QXO Inc.
11/13/2024 | Press release | Distributed by Public on 11/13/2024 07:04
Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)
qxo-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
____________
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2024
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38063
QXO, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation)
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16-1633636
(IRS Employer Identification No.)
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Five American Lane
Greenwich, CT 06831
(Address of principal executive offices)
(888) 998-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of eachclass
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.00001 per share
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QXO
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The Nasdaq Capital Market
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes xNo o
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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x
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Smaller Reporting Company
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x
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Emerging Growth Company
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o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 6, 2024, there were 409,430,195 shares outstanding of the registrant's common stock.
QXO, INC.
TABLE OF CONTENTS
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Page No.
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited):
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Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023
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5
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Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
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6
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Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2024 and 2023
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7
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023
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9
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Notes to Condensed Consolidated Financial Statements
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10
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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19
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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23
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Item 4.
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Controls and Procedures
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23
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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24
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Item 1A.
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Risk Factors
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24
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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24
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Item 3.
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Defaults Upon Senior Securities
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24
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Item 4.
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Mine Safety Disclosures
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24
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Item 5.
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Other Information
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24
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Item 6.
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Exhibits
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25
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SIGNATURES
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2
PART I - FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements. Statements that are not historical facts, including statements about beliefs, expectations, targets and goals are forward-looking statements. These statements are based on plans, estimates, expectations and/or goals at the time the statements are made, and readers should not place undue reliance on them. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as "may," "will," "should," "expect," "opportunity," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "target," "goal," or "continue," or the negative of these terms or other comparable terms. Forward-looking statements involve inherent risks and uncertainties and readers are cautioned that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statements. Factors that could cause actual results to differ materially from those described herein include, among others:
•risks associated with potential significant volatility and fluctuations in the market price of the Company's common stock;
•risks associated with raising additional equity or debt capital from public or private markets to pursue the Company's business plan, including potentially one or more additional private placements of common stock, and the effects that raising such capital may have on the Company and its business, including the risk of substantial dilution or that the Company's common stock may experience a substantial decline in trading price;
•the possibility that additional future financings may not be available to the Company on acceptable terms or at all;
•the possibility that an active, liquid trading market for the Company's common stock may not be sustained;
•the possibility that the Company's outstanding warrants and preferred stock may or may not be converted or exercised, and the economic impact on the Company and the holders of common stock of the Company that may result from either such exercise or conversion, including dilution, or the continuance of the preferred stock remaining outstanding, and the impact its terms, including its dividend, may have on the Company and the common stock of the Company;
•uncertainties regarding the Company's focus, strategic plans and other management actions;
•the risk that the Company is or becomes highly dependent on the continued leadership of Brad Jacobs as chairman and chief executive officer and the possibility that the loss of Mr. Jacobs in these roles could have a material adverse effect on the Company's business, financial condition and results of operations;
•the possibility that the concentration of ownership by Mr. Jacobs may have the effect of delaying or preventing a change in control of the Company and might affect the market price of shares of the common stock of the Company;
•the risk that Mr. Jacobs' past performance may not be representative of future results;
•the risk that the Company is unable to attract and retain world-class talent;
•the risk that the failure to consummate any acquisition expeditiously, or at all, could have a material adverse effect on the Company's business prospects, financial condition, results of operations or the price of the Company's common stock;
•risks that the Company may not be able to enter into agreements with acquisition targets on attractive terms, or at all, that agreed acquisitions may not be consummated, or, if consummated, that the anticipated benefits thereof may not be realized and that the Company encounter difficulties in integrating and operating such acquired companies, or that matters related to an acquired business (including operating results or liabilities or contingencies) may have a negative effect on the Company or its securities or ability to implement its business strategy, including that any such transaction may be dilutive or have other negative consequences to the Company and its value or the trading prices of its securities;
•risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its business partners, and the loss of confidential information and other business disruptions;
•the possibility that new investors in any future financing transactions could gain rights, preferences and privileges senior to those of the Company's existing stockholders;
•the possibility that building products distribution industry demand may soften or shift substantially due to cyclicality or seasonality or dependence on general economic and political conditions, including inflation or deflation, interest rates, governmental subsidies or incentives, consumer confidence, labor and supply shortages, weather and commodity prices;
•the possibility that regional or global barriers to trade or a global trade war could increase the cost of products in the building products distribution industry, which could adversely impact the competitiveness of such products and the financial results of businesses in the industry;
•risks associated with periodic litigation, regulatory proceedings and enforcement actions, which may adversely affect the Company's business and financial performance;
3
•uncertainties regarding general economic, business, competitive, legal, regulatory, tax and geopolitical conditions; and
•other factors, including those set forth in the Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q.
The company cautions that forward-looking statements should not be relied on as predictions of future events, and these statements are not guarantees of performance or results. Forward-looking statements herein speak only as of the date each statement is made. The Company undertakes no obligation to update any of these statements in light of new information or future events, except to the extent required by applicable law.
4
Item 1. Financial Statements (Unaudited)
QXO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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September 30, 2024 |
December 31, 2023 |
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| ASSETS | (unaudited) | |||
| Current assets: | ||||
| Cash and cash equivalents | $ | 5,037,112 | $ | 6,143 |
| Accounts receivable, net | 2,236 | 2,969 | ||
| Prepaid expenses and other current assets | 16,291 | 2,684 | ||
| Total current assets | 5,055,639 | 11,796 | ||
| Property and equipment, net | 456 | 503 | ||
| Operating lease right-of-use assets | 320 | 522 | ||
| Intangible assets, net | 4,246 | 4,919 | ||
| Goodwill | 1,160 | 1,140 | ||
| Deferred tax assets | 1,444 | 1,444 | ||
| Other non-current assets | 202 | 171 | ||
| Total assets | $ | 5,063,467 | $ | 20,495 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 3,861 | $ | 4,563 |
| Accrued expenses | 12,488 | 2,681 | ||
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Deferred revenue
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2,867 | 3,161 | ||
| Long-term debt - current portion | - | 702 | ||
| Finance lease obligations - current portion | 126 | 154 | ||
| Operating lease liabilities - current portion | 205 | 263 | ||
| Total current liabilities | 19,547 | 11,524 | ||
| Long-term debt net of current portion | - | 994 | ||
| Finance lease obligations net of current portion | 223 | 247 | ||
| Operating lease liabilities net of current portion | 115 | 259 | ||
| Total liabilities | 19,885 | 13,024 | ||
| Commitments and contingencies (Note 8) | ||||
| Stockholders' equity: | ||||
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Preferred stock, $0.001 par value; authorized 10,000,000 shares, 1,000,000 and 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
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498,621 | - | ||
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Common stock, $0.00001 par value; authorized 2,000,000,000 shares, 409,430,195 and 664,448 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively1
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4 | - | ||
| Additional paid-in capital | 4,539,975 | 9,419 | ||
| Retained earnings (accumulated deficit) | 4,982 | (1,948) | ||
| Total stockholders' equity | 5,043,582 | 7,471 | ||
| Total liabilities and stockholders' equity | $ | 5,063,467 | $ | 20,495 |
See accompanying notes to the unaudited condensed consolidated financial statements.
