Patient Safety Technologies Reports Fourth Quarter And Fiscal 2012 Results Year-end customer installed base up 181%

Fourth quarter revenue growth of 87%

Fiscal 2012 normalized revenue growth of 110%

IRVINE, Calif., March 18, 2013 /PRNewswire/ -- Patient Safety Technologies, Inc. (the "Company", OTCBB:PSTX, OTCQB:PSTX) today announced results for its fourth quarter and fiscal year ended December 31st, 2012.

Expanded Customer Base and Financial Highlights
During the fiscal year 2012 the Company implemented the SurgiCount Safety-Sponge® System in 179 new facilities, representing year over year growth of 181% in the number of facilities using the system.  Additionally, as of the date of this release the Company has either implemented in or signed an agreement with and scheduled an implementation in an additional 17 facilities.  This expanded customer base brings the total number of facilities currently using the Safety-Sponge® System and those covered by a signed agreement and with an expected implementation to 295, representing growth of 198% since the end of the fiscal year 2011. Although not necessarily proportional to reported revenues, the number of hospitals using the Company's products is a good indicator of its underlying business.

Total revenues for the fourth quarter of 2012 were $5.1 million, representing year over year growth of 87% as compared to total revenues of $2.7 million for the fourth quarter of 2011.  Total revenues for the fiscal year 2012 were $17.6 million. This compares with total revenue for the fiscal year 2011 of $9.5 million, which included $1.1 million of revenues for the delivery to the Company's exclusive distributor as part of a $10.0 million inventory stocking order. There was no effect on total revenues for the fiscal year 2012 from this stocking order. Excluding the $1.1 million effect on total revenues for the fiscal year 2011, total revenues for the fiscal year 2012 grew 110% year over year. 

Reported GAAP gross margins were 43% for the fourth quarter of 2012, as compared to 42% for the same period in 2011. Because the Company's reported GAAP cost of revenues includes certain non-cash depreciation expense, there can be a significant difference between reported gross margins and the actual cash gross margins realized by the Company. Excluding non-cash depreciation expense for the fourth quarter 2012 and 2011 of  $541 thousand and $167 thousand, respectively included in reported cost of revenues, adjusted gross margins were 53% for the fourth quarter of 2012, as compared to 48% for the same period in 2011. Reported GAAP gross margins were 43% for the fiscal year 2012, as compared to 46% for the fiscal year 2011. The primary reason for the decrease in reported gross margins was relatively higher depreciation expense during the fiscal year 2012 that was the result of the greater amount of installed hardware during that time period to support the growth in the Company's customer base. Excluding non-cash depreciation expense for the fiscal year ended 2012 and 2011 of $1.7 million and $0.5 million, respectively included in reported cost of revenues, adjusted gross margins were 52% for the fiscal year 2012, as compared to 51% for the fiscal year 2011.

Reported operating expenses for the fourth quarter of 2012 were $2.2 million as compared to $2.0 million during the fourth quarter of 2011.  Primary reasons for the relatively higher operating expenses during the fourth quarter of 2012 as compared to 2011 include higher one-time expenses associated with a larger number of new facility implementations and additional investments in the Company's product development and Quality System efforts.  Reported operating expenses for the fiscal year 2012 were $9.6 million as compared to $7.0 million during the fiscal year 2011. The primary reason for the relatively higher operating expenses during the fiscal year 2012 as compared to 2011 include higher one-time expenses associated with the larger number of new facility implementations.  During 2012 the Company implemented 179 new customer facilities and spent approximately $2.0 in related one-time implementation expenses as compared to 29 new facilities costing approximately $0.5 million in related one-time expenses in the fiscal year 2011.

During the fourth quarter of 2012 the Company generated a GAAP Operating Loss of $42 thousand and Adjusted Operating Income (as defined below) of $781 thousand.  This compares to a GAAP Operating Loss of $891 thousand and an Adjusted Operating Loss of $392 thousand during the fourth quarter of 2011.  During the fiscal year 2012 the Company generated a GAAP Operating Loss of $2.0 million and Adjusted Operating Income of $883 thousand. This compares to a GAAP Operating Loss of $2.7 and an Adjusted Operating Loss of $1.6 million during the fiscal year 2011. The primary reason for the improvement in reported GAAP Operating Loss / Income during the fourth quarter and fiscal year 2012 as compared to 2011 was the higher number of customer facilities implemented and the associated increase in reported revenues without a corresponding increase in operating expenses.

"During 2012 we successfully grew our installed base of customer hospitals by more than all our previous years combined," stated Brian E. Stewart, President and Chief Executive Officer of Patient Safety Technologies, Inc.  "Also during 2012, through the growth of our reported revenues and improvements to our Adjusted Operating Income we were able to begin to demonstrate the operating leverage of the business in our reported financial results.  We are hopeful that during 2013 we can further accelerate the adoption momentum of the SurgiCount Safety-Sponge® System and continue to improve the patient outcomes and financial results of our user facilities." continued Mr. Stewart. 

The Company's fiscal 2012 financial statements are included in its Annual Report on Form 10-K filed by the Company on March 18th, 2013 and available at the SEC's website at www.sec.gov.  

