SEC filing summary
Entity discrepancy: The supplied filing is SilverSun Technologies, Inc. (ticker SSNT), not QXO, Inc. It is a Form 10-Q for the quarter ended September 30, 2019. Confirm the intended company and filing before relying on this summary.
Business context and reporting period
SilverSun provided ERP and accounting software, consulting, cloud hosting, cybersecurity, and managed network services. On August 26, 2019, it sold its MAPADOC EDI practice; that business is reported as discontinued operations. Unless noted otherwise, continuing-operations comparisons below exclude EDI.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $10.11 million | $10.06 million | $28.53 million | $26.62 million |
| Gross profit / margin | $3.70 million / 36.6% | $3.78 million / 37.6% | $10.96 million / 38.4% | $10.17 million / 38.2% |
| Loss from continuing operations | $0.95 million | $0.17 million | $1.55 million | $0.89 million |
| Net income, including discontinued operations | $7.67 million | $0.17 million | $7.76 million | $0.25 million |
| Basic and diluted EPS | $1.70 | $0.04 | $1.73 | $0.05 |
- Q3 continuing revenue was nearly flat year over year; nine-month revenue rose 7.2%. Software product revenue increased 28.2% for the quarter and 22.8% for the nine-month period, while quarterly service revenue declined 4.3%, attributed to delayed consulting projects.
- Continuing-operations losses widened, with higher selling and administrative costs and a $236,860 intangible-asset impairment. Management cited added personnel, bad debt expense, and approximately $115,000 in legal costs among expense drivers.
- Net income included a $10.14 million pretax gain on the EDI sale. The sale price was $11.5 million: $10.35 million paid at closing and $1.15 million held in escrow, subject to potential indemnity claims and staged release.
- Cash was $10.72 million at September 30, plus $1.15 million in the escrow account. Nine-month cash from continuing operating activities was negative $1.20 million; continuing investing activities provided $9.97 million, primarily from the EDI sale. Cash increased $8.82 million overall.
- At quarter end, long-term debt was $1.30 million; finance lease obligations were $0.38 million and operating lease liabilities were $0.77 million. The $2 million JPMorgan revolving demand note was repaid and terminated at the sale closing. Current liabilities included $1.77 million of income taxes payable.
- Management said cash and sale proceeds should provide adequate liquidity for operating plans for at least the next 12 months. Cash flow from continuing operations remained negative.
Material changes and management commentary
- Q3 gross profit fell 2.1% year over year and gross margin declined by 1.0 percentage point; nine-month gross profit rose 7.7% and margin improved by 0.2 percentage point.
- Management attributed software growth to Acumatica and third-party product sales to existing customers. It said service revenue growth over nine months reflected subscription revenue, while quarterly consulting delays weighed on results.
- Following the EDI sale, management said it would consider uses of proceeds including a special dividend, share repurchases, acquisitions, or a merger. On October 10, the board authorized a repurchase program of up to $2 million; no shares had been repurchased as of November 12, 2019.
- The company acquired certain assets of Partners in Technology on January 1, 2019 for $60,000 cash and a $174,000 note. The acquired operations contributed approximately $2.90 million of revenue and $251,000 of pretax income during the nine-month period, together with the other referenced acquired operations.
- The company adopted the new lease accounting standard on January 1, 2019, recording approximately $911,000 in operating lease assets and liabilities. It also recorded the $236,860 intangible impairment in Q3.
Outlook, risks, and contingencies
- No specific revenue, earnings, or margin guidance was provided. Management described potential acquisitions and investments as opportunities, while noting they could use cash or require additional funding. It also cited sales execution, staffing, technology, and competition as factors affecting funding needs and future performance.
- The company had approximately $6.18 million of federal net operating loss carryforwards, subject to Section 382 limitations; management noted realization of deferred tax assets depends on future taxable income.
- One supplier accounted for approximately 20% of cost of revenues for the nine months and 41% of accounts payable at September 30. Cash deposits exceeded FDIC insurance limits by approximately $10.19 million.
- A shareholder derivative action relating to Series B voting rights was resolved after governance changes and cancellation of the sole Series B share. The company agreed to pay $115,000 in plaintiff legal fees and expenses; management and directors denied wrongdoing.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm that SilverSun Technologies, rather than QXO, is the intended issuer and that the SSNT 2019 Q3 filing is the correct period.
- Review the EDI sale agreement, escrow release conditions, and any indemnity claims affecting the $1.15 million escrow balance.
- Assess the ongoing revenue, margins, and cash generation of the continuing business after the EDI disposal, including the effect of consulting delays and elevated operating expenses.
- Track use of sale proceeds, including the status of the $2 million repurchase authorization and any acquisition or merger activity.
- Monitor continuing operating cash burn, tax liabilities, debt and lease payments, and the company’s ability to realize tax assets subject to NOL limitations.