1 Amounts have been adjusted to reflect the 8-for-1 Reverse Stock Split effective June 6, 2024. See Note 3 - Equityfor additional details.
5
QXO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||
| Revenue: | ||||||||
| Software product, net | $ | 3,028 | $ | 2,850 | $ | 10,284 | $ | 9,471 |
| Service and other, net | 10,127 | 10,573 | 31,846 | 30,337 | ||||
| Total revenue, net | 13,155 | 13,423 | 42,130 | 39,808 | ||||
| Cost of revenue: | ||||||||
| Software product | 1,822 | 1,754 | 6,390 | 5,714 | ||||
| Service and other | 5,891 | 6,319 | 18,846 | 18,201 | ||||
| Total cost of revenue | 7,713 | 8,073 | 25,236 | 23,915 | ||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | 39,023 | 7,712 | 54,047 | 17,018 | ||||
| Depreciation and amortization expenses | 245 | 196 | 746 | 608 | ||||
| Total operating expenses | 39,268 | 7,908 | 54,793 | 17,626 | ||||
| Loss from operations | (33,826) | (2,558) | (37,899) | (1,733) | ||||
| Other income (expense), net: | ||||||||
| Interest income (expense), net | 56,989 | (8) | 60,438 | (42) | ||||
| Total other income (expense) | 56,989 | (8) | 60,438 | (42) | ||||
| Income (loss) before taxes | 23,163 | (2,566) | 22,539 | (1,775) | ||||
| Provision (benefit) for income taxes | 6,031 | (456) | 5,859 | (286) | ||||
| Net income (loss) | $ | 17,132 | $ | (2,110) | $ | 16,680 | $ | (1,489) |
| Loss per common share - basic and diluted (Note 4) | $ | (0.01) | $ | (3.21) | $ | (0.10) | $ | (2.27) |
| Total weighted average common shares outstanding:1 | ||||||||
| Basic | 358,813 | 657 | 120,919 | 657 | ||||
| Diluted | 358,813 | 657 | 120,919 | 657 |
See accompanying notes to the unaudited condensed consolidated financial statements.
1Amounts have been adjusted to reflect the 8-for-1 Reverse Stock Split effective June 6, 2024. See Note 3 - Equityfor additional details.
6
QXO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024
| Preferred Stock | Common Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Total Stockholders' Equity |
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| Shares | Amount | Shares | Amount | |||||||||||
| Balance at July 1, 2024 | 1,000 | $ | 498,684 | 664 | $ | - | $ | 474,951 | $ | (2,400) | $ | 971,235 | ||
| Issuance of convertible preferred stock and warrants, net of issuance costs | - | (63) | - | - | (60) | - | (123) | |||||||
| Issuance of common stock and pre-funded warrants, net of issuance costs | - | - | 408,766 | 4 | 4,051,099 | - | 4,051,103 | |||||||
| Preferred stock dividend | - | - | - | - | - | (9,750) | (9,750) | |||||||
| Share-based compensation | - | - | - | - | 13,985 | - | 13,985 | |||||||
| Net income | - | - | - | - | - | 17,132 | 17,132 | |||||||
| Balance at September 30, 2024 | 1,000 | $ | 498,621 | 409,430 | $ | 4 | $ | 4,539,975 | $ | 4,982 | $ | 5,043,582 |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
| Preferred Stock | Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders' Equity |
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| Shares | Amount | Shares1 | Amount | |||||||||
| Balance at July 1, 2023 | - | $ | - | 657 | $ | - | $ | 10,471 | $ | (256) | $ | 10,215 |
| Common stock dividend | - | - | - | - | (1,051) | - | (1,051) | |||||
| Net loss | - | - | - | - | - | (2,110) | (2,110) | |||||
| Balance at September 30, 2023 | - | $ | - | 657 | $ | - | $ | 9,420 | $ | (2,366) | $ | 7,054 |
See accompanying notes to the unaudited condensed consolidated financial statements.
1 Amounts have been adjusted to reflect the 8-for-1 Reverse Stock Split effective June 6, 2024. See Note 3 - Equityfor additional details.
7
QXO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(in thousands)
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
| Preferred Stock | Common Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Total Stockholders' Equity |
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| Shares | Amount |
Shares1
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Amount | |||||||||
| Balance at January 1, 2024 | - | $ | - | 664 | $ | - | $ | 9,419 | $ | (1,948) | $ | 7,471 |
| Issuance of convertible preferred stock and warrants, net of issuance costs | 1,000 | 498,621 | - | - | 482,917 | - | 981,538 | |||||
| Issuance of common stock and pre-funded warrants, net of issuance costs | - | - | 408,766 | 4 | 4,051,099 | - | 4,051,103 | |||||
| Cash paid for fractional shares | - | - | - | - | (45) | - | (45) | |||||
| Common stock dividend | - | - | - | - | (17,400) | - | (17,400) | |||||
| Preferred stock dividend | - | - | - | - | - | (9,750) | (9,750) | |||||
| Share-based compensation | - | - | - | - | 13,985 | - | 13,985 | |||||
| Net income | - | - | - | - | - | 16,680 | 16,680 | |||||
| Balance at September 30, 2024 | 1,000 | $ | 498,621 | 409,430 | $ | 4 | $ | 4,539,975 | $ | 4,982 | $ | 5,043,582 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
| Preferred Stock | Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders' Equity |
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| Shares | Amount |
Shares1
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Amount | |||||||||
| Balance at January 1, 2023 | - | $ | - | 657 | $ | - | $ | 10,430 | $ | (877) | $ | 9,553 |
| Common stock dividend | - | - | - | - | (1,051) | - | (1,051) | |||||
| Share-based compensation | - | - | - | - | 41 | - | 41 | |||||
| Net loss | - | - | - | - | - | (1,489) | (1,489) | |||||
| Balance at September 30, 2023 | - | $ | - | 657 | $ | - | $ | 9,420 | $ | (2,366) | $ | 7,054 |
See accompanying notes to the unaudited condensed consolidated financial statements.
