root9B Technologies Announces Third Quarter 2016 Financial Results

NEW YORK, Nov. 21, 2016 /PRNewswire/ -- root9B Technologies, Inc. (OTCQB: RTNB) ("RTNB") today announced financial results for the third quarter ("Q3") and nine months ("YTD") ended September 30, 2016, and reiterated its commitment to becoming a pure-play cybersecurity firm.   

Financial Highlights

• Q3 2016 net revenue rose 29.1% to $8.6 million from $6.6 million in Q3 2015; YTD 2016 net revenue increased 7.4% to $25.9 million from $24.1 million in Q3 2015.
• Q3 2016 revenue at root9B, RTNB's wholly-owned cybersecurity business, rose 59.8% to $1.5 million from $940,000 in Q3 2015; cybersecurity revenue for YTD 2016 increased 61.1% to $3.3 million from $2.1 million in YTD 2015.
• Revenue at the IPSA / Business Advisory Solutions segment, which focuses on Anti-Money Laundering and regulatory risk mitigation, rose 24.4% to $6.6 million in Q3 2016 from $5.3 million in Q3 2015; IPSA / Business Advisory Solutions revenue for YTD 2016 increased 4.3% to $21.5 million from $20.6 million in YTD 2015.
• S,G&A as a percentage of net revenue declined to 54.4% in Q3 2016 from 68.4% in Q3 2015.
• Q3 2016 operating loss was $3.7 million as compared to $3.6 million in Q3 2015; YTD 2016 operating loss was $11.9 million as compared to $9.4 million in YTD 2015.

Business Highlights

• In August 2016, RTNB announced a shift to a pure-play cybersecurity company focused solely on the operations of root9B.  As part of this strategic realignment, RTNB has:
  • appointed a new President and COO
  • reconfigured its Board to reflect the pure cybersecurity focus
  • commenced evaluating the possible sale of non-cybersecurity assets

• In connection with its pursuit of an up-listing of its common stock to the Nasdaq Capital Market, in October 2016 RTNB shareholders approved a reverse stock split at a ratio within the range of 1:9 to 1:18 with the exact ratio and timing to be determined by the Board of Directors.
• root9B has secured more than $12 million in new contracts during 2016, which will be serviced over the next several years, and span engagements across Fortune 500 companies, government agencies and blanket purchase agreements.
• root9B has also been approved to participate in a number of US Government indefinite-delivery/indefinite-quantity (IDIQ) multi-year contracts.
• In November 2016, root9B was ranked #1 on the Cybersecurity 500 for the fourth consecutive quarter.
• In November 2016, IPSA announced a third contract extension with a global digital and mobile payments company valued at $1.5 million.

"Although we are pleased with the revenue growth at root9B and IPSA / Business Advisory Solutions, there is still much work to be done with respect to scaling cybersecurity revenue to levels sufficient to offset higher investments in this business, enhancing corporate cash flows and liquidity, and achieving overall profitability," said Joseph J. Grano, Jr., Chairman and Chief Executive Officer of RTNB.  "As our business development activities progress, we will continue to align RTNB's cost structure to reflect our outlook and strategy, which is now focused on supporting the growth of our root9B cybersecurity business.  We have added more than 50 cybersecurity professionals to root9b over the past two years, further strengthening what we view as a significant industry barrier to entry.  We also generated a 1400 bps decline in SG&A during Q3 2016 as a result of cutting costs at IPSA, Energy Solutions, and corporate."   

"We are resolute in our belief that becoming a pure-play cybersecurity company puts us in the best position to create long-term and sustainable shareholder value," said Mr. Grano.  "Commercial and government demand for cyber defense solutions is growing, as CIOs, CISOs and IT security teams face rising cyber threats and a severe cybersecurity workforce shortage.  Led by Eric Hipkins, root9B's executives and technical teams are comprised of cybersecurity professionals who worked at the highest levels of the military and government, including the National Security Agency and Department of Defense. They have developed more than 15 organic threat-defense software capabilities, and opened a first-of-its-kind Adversary Pursuit Center, a 24/7 manned operations facility that combines internal and external threat intelligence feeds to drive pursuit operations and perimeter defense within client networks.  We believe that the disruptive, multi-platform products and services created and deployed by root9B are helping to change the way that companies address what many view as the nation's number one security threat."  

"Our focus is clear," Dan Wachtler, President and COO of RTNB, said. "We are pleased with, and will continue to support, root9B's progress in expanding its new business pipeline, securing new contracts, and elevating the brand.  IPSA / Business Advisory Solutions is successfully focusing on expanding its sources of revenue and cutting costs.  At the corporate level, we are continuing to evaluate the sale of our non-cybersecurity assets and taking the necessary actions to optimize and enhance enterprise-wide operations."

