QXO Inc

Current report

QXO, Inc. ("QXO", "we", or the "Company") was formerly known as SilverSun Technologies, Inc. ("SilverSun"). On June 6, 2024, we changed the Company's name from SilverSun to QXO and changed its ticker symbol on the Nasdaq Capital Market from SSNT to QXO, upon completing a $1.0 billion cash investment in SilverSun by Jacobs Private Equity II, LLC ("JPE") and certain minority co-investors. Refer to Note 3 -Equity of the "Notes to the Condensed Consolidated Financial Statements" for further details about the investment and related changes to our capital structure.

Current report

QXO is a technology solutions and professional services company that helps businesses manage and monetize their enterprise assets. We do this through our legacy operations, which provide critical software applications, consulting and other professional services, including specialized programming, training and technical support. Our customers are primarily small and mid-sized companies in the manufacturing, distribution and service industries.

Current report

Our strategy is to create a tech-forward leader in the $800 billion building products distribution industry with the goal of generating outsized stockholder value through accretive acquisitions and organic growth, including greenfield openings. We are executing our strategy toward a target of tens of billions of dollars of annual revenue in the next decade.

Current report

We grow our legacy business with a multi-pronged plan that fosters recurring revenue, customer retention and the steady expansion of our installed customer base, accomplished via sales and acquisitions. As we gain new customers, we help them digitally transform their business with further technologies and third-party software we represent, including application hosting, cybersecurity, warehouse management, human capital management, payment automation, sales tax compliance and many other value-added capabilities. Many of our offerings are billed on a subscription basis, increasing our monthly recurring revenue from new business in tandem with cross-selling. Our model is designed to increase average revenue per customer over the course of the relationship, facilitating our growth without a commensurate increase in costs of sales, and enhancing our profitability profile.

Current report

Our legacy businesshas five core components:

Current report

We provide comprehensive managed Software-as-a-Service (SaaS) solutions, such as infrastructure-as-a-service, cybersecurity, cloud hosting, business continuity, disaster recovery, data back-up, network maintenance and server applications upgrade services.

Current report

Our SaaS hosting solutions enable applications to reside securely in a remote cloud infrastructure and be accessed by our customers through the internet, eliminating many of the costs of maintaining business technologies on site.

Current report

Our Company has executed this plan successfully to expand into new geographies and create additional revenue and profit streams. This has strengthened our legacy operating platform and expanded our footprint to nearly every U.S. state, with concentrations in Arizona, California, Connecticut, Illinois, New Jersey, New York, North Carolina, Oregon and Washington as of June 30, 2024.

Current report

The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results:

Current report

Revenue, net

Current report

Our consolidated net revenue for the second quarter of 2024 increased $1.28 million or 9.7%, compared with the same period in the prior year. Our consolidated net revenue for the first six months of 2024 increased $2.59 million or 9.8% compared with the same period in the prior year. Net revenue increased across our lines of business as we grew our customer base through strategic acquisitions and continued renewals of our subscription-based services. Specifically, software product revenue increased as we expanded our Sage Intacct and Accumatica product lines, and service revenue increased as we expanded our hosting application services and consulting practices.

Current report

Cost of revenue

Current report

Cost of revenue for the second quarter of 2024 increased $673,000 or 8.3%, compared with the same period in the prior year. As a percentage of revenue, margin expanded to 39.8%, compared with 39.1% for the same period in the prior year. Margin expansion in the period is attributed to improved operational productivity in serving customer demand. For the first six months of 2024, cost of revenue increased $1.68 million or 10.6%, compared with the same period in the prior year. Margin contracted to 39.5%, compared with 40.0% for the same period in the prior year, as we expanded our product offerings in newly acquired lines of business to grow our customer base.

Current report

Selling, general and administrative expenses for the second quarter of 2024 increased $5.31 million or 117.3%, compared with the same period in the prior year. Selling, general and administrative expenses for the first six months of 2024 increased $5.72 million or 61.5%, compared with the same period in the prior year. The year-over-year increases in operating expenses are primarily due to: i) salary expenses associated with the Company's new senior management team put in place to execute our expansive growth plan, and ii) the severance payment contemplated in the Investment Agreement for Mark Meller.

Current report

Depreciation and amortization expense for the second quarter of 2024 increased $57,000 or 27.9%, compared with the same period in the prior year. Depreciation and amortization expense for the first six months of 2024 increased $90,000 or 21.9%, compared with the same period in the prior year. The year-over-year increases are attributed to higher amortization expense associated with the acquisition of JCS in 2023.

