Patient Safety Technologies Reports Fourth Quarter and Fiscal 2011 Results

IRVINE, Calif., March 26, 2012 /PRNewswire/ -- Patient Safety Technologies, Inc. (the "Company", OTCBB: PSTX, OTCQB: PSTX) today announced results for its fourth quarter and fiscal year 2011 ended December 31st, 2011.

Expanded Customer Base and Financial Highlights

During the fourth quarter of 2011 the number of institutions using the Company's SurgiCount Safety-Sponge® System surpassed 98.  Subsequent to the end of the fourth quarter, the Company has successfully implemented the Safety-Sponge® System in an additional 48 facilities through the date of this press release, bringing the Company's current installed base to more than 146, representing growth of 84% since the end of the third quarter of 2011.  Additionally, the Company currently has signed agreements with additional stand-alone hospitals and hospital systems representing an additional 117 facilities, the majority of which are currently expected to complete their implementation during the first half of 2012.  This expanded user base brings the total facilities currently using the Safety-Sponge® System and those covered with signed agreements and expected implementations to over 263, representing growth of 237% since the end of the third quarter of 2011.  Although not necessarily proportional to reported revenues, the number of hospitals using the Company's products is a good indicator of our underlying business.

Total revenues for the quarter ended December 31, 2011 were $2.7 million.  This compares with total revenues for the quarter ended December 31, 2010 of $4.5 million, which included $3.1 million of revenues for the delivery to the Company's exclusive distributor as part of a $10.0 million inventory stocking order.  Excluding the effect of this inventory stocking order, revenues for the quarter ended December 31, 2010 were $1.4 million.  There were no revenues from this stocking order during the quarter ended December 31, 2011, as fulfillment of this stocking order was completed in the second quarter of 2011.  Accordingly, after excluding the effect of this inventory stocking order had on reported revenues during the quarter ended December 31, 2010, fourth quarter 2011 year over year revenue growth was 90%.  Additionally, the Company ended December 31, 2011 with a backorder of approximately $300 thousand which it was not able to be ship during the quarter due to a combination of factors, primarily the timing of the receipt of these orders being near the very end of the quarter.  All of those orders have subsequently shipped during the first quarter of 2012.

Total revenues for the fiscal year ended December 31, 2011 were $9.5 million, which included $1.1 million of revenues from the inventory stocking order.  Excluding the impact of the inventory stocking order, total revenues for the fiscal year 2011 were $8.4 million.  This compares with total revenues for fiscal year ended December 31, 2010 of $14.8 million, which included $8.9 million of revenues from the inventory stocking order.  Accordingly, after excluding the effect of this inventory stocking order, fiscal 2011 revenue growth was 42%.

Reported gross margins for the fourth quarter of 2011 were 42%, a decline of 3% from the 45% reported for the fourth quarter of 2010.  Reported gross margins for the 2011 and 2010 fiscal years were 46% and 50%, respectively.  The primary reason for the decline in reported gross margins was higher non-cash depreciation expense reported in the cost of goods during 2011 as compared to the 2010.  This higher non-cash depreciation expense was the result of higher implementation activity during the 2011 time period.  Gross margins were also negatively affected as a result of increases in the cost of cotton and labor.  Gross margins on the Company's disposable Safety-Sponge products remained at approximately 50% during both fiscal 2011 and 2010, respectively.

Reported operating expenses for the fourth quarter of 2011 were $2.0 million as compared to $2.7 million during the fourth quarter of 2010, representing a decrease of 25%.  Total non-GAAP cash expenses for the fourth quarter of 2011 were $1.3 million as compared to $1.8 million during the fourth quarter of 2010, representing a decrease of 25%.  Reported operating expenses for the fiscal year 2011 were $7.0 million as compared to $9.6 million during the fiscal year 2010, representing a decrease of 27%.  Total non-GAAP cash expenses for the fiscal year 2011 were $5.3 million as compared to $7.1 million during the fiscal year 2010, representing a decrease of 24%.  Non-GAAP cash expenses are GAAP operating expenses adjusted to remove stock based compensation and depreciation/amortization expenses as shown in the Non GAAP Measures table below.

