Business context and reporting period
Filing identity mismatch: The provided 10-Q is for SilverSun Technologies, Inc. (NASDAQ: SSNT), not QXO, Inc. It covers the unaudited quarter ended March 31, 2019 and was signed May 13, 2019. SilverSun resells and develops ERP and accounting software and provides consulting, cloud hosting, managed network and cybersecurity services.
Financial results and position
| Metric | Q1 2019 | Q1 2018 or prior balance-sheet date |
|---|---|---|
| Revenue | $10.493 million | $9.310 million; up 12.7% |
| Gross profit / margin | $4.477 million / 42.7% | $3.941 million / 42.3% |
| Operating income / margin | $139,829 / 1.3% | $88,322 / 0.9% |
| Net income / diluted EPS | $96,036 / $0.02 | $58,387 / $0.01 |
| Operating cash flow | $(657,667) | $(116,605) |
| Cash | $653,116 | $1,900,857 at December 31, 2018 |
| Total assets / liabilities | $12.342 million / $7.905 million | $11.744 million / $7.410 million at December 31, 2018 |
Revenue growth reflected higher software and service sales; service revenue rose 14.1%. Management attributed approximately $848,000 of the revenue increase to the ISM/Nellnube and Partners in Technology acquisitions. Operating expenses increased 12.6%, including higher selling and marketing costs and payroll-related G&A. Interest expense was $16,480. Current assets of $4.497 million were below current liabilities of $6.160 million. Long-term debt was $1.543 million, with no balance drawn on the $2 million revolving credit line; finance lease obligations were $171,469 and operating lease liabilities were $843,318.
Cash flow, liquidity and material changes
Cash declined by $1.248 million during the quarter. In addition to operating cash use, investing activities used $200,608, including $138,214 of software development costs and $60,000 paid for the PIT acquisition. Financing activities used $389,466, including a $225,038 dividend payment and debt repayments. Operating cash use increased year over year, chiefly due to higher receivables and unbilled services and lower accrued expenses, partly offset by higher deferred revenue.
The company adopted lease accounting Topic 842 on January 1, 2019, recording approximately $911,000 of operating lease right-of-use assets and liabilities. The $2 million revolving facility carried a 4.74% rate at quarter-end, was secured by substantially all company assets, and was due to expire August 31, 2019. Management stated that cash, business growth and credit availability were adequate to fund plans for at least the next 12 months.
Outlook, risks and unusual items
No quantified earnings or revenue guidance was provided. Management described plans to pursue acquisitions, investments, partnerships and expansion of sales and marketing, while noting that these initiatives may require cash or equity. It cited the ability to win profitable contracts and realize deferred tax assets as dependent on future profitability; approximately $6.414 million of federal NOL carryforwards are subject to Section 382 limits and begin expiring in 2024.
A derivative lawsuit filed March 4, 2019 concerns the company’s capital structure. No specific monetary damages were stated; the company said it believes the case is without merit and intends to defend it. The filing reported no other material changes to previously disclosed risk factors, no debt defaults, and effective disclosure controls. Subsequent items include approximately $278,000 of equipment finance leases entered into in April 2019. Results for the quarter are not necessarily indicative of full-year results.
Investor verification priorities
- Confirm the intended issuer: this source is SilverSun Technologies, not QXO, Inc.
- Review the quality and sustainability of earnings given negative operating cash flow, low cash, and current liabilities exceeding current assets.
- Verify renewal, terms and availability of the revolving credit facility due to expire August 31, 2019.
- Assess acquisition contribution, integration, purchase-price allocation and related debt, including conversion features on certain acquisition notes.
- Monitor the capital-structure litigation, future lease and debt commitments, and the realization of deferred tax assets.