Patient Safety Technologies first quarter total revenue decreases to $2.0 million

Patient Safety Technologies, Inc. (the "Company", OTCQB:PSTX) today announced financial results for its first quarter of 2011 ended March 31, 2011.

Financial Highlights

During the first quarter of 2011 the number of institutions using the Company's SurgiCount Safety-Sponge® System surpassed 65 and the Company lost no customers.  This compares to approximately 49 institutions using the solution at the end of the first quarter of 2010.  Although not necessarily proportional to reported revenue, the number of hospitals using our products is a good indicator of our underlying business.

Total revenue for the quarter ended March 31, 2011 was $2.0 million, which included $0.6 million of revenue from 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 arrangement, revenue for the quarter ended March 31, 2011 would have been $1.3 million.  This compares with total revenue for the quarter ended March 31, 2010 of $2.4 million, which included approximately $1.0 million of revenue from the delivery under the same inventory stocking order.  Excluding the effect of this inventory stocking order, revenue for the first quarter of 2010 would have been $1.3 million.  Despite the considerable growth in the number of hospitals using the Safety-Sponge® System at the end of the first quarter of 2011 as compared to the first quarter of 2010, and losing no customers during that time period, total reported revenue did not grow proportionally for a number of factors, including: 1) the larger amount of revenue from the inventory stocking order in the first quarter of 2010 as compared to the first quarter of 2011, 2) the negative effect on our reported revenue during the first quarter of 2011 caused by the temporary shutdown of our contract manufacturer during the end of the quarter to accommodate an upgrade to their IT system and 3) the effect of certain inventory management practices of our exclusive distributor during the first quarter of 2011.

Reported gross profit was $0.9 million in the first quarter of 2011 as compared to $1.3 million during the same period in 2010.  The primary factor for the decrease in reported gross profit was the lower revenue recognized from the inventory stocking order in the first quarter of 2011 as compared to the same period in 2010.  Reported gross margins were 47% and 54% for the first quarter of 2011 and 2010, respectively.  This decline in reported gross margin was primarily attributable to 1) higher non cash depreciation expense in our cost of revenue in the first quarter of 2011 as compared to the first quarter of 2010 as the result of a larger amount of hardware purchased by the Company to support new hospital implementations, and 2) a larger than normal level of lower margin hardware purchases by certain hospital customers during the first quarter of 2011 who implemented our solution during the quarter.  The gross margins realized from the sale of recurring disposable products (i.e. sponges and towels that make up the vast majority of our revenue), were 55% and 56% during the first quarters of 2011 and 2010, respectively.

As a result of a comprehensive restructuring program focused on a number of initiatives including reducing cash operating expenses, our operating expenses in the first quarter of 2011 were reduced significantly as compared to the first quarter of 2010.  Reported operating expenses were $1.8 million and $2.7 million for the first quarters of 2011 and 2010, respectively, a decrease of $0.9 million or 34%.  Excluding the effects of non-cash and certain one-time expenses, operating expenses were $1.4 million and $2.2 million, a decrease of $0.8 million or 36%.  The Company generated an Adjusted Operating Loss (defined as reported operating income adjusted to exclude certain non-cash expenses) of $0.6 million and $0.9 million during the first quarter of 2011 and 2010, respectively, a decrease of 39%.  

The Company ended the first quarter of 2011 with $6.3 million of cash and cash equivalents.

Expanded customer base, competitive conversions

Current users of the SurgiCount Safety-Sponge® System include over 65 hospitals, including five of the 14 hospitals named to the U.S. News and World Report 2010-11 Honor Roll.  Further, during the first quarter of 2011 the Company continued to add to the hospitals now using the Safety-Sponge® System who converted from competitive products.

"I am pleased to see the continued growth of our user base, especially additional competitive conversions, while maintaining our lowered cost structure.  We will continue to keep a focus on our spend levels while also opportunistically putting the capital we recently raised to work in high expected return areas," said Brian E. Stewart, President and Chief Executive Officer of Patient Safety Technologies.