Sorry I had to split the text in half. Would appreciate your thoughts on these reports.
George W. LeMaitre, Chairman & CEO, said, "Our record profits and operating margin were driven by a post-IPO record gross margin and tight expense control. In fact, operating expenses decreased 1% versus Q3 2009. Separately, we have been working on two initiatives which I believe will cut costs, improve strategic focus and increase our growth rate. First, we will be closing our Brindisi, Italy factory and transferring our vascular graft production to Burlington. Centralizing production should reduce costs significantly. Second, in order to focus on our higher growth vascular business, we will be limiting investments in our TAArget & UniFit stent-graft program, including suspension of the two U.S. trials."
Sales and marketing expenses increased 4% in Q3 2010 to $4.7mm. The spending increase was driven by a larger sales force and increased commissions. The Company ended Q3 2010 with 63 sales reps versus 56 at the end of Q3 2009.
General and administrative expenses in Q3 2010 were $2.5mm, a 2% increase over the year-earlier quarter.
Q3 2010 research and development expenses decreased 22% to $1.1mm, primarily driven by lower regulatory and clinical spending, as well as reduced royalties. Additionally, the Company has elected to redeploy approximately $1.0mm which it spends annually on TAArget & UniFit R&D.
Brindisi Production Transfer
On October 27th, the Company's Board approved the closure of its Brindisi factory and production transfer to Burlington. This is the Company's sixth factory closure since 2002. The closure is anticipated to take place in December, 2010. The Brindisi employees went on strike October 4, returned to work October 20, 2010, and have agreed to work while separation terms are negotiated. During the nine months ending September 30, 2010, 4% of the Company's revenues were derived from Brindisi-manufactured products. The Company currently expects non-severance charges of approximately $1.8mm. It is unclear when these non-severance charges will be recorded. Also, the Company cannot currently estimate severance charges. Due to the uncertainty of the timing and the amounts, no exit-related charges have been included in the Q4 and 2010 guidance given below. The Company expects this closure to increase operating income by approximately $1.0mm per year in 2012 and beyond.
During Q3 2010, the Company spent $383,000 to repurchase 59,409 shares of its common stock at an average price of $6.45 per share. The Company's Board has authorized up to $5mm of its common stock to be purchased from time to time in the open market or in privately negotiated transactions. Since the program began in August 2009, $1.9mm of shares have been repurchased. Repurchases may be made under a Rule 10b5-1 plan, which permits shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time and will conclude no later than December 31, 2011, unless extended by the Company's Board. The program is funded by the Company's cash and cash equivalents.
Q4 2010 Business Outlook
The Company increased its full-year 2010 sales guidance to $55.9mm, which implies 12% organic growth versus 2009. The Company increased its Q4 2010 sales guidance to $14.3mm which implies 9% organic growth versus Q4 2009. The Company increased its full-year 2010 operating income guidance to $6.9mm, and its Q4 2010 operating income guidance to $1.6mm. Operating income guidance amounts exclude charges related to the Brindisi production transfer. Guidance amounts also exclude the effects of additional restructurings, acquisitions, foreign exchange fluctuations and distributor terminations.