment Agreements~~

~~10.6~~

~~Assignment and Assumption Agreement between General Communication, Inc., Liberty Interactive Corporation,~~

~~Liberty Interactive, LLC, Ventures Holdco, LLC, and FTD Companies, Inc.~~

~~31.1~~

~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002~~

~~31.2~~

~~Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002~~

~~32.1~~

~~Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002~~

~~32.2~~

~~Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002~~

~~101.INS~~

~~XBRL Instance Document~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~XBRL Taxonomy Calculation Linkbase Document~~

~~101.LAB~~

~~XBRL Taxonomy Label Linkbase Document~~

~~101.PRE~~

~~XBRL Taxonomy Presentation Linkbase Document~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Document~~

None.

Table of Contents

ITEM 6. EXHIBITS

Incorporated by

Reference to

No.

Exhibit Description

Filed with this

Form 10-Q

Form

File No.

Date

Filed

Exhibit

Number

(if different)

10.1

Form of Restricted Stock Unit Issuance Agreement for Non-Employee Directors (Annual Grant)**

10.2

Third Amendment to Credit Agreement

8-K

001-35901

06/01/18

10.1

10.3

First Amendment to the FTD Companies, Inc. Third Amended and Restated 2013 Incentive Compensation Plan (amended and restated as of June 6, 2017)**

DEF 14A

001-35901

04/26/18

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002

32.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Document

** Management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: ~~November~~August 9, ~~2017~~2018	FTD Companies, Inc. (Registrant)

	By:	/s/ ~~Brian S. Cooper~~Steven D. Barnhart
		~~Brian S. Cooper~~Steven D. Barnhart
		~~Interim~~ Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

4447



For the Year Ended	Future Amortization Expense
2017 (remainder of the year)	$	2,005
2018	8,020
2019	8,020
2020	8,012
2021	8,008
Thereafter	63,427
Total	$	97,492



For the Year Ended	Future Minimum Principal Payments
2017 (remainder of the year)	$	5,000
2018	20,000
2019	230,000
Total	$	255,000



	Nine Months Ended September 30,
	2017			2016
Net cash used for operating activities	$	(18,144	)	$	(3,600	)
Net cash used for investing activities	$	(10,677	)	$	(10,072	)
Net cash used for financing activities	$	(25,941	)	$	(27,376	)