Business context and reporting period
Filing identity mismatch: The supplied filing is SilverSun Technologies, Inc. (NASDAQ: SSNT), not QXO, Inc. It is an unaudited Form 10-Q for the quarter ended September 30, 2022, filed November 14, 2022. SilverSun provides business software, IT and cloud services, cybersecurity, and consulting.
Financial performance and liquidity
| Metric | Q3 2022 | First nine months 2022 |
|---|---|---|
| Revenue | $10.92 million | $32.58 million |
| Gross profit / margin | $4.43 million / 40.6% | $13.26 million / 40.7% |
| Operating income (loss) | ($118,000) | ($217,000) |
| Net income (loss) | ($134,000) | ($263,000) |
| Net income (loss) per diluted share | ($0.03) | ($0.05) |
For the nine months, operating cash flow was $1.13 million, investing cash flow was negative $189,000, and financing cash flow was negative $521,000. Cash increased $418,000 to $7.23 million. Working capital was $2.93 million. Current assets were $12.01 million and current liabilities $9.08 million.
At September 30, long-term debt, including current maturities, was $1.53 million; finance lease obligations were $671,000 and operating lease liabilities were $420,000. The company reported total liabilities of $10.45 million and stockholders’ equity of $9.53 million.
Material changes versus prior comparable periods
- Revenue rose 8.0% in Q3 and 4.4% for the first nine months year over year. Software revenue grew 59.8% and 48.1%, respectively; service revenue fell 1.4% and 4.6%.
- Gross margin improved to 40.6% in Q3 from 39.0%, but declined to 40.7% for nine months from 41.5%.
- Q3 operating loss narrowed from $290,000 to $118,000, and net loss narrowed from $240,000 to $134,000. For nine months, the company shifted from operating income of $407,000 and net income of $245,000 to operating and net losses.
- Nine-month operating cash flow increased from $277,000 to $1.13 million, while cash at period-end was slightly lower than the prior-year comparable balance of $7.25 million.
- The company acquired Dynamic Tech Services for $1.335 million, funded with $500,000 cash and an $835,000 note, and acquired a NEO3 customer list. Acquisitions contributed to higher intangible assets and amortization expense.
Outlook, commentary, risks and unusual items
Management said it believes available cash and business growth are sufficient to fund operations for at least the next 12 months, while warning that pandemic-related uncertainty could undermine that assessment. The company had no line of credit or other credit facility. Management cited inflation-related hiring and retention costs and higher travel and event expenses as pressures on profitability; staffing, training and customer project delays weighed on service revenue.
On September 29, 2022, SilverSun agreed to combine with Rhodium Enterprises, a bitcoin-mining technology company. The proposed transaction contemplated $10 million in cash to SilverSun and a distribution to SilverSun shareholders of at least $1.50 per share in cash (approximately $8.5 million total) plus shares in a newly formed HoldCo containing SWK and Secure Cloud Services. The filing expected closing by year-end 2022, subject to shareholder, regulatory and other conditions; either party could terminate in specified circumstances, with $5 million termination payments applicable to certain unilateral termination events. The agreement was not yet consummated as of the filing. Merger-related deferred charges were $1.12 million.
Other risks include customer spending or collections weakening, labor and supply disruptions, and indirect effects of Russia-related sanctions. Management reported no material litigation, no material change in previously disclosed risk factors, and no material off-balance-sheet arrangements. It stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for SilverSun Technologies (SSNT), not QXO, Inc.
- Check subsequent filings for the Rhodium transaction’s status, final terms, approvals, closing date, and any termination or separation arrangements.
- Assess whether operating cash generation is sustainable given nine-month net losses, staffing and project delays, and the lack of a credit facility.
- Review debt and lease maturities, including the DTS note’s potential reduction of up to $150,000 based on customer subscription renewals.
- Verify issuance and treatment of the 120,000 service shares approved in September 2022, valued at $297,600, which had not yet been issued.
- Monitor customer retention, recurring service revenue, acquisition performance, and the effects of inflation and economic conditions on margins.