____________________________________
1 Amounts have been adjusted to reflect the 8-for-1 Reverse Stock Split effective June 6, 2024. See Note 3 - Equityfor additional details.
8
QXO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||
| 2024 | 2023 | |||
| Cash flows from operating activities: | ||||
| Net income (loss) | $ | 16,680 | $ | (1,489) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Deferred income taxes | - | (236) | ||
| Depreciation | 198 | 253 | ||
| Amortization of intangibles | 653 | 486 | ||
| Non-cash lease expense | 202 | 273 | ||
| Provision for expected losses | 25 | (55) | ||
| Share-based compensation | 13,985 | 41 | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | 708 | (407) | ||
| Prepaid expenses and other current assets | (10,106) | 1,996 | ||
| Other assets | (31) | 7 | ||
| Accounts payable | (702) | 229 | ||
| Accrued expenses | 9,807 | 398 | ||
| Deferred revenue | (294) | (405) | ||
| Operating lease liabilities | (202) | (273) | ||
| Net cash provided by operating activities | 30,923 | 818 | ||
| Cash flows from investing activities: | ||||
| Purchase of property and equipment | (64) | (75) | ||
| Net cash used in investing activities | (64) | (75) | ||
| Cash flows from financing activities: | ||||
| Proceeds from the issuance of common stock and pre-funded warrants, net of issuance costs | 4,051,103 | - | ||
| Proceeds from issuance of preferred stock and warrants, net of issuance costs | 981,538 | - | ||
| Payment of preferred stock dividend | (9,750) | - | ||
| Payment of common-stock dividend | (17,400) | (1,051) | ||
| Payment of long-term debt | (1,696) | (659) | ||
| Payment for fractional shares | (45) | - | ||
| Payment of finance lease obligations | (140) | (162) | ||
| Net cash provided by (used in) financing activities | 5,003,610 | (1,872) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 5,034,469 | (1,129) | ||
| Cash, cash equivalents and restricted cash, beginning of period | 6,143 | 8,009 | ||
| Cash, cash equivalents and restricted cash, end of period | $ | 5,040,612 | $ | 6,880 |
| Cash paid during period for: | ||||
| Interest | $ | 57 | $ | 57 |
| Income taxes | $ | - | $ | 23 |
See accompanying notes to the unaudited condensed consolidated financial statements.
9
QXO INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
QXO, Inc. ("QXO", "we", "our", 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 - Equityof the "Notes to Condensed Consolidated Financial Statements" for further details about the investment and related to changes to our capital structure.
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-size companies in the manufacturing, distribution and services industries.
Our strategy is to build QXO into 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 in annual revenue in the next decade.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTINGPOLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly the financial position of the Company as of September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023 in accordance with accounting principles generally accepted in the United States ("GAAP"). These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and consequently have been condensed and do not include all disclosures normally made in an Annual Report on Form 10-K. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024. All significant inter-company transactions and accounts have been eliminated in consolidation.
Significant Accounting Policies
Other than policies noted herein, there have been no material changes from the significant accounting policies disclosed in Note 2 of the "Notes to Consolidated Financial Statements" included in the Company's Annual Report on Form 10-K.
Reclassifications
The Company has reclassified certain prior period amounts to conform with the current period presentation in the unaudited condensed consolidated balance sheets related to unbilled services and deferred charges which are now presented within prepaid expenses and other current assets. Additionally, the Company has reclassified certain prior period amounts to conform with the current period presentation in the unaudited condensed consolidated statements of operations related to selling and marketing expenses, general and administrative expenses, share-based compensation, and other expense which is now presented within selling, general, and administrative expenses. As further discussed in Note 3 - Equity, all per share amounts and common share amounts have been adjusted on a retroactive basis to reflect the Reverse Stock Split (as defined below).
Use of Estimates
The preparation of unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
10
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash balances across a diversified portfolio of global financial institutions that exceed FDIC insured limits. The Company has not experienced any losses in such accounts. Amounts included in restricted cash represent those required to be set aside by a contractual agreement as collateral for the Company's credit card program. The following table provides a reconciliation of cash and cash equivalents:
| As of | ||||
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Cash and cash equivalents | $ | 5,037,112 | $ | 6,143 |
| Restricted cash included in prepaid expenses and other current assets | 3,500 | - | ||
| Total cash, cash equivalents and restricted cash | $ | 5,040,612 | $ | 6,143 |
Prepaid Expenses and Other Current Assets
The following table presents the components of prepaid expenses and other current assets:
| As of | ||||
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Unbilled services | $ | 449 | $ | 194 |
| Deferred charges | - | 736 | ||
| Restricted cash | 3,500 | - | ||
| Prepaid expenses and other current assets | 12,342 | 1,754 | ||
| Total prepaid expenses and other current assets | $ | 16,291 | $ | 2,684 |
Accrued Expenses
The following table presents the components of accrued expenses:
| As of | ||||
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Accrued interest | $ | - | $ | 25 |
| Accrued payroll and benefits | 5,276 | 1,910 | ||
| Accrued other | 7,212 | 746 | ||
| Total accrued expenses | $ | 12,488 | $ | 2,681 |
Interest Income (Expense), net
The following table presents the components of interest income (expense), net:
| Three Months Ending September 30, | Nine Months Ended September 30, | |||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Interest income | $ | 56,998 | $ | 6 | $ | 60,492 | $ | 16 |
| Interest expense | (9) | (14) | (54) | (58) | ||||
| Interest income (expense), net | $ | 56,989 | $ | (8) | $ | 60,438 | $ | (42) |
11
Revenue Recognition
Components of revenue:
The following table presents the components of revenue:
| Three Months Ending September 30, | Nine Months Ended September 30, | |||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Software revenue | $ | 3,011 | $ | 2,850 | $ | 10,284 | $ | 9,471 |
| Professional consulting revenue | 3,988 | 4,832 | 13,699 | 13,725 | ||||
| Maintenance revenue | 1,450 | 1,486 | 4,252 | 4,104 | ||||
| Ancillary service revenue | 4,706 | 4,255 | 13,895 | 12,508 | ||||
| Total revenue, net | $ | 13,155 | $ | 13,423 | $ | 42,130 | $ | 39,808 |
Roll-forward of Allowance for Expected Credit Losses
The following table represents the roll-forward of the allowance for expected credit losses for the nine months ended September 30, 2024 and the year ended December 31, 2023:
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Balance at beginning of period | $ | 510 | $ | 490 |
| Current period provision for expected losses | 25 | 115 | ||
| Write-offs | (13) | (95) | ||
| Balance at end of period | $ | 522 | $ | 510 |
Advertising and Marketing
Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities. These costs are expensed as incurred.