Current report

Interest income (expense), net

Current report

Interest income increased $3.49 million for each of the three- and six-month periods ended June 30, 2024, compared with the same periods in the prior year. The increase is attributed to the interest earned on our cash position due to the cash infusion from the Equity Investment.

Current report

Non-GAAP Financial Measures

Current report

Adjusted EBITDA

Current report

To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this Quarterly Report Adjusted EBITDA, a non-GAAP financial measure that we calculate as net (loss) income excluding depreciation and amortization; share-based compensation; income tax (benefit) provision; interest (income) expense; transaction costs; severance costs and other items that we do not consider representative of our underlying operations. We have provided a reconciliation below of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure. Management uses Adjusted EBITDA in making financial, operating and planning decisions and evaluating QXO’s ongoing performance.

Current report

We believe that Adjusted EBITDA facilitates analysis of our ongoing business operations because it excludes items that may not be reflective of, or are unrelated to, QXO’s core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying business. Other companies may calculate this non-GAAP financial measure differently, and therefore our measure may not be comparable to similarly titled measures of other companies. This non-GAAP financial measure should only be used as a supplemental measure of our operating performance.

Current report

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss), and our other GAAP results.

Current report

The following table presents a reconciliation of net (loss) income to Adjusted EBITDA.

Current report

The year-over-year declines in three- and six-month 2024 Adjusted EBITDA were due to higher employee-related costs in the second quarter, reflecting the introduction of a new senior management team to execute the Company's expansive growth plan.

Current report

On June 6, 2024, we closed the Equity Investment under the Investment Agreement that we entered into on April 14, 2024 among the Company, JPE and certain minority investors. Pursuant to the Investment Agreement, we issued and sold an aggregate of 1,000,000 shares of Convertible Perpetual Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock"), which are initially convertible into an aggregate of 219,010,074 shares of common stock at an initial conversion price of $4.566 per share, and we issued and sold warrants exercisable for an aggregate of 219,010,074 shares of common stock (the "Warrants"). Upon closing, the Equity Investment generated gross proceeds of $1.0 billion, before deducting agent fees and offering expenses. For more information on the Investment Agreement, refer to Note 3 -Equity.

Current report

On June 13, 2024, we entered into purchase agreements with certain institutional and accredited investors to issue and sell in a private placement an aggregate of 340,932,212 shares of our common stock at a price of $9.14 per share, and Pre-Funded Warrants to purchase 42,000,000 shares of our common stock at a price of $9.13999 per Pre-Funded Warrant. Each Pre-Funded Warrant has an exercise price of $0.00001 per share, is exercisable immediately and until the Pre-Funded Warrant is exercised in full. The closing of the issuance and sale of these securities was consummated on July 19, 2024, and generated gross proceeds of approximately $3.5 billion before deducting agent fees and offering expenses.

Current report

On July 22, 2024, we entered into additional purchase agreements with certain institutional and accredited investors to issue and sell in a private placement an aggregate of 67,833,699 shares of our common stock at a price of $9.14 per share. The closing of the issuance and sale of these securities was consummated on July 25, 2024, and generated gross proceeds of approximately $620 million, before deducting agent fees and offering expenses.

Current report

Under the terms of the Investment Agreement, the Company declared a $17.4 million aggregate cash dividend to its stockholders of record as of the day before the closing of the Equity Investment. The dividend was paid from proceeds received by the Company from the Equity Investment. Under the terms of the Convertible Preferred Stock, dividends are paid quarterly when, as and if declared by the Board of Directors of the Company (the "Board"), at the rate per annum of 9% per share.

Current report

The Company's cash balance was $971.3 million as of June 30, 2024 and consisted primarily of cash on deposit with banks and investments in money market funds. Following the close of the private placements, the Company had approximately $5.0 billion of cash on hand and no outstanding debt obligations. We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

Current report

Cash used in operating activities

Current report

Cash used in operating activities increased by $359,000, compared with the same period in the prior year. The year-over-year increase is attributed to higher personnel costs associated with the execution of the Company's strategy as contemplated in the Investment Agreement.

Current report

Cash used in investing activities increased by $38,000, compared with the same period in the prior year. The year-over-year increase is attributed to IT equipment purchases.

Current report

Cash provided by financing activities was $965.9 million, compared with $531,000 of cash used in financing activities in the same period in the prior year. The year-over-year increase is attributed to the Equity Investment of June 6, 2024.