Consolidated Q3 2016 Overview
Net revenue for Q3 2016 increased 29.1% to $8.6 million from $6.6 million in Q3 2015.  Each of RTNB's three business segments reported higher revenue in Q3 2016 compared to Q3 2015:  Cybersecurity revenue increased 59.8% to $1.5 million; IPSA/Business Advisory Solutions revenue rose 24.4% to $6.6 million; and Energy Solutions revenue increased 19.9% to $507,000.

Q3 2016 gross profit was $1.5 million, or 17.5% of net revenue, as compared to $1.4 million, or 21.2% of total revenue, in Q3 in 2015.   Higher gross profit at IPSA / Business Advisory Solutions offset gross profit declines at Energy Solutions and root9b, where the Company continues to invest in future revenue creating resources and the expansion of the cybersecurity platform.  Lower gross margin was attributable to lower gross margin at root9B. 

Selling, general and administrative ("SG&A") expenses were $4.7 million in Q3 2016 as compared to $4.5 million in Q3 2015.  As a percentage of net revenue, however, SG&A declined to 54.4% from 68.4% in Q3 2015, driven primarily by higher revenues, as well as ongoing cost containment efforts.  SG&A expenses at IPSA / Business Advisory Solutions, Energy Solutions, and corporate were reduced by a combined $731,000 in Q3 2016, which partially offset approximately $854,000 of higher costs at root9B reflecting ongoing investments in personnel and business development activities.

The loss from operations in Q3 2016 was $3.7 million and $3.6 million in Q3 2015. 

RTNB reported non-cash derivative income of $1.1 million in Q3 2016 as compared to a non-cash expense of $22,000 in Q3 2015.  This expense is associated with detachable common stock purchase warrants issued with various securities for the period May 2010 through Q1 2013.   These warrants  are recorded as derivative liabilities and "marked-to-market" based on fair value estimates at each reporting date. 

The Company also recorded a goodwill impairment write-down of $2.0 million in Q3 2016 at the Business Advisory Solutions business segment, reducing the goodwill valuation to $0.3 million from $2.3 million as of June 30, 2016.  No impairment charges were required for the IPSA and Cyber Solutions business units.

Net loss for Q3 2016 was $5.1 million, or 0.06 per diluted share, as compared to a net loss of $4.0 million, or $0.05 per diluted share, in Q3 2015. 

2016 Financial Outlook 

Given RTNB's ongoing initiatives to re-focus its operations as a pure-play cybersecurity company, which includes significant investments in its root9B subsidiary and an ongoing review of its non-cybersecurity assets, management believes it is prudent to withdraw its previously issued annual guidance for 2016.  If and when circumstances permit, RTNB will provide an appropriate update to the market. 

"We remain quite optimistic about root9B's growth prospects, as well as our progress in taking the necessary steps to enhance the long-term value of RTNB," said Mr. Grano.        

About root9B

Ranked as the #1 Cybersecurity company for three consecutive quarters by Cybersecurity Ventures (Jan 2016), root9B stands in defiance of the unwanted human presence within our clients' networks by attacking the root of the problem—the adversary's ability to gain entry and remain undetected. root9B's application of advanced technology developed through cutting-edge R&D and engineering and refined through relevant, hands-on training is revolutionary. root9B combines cutting-edge technology, tactics development, specialty tools, and deep mission experience. root9B personnel leverage their extensive backgrounds in the U.S. Intelligence Community to conduct advanced vulnerability analysis, penetration testing, digital forensics, incident response, Industrial Control System (ICS) security, and active adversary pursuit (HUNT) engagements on networks worldwide. For more information, visit www.root9B.com.

About root9B Technologies, Inc.

root9B Technologies (OTCQB: RTNB) is a leading provider of Cybersecurity and Regulatory Risk Mitigation Services. Through its wholly owned subsidiaries root9B and IPSA International, root9B Technologies delivers results that improve productivity, mitigate risk and maximize profits. Its clients range in size from Fortune 100 companies to mid-sized and owner-managed businesses across a broad range of industries including local, state and government agencies. For more information, visit www.root9btechnologies.com

Forward Looking Statements

Certain information contained in this press release may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on root9B Technologies' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors, and other risks and uncertainties affecting the operation of root9B Technologies business. These risks, uncertainties and contingencies are indicated from time to time in root9B Technologies filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Further, investors should keep in mind that root9B Technologies financial results in any particular period may not be indicative of future results.  root9B Technologies is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

SOURCE root9B Technologies, Inc.