Q2 2019 Form 10-Q Summary
Entity and period: The request identifies QXO, Inc., but the supplied filing is for SilverSun Technologies, Inc. (NASDAQ: SSNT), for the quarter and six months ended June 30, 2019. This summary reflects the supplied SilverSun filing, not a QXO filing.
Business context
SilverSun provides ERP and accounting software, consulting and support, proprietary EDI software, cloud hosting, managed IT and cybersecurity services. It reported results including the acquired operations of Partners in Technology (PIT), acquired January 1, 2019; 2018 comparisons also reflect differing periods of acquired-business contributions.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $10.43 million, up 7.7% from $9.68 million | $20.92 million, up 10.1% from $18.99 million |
| Gross profit / margin | $4.26 million / 40.9%, versus $4.03 million / 41.6% | $8.74 million / 41.8%, versus $7.97 million / 41.9% |
| Operating income | $22,017, versus $32,327 | $161,846, versus $120,649 |
| Net income (loss) | $(2,890), versus $17,218 | $93,146, versus $75,605 |
| Operating cash flow | Not separately presented | $(558,102), versus $(209,893) |
Quarterly service revenue rose 6.1% and software revenue rose 17.1%. For the first half, service revenue increased 10.0% and software revenue increased 11.1%. Management attributed growth largely to subscription revenue, Acumatica and third-party product sales, and acquired businesses. Quarterly profitability weakened as payroll and related costs increased; first-half operating income and net income improved despite higher expenses.
Cash, liquidity and obligations
- Cash was $527,660 at June 30, 2019, down from $1.90 million at year-end 2018. First-half cash declined $1.37 million.
- Current assets were $4.82 million and current liabilities $6.57 million, implying negative working capital of approximately $1.75 million.
- First-half investing cash use was $258,053, including $60,000 for PIT and $174,360 in software development costs. Financing cash use was $557,042, including the $225,038 special dividend payment and debt and finance-lease repayments.
- Acquisition notes payable totaled $1.42 million; finance lease obligations were $429,262. Operating lease liabilities were $842,947, recognized following adoption of the lease standard.
- The undrawn JPMorgan revolving demand line provides up to $2 million, is secured by company assets, and was due to expire August 31, 2019. The company said it planned to renew it. Management stated it expected liquidity to be adequate for at least 12 months, citing business growth and credit-line availability.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management discussed growth through new customers, sales to existing customers, collaboration, and potential acquisitions or investments; these plans may consume cash or require additional financing or equity.
- Management cited increased payroll, sales personnel, travel, and amortization as expense pressures. It reported no material inflation impact and no material changes to previously disclosed risk factors.
- A March 2019 shareholder lawsuit challenged voting rights associated with the Series B Preferred Stock. The company agreed to pay $115,000 in plaintiff legal fees and expenses; a stipulation was entered August 2, 2019, and the filing says the matter was resolved. Directors denied wrongdoing.
- The company reported effective disclosure controls and no material quarterly change in internal control over financial reporting. It reported no defaults on indebtedness.
Most important facts to verify
- Confirm the intended issuer: the supplied filing is SilverSun Technologies, not QXO, Inc.
- Verify renewal or replacement of the $2 million credit line before its August 31, 2019 expiration, given low cash and negative working capital.
- Review cash conversion and receivables: operating cash use worsened while accounts receivable and unbilled services increased.
- Confirm the accounting and payment status of the $115,000 legal-fee settlement and the Series B Preferred Stock. The filing describes remedial action concerning Series B, while the June 30 balance sheet still lists one Series B share outstanding.
- Reconcile the MD&A’s first-half 2018 net income reference of $76,605 with the financial statements’ reported $75,605.
- Assess acquisition contribution and integration: management attributed much of first-half revenue growth to acquisitions, and PIT’s purchase-price allocation was preliminary.