Deferred Revenue
Deferred revenue consists of maintenance on proprietary products (contract liabilities), customer telephone support services (contract liabilities) and deposits for future consulting services that will be earned as such services are performed over the contractual or stated period, which generally ranges from three to twelve months. As of September 30, 2024, there were $519,200 in deferred maintenance and support services and $2.3 million in deposits for future consulting services. As of December 31, 2023, there were $943,000 in maintenance and support services, and $2.2 million in deposits for future consulting services.
Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The Company's current financial assets and liabilities approximate fair value due to their short-term nature and include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities.
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Property and Equipment
The following is a summary of property and equipment, net:
| As of | ||||
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Leasehold improvements | $ | 99 | $ | 166 |
| Equipment, furniture, and fixtures | 4,159 | 3,943 | ||
|
Property and equipment
|
4,258 | 4,109 | ||
| Less: Accumulated depreciation and amortization | (3,802) | (3,606) | ||
| Property and equipment, net | $ | 456 | $ | 503 |
Depreciation expense related to these assets for the three and nine months ended September 30, 2024 was $56,400 and $198,200, respectively, compared with $75,300 and $253,400 for the three and nine months ended September 30, 2023, respectively.
Share-Based Compensation
The Company recognizes share-based compensation expense based on the equity award's grant date fair value. For grants of restricted stock units ("RSUs") subject to service-based vesting conditions, the fair value is established based on the market price of the common stock on the date of the grant. For grants of performance-based restricted stock units ("pRSUs") subject to market-based vesting conditions, the fair value is established using a Monte Carlo simulation lattice model. The determination of the fair value of share-based awards is affected by the Company's stock price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends. The Company accounts for forfeitures as they occur. The grant date fair value of each RSU is amortized over the requisite service period.
Recent Authoritative Pronouncements
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expense,which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for the fiscal years beginning after December 15, 2026, and for interim periods within the fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosure.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity's effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective beginning with the Company's 2025 annual reporting period. The Company is currently evaluating the timing and impacts of adoption of this ASU.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which updates the required disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. ASU 2023-07 requires that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. ASU 2023-07 additionally requires that a public entity with a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures. This ASC is effective for fiscal years beginning after December 15, 2023, and will be effective for interim periods within fiscal years beginning after December 15, 2024. The Company does not believe the adoption of this standard will have a material impact on the Company's consolidated financial statements.
In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280-General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. This update requires the: i) disclosure and presentation of income or loss related to common stock transactions on the face of the income statement, ii) modification of the existing classification and measurement of redeemable preferred shares and redeemable equity-classified shares, and iii) modification of accounting treatment for stock-based compensation. The FASB has not set an effective date for ASU 2023-03 and early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2023-03 on its consolidated financial statement disclosures.
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NOTE 3 - EQUITY
Investment Agreement
On April 14, 2024, the Company entered into the Amended and Restated Investment Agreement (the "Investment Agreement") among the Company, JPE and the other investors party thereto (collectively, the "Investors"), providing for, among other things, an aggregate investment by the Investors of $1.0 billion in cash in the Company. 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 issued and sold warrants exercisable for an aggregate of 219,010,074 shares of common stock (the "Warrants"). Additionally, we amended the Company's certificate of incorporation to, among other things, effect an 8:1 reverse stock split with respect to the Company's common stock (the "Reverse Stock Split"). The Investment Agreement and related transactions closed on June 6, 2024 (the "Equity Investment") and generated gross proceeds of approximately $1.0 billion before deducting fees and offering expenses.
Following the closing of the Equity Investment, the Board of Directors of the Company was reconstituted such that: i) the number of seats on the Board was designated by JPE, ii) each of the directors (including Mr. Jacobs) was designated by JPE, iii) each standing committee of the Board was reconstituted in a manner designated by JPE, and iv) Mr. Jacobs was appointed as Chairman of the Board of Directors and Chief Executive Officer of the Company.
Issuance of Convertible Preferred Stock
On June 6, 2024, under the terms of the Investment Agreement, the Company issued 1,000,000 shares of Convertible Preferred Stock. The Convertible Preferred Stock has an initial liquidation preference of $1.0 thousand per share, for an aggregate initial liquidation preference of $1 billion. The Convertible Preferred Stock is convertible at any time, in whole or in part and from time to time, at the option of the holder thereof into a number of shares of common stock equal to the then-applicable liquidation preference divided by the conversion price, which initially is $4.566 per share of common stock (subject to customary anti-dilution adjustments). Shares of Convertible Preferred Stock are initially convertible into an aggregate of 219,010,074 shares of common stock (after giving effect to the Reverse Stock Split). The Convertible Preferred Stock is not redeemable or subject to any required offer to purchase.
The Convertible Preferred Stock ranks, with respect to dividend rights and distribution of assets upon liquidation, winding-up or dissolution, senior to the Company's common stock. Holders of Convertible Preferred Stock will vote together with the holders of the Company's common stock on an "as-converted" basis on all matters, except as otherwise required by law. In addition, the approval of holders of at least a majority of the outstanding shares of the Convertible Preferred Stock, voting separately as a single class, will be required for certain matters set forth in the Certificate of Designation for the Convertible Preferred Stock.
