Filing summary
Entity discrepancy: The request identifies QXO, Inc., but the supplied Form 10-Q is for SilverSun Technologies, Inc. (ticker SSNT). This summary reflects the filing provided, not a QXO filing.
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2018, compared with the corresponding 2017 periods. SilverSun resells and develops business software and provides consulting, managed network, hosting, and related technology services. In May 2018, it acquired selected assets of Info Sys Management (ISM) and Nellnube (NNB); their results are included from May 31, 2018.
Key financial metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $11.29 million | $9.59 million | $30.28 million | $26.10 million |
| Gross profit (margin) | $4.52 million (40.0%) | $3.79 million (39.5%) | $12.48 million (41.2%) | $10.58 million (40.5%) |
| Operating income | $255,077 | $549,427 | $375,720 | $1.03 million |
| Net income | $170,938 | $317,823 | $246,537 | $592,170 |
| Diluted EPS | $0.04 | $0.07 | $0.05 | $0.13 |
- For the first nine months, operating cash flow was $820,466 (down from $1.20 million); investing cash outflow was $851,297 and financing cash outflow was $396,427. Cash declined $427,258 to $1.81 million.
- At September 30, cash was $1.81 million and current assets were $4.79 million versus current liabilities of $5.72 million, implying a working-capital deficit of about $932,000 and a current ratio of about 0.84.
- Acquisition notes outstanding totaled $1.61 million. Long-term debt, including current maturities, was $1.61 million; capital lease obligations totaled $230,289. The $2 million JPMorgan revolving line had no borrowings at quarter-end and expires August 31, 2019.
Material changes versus prior comparable periods
- Q3 revenue rose 17.7%; nine-month revenue rose 16.0%, with service revenue growth and acquisitions contributing. Nine-month software revenue increased 18.4%.
- Gross margin improved year over year, but operating income and net income fell in both comparative periods. Management attributed the decline mainly to higher payroll and related costs from added management, operations, and sales staff; selling and marketing and general and administrative expenses also increased.
- Nine-month acquisition and software-development spending contributed to higher investing outflows. The acquisitions added $1.7 million of purchase consideration, primarily funded with convertible promissory notes.
Outlook, risks, contingencies, and unusual items
- No numeric revenue or earnings guidance was provided. Management said it expects liquidity to be adequate for at least the next twelve months, citing business growth and availability of the credit line, and described pursuing acquisitions, investments, and new products.
- ISM and Nellnube notes bear 2% interest, mature in 2023, and are convertible at the holder’s option at $4.03 per share. Conversion could dilute existing shareholders. Purchase-price allocations were preliminary pending independent valuation.
- Management noted that future profitability depends on securing and fulfilling profitable contracts; weaker profitability could affect realization of the $1.286 million deferred tax asset. Federal NOL carryforwards were approximately $6.849 million and are subject to Section 382 limitations.
- Concentration items include one supplier representing about 22% of nine-month cost of revenue and 43% of accounts payable at quarter-end. Cash deposits exceeded FDIC limits by $1.43 million.
- The company reported no material litigation and no material change to the risk factors in its 2017 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting.
- After quarter-end, the company canceled 1,000 employee shares in response to Nasdaq Listing Rule 5635(c) noncompliance and reported regaining compliance. The board also adopted, subject to shareholder approval, a 2018 equity plan covering 675,000 shares, approximately 15% of outstanding common stock.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is SilverSun Technologies, Inc., not QXO, Inc.
- Assess whether operating cash generation and available liquidity can cover the working-capital deficit, debt payments, lease obligations, and planned investment.
- Review acquisition performance, final purchase-price allocations, and the impact of acquisition-related amortization and expenses on margins.
- Evaluate potential dilution from the convertible acquisition notes and the proposed equity plan, including its shareholder-approval status.
- Monitor customer and supplier concentration, NOL utilization limits, and assumptions supporting deferred tax-asset realization.