Question-and-Answer Session
Operator
(Operator instructions) The first question comes from the line of Clay Moran – Benchmark.
Clay Moran - Benchmark
Clearly the most obvious one is the guidance. You are guiding towards a pretty significant boost in revenues sequentially but a down tick in EBITDA. Can you explain where that profitability goes?
David Binder
The guidance considers a pretty strong growth coming from distribution which obviously comes at a lower gross margin percentage. We also believe the cost structure we achieved in the third quarter is the one we will have going forward and maybe a slight uptick in our cash operating expenses. So you are effectively seeing the percentage of revenue coming at a lower rate because of that shift towards the distribution business.
Clay Moran - Benchmark
But in the current quarter the shift was to distribution as well. The profitability in the current quarter drove $7.1 million. You didn’t really see a sequential change in the O&O business. What is changing Q3 to Q4 besides the slight uptick in costs? Am I missing something?
David Binder
It is that uptick in our cost structure.
Clay Moran - Benchmark
If you could maybe give a little more color on how things have progressed on the acquisition front. Specifically if you could go into what type of candidates you are looking at. I just want to see if that has changed. You did mention for the first time specifically saying you will likely buy something that would diversify the model. Can you give any color as to why you are being definitive in that today?
Also as we have seen for awhile now, public market prices have gone up. Do you think your thought process on that has changed again as well?
William Lansing
Sure. Obviously on this subject there is very limited amount of stuff we can share at this point since we don’t have a deal coming out. It is no secret and it is consistent with everything we have seen in the past that we are extremely focused on trying to find an acquisition or a series of acquisitions that will let us monetize the NOLs. We have talked in the past and it remains true today that it is likely that an acquisition would be adjacent to or outside of the search space and there is a preference for doing something in the Internet space but it is not necessarily limited to the internet space. So that is a pretty broad range of things that we have been looking at and are looking at.
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