Dividends on the Convertible Preferred Stock are payable quarterly, when, as and if declared by the Board of Directors of the Company at the rate per annum of 9% per share on the then-applicable liquidation preference (subject to certain exceptions in the event that the Company pays dividends on shares of its common stock). During the quarter ended September 30, 2024, the Company paid $9.8 million of quarterly dividends to holders of Convertible Preferred Stock. Subsequent to the close of the quarter ended September 30, 2024, the Company paid $22.5 million of quarterly dividends to holders of Convertible Preferred Stock.
Warrants
The aggregate number of shares of the Company's common stock subject to the Warrants is 219,010,074 shares. The Warrants are exercisable at the option of the holder at any time until June 6, 2034. The Warrants have an exercise price of $4.566 per share of common stock with respect to 50% of the Warrants, $6.849 per share of common stock with respect to 25% of the Warrants, and $13.698 per share of common stock with respect to the remaining 25% of the Warrants.
Each Warrant may be exercised, in whole or in part, at any time or times on or after the issuance date and on or before the expiration date at the election of the holder (in such holder's sole discretion) by means of a "cashless exercise" in which the holder will be entitled to receive a number of shares of the Company's common stock equal to the quotient of the product of the Closing Sale Price (as defined in the Warrant Certificate) of a share of the Company's common stock on the trading day immediately preceding the date on which the holder elects to exercise its Warrant, less the adjusted exercise price, multiplied by the number of shares of the Company's common stock issuable upon exercise of such Warrant, divided by the aforementioned Closing Sale Price of a share of the Company's common stock on the trading day immediately preceding the date on which the holder elects to exercise its Warrant.
Equity Investment Dividend
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 on June 12, 2024 from proceeds received by the Company from the Equity Investment.
Reverse Stock Split
On June 6, 2024, as contemplated by the Investment Agreement, the Company effected an 8:1 Reverse Stock Split, which reduced the Company's issued and outstanding share count of common stock from 5,315,581 to 664,284 shares (par value $0.00001 per share). The Company has recast all share and per-share data and amounts to show the effects of the Reverse Stock Split.
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Private Placements
On June 13, 2024, the Company 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 (the "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.
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.
NOTE 4 - EARNINGS (LOSS) PER COMMON SHARE
The Company's Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. Basic and diluted earnings (loss) per share is computed using the two-class method, which is an earnings allocation method that determines earnings (loss) per share for common shares and participating securities. The weighted-average number of common shares outstanding used in the basic and diluted net loss per share calculation include pre-funded warrants as the pre-funded warrants are exercisable at any time for nominal consideration. Both basic and diluted earnings (loss) per common share are adjusted on a retroactive basis to reflect the Reverse Stock Split as discussed in Note 2 - Basis of Presentation and Significant Accounting Policies.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| (in thousands, except per share data) | ||||||||
| Basic and diluted earnings (loss) per share computation: | ||||||||
| Net income (loss) | $ | 17,132 | $ | (2,110) | $ | 16,680 | $ | (1,489) |
| Less: Preferred stock dividend | (22,500) | - | (28,500) | - | ||||
| Less: Undistributed earnings allocated to participating securities | - | - | - | - | ||||
| (Loss) income attributable to common shareholders | (5,368) | (2,110) | (11,820) | (1,489) | ||||
| Weighted-average common shares | 325,030 | 657 | 109,576 | 657 | ||||
| Weighted average pre-funded warrants | 33,783 | - | 11,343 | - | ||||
| Total weighted-average common shares outstanding | 358,813 | 657 | 120,919 | 657 | ||||
| Basic and diluted earnings per share | $ | (0.01) | $ | (3.21) | $ | (0.10) | $ | (2.27) |
The following table summarizes securities that, if exercised, would have aantidilutive effect ondiluted earnings per share attributable to the common shareholder.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| (in thousands) | ||||
| Stock options | - | 20 | - | 20 |
| Convertible Preferred Stock | 219,010 | - | 219,010 | - |
| Warrants | 219,010 | - | 219,010 | - |
| Stock-based awards | 21,711 | - | 21,711 | - |
| Total potential dilutive securities not included in earnings per share | 459,731 | 20 | 459,731 | 20 |
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of proprietary developed software, intellectual property, and customer lists. Proprietary developed software is carried at cost less accumulated amortization; intellectual property, customer lists and acquired contracts are carried at acquisition date fair value less accumulated amortization.
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Intangible assets at September 30, 2024, and December 31, 2023, consisted of the following:
|
As of
|
||||
| (in thousands) | September 30, 2024 | December 31, 2023 | ||
| Proprietary developed software | $ | 390 | $ | 390 |
| Intellectual property, customer lists, and acquired contracts | 9,048 | 9,069 | ||
| Accumulated amortization | (5,192) | (4,540) | ||
| Total intangible assets | $ | 4,246 | $ | 4,919 |
Amortization expense related to the above intangible assets for the three and nine months ended September 30, 2024 was $220,500 and $652,900, respectively, as compared with $162,000 and $485,900 for the three and nine months ended September 30, 2023.
NOTE 6 - LONG-TERM DEBT
As of September 30, 2024, the Company extinguished all long-term debt obligations. As of December 31, 2023, the Company's long-term debt was $1.70 million.
NOTE 7 - LEASES
The Company has entered into lease commitments for equipment that meet the requirements for capitalization. The equipment has been capitalized and is included in property and equipment. The Company leases space in four different locations and has an equipment lease rental with monthly payments ranging from $3,000 to $10,500 that expire at various dates through September 2026.
On January 3, 2024, the Company extended an office lease for two years ended April 30, 2026. Monthly base rent is $10,300 for the first year and $10,500 for the second year. Accordingly, operating lease right of use assets and operating lease liabilities were recognized for the extension in the amount of $236,900 during the year ended December 31, 2023.
The table below presents the operating and financing lease-related assets and liabilities recorded on the unaudited condensed consolidated balance sheets:
| (in thousands) | As of | ||||
| Leases | Balance Sheet Classification | September 30, 2024 | December 31, 2023 | ||
| Assets | |||||
| Operating | Operating lease right-of-use assets | $ | 320 | $ | 522 |
| Financing | Property and equipment, net | 218 | 332 | ||
| Total lease assets | $ | 538 | $ | 854 | |
| Liabilities | |||||
| Current: | |||||
| Finance | Finance lease obligations - current portion | $ | 126 | $ | 154 |
| Operating | Operating lease liabilities - current portion | 205 | 263 | ||
| Non-current: | |||||
| Finance | Finance lease obligations net of current portion | 223 | 247 | ||
| Operating | Operating lease liabilities net of current portion | 115 | 259 | ||
| Total lease liabilities | $ | 669 | $ | 923 |
Total rent expense under operating leases for the three and nine months ended September 30, 2024 was $106,200 and $281,600, respectively, as compared with $106,800 and $319,900 for the three and nine months ended September 30, 2023, respectively.
During the ninemonths ended September 30, 2023, the Company entered into an operating lease to extend the lease for its Arizona location. Accordingly, operating lease right-of-use assets and operating lease liabilities were recognized in the amount of $108,300.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Legal Matters
Various legal claims arise from time to time in the normal course of business. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
16
The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable, and does not believe that the ultimate resolution of any matters to which it is presently a party will have a material adverse effect on the Company's results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company's financial condition, results of operations or cash flows.
NOTE 9 - ASSET PURCHASE AGREEMENT
On November 13, 2023, SWK Technologies, Inc. acquired the customer list and prepaid time from clients of JCS Computer Resource Corporation ("JCS") pursuant to an Asset Purchase Agreement for cash of $278,500 and a promissory note in the amount of $1.0 million (the "JCS Note") for a total consideration of $1.3 million. The customer list was recognized as an intangible asset and will be amortized over its estimated useful life. The JCS Note balance was paid in full on July 24, 2024.
NOTE 10 - INCOME TAXES
The Company's interim provision (benefit) for income taxes is determined based on its annual estimated effective tax rate, applied to the actual year-to-date income, and adjusted for the tax effects of any discrete items. The Company's effective tax rates for the three and nine months ended September 30, 2024 was 25.8% and 25.9%, respectively. The Company's effective tax rates for the three and nine months ended September 30, 2023 were 17.8% and 16.1%, respectively. The Company's effective tax rates for the three and nine months ended September 30, 2024 were based on the the United States federal statutory tax rate of 21% and certain state jurisdictional income tax rates, adjusted for permanent items including transaction costs.
NOTE 11 - EQUITY-BASED COMPENSATION
At the special meeting of the Company's stockholders on May 30, 2024, the stockholders approved the QXO, Inc. 2024 Omnibus Incentive Plan (the "2024 Plan"). The 2024 Plan provides for the grant of options intended to qualify as incentive stock options ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights ("SARs"), restricted share awards, RSUs, performance awards, cash incentive awards, deferred share units and other equity-based and equity-related awards, as well as cash-based awards.
Subject to adjustment for changes in capitalization, the maximum aggregate number of shares of common stock that may be delivered pursuant to awards granted under the 2024 Plan shall be equal to 30,000,000 (the "Plan Share Limit"), of which 30,000,000 shares of common stock may be delivered pursuant to ISOs granted under the 2024 Plan (such amount, the "Plan ISO Limit"). The Company may act prior to the first day of any calendar year to provide that there shall be no increase in the Plan Share Limit for such calendar year or that the increase in the Plan Share Limit for such calendar year shall be a lesser number of shares than would otherwise occur. The number of shares of common stock covered by the Plan Share Limit shall automatically increase on January 1 of each calendar year commencing with January 1, 2025 and on each January 1 thereafter until the 2024 Plan expiration date in an amount equal to 3% of the sum of: i) the number of shares of common stock outstanding as of December 31 of the preceding calendar year, and ii) the number of shares of common stock into which the Convertible Preferred Stock outstanding on December 31 of the preceding calendar year are convertible.
RSUs
The Company granted RSUs which vest subject to the employee's continued employment with the Company through the applicable vesting date. The Company recorded share-based compensation expense for RSUs on a straight-line basis over the requisite service period.
The following table summarizes the activity related to the Company's RSUs awards for the nine months ended September 30, 2024:
| (in thousands, except for weighted average grant date fair value) | Number of RSUs | Weighted Average Grant Date Fair Value | |
| Balance at beginning of period | - | $ | - |
| Granted | 13,291 | 11.52 | |
| Balance at end of period | 13,291 | $ | 11.52 |
As of September 30, 2024, total unrecognized compensation expense related to unvested RSUs was $148.1 million and is expected to be recognized over a weighted-average period of 5.18 years.
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pRSUs
The Company granted pRSUs which include a service-based vesting condition and a market condition for exercisability. The service condition is subject to the employee's continued employment with the Company through the applicable vesting date. The vesting of certain pRSUs is also subject to achievement of performance goals relating to the Company's TSR compared to the TSR ranking of each company that is in the S&P 500 index. The performance goals for a portion of the pRSUs will be measured over a cumulative performance period ending on December 31, 2028, and the performance goals for the remainder of the pRSUs will be measured based on designated performance periods that occur within such cumulative period.
The following table summarizes the market based conditions:
|
Percentile Position vs.
S&P 500 Index Companies
|
Units Earned as a
Percentage of Target
|
|
| Below 55th Percentile | - | % |
| 55th Percentile | 100 | % |
| 65th Percentile | 150 | % |
| 75th Percentile | 175 | % |
| 80th Percentile | 200 | % |
| 90th Percentile | 225 | % |
The following table summarizes the activity related to the Company's pRSUs for the nine months ended September 30, 2024:
| (in thousands, except for weighted average grant date fair value) |
Number of pRSUs
|
Weighted Average Grant Date Fair Value | |
| Balance at beginning of period | - | $ | - |
| Granted | 8,420 | 20.24 | |
| Balance at end of period | 8,420 | $ | 20.24 |
As of September 30, 2024, total unrecognized compensation expense related to unvested pRSUs was $161.5 million and is expected to be recognized over a weighted-average period of 3.72 years.
The fair value of the RSUs with a market condition was determined on the date of grant using a Monte Carlo model to simulate total stockholder return for the Company and peer companies with the following assumptions
| Performance Period | 4.42 years | |
| Weighted-average risk-free interest rate | 4.03 | % |
| Weighted-average expected volatility | 40 | % |
| Weighted-average dividend yield | 0 | % |
The risk-free interest rate is based on the U.S. Treasury yield curve with a term equal to the expected term of the pRSU in effect at the time of grant. Expected volatility is based on historical volatility of the stock of the Company's peer industry group.
