Question-and-Answer Session
Operator
Thank you. (Operator Instructions). And we’ll go first to Jim Ricchiuti of Needham & Company.
Jim Ricchiuti - Needham & Company
Question on the guidance for Q4, and in general, the mix of business. It sounds like it’s going to be more heavily skewed toward the military market, and I would assume that’s also the implication for gross margins being lower than Q3 levels. Is that correct?
John Leahy
Well, Jim, for Q4 we expect with the range of guidance we’ve given for revenue, we expect both businesses to perform well. Revenue wise in Q4 both divisions will have relatively the same level of revenue, although, of course, as you know, the seasonality is more skewed with HRD to the back half. But the forecast does not call for revenue performance from either division out of line with about a 50-50 split.
Jim Ricchiuti - Needham & Company
Okay. I guess what I’m trying to get my arms around, John, as I look at the guidance for Q4, what’s the outlook for gross margins? Or possibly are we seeing some change in operating expense levels relative to Q3? For instance, your R&D actually came in a good deal lower than I was anticipating. Is there any guidance you can give or any sense as to where you see some of these expense items going in Q4?
John Leahy
Well, I think that, obviously, our EBITDA has been aided by tight control over expenses throughout the year and you saw that in Q3 as well. We would expect for continued tightness in Q4. Although one thing to keep in mind is that within HRD, Q4 is heavily influenced by direct sales, and the fulfillment costs for direct do run through the sales and marketing line and operating expenses.
So with our expectations for HRD revenue in Q4, the variable component of that tied to direct will increase in the quarter. So that would be an uptick in run rate from what you would have seen in Q3 or earlier.
Colin Angle
We are predicting a record quarter for the G&I division and so, well, typically the split between divisions is not 50-50 in the fourth quarter. And so you will see relative to prior years a higher G&I content in the fourth quarter, which causes our margins to shift somewhat relative to past years. But both divisions, we are anticipating to have strong fourth quarters.
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