Reconciliation of GAAP to Non-GAAP Results (Unaudited)

Non-GAAP Measures:






For the Three Months Ended


For the Year Ended






December 31,


December 31,

$'s in thousands




2012

2011


2012

2011





















Reported Revenue



$

5,111.2

2,737.8

$

17,589.4

9,463.5

Less: Forward Order effect



-

-


-

(1,079.4)

Normalized Revenue




5,111.2

2,737.8


17,589.4

8,384.1





















Reported Operating Loss


$

(42.5)

(890.8)

$

(2,017.9)

(2,662.4)

Less:

Forward Order effect



-

-


-

(619.7)

Plus:

Stock based compensation


174.9

230.6


781.8

743.5

Plus:

Depreciation and amortization


648.2

268.6


2,118.9

907.7

Adjusted Operating Income or (Loss)

$

780.6

(391.7)

$

882.8

(1,630.9)











Reported Revenue



$

5,111.2

2,737.8

$

17,589.4

9,463.5

Reported Gross profit




2,191.2

1,150.0


7,551.3

4,347.5

Reported Gross margin




43%

42%


43%

46%











Plus:

Depreciation recorded in cost of revenue


541.4

167.0


1,682.9

514.5

Adjusted Gross profit



$

2,732.6

1,317.0

$

9,234.2

4,862.0

Adjusted Gross margin




53%

48%


52%

51%

To supplement the Company's presentation of operating income and (loss) and gross profit measured in accordance with GAAP, we also use non-GAAP measures of operating income and gross profit, herein defined as Adjusted Operating Income or Loss and Adjusted Gross Profit. Reconciliation of GAAP operating income and gross profit to Adjusted Operating Income or Loss and Adjusted Gross profit for the fourth quarters and year ended December 31st of 2012 and 2011 are shown above. How we define Adjusted Operating Income or 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 (see the Company's Annual Report on Form 10-K for a discussion on the Forward Order).

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 and gross profit 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 these non-GAAP measures 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 these non-GAAP measures are 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.

Surgical Adverse Events and Retained Surgical Sponges
Surgical never events are costly to the health care system and are associated with serious harm to patients1 .  Retained foreign bodies are estimated to represent up to 49.8% of all reported surgical never events1 with surgical sponges representing the vast majority of items unintentionally retained[2].  Estimated to occur as often as 1 in every 1,000 to 1,500 abdominal operations to 1 in every 8,000 in patient operations2, with an estimated 32 million surgical procedures annually in the U.S. this implies approximately 4,000 retained sponge incidents each year, 11 every day.  The negative impact to patient outcomes from retained foreign objects varies and can be significant, with permanent injuries in an estimated 16% of incidents and patient mortality in 5%1.  Cost ramifications can be considerable and include legal expenses and awards, non-reimbursable healthcare services, loss of time, loss of reputation for involved individuals and facilities and the negative impact on pay for performance metrics. 

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 clinically proven to improve patient safety and reduce healthcare costs by helping eliminate retained surgical sponges.  The market leading retained sponge prevention solution, the Safety-Sponge® System is used in more than 285 government, teaching and community hospitals across the U.S., including 7 of the U.S. News and World Report Best Hospital Honor Roll recipients, representing more total users and more Honor Roll users than all retained sponge prevention solutions combined.  For more information, contact SurgiCount Medical, Inc. at (949) 387-2277 or visit www.surgicountmedical.com.

[1] Mehtsun, et al. Surgical never events in the United States, J Surg 2012;10.005

[2] Cima RR, Kollengode A, Garnatz J, et al. Incidence and characteristics of potential and actual retained foreign object events in surgical patients. J Am Coll Surg 2008;207:80-87

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.

 

PATIENT SAFETY TECHNOLOGIES, INC.

Consolidated Balance Sheets




December 31,

2012



December 31,

2011









                         Assets







Current assets:







Cash and cash equivalents


$

5,177,082



$

3,668,524


Accounts receivable



1,415,634




1,307,510


Inventories, net



3,968,436




2,772,117


Prepaid expenses



308,285




180,802


Total current assets



10,869,437




7,928,953











Property and equipment, net



4,833,754




1,691,961


Goodwill



1,832,027




1,832,027


Patents, net



2,139,202




2,464,142


Other assets



37,462




40,463


Total assets


$

19,711,882



$

13,957,546











                         Liabilities and Stockholders' Equity


















Current liabilities









Accounts payable


$

4,499,002



$

2,808,524


Accrued liabilities



960,062




574,917


Deferred revenue – current portion



846,395




278,002


Total current liabilities



6,305,459




3,661,443











      Deferred revenue



969,395




267,025


           Total liabilities



7,274,854




3,928,468











Stockholders' equity









Total stockholders' equity



12,437,028




10,029,078


Total liabilities and stockholders' equity


$

19,711,882



$

13,957,546


 

PATIENT SAFETY TECHNOLOGIES, INC.

Consolidated Statements of Operations



For the Years Ended December 31,




2012



2011









Revenues


$

17,589,391



$

9,463,479


Cost of revenue



10,038,046




5,115,946


Gross profit



7,551,345




4,347,533











Operating expenses









Research and development



580,254




107,397


Sales and marketing



4,912,508




2,971,525


General and administrative



4,076,532




3,931,049


Total operating expenses



9,569,294




7,009,971











Operating loss



(2,017,949)




(2,662,438)











Other income (expense)









Gain on change in fair value of warrant derivative liability






567,573


Interest expense to related party



(106,182)





Other income (expense), net



(2,095)




221,201


Total other income (expense)



(108,277)




788,774











Loss before income taxes



(2,126,226)




(1,873,664)


Income tax provision



(75,304)




(25,887)


Net Loss



(2,201,530)




(1,899,551)


Preferred dividends



(533,167)




(503,632)


Net loss applicable to common stockholders


$

(2,734,697)



$

(2,403,183)


 

 

Loss per common share









Basic and Diluted


$

(0.08)



$

(0.08)











Weighted average common shares outstanding:


















Basic and Diluted



35,862,020




31,510,716



SOURCE Patient Safety Technologies, Inc.



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