Filing summary
Entity and period: The supplied filing is SilverSun Technologies, Inc. (NASDAQ: SSNT), not QXO, Inc. It is a Form 10-Q for the quarter ended September 30, 2017; the financial statements also compare the nine months ended September 30, 2017 and 2016. Figures below are in U.S. dollars.
Business context
SilverSun and its wholly owned subsidiary provide ERP and accounting software, related consulting and support, proprietary software, and managed network and technology services. The company reported that it moved from OTCQB to the NASDAQ Capital Market in April 2017.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $9.587 million | $9.534 million | $26.098 million | $25.881 million |
| Gross profit | $3.788 million | $3.553 million | $10.579 million | $9.835 million |
| Gross margin | 39.5% | 37.3% | 40.5% | 38.0% |
| Operating income | $549,427 | $502,247 | $1.030 million | $1.132 million |
| Net income | $317,823 | $2.751 million | $592,170 | $3.373 million |
| Diluted EPS | $0.07 | $0.61 | $0.13 | $0.75 |
- For the first nine months, operating cash flow was $1.205 million, investing cash outflow was $617,000, and financing cash outflow was $544,000. Cash increased $43,161 to $1.664 million.
- At September 30, current assets were $6.023 million and current liabilities $5.753 million, implying working capital of approximately $269,000. The company had no bank-line borrowings; the facility provides up to $1 million and is secured by company assets, with company and CEO guarantees.
- Long-term debt, including its current portion, totaled approximately $564,000; capital lease obligations totaled approximately $125,000. Cash exceeded these balances by approximately $976,000.
Changes versus the prior comparable period
- Q3 revenue rose 0.6%; nine-month revenue rose 1.0%. Nine-month product revenue increased 5.2%, while service revenue was nearly flat. Management attributed the Q3 product-sales decline to transactions expected to close in the following quarter.
- Gross profit and margin improved in both comparisons. Management cited service and software gross-profit growth and noted that product mix can affect overall margins.
- Nine-month operating income declined about 9%, as higher gross profit was more than offset by increased selling and administrative expenses. Management attributed expense increases mainly to sales personnel, travel, trade-show activity, and added management payroll.
- Net income fell substantially year over year, principally because 2016 included a $2.564 million release of a deferred-tax valuation allowance. The 2017 nine-month tax provision was $412,002, versus a $2.282 million tax benefit in 2016; the comparison is therefore not solely reflective of operating performance.
- Accounts receivable and unbilled services increased, while deferred revenue rose to $2.195 million from $1.690 million at year-end. Management linked deferred revenue to services not yet performed and cited higher receivables as a major factor in reduced operating cash flow.
Outlook, risks, and unusual items
- Management said it believes liquidity is adequate for operating plans for at least the next 12 months, including through operating cash flows and the available credit line. It also plans to pursue acquisitions, asset purchases, collaborations, and additional product offerings; these may require cash or equity.
- No quantitative earnings or revenue guidance was provided. Management cautioned that results are subject to forward-looking risks and assumptions.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses: insufficient accounting resources and segregation of duties, and ineffective management review of complex transactions. Management intends to add personnel and pursue an independent controls assessment.
- Concentration exposures include one customer representing 11% of receivables and unbilled services, one supplier representing 42% of accounts payable, and a channel partner accounting for about 25% of cost of revenues. Cash deposits exceeded FDIC insurance limits by approximately $1.322 million.
- The company reported approximately $6.323 million of federal NOL carryforwards, subject to Section 382 limits. It reported no material litigation, no material off-balance-sheet arrangements, and no material changes to previously disclosed risk factors.
- Unusual financial comparison: the prior-year tax benefit materially boosted reported net income. The filing also reports special cash dividends during 2017 and $401,561 of software-development cash spending in the first nine months.
Important facts for investors to verify
- Confirm the intended issuer: the request identifies QXO, Inc., but the filing text identifies SilverSun Technologies, Inc. and ticker SSNT.
- Assess the causes and sustainability of improved gross margins alongside modest revenue growth and higher operating expenses.
- Monitor receivables, unbilled services, deferred revenue, and conversion of recognized service revenue into cash.
- Track remediation of the disclosed material weaknesses and any effects on reporting reliability.
- Reconcile contingent-consideration disclosures: the notes show a September 30 balance of $155,208, while MD&A states $156,208.