Previous report

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous report

This quarterly report on Form 10-Q and other reports filed by SilverSun Technologies, Inc. and its wholly owned subsidiaries, SWK Technologies, Inc., Secure Cloud Services, Inc., and Critical Cyber Defense Corp. (collectively the “Company”, “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Previous report

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Previous report

The Company is engaged in providing transformational business management applications and technologies and professional consulting services to small and medium size companies, primarily in the manufacturing, distribution, and service industries.

Previous report

We are executing a multi-pronged business strategy centered on recurring revenue, customer retention and on rapidly increasing the size of our installed customer base. The growth of our customer base is accomplished via our traditional sales and marketing programs and acquisitions. After a customer is secured, our strategy is to up-sell and cross-sell, providing the customer with advanced technologies and third-party add-ons that help them digitally transform their business. These add-on products could include application hosting, cybersecurity, warehouse management, human capital management, payment automation, sales tax compliance or any number of other products or services that we represent. Many of these incremental products and services are billed on a subscription basis, often paying monthly for the service, which increases our monthly recurring revenue (“MRR”). This strategy increases the average revenue per customer, which facilitates our continued growth, and reduces our cost of customer acquisition, which enhances our profitability profile.

Previous report

Our core strength is rooted in our ability to discover and identify the driving forces of change that are affecting – or will affect – businesses in a wide range of industries. We invest valuable time and resources to fully understand how technology is transforming the business management landscape and what current or emerging innovations are deserving of a clients’ attention. By leveraging this knowledge and foresight, our growing list of clients are empowered with the means to more effectively manage their businesses; to capitalize on real-time insight drawn from their data resources; and to materially profit from enhanced operational functionality, process flexibility and expedited process execution.

Previous report

We are a business application, technology and consulting company providing strategies and solutions to meet our clients’ information, technology and business management needs. Our services and technologies enable customers to manage, protect and monetize their enterprise assets whether on-premise or in the cloud. As a value-added reseller of business application software, we offer solutions for accounting and business management, financial reporting, Enterprise Resource Planning (“ERP”), Human Capital Management (“HCM”), Warehouse Management Systems (“WMS”), Customer Relationship Management (“CRM”), and Business Intelligence (“BI”). Additionally, we have our own development staff building software solutions for various ERP enhancements. Our value-added services focus on consulting and professional services, specialized programming, training, and technical support. We have a dedicated Information Technology (“IT”) network services practice that provides managed services, Infrastructure-as-a-Service, cybersecurity, application hosting, disaster recovery, business continuity, cloud and other services. Our customers are nationwide, with concentrations in the New York/New Jersey metropolitan area, Arizona, Connecticut, Southern California, North Carolina, Washington, Oregon and Illinois.

Previous report

Our core business is divided into the following practice areas:

Previous report

The Company resells ERP software published by Sage Software, including Sage Intacct, Acumatica and other providers for the financial accounting requirements of small- and medium-sized businesses focused on manufacturing, distribution, and professional services, and the delivery of related services from the sales of these products, including installation, implementation, support and training. The programs perform and support a wide variety of functions related to accounting, including financial reporting, accounts payable and accounts receivable, and inventory management.

Previous report

We provide end-user technical support services through our support/help desk. Our product and technology consultants assist customers calling with questions about product features, functions, usability issues, and configurations. The support/help desk offers services in a variety of ways, including prepaid services, time and materials billed as utilized and annual support contracts. Customers can communicate with the support/help desk through e-mail, telephone, and fax channels. Standard support/help desk services are offered during normal business hours five (5) days per week.

Previous report

We provide comprehensive IT managed services, Infrastructure-as-a-Service, cybersecurity, business continuity, disaster recovery, data back-up, network maintenance and service upgrades designed to eliminate the IT concerns of our customers. We are a Microsoft Solutions Provider. Our staff includes engineers who maintain certifications from Microsoft and Sage Software. They are Microsoft Certified Systems Engineers and Microsoft Certified Professionals, and they provide a host of services for our clients, including remote network monitoring, server implementation, support and assistance, operation and maintenance of large central systems, technical design of network infrastructure, technical troubleshooting for large scale problems, network and server security, and backup, archiving, and storage of data from servers. There are numerous competitors, both larger and smaller, nationally and locally, with whom we compete in this market.

Previous report

Application hosting is a type of SaaS (Software-as-a-Service) hosting solution that allows applications to be available from a remote cloud infrastructure and to be accessed by users through the internet.