As of September 30, 2024, there were 8.3 million additional shares of the Company's common stock reserved for future issuance under the 2024 Plan.
Share-Based Compensation Expense
Share-based compensation expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations. The Company recognized share-based compensation expense as follows:
|
(in thousands)
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| pRSUs | $ | 8,885 | $ | - | $ | 8,885 | $ | - |
| RSUs | 5,100 | - | 5,100 | - | ||||
| Stock options | - | - | - | 41 | ||||
| Total share-based compensation expense | $ | 13,985 | $ | - | $ | 13,985 | $ | 41 |
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The RSUs and pRSUs may vest in whole or in part before the applicable vesting date if the grantee's employment is terminated by the Company without cause or by the grantee with good reason (as defined in the grant agreement), upon death or disability of the grantee or in the event of a change in control of the Company. Upon vesting, the RSUs and pRSUs result in the issuance of shares of the Company's common stock after required tax withholdings. The holders of the RSUs and pRSUs do not have the rights of a stockholder and do not have voting rights until shares are issued and delivered in settlement of the awards.
NOTE 12 - RELATED PARTY TRANSACTIONS
Upon the closing of the Equity Investment, pursuant to the execution of the Investment Agreement, the Company reimbursed JPE for certain transactional, market research and employee costs related to establishing the foundation for QXO to move forward. These costs, as defined in the Investment Agreement, equated to a total reimbursement of $15.3 million, which was treated as a reduction of the proceeds received from the Equity Investment.
In connection with the Equity Investment, Mark Meller was terminated as CEO of SilverSun Technologies, Inc. and entered into a new employment agreement to serve as President of SWK Technologies, a wholly-owned subsidiary of QXO. Mr. Meller received a lump-sum payment of $2.8 million in connection with this agreement.
In connection with the private placement that closed on July 25, 2024, certain directors and officers of the Company purchased an aggregate of 262,585 shares of common stock for $2.4 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed consolidated financial statements would be affected to the extent that there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes appearing elsewhere in this report.
Overview
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 - Equityof the "Notes to the Condensed Consolidated Financial Statements" for further details about the investment and related changes to our capital structure.
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.
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.
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.
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Ourlegacy business has five core components:
•Enterprise Resource Planning Software
Substantially all our initial sales of ERP financial accounting solutions consist of pre-packaged software and associated services to customers in the United States. We resell Sage, Accumatica, and other ERP software products, and provide related services, including installation, implementation, support, training, and a technical help desk.
•Value-Added Services for ERP
Our consulting and professional services organization shepherds our customer relationships from installation to go-live and forward as needed. A significant portion of our service revenue comes from continuing to work with existing customers as their needs change, with flexible revenue options that include prepaid services, time and materials as utilized and annual support.
•IT Managed Network Services and Business Consulting
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.
•Cybersecurity
Our cybersecurity-as-a-service offering is managed by our security operations center and includes incident response, cybersecurity assessments and hacking simulations. This SaaS offering is particularly valuable to customers in compliance-driven and regulated industries, including financial services, pension administration, insurance and the land and title sector.
•Application Hosting
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.
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 September 30, 2024.
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Results of Operations for the Threeand Nine Months Ended September 30, 2024 and 2023
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:
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(in thousands, except percentages)
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Three Months Ended
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Nine Months Ended | ||||||||||||||||||
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% of net revenue
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% of net revenue
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September 30, 2024 |
September 30, 2023 |
%
Change
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September 30, 2024 |
September 30, 2023 |
September 30, 2024 |
September 30, 2023 |
%
Change
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September 30, 2024 |
September 30, 2023 |
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Condensed Consolidated Statements of Operations
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Revenue:
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Software product, net
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$ | 3,028 | $ | 2,850 | 6.2 | % | 23.0 | % | 21.2 | % | $ | 10,284 | $ | 9,471 | 8.6 | % | 24.4 | % | 23.8 | % |
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Service and other, net
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10,127 | 10,573 | (4.2 | %) | 77.0 | % | 78.8 | % | 31,846 | 30,337 | 5.0 | % | 75.6 | % | 76.2 | % | ||||
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Total revenue, net
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13,155 | 13,423 | (2.0 | %) | 100.0 | % | 100.0 | % | 42,130 | 39,808 | 5.8 | % | 100.0 | % | 100.0 | % | ||||
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Cost of revenue:
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Product
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1,822 | 1,754 | 3.9 | % | 13.9 | % | 13.1 | % | 6,390 | 5,714 | 11.8 | % | 15.2 | % | 14.4 | % | ||||
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Service and other
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5,891 | 6,319 | (6.8 | %) | 44.8 | % | 47.1 | % | 18,846 | 18,201 | 3.5 | % | 44.7 | % | 45.7 | % | ||||
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Total cost of revenue
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7,713 | 8,073 | (4.5 | %) | 58.6 | % | 60.1 | % | 25,236 | 23,915 | 5.5 | % | 59.9 | % | 60.1 | % | ||||
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Operating expenses:
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Selling, general and administrative expenses
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39,023 | 7,712 | 406.0 | % | 296.6 | % | 57.5 | % | 54,047 | 17,018 | 217.6 | % | 128.3 | % | 42.8 | % | ||||
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Depreciation and amortization expenses
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245 | 196 | 25.0 | % | 1.9 | % | 1.5 | % | 746 | 608 | 22.7 | % | 1.8 | % | 1.5 | % | ||||
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Total operating expenses
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39,268 | 7,908 | 396.6 | % | 298.5 | % | 58.9 | % | 54,793 | 17,626 | 210.9 | % | 130.1 | % | 44.3 | % | ||||
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Loss from operations
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(33,826) | (2,558) | NM | (257.1 | %) | (19.1 | %) | (37,899) | (1,733) | NM | (90.0 | %) | (4.4 | %) | ||||||
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Interest income (expense), net
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56,989 | (8) | NM | 433.2 | % | (0.1) | % | 60,438 | (42) | NM | 143.5 | % | (0.1 | %) | ||||||
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Income (loss) before taxes
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23,163 | (2,566) | NM | 176.1 | % | (19.1 | %) | 22,539 | (1,775) | NM | 53.5 | % | (4.5 | %) | ||||||
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Provision (benefit) for income taxes
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6,031 | (456) | NM | 45.8 | % | (3.4 | %) | 5,859 | (286) | NM | 13.9 | % | (0.7 | %) | ||||||
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Net income (loss)
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$ | 17,132 | $ | (2,110) | NM | 130.2 | % | (15.7 | %) | $ | 16,680 | $ | (1,489) | NM | 39.6 | % | (3.7 | %) | ||
| NM = Not Meaningful |
Revenue, net
Our consolidated net revenue for the third quarter of 2024 remained relatively consistent, slightly decreasing $268,000 or 2.0%, compared with the same period in the prior year. Our consolidated net revenue for the nine months of 2024 increased $2.3 million or 5.8% compared with the same period in the prior year. Net revenue for the nine months 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 Acumatica product lines, and service revenue increased as we expanded our hosting application services and consulting practices.
