# QXO, Inc. (QXO) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from QXO, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1236275/000162828025009626/qxo-20241231.htm
Accession: 0001628280-25-009626
Filing date: 2025-03-04
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/QXO/
All MD&A years: /company/QXO/mda/
Previous year: /company/QXO/mda/fy2023/ (FY 2023)
Next year: /company/QXO/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our 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 consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our 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 consolidated financial statements and notes thereto appearing elsewhere in this Annual 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 Nasdaq 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 Item 8 of Part II, “Financial Statements and Supplementary Data” of this Annual Report for further details about the investment and related changes to our capital structure. On January 17, 2025, the Company transferred the listing of its common stock, par value $0.00001 per share (the “common stock”), from Nasdaq to the NYSE. The Company’s listing and trading of the common stock on Nasdaq ended at market close on January 16, 2025. The Company’s common stock began trading on the NYSE on January 17, 2025.

QXO, Inc. is a technology solutions and professional services company that helps businesses manage and monetize their enterprise assets. We do this through our 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 and operational transformation of acquired businesses. We are executing our strategy toward a target of tens of billions of dollars of annual revenue in the next decade.

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Results of Operations for the Year Ended December 31, 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:

[[GREPCENT_TABLE]]
[["(in thousands, except percentages)","","","Year Ended"],["","","","","","","","","","","","","","","","% of net revenue"],["","","","","","","","","","","","December 31, 2024","","December 31, 2023","","%Change","","December 31, 2024","","December 31, 2023"],["Consolidated Statements of Operations"],["Revenue:"],["Software product, net","","","","","","","","","","","$","15,261","","","$","14,111","","","8.1","%","","26.8","%","","25.9","%"],["Service and other, net","","","","","","","","","","","41,612","","","40,406","","","3.0","%","","73.2","%","","74.1","%"],["Total revenue, net","","","","","","","","","","","56,873","","","54,517","","","4.3","%","","100.0","%","","100.0","%"],["Cost of revenue:"],["Product","","","","","","","","","","","9,434","","","8,513","","","10.8","%","","16.6","%","","15.6","%"],["Service and other","","","","","","","","","","","24,507","","","24,390","","","0.5","%","","43.1","%","","44.7","%"],["Total cost of revenue","","","","","","","","","","","33,941","","","32,903","","","3.2","%","","59.7","%","","60.3","%"],["Operating expenses:"],["Selling, general and administrative expenses","","","","","","","","","","","92,943","","","22,097","","","320.6","%","","163.4","%","","40.5","%"],["Depreciation and amortization expenses","","","","","","","","","","","989","","","828","","","19.4","%","","1.7","%","","1.5","%"],["Total operating expenses","","","","","","","","","","","93,932","","","22,925","","","309.7","%","","165.1","%","","42.0","%"],["Loss from operations","","","","","","","","","","","(71,000)","","","(1,311)","","","NM","","(124.8","%)","","(2.4","%)"],["Interest income (expense), net","","","","","","","","","","","121,812","","","(56)","","","NM","","214.2","%","","(0.1","%)"],["Income (loss) before taxes","","","","","","","","","","","50,812","","","(1,367)","","","NM","","89.3","%","","(2.5","%)"],["Provision (benefit) for income taxes","","","","","","","","","","","22,843","","","(297)","","","NM","","40.2","%","","(0.5","%)"],["Net income (loss)","","","","","","","","","","","$","27,969","","","$","(1,070)","","","NM","","49.2","%","","(2.0","%)"],["NM = Not Meaningful"]]
[[/GREPCENT_TABLE]]

Revenue, net

Our consolidated net revenue for the year ended December 31, 2024 increased $2.4 million or 4.3% compared with the same period in the prior year. Net revenue for the year ended December 31, 2024 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 year ended December 31, 2024 increased $1.0 million or 3.2% associated with the increase in revenue, compared with the same period in the prior year. Margin increased to 40.3%, compared with 39.6% 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 year ended December 31, 2024 increased $70.8 million or 320.6%, 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 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 and our strategic plan.

Depreciation and amortization expense for the year ended December 31, 2024 increased $0.2 million or 19.4%, 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.

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Interest income (expense), net

Interest income for the year ended December 31, 2024 increased $121.9 million, compared with the same period 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 (as defined below) 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 Annual 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; transformation 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(in thousands)","2024","","2023"],["Reconciliation of net income (loss) to Adjusted EBITDA"],["Net income (loss)","$","27,969","","","$","(1,070)"],["Add (deduct):"],["Depreciation and amortization","1,122","","","1,001"],["Share-based compensation","34,513","","","41"],["Interest (income) expense","(121,812)","","","56"],["Provision (benefit) for income taxes","22,843","","","(297)"],["Transaction costs","12,765","","","2,986"],["Severance costs","2,768","","","\u2014"],["Adjusted EBITDA","$","(19,832)","","","$","2,717"]]
[[/GREPCENT_TABLE]]

The year-over-year decline for the year ended December 31, 2024 Adjusted EBITDA was due to higher employee-related costs, 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 were 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 of Item 8 of Part II, “Financial Statements and Supplementary Data” of this Annual Report.

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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 (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.

Under the terms of the Investment Agreement, we declared a $17.4 million special 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 the Board, at the rate per annum of 9% per share. During the year ended December 31, 2024, we paid $32.3 million of quarterly dividends to holders of Convertible Preferred Stock. Subsequent to the close of the year ended December 31, 2024, we paid an additional $22.5 million of quarterly dividends to holders of Convertible Preferred Stock.

The Company’s cash balance was $5.1 billion as of December 31, 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.

Cash provided by operating activities

Cash provided by operating activities increased by $84.3 million, compared with 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 $298,000, compared with the same period in the prior year. The year-over-year decrease relates to assets purchased from JCS Computer Resource Corporation (“JCS”) during 2023 for $278,500 that did not exist during 2024. 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 $2.1 million of cash used in financing activities 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.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the

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current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting policies and related judgments, see Note 2 – Basis of Presentation and Significant Accounting Policies of the Notes to Consolidated Financial Statements, in “Item 8. Financial Statements and Supplementary Data” of this report.

Off-Balance Sheet Arrangements

During for the year ended December 31, 2024, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities, nor do we have any commitment or intent to provide additional funding to any such entities.