Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Steve O’Brien – JP Morgan.
Steve O’Brien – JP Morgan
I’d like to drill down a little bit on the incremental sales you expect in 2011 from this ramp in your sales and R&D and marketing efforts.
If I understand it correctly, in the operating expense growth, $3 million in the third and fourth quarter, that would mean OpEx run rate is $6 million a quarter higher going into 2011 and we’re talking about $10 to $12 million of incremental revenue from these efforts. I just want to understand that right and my numbers are right.
Michael Healy
On expenses, if everything is looking good, the revenue metrics are on their way up, leading indicators, and we’re hitting our revenue goals, then our current plan calls for a $3 million increase in incremental spending each quarter, if we’re hitting those plans, and that’s just further hiring, more branding activities, channel development, and product development activity.
So that’s on the expenses side. Then from the revenue side, using our normal productivity measurements, our sales take four to five quarters to ramp up to full productivity, right? So hiring, you’re at 30 to 40 sales guides, it will have a meaningful impact on FY11. Some impact on 2010, but most on 2011. When I pencil out that hiring, I get to $40 to $50 million in incremental revenue from that hiring of people.
The reason we’re not seeing a big run up right now, last year when we were dealing with recession, we ended up hiring about five net sales people for all of FY09. So we’re feeling a little bit of the impact on that now in that we didn’t have that many new sales people added during last fiscal year.
Steve O’Brien – JP Morgan
So would OpEx be run rate $6 million a quarter higher going into 2011?
Michael Healy
It could be if we’re hitting our certain measurement productivity.
Steve O’Brien – JP Morgan
If we apply sort of a normal 63-64% gross margin to the incremental revenue in 2011 and layer in the additional OpEx, I guess what I’m not seeing is the additional profitability there.
Additional growth from the core business?
Michael Healy
What you’re not seeing is international revenue, we expect to grow. A flavor of what the US sales would add. National partners could grow a lot faster than that. International could grow a lot faster. Those are the two things outside of that.
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