During the fourth quarter of 2011 the Company generated an Adjusted Operating Loss (as defined below) of $392 thousand and a GAAP operating loss of $891 thousand.  This compares with an Adjusted Operating Loss of $995 thousand and GAAP operating loss of $251 thousand generated during the fourth quarter of 2010.  During fiscal 2011 the Company generated an Adjusted Operating Loss of $1.6 million and a GAAP operating loss of $2.7 million.  This compares with an Adjusted Operating Loss during fiscal 2010 of $4.5 million and a GAAP operating loss of $2.2 million.  The primary reasons for the reduced Adjusted Operating Losses during the fourth quarter and fiscal 2011 as compared to the comparable prior year periods were the continued growth in new customer implementations and corresponding growth in reported revenues combined with the reduction in operating expenses throughout 2011.    

"During the fourth quarter of 2011 we greatly accelerated our implementation activity and that pace has continued to intensify to date in 2012.  Since the end of the third quarter of 2011 we have successfully grown our installed base over 84% to more than 146 facilities.  Further, the additional facilities we already have under agreement and are currently expecting to fully implement during the first half of 2012 are expected to grow our user base more than an additional 80% to over 263," stated Brian E. Stewart, President and Chief Executive Officer of Patient Safety Technologies, Inc.  "While we are pleased that our revenues trended in the right direction during 2011, given that the majority of our recent customer implementations began late in the fourth quarter and are continuing into 2012, we expect our financial results in 2012 to be more reflective of this newly expanded installed base," continued Mr. Stewart.  

The Company's fiscal 2011 financial statements are included in its Annual Report on Form 10-K filed by the company on March 26th, 2012 and available at the SEC's website at www.sec.gov.

To supplement the Company's presentation of operating (loss) measured in accordance with GAAP, we also use a non-GAAP measure of operating income, herein defined as Adjusted Operating Loss.  Reconciliation of GAAP operating income to Adjusted Operating Loss for the fourth quarters and fiscal years ended December 31st of 2011 and 2010 are shown above.  How we define Adjusted Operating Loss herein may not be consistent with how we have defined this non-GAAP measure historically, including but not limited to including the impact from Forward Order revenue, or stocking order revenue.

Non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance, prospects for the future and as a means to evaluate period-to-period comparisons. The Company believes that the use of non-GAAP operating income provides meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results. The Company believes this non-GAAP measure, which excludes the effects of the Forward Order and the non-cash expenses of depreciation, amortization and stock based compensation (and occasionally along with certain events believed to be one time in nature) when viewed with GAAP results and the accompanying reconciliation, enhances the comparability of results against prior periods and allows for greater transparency of financial results.  The Company believes this non-GAAP measure facilitates management's internal comparison of the Company's financial performance to that of prior periods as well as trend analysis for budgeting and planning purposes. The presentation of this non-GAAP measure is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

About Patient Safety Technologies, Inc. and SurgiCount Medical

Patient Safety Technologies, Inc., through its wholly-owned operating subsidiary SurgiCount Medical, Inc., provides the Safety-Sponge® System, a solution proven to improve patient safety and reduce healthcare costs by preventing one of the most common errors in surgery, retained foreign objects.  For more information, contact SurgiCount Medical, Inc. at (949) 387-2277 or visit www.surgicountmedical.com.

Forward Looking Statements

Statements in this press release regarding our business that are not historical facts are "forward-looking statements" (within the meaning of Section 21E of the Securities Exchange Act of 1934) that involve risks and uncertainties. Forward-looking statements reflect our management's current views with respect to future events and financial performance; however, you should not put undue reliance on these statements.  When used, the words "anticipates," "believes," "expects," "intends," "future," and other similar expressions, without limitation, identify forward-looking statements.  Forward-looking statements are not guarantees of future performance and are inherently subject to uncertainties and other factors which could cause actual results to differ materially from the forward-looking statements. These factors and uncertainties include but are not limited to: our ability to implement in all hospitals within the larger hospitals organizations with which we have agreements, our ability to implement in those hospitals with which we have scheduled implementations, the early stage of adoption of our Safety-Sponge® System and the need to expand adoption of our Safety-Sponge® System; the impact on our future revenue and cash flows from the ordering patterns of our exclusive distributor Cardinal Health; our need for additional financing to support our business; our reliance on third-party manufacturers, some of whom are sole-source suppliers, and on our exclusive distributor; and any inability to successfully protect our intellectual property portfolio.  In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will in fact prove to be correct.

Forward-looking statements can be affected by many other factors, including, those described in the "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Factors Affecting Future Results" sections of our Annual Report on Form 10-K for 2011, our Quarterly Reports on Form 10-Q and in our other public filings. These documents are available online through the SEC's website, www.sec.gov. Forward-looking statements are based on information presently available to senior management, and we have not assumed any duty to update any forward-looking statements.

SOURCE Patient Safety Technologies, Inc.

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