Business context and reporting period
This is SilverSun Technologies, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2023, filed May 9, 2023. The request identifies QXO, Inc., but the filing identifies SilverSun Technologies, Inc. (NASDAQ: SSNT); the filing does not provide financial information for QXO.
SilverSun provides business software, IT consulting, managed network, hosting, and cybersecurity services, primarily to small and medium-sized businesses. Management describes a strategy of growing recurring revenue and customer relationships through cross-selling, organic growth, and acquisitions.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $13.13 million | $11.02 million | Up 19.1% |
| Gross profit | $5.36 million | $4.70 million | Up 13.9% |
| Gross margin | 40.8% | 42.7% | Down 1.9 percentage points |
| Operating income (loss) | $369,537 | $(19,716) | Turned profitable |
| Net income (loss) | $277,491 | $(40,656) | Turned profitable |
| Diluted EPS | $0.05 | $(0.01) | Improved |
- Software revenue increased 27.2% to $3.32 million; service revenue increased 16.6% to $9.81 million. Management attributed growth principally to ERP software sales and increased consulting and hosting services.
- Service gross margin fell to 40.5% from 43.0%; software gross margin was 41.8% versus 41.6%.
- Cash and cash equivalents were $6.88 million at March 31, down from $8.01 million at year-end. Working capital was $3.36 million; current assets were $13.58 million and current liabilities $10.22 million.
- Operating activities used $783,062 of cash, compared with $8,246 used in Q1 2022. Investing activities used $4,979 and financing activities used $344,813. Cash declined by $1.13 million during the quarter.
- Long-term and related-party debt totaled $1.17 million, including $613,863 current. Finance lease obligations totaled $560,918. The company reported no line of credit or other credit facility.
- Total assets were $21.10 million and total liabilities $11.23 million. Deferred revenue was $3.98 million. Merger-related deferred charges were $1.79 million.
Material changes versus the prior comparable period
- Revenue growth was accompanied by higher cost of revenue, and gross margin declined. Gross profit increased more slowly than sales.
- Selling and marketing expense rose 22.7% to $2.18 million, reflecting personnel costs, commissions, and travel and trade-show activity. General and administrative expense decreased 3.1% to $2.56 million.
- Operating results and net results moved from losses to profits, while operating cash use increased substantially. Management attributed the cash use mainly to lower accounts payable and accrued expenses and higher unbilled services and deferred charges.
- Debt payments reduced long-term and related-party debt from $1.45 million at December 31, 2022 to $1.17 million at March 31, 2023.
Outlook, commentary, risks, and unusual items
- Management said it believes cash on hand and business growth provide adequate liquidity for at least the next 12 months, while acknowledging economic uncertainty and that future effects of a downturn are difficult to determine. No quantitative revenue or earnings guidance is provided.
- Management cited inflation-related recruiting and retention costs and higher travel and meal costs as pressures on profitability. It also noted possible customer spending reductions or business failures in an economic downturn.
- The proposed merger with Rhodium Enterprises remained pending. The agreement contemplated $10 million in cash to SilverSun, a $1.50-per-share cash dividend to SilverSun shareholders, distribution of shares in a subsidiary holding SWK and SCS, and SilverSun shareholders retaining approximately 3.2% of the post-merger company. Closing was subject to shareholder, regulatory, and other conditions; the amended termination date was June 30, 2023, subject to possible mutual extension. Specified unilateral termination circumstances could trigger a $5 million payment by either party. The HoldCo Form 10 was withdrawn May 1, 2023 because the contemplated merger had not occurred.
- Management stated that it did not expect a significant operating impact from COVID-19 or the Russia-Ukraine conflict, but cautioned that related disruptions or sanctions could adversely affect the company or customers.
- The company reported no material litigation, no material off-balance-sheet arrangements, and no defaults on indebtedness. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: this filing is for SilverSun Technologies (SSNT), not QXO, Inc.
- Check the subsequent status and final terms of the Rhodium transaction, including closing conditions, termination rights, and any termination payment exposure.
- Assess whether revenue growth can be sustained while restoring gross margins, particularly in services, and whether personnel, commissions, and travel costs continue to rise.
- Monitor operating cash flow, unbilled services, deferred charges, and working capital; Q1 earnings were positive while operating cash flow was negative.
- Review debt and lease payment obligations, the absence of a credit facility, and cash balances held above FDIC-insured limits.