Previous report

Investing in the acquisition of other companies and proprietary business management solutions has been an important growth strategy for our Company, allowing us to rapidly expand into new geographic markets and create new and exciting profit centers. To date, we have completed a series of strategic ventures that have served to fundamentally strengthen our Company’s operating platform and materially expand our footprint to nearly every U.S. state. More specifically, over the past fifteen years, we have outright acquired select assets of or entered into revenue sharing agreements with Business Tech Solutions Group, Inc.; Wolen Katz Associates; AMP-BEST Consulting, Inc.; IncorTech; Micro-Point, Inc.; HighTower, Inc.; Point Solutions, LLC; SGEN, LLC., ESC, Inc., 2000 SOFT, Inc., Productive Tech Inc., The Macabe Associates, Oates & Co; Info Sys Management, Inc., Nellnube, Inc., Partners in Technology Inc., Prairie Technology Solutions Group, Inc., Computer Management Services, LLC, Business Software Solutions, PeopleSense, Inc., Dynamic Tech Services, Inc., NEO3, LLC, and more recently JCS Computer Resource Corporation.

Previous report

Additionally, it is our intention to continue to increase our business by seeking additional opportunities through potential acquisitions, revenue sharing arrangements, partnerships or investments. Such acquisitions, revenue sharing arrangements, partnerships or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.

Previous report

During the first three months of 2024, the Company continued to expand its customer base and growth trend which we believe will provide a basis for future growth.

Previous report

Our strategy is to grow our business through organic growth of our software applications, technology solutions and managed services, as well as expansion through acquisitions. We have established a national presence via our internal marketing, sales programs, and acquisitions, and now have ERP customers throughout most of the United States. To remain competitive and continue to grow, we continue to invest resources in our people, product development, marketing, and sales capabilities, and we expect to continue to do so in the future. During the three months ended March 31, 2024 the Company continued to expand its customer base, which we believe provides a basis for future growth. Revenues increased 10% to $14.4 million for the three months ended March 31, 2024 as compared to $13.1 million for the corresponding period in 2023. Our Acumatica and Sage product revenue continues to grow, and we are excited about the opportunity for growth with our Sage Intacct product.

Previous report

As previously disclosed on a Current Report on Form 8-K filed on December 4, 2023, on December 3, 2023, the Company entered into an Investment Agreement (the “Original Investment Agreement”), with JPE, a Delaware limited liability company, and the other investors party thereto (collectively with JPE, the “Investors”), providing for, among other things, an aggregate investment by the Investors of $1,000,000,000 in cash in the Company (collectively, the “Equity Investment”) and a spin-off of the Company’s existing business to its legacy stockholders (the “Spin-Off”).

Previous report

On April 14, 2024, the Company entered into an Amended and Restated Investment Agreement (the “A&R Investment Agreement”) with JPE (on behalf of itself and on behalf of each of the other Investors) amending and restating the Original Investment Agreement.

Previous report

Pursuant to the A&R Investment Agreement, among other amendments to the Original Investment Agreement, the Spin-Off will not occur, and the Company’s existing business will continue to be owned by the Company. The Company’s stockholders as of the date that is one day prior to the closing of the Equity Investment will be entitled to receive an aggregate cash dividend of $17,400,000 (amended from the aggregate cash dividend of $2,500,000 contemplated by the Original Investment Agreement), to be paid from proceeds received by the Company from the Equity Investment, and SilverSun’s existing operations will be retained. The other material terms of the other transactions contemplated by the Original Investment Agreement, including the Equity Investment, are not affected by the amendments contained in the A&R Investment Agreement. The transactions contemplated by the A&R Investment Agreement, which have been approved by the Company’s board of directors, are subject to approval by the Company’s stockholders and other customary closing conditions.

Previous report

As previously disclosed, prior to the closing of the Equity Investment, the Company will amend and restate its certificate of incorporation to, among other things, effect an 8:1 reverse stock split with respect to the Company’s common stock. In addition, certain board designation rights of JPE that were contemplated to be included in the Original Investment Agreement will instead be included in amendments to the Company’s certificate of incorporation.

Previous report

The descriptions of the A&R Investment Agreement and the related Exhibits contained herein are qualified in their entirety by reference to the A&R Investment Agreement and the Exhibits thereto, copies of which are filed as Exhibit 2.5 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

Previous report

On April 18, 2024, the Company filed its Preliminary Proxy Statement with the SEC for the Special Meeting of shareholders.

Previous report

Revenues

Previous report

For the three months ended March 31, 2024, revenues increased $1,307,817 (10.0%) to $14,435,555 as compared to $13,127,738 for the three months ended March 31, 2023. This increase is mostly attributed to an increase in professional consulting revenues as well as increases in software revenue and subscription income.