Cost of revenue
Cost of revenue for the three months ended September 30, 2024 decreased $360,000 or 4.5%, compared with the same period in the prior year. As a percentage of revenue, margin expanded to 41.4%, compared with 39.9% 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 nine months of 2024, cost of revenue increased $1.3 million or 5.5% associated with the increase in revenue, compared with the same period in the prior year. Margin increased to 40.1%, compared with 39.9% 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.
Operating expenses
Selling, general and administrative expenses for the third quarter of 2024 increased $31.3 million or 406.0%, compared with the same period in the prior year. Selling, general and administrative expenses for the nine months of 2024 increased $37.0 million or 217.6%, compared with the same period in the prior year. The year-over-year increases in operating expenses are primarily due to: i) salary and expense and share-based compensation associated with the Company's new senior management team put in place to execute our expansive growth plan, ii) the severance payment contemplated in the Investment Agreement for Mark Meller and, iii) certain transaction costs associated with the private placements.
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Depreciation and amortization expensefor the third quarter of 2024 increased $49,000or 25.0%, compared with the same period in the prior year. Depreciation and amortization expense for the first ninemonths of 2024 increased $138,000or 22.7%, 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.
Interest income (expense), net
Interest income increased $57.0 million and $60.5 million for the three- and nine-month periods ended September 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 and the private placements that closed in July 2024.
Non-GAAP Financial Measures
Adjusted EBITDA
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 income (loss) 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 income (loss), the most directly comparable GAAP financial measure. Management uses Adjusted EBITDA in making financial, operating and planning decisions and evaluating QXO's ongoing performance.
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.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, net income (loss), and our other GAAP results.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA.
| Three Months Ended | Nine Months Ended | |||||||
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(in thousands)
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September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||||
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Reconciliation of net income (loss) to Adjusted EBITDA
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Net income (loss)
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$ | 17,132 | $ | (2,110) | $ | 16,680 | $ | (1,489) |
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Add (deduct):
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Depreciation and amortization
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277 | 237 | 851 | 739 | ||||
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Share-based compensation
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13,985 | - | 13,985 | 41 | ||||
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Interest (income) expense
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(56,989) | 8 | (60,438) | 42 | ||||
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Provision (benefit) for income taxes
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6,031 | (456) | 5,859 | (286) | ||||
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Transaction costs
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8,095 | 2,986 | 8,118 | 2,986 | ||||
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Severance costs
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- | - | 2,768 | - | ||||
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Adjusted EBITDA
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$ | (11,469) | $ | 665 | $ | (12,177) | $ | 2,033 |
The year-over-year declines in three- and nine-month 2024 Adjusted EBITDA were due to higher employee-related costs in the third quarter, reflecting the introduction of a new senior management team to execute the Company's expansive growth plan.
Liquidity and Capital Resources
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.
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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.
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.
Under the terms of the Investment Agreement, we 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 from the Equity Investment. Under the terms of the Convertible Preferred Stock, dividends are paid quarterly when, as and if declared by our Board of Directors (the "Board"), at the rate per annum of 9% per share. During the quarter ended September 30, 2024, we paid $9.8 million of quarterly dividends to holders of Convertible Preferred Stock. Subsequent to the close of the quarter ended September 30, 2024, we paid $22.5 million of quarterly dividends to holders of Convertible Preferred Stock.
The Company's cash balance was $5.04 billion as of September 30, 2024 and consisted primarily of cash on deposit with banks and investments in money market funds. 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.
Cashprovided by operatingactivities
Cash provided by operating activities increased by $30.1 million, compared with the same period in the prior year. The year-over-year increase is attributed to interest income earned in the period offset by higher personnel costs associated with the execution of the Company's strategy as contemplated in the Investment Agreement.
Cash used in investing activities
Cash used in investing activities decreased by $11,000, compared with the same period in the prior year. Investment in capital expenditures is mainly associated with IT equipment to support the business.
Cash provided by(used in) financing activities
Cash provided by financing activities was $5.0 billion, compared with $1.9 million 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 and the private placements in July 2024. The Company paid the common stock dividend, the preferred stock dividend, and paid its long-term debt obligations with proceeds from these investments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not hold any derivative instruments and do not engage in any hedgingactivities.
Item 4. Controls andProcedures
Management's Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this Quarterly Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024.
Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the nine months ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information related to our legal proceedings, refer to Note 8 - Commitments and Contingencies of Item 1, "Financial Statements" of this Quarterly Report.
Item 1A. Risk Factors
There are no material changes to the risk factors previously disclosed in Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item3.Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item5. Other Information
None.
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Item6. Exhibits
| 10.1 |
Employment Agreement, dated as of July 17, 2024, by and between QXO, Inc. and Ihsan Essaid.*
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| 10.2 | |
| 31.1 |
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
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| 31.2 |
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
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| 32.1 |
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
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| 32.2 |
Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
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| 101 | INS Inline XBRL Instance Document |
| 101 | SCH Inline XBRL Taxonomy Extension Schema |
| 101 | CAL Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101 | DEF Inline XBRL Taxonomy Extension Definition Linkbase |
| 101 | LAB Inline XBRL Taxonomy Extension Label Linkbase |
| 101 | PRE Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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* Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
QXO, INC.
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Dated: November 13, 2024
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By:
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/s/ Brad Jacobs
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Brad Jacobs
Chief Executive Officer
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(Principal Executive Officer)
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Dated: November 13, 2024
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By:
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/s/ Ihsan Essaid
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Ihsan Essaid
ChiefFinancial Officer
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(Principal Financial Officer)
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