Previous report

Software revenues increased $157,672 (4.7%) to $3,480,001 for the three months ended March 31, 2024 as compared to $3,322,329 for the three months ended March 31, 2023, primarily because of an increase in our ERP software sales, especially for Sage Intacct and Acumatica.

Previous report

Service and other revenue increased $1,150,145 (11.7%) to $10,955,554 for the three months ended March 31, 2024 as compared to $9,805,409 for the three months ended March 31, 2023. This increase is mainly attributed to the increase in professional services, especially for our Acumatica, Sage 100, and Sage Intacct products, as well as an increase in revenue in our hosting services and increase in subscription income. Recruiting continues to be a difficult challenge, but our efforts to increase our consulting staff with additional resources, as well as system improvements, have yielded a positive result in our financial performance. We have also utilized some outside contractors to assist in projects because of our growth.

Previous report

Gross profit

Previous report

Gross profit for the three months ended March 31, 2024 increased $299,927 (5.6%) to $5,657,487 as compared to $5,357,560 for the three months ended March 31, 2023. For the three months ended March 31, 2024, the overall gross profit percentage was 39.2% as compared to 40.8% for the three months ended March 31, 2023.

Previous report

The gross profit attributed to software revenues decreased $108,876 (7.8%) to $1,281,178 for the three months ended March 31, 2024 as compared to $1,390,054 for the three months ended March 31, 2023, due lower software revenues in Human Capital Management practice and lower margins on third party software that are incorporated into the vendors’ price list for which we get a lower margin. For the three months ended March 31, 2024, the gross profit percentage on software revenue was 36.8% as compared to 41.8% for the three months ended March 31, 2023.

Previous report

The gross profit attributed to services and other increased $408,803 (10.3%) to $4,376,309 for the three months ended March 31, 2024 as compared to $3,967,506 for the three months ended March 31, 2023. This increase is attributed to revenue increases in managed services and application hosting as well as a n increase in subscription income. For the three months ended March 31, 2024, the gross profit percentage on service revenue was 39.9% as compared to 40.5% for the three months ended March 31, 2023.

Previous report

Selling and marketing expenses increased $166,713 (7.7%) to $2,345,416 for the three months ended March 31, 2024 as compared to $2,178,703 for the three months ended March 31, 2023. This increase is primarily due to increased salary increases, new personnel, as well as increased travel expenses associated with attendance at trade shows and conferences.

Previous report

General and administrative expenses increased $283,878 (11.1%) to $2,843,906 for the three months ended March 31, 2024 as compared to $2,560,028 for the three months ended March 31, 2023. This increase in expenses for the three months ended March 31, 2024 is a result of salary increases and increases in employee benefits, such as medical and 401k match, as well as an increase in license fees.

Previous report

Share-based compensation decreased to $-0- for the three months ended March 31, 2024 as compared to $41,497 for the three months ended March 31, 2023 as share-based compensation has been fully amortized.

Previous report

Depreciation and amortization expense increased $32,684 (15.7%) to $240,479 for the three months ended March 31, 2024 as compared to $207,795 for the three months ended March 31, 2023. Higher amortization as a result of the JCS asset purchase was partially offset by lower depreciation as a result of certain assets being fully depreciated.

Previous report

Income (loss) from operations

Previous report

As a result of the above, for the three months ended March 31, 2024, the Company had net income from operations of $227,686 as compared to net income from operations of $369,537 for the three months ended March 31, 2023.

Previous report

The uncertainty on the economy continues to create uncertainty for the Company in the coming months and quarters. While our Company has not been significantly impacted because of this uncertainty, the potential negative impact on our business, in the future, is impossible to determine at this point, although it is likely that we could suffer negative consequences as many companies go out of business or decrease their technology spending. As such, we need to rely on our own limited resources to weather any economic downturn. Management will continue to monitor developments, explore various cost-cutting measures, and explore other sources of funding, but there is no guarantee we will be successful in doing so.

Previous report

The Company currently has no line of credit or other credit facility with any lender.

Previous report

We continue to review and look for additional operating income opportunities through potential acquisitions, product additions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.

Previous report

In addition to exploring potential acquisitions, product additions and investments, we continue to add new customers and increase sales to existing customers. Management also explores opportunities to increase its business and profitability by entering into collaboration agreements, buying assets, and acquiring companies in the business software and information technology consulting and other markets with solid revenue streams and established customer bases that generate positive cash flow.

Previous report — wording carried elsewhere

Results of Operations for the Three Months Ended March 31, 2024 and